Tax Increase on Hold for SBISD

Consideration of tax increase on hold

By Rusty Graham

For the better part of the year, it looked like Spring Branch ISD would ask district voters to approve an increase in the tax rate.

Tired of waiting for the Texas Legislature to reform school finance – or even adequately fund public schools – Superintendent Duncan Klussmann last spring conducted two town hall-type meetings that explained the district’s financial reality – past, present and future – and gathered feedback from the community.

Then in June, the district convened a Financial Advisory Committee comprising some 40 community members and supported by district staff. Over three meetings, the FAC heard basically the same information presented at the town halls, but were charged with making recommendations to the board of trustees.

One of those recommendations was a 2- to 4-cent increase in the general tax rate of $1.09, the rate used to fund district maintenance and operations, including, significantly, salaries and benefits. The committee said that the district should also keep diligently looking for ways to cut expenses.

But there’s a catch – several, actually: any tax increase has to be approved – ratified – by voters in a tax ratification election (TRE). And while the first 2 cents of a tax increase are not subject to recapture (Robin Hood), the next 2 cents – and 11 cents after that, up to 13 cents – are, producing less revenue that stays local.

While trustees are still considering the recommendation, there won’t be a TRE this fall. Certified appraised property rolls came in higher than estimated, and of the $26 million in additional tax revenue generated in Spring Branch ISD, the district keeps $5 million.

That’s not always the case. Because Spring Branch ISD is a considered a property wealthy district, in general, tax revenue generated from property value increases is largely passed on to the state, through both recapture and through reduced funding.

Total appraised property values are up 12.5 percent this year, generating an increase of $26 million over last year’s revenues. Of that $26 million, about $10 million goes to recapture while state funding is reduced another $11 million, leaving about $5 million for Spring Branch.

$26 million – Additional taxes paid by Spring Branch ISD taxpayers

- $11 million – State reduces funding because of value growth

- $10 million – Recapture (Robin Hood) by state of Texas

= $5 million – Net increase that stays in Spring Branch ISD

“There’s not a lot of (community) awareness of how (school finance) works,” committee chair Warren Matthews told trustees. “People see their tax bills going up and all the new development and wonder ‘how does the district need money?’”

The district’s bond program – capital improvements such as new school buildings that are financed with borrowed money and repaid over time – is managed through a separate fund, and repaid through an interest and sinking fund. The tax rate for the bond fund is $.03045, bringing the district’s total tax rate to $1.3945 per $100 valuation.

Spring Branch will soon wrap up a $597.1 million bond program, approved by district voters in November 2007. Duncan points out that the bond fund – 100 percent locally controlled – is strong and healthy.

And as Duncan and trustee Wayne Schaper Sr. have noted publicly, Spring Branch taxpayers are writing larger checks for their tax bills, thinking that their district is getting extra revenue when in fact, most of that increase is passing through to the state. Spring Branch loses not only much of the revenue generated locally, but also meaningful discretion over its tax rate.

Duncan’s message is particularly strong – if the state of Texas were a private corporation, he said, it would be guilty of deceptive trade practices. “It’s the biggest redistribution of wealth ever, and it’s happening under conservative leadership,” he said.

It’s a double whammy that is partially addressed in the school finance lawsuit, where District Judge John Dietz recently ruled for a second time that the state’s school finance system is unconstitutional, partially on the grounds that the system constitutes a de facto statewide property tax.

The state has appealed Dietz’s decision to the Texas Supreme Court. Spring Branch trustees and district leaders expect no movement by the Texas Legislature on school finance reform during the coming session, but they’ll be watching closely to see what legislators might do.

A weak economy led to a projection of reduced state revenue in 2011, and the Legislature cut funding for public education by $5.4 billion, resulting in a loss of nearly $37 million in state funding in Spring Branch. The district eliminated nearly 350 positions, including 100 or so teachers.

Spring Branch has since been able to rehire some of those positions and squeeze in nominal pay increases but at a cost – money from the district’s reserve fund has been used to balance budgets. The fund is still healthy – by board policy it can drop no lower than 19 percent of budgeted expenditures. But a few more years of deficit spending will push the reserves below the 19 percent threshold and put the district at risk of lower bond ratings and a weakened cash flow position.

Even a 2- to 4-cent tax rate increase is a short-term fix, or as Warren Matthews put it, “doesn’t get you too far down the road.” But he said the committee’s consensus was based in at least in part on the uncertainly surrounding the coming legislative session, the school finance lawsuit and recapture.

russell.graham@springbranchisd.com