What does the future of Texas education funding look like for the next session

The future of school funding in Texas could be in jeopardy if instability in the energy markets continues over the next 15 years — possibly costing the state billions in lost revenue earmarked for education.

The report was produced by the nonprofit group Texas 2036, which works to provide solutions for the state’s long-term growth. In a 60-page report released Wednesday, the group said that the declining energy prices could result in a 31% drop in revenue that is collected from oil and gas royalties to help fund kindergarten through 12th grade education.

About one-quarter of the state’s $32 billion in annual education spending comes from oil and gas royalties and taxes. The state also draws from a $47 billion endowment that benefits Texas schools. That AAA-rated fund also helps school districts across the state guarantee bonds — a critically important tool for the state’s fastest-growing districts.

On May 1, the Royse City Independent School District will ask voters to approve a $230 million bond initiative that would help fund new schools, the construction of an events center and other upgrades. Under state law, the district would be eligible for the Permanent School Fund to guarantee a portion of the bond.

However, the Texas 2036 report says that the guarantees from oil and gas revenues are something that needs to be evaluated if prices continue to decline.

“While world oil prices could rebound, this research focuses on those scenarios intended to provoke thoughtful evaluation of potential actions that Texas might take to better insulate its economy, state government and school funding mechanisms, such as the Permanent School Fund, from possible negative consequences if world oil prices decline,” said A.J. Rodriguez, executive vice president of Texas 2036. “No one has a crystal ball to predict exactly how the next 15 years unfold, but bringing together experts and data now, we can help the state build in the resilience that will allow us to weather a world oil price decline if it happens.”

The nonprofit, which produced the report in cooperation with the Center for Houston’s Future, found that if world oil prices experience a steady decline between 2021 and 2036 and reach $30 per barrel:

• Texas’ economy could shrink by an aggregate of $1.6 trillion during that 15-year period, compared to maintaining constant at 2019 levels. Gross state product linked to oil and gas exploration and production in 2036 could be $155.6 billion less than a 2019 baseline of $281 billion, which reflects a more than 55 percent decline.

• Texas state and local tax collections, including taxes and royalties derived from oil and gas exploration and production, could shrink by an aggregate of $128.9 billion during that 15-year period, compared to remaining constant at 2019 levels. Annual revenues, including taxes and royalties linked to oil and gas exploration and production in 2036, will be $9.7 billion less than a 2019 baseline which was 13.4 billion, which reflects a 73 percent decline.

• Texas K-12 education funding derived from oil and gas exploration and production could shrink by an aggregate $29.0 billion during that 15-year period, compared to maintaining constant at 2019 levels. Annual K-12 revenues, including taxes and royalties linked to exploration and production in 2036, could be $1.8 billion less than a 2019 baseline, which was $5.8 billion or a decline of 31 percent.

If oil prices remain at $60 per barrel, as suggested by one of the scenarios evaluated in this study, energy production is expected to generate about 1.9 percent more per year for public school finances through 2036.

That’s slightly above the anticipated student enrollment growth each year.

But under other less favorable scenarios examined by this study, revenue for public education would fall steeply. For example, if oil prices decline from $40 to $30, contributions to K-12 education would fall by 31 percent — or $1.8 billion a year— from 2019 levels.

The impact will be greater in areas such as the Permian and Eagle Ford Basins, where the economy relies heavily on energy production.

Right after the 2019 Texas Legislature kicked off, the state's "Big Three" — all Republican leaders — reaffirmed school finance as a priority in a joint press conference.

Then at his inauguration speech, Gov. Greg Abbott declared the state must invest more in public education."

And to really make sure it doesn't slip lawmakers' minds, the new speaker of the Texas House restocked the members' lounge with Styrofoam cups that read: "School Finance Reform, The Time Is Now."

Lawmakers are expected to use recommendations from the recent school finance commission as their blueprint. The task-force was created in 2017 after the Texas Supreme Court called the system "imperfect," but constitutional, in the latest lawsuit.

Fixing the system won't be easy. Twenty-three percent of the state's budget goes to K-12 education. The rest comes from recapture, also known as Robin Hood, where property-wealthy districts share local tax revenue with property-poor districts across the state.

As the discussion heats up, here's what you need to know about how Texas got here and what's on the table so far.

1. What did the Texas Commission on Public School Finance say?

   The commission handed lawmakers more than 30 recommendations in its final report last December. They called for boosting funding, improving student performance and restructuring the system, especially when it comes to the state's reliance on local property taxes. The original report included language that blamed the state for inadequate education spending, but the final version took that out and stressed urgency instead.

   Still, the panel called the system's formulas “outdated, inefficient and unaligned with the substantially evolving needs of Texas's K-12 population.”

   “As a result, too few of our own students are participating in the prosperity of Texas, and our future workforce and economic health are at real risk if substantive changes are not enacted in the near term,” the panel concluded.

2. How could Texas reform its school finance system?

   There are many ways lawmakers can change how Texas pays for public schools, and watch for some combination. To start, they can increase the basic per-student funding for all districts. The school finance commission urged them to modernize outdated formulas, reduce funding from property taxes and put more money towards students with greater needs, especially low-income students and English-language learners.

   Other potential changes include: more funding for early childhood literacy; reallocating money dedicated for other groups, like gifted and talented students and high schools; tie transportation funding to mileage; and expand funding for career and technical education to middle school.

   More controversial moves include tying increases in school funding to student test scores and giving successful teachers merit-based pay.

3. What do teacher unions and school districts want?

   The state’s teacher unions want to see school finance reform. However, the Texas State Teachers Association says that any real reform must include a significant increase in state funding. And the Texas AFT is leery about recommendations linking funding to student outcomes, like third-grade reading, and giving “effective teachers” higher salaries.

   For Texas’ more than 1,000 school districts, the answer is more complicated. It depends on the type of school district. Large, urban districts like Austin and Houston would like to see changes to recapture. While they have wealthy tax bases, they also have high concentrations of low-income students. But recapture forces them to send hundreds of millions of dollars to the state.

   Most districts would welcome increasing the basic per-pupil spending and updating the funding formulas for English-language learners, at-risk students and special education services. That would lift all boats.

   However, small school districts may be reluctant to give up subsidies meant for them. And property-poor districts may fear that recapture — state aid that bolsters their local revenue — could be reformulated, or that if new funding is tied to student outcomes, then “the rich will get richer.”

4. How does recapture play into this?

   Lawmakers created recapture — or Robin Hood — as a way to create more equity between rich and poor school districts in 1993. However, recapture has grown in size and unpopularity. And if it isn't changed, those local tax dollars will exceed state funding in less than a decade, the commission found. For example, in Austin, it means more than half of the district's local property taxes go to the state.

   To reduce recapture, lawmakers could increase the basic allotment for every student. Lawmakers can also change the way recapture is calculated. Right now, it's linked to the property wealth level in the Austin Independent School District. Instead, it could be tied to the money guaranteed each student.

5. What are major bills to watch?

   To start, the budget. So far, the House has proposed massive increases for public school funding — to the tune of $7 billion more, or 17 percent. That's more than the increase proposed by the Texas Senate. In the Texas Senate, a key committee has passed Senate Bill 3, one of Lt. Gov. Dan Patrick's top priorities, which would give a $5,000 pay raise to all full-time classroom teachers. That would cost the state about $3.9 billion. Other major legislation on school finance is expected soon.

   UPDATE: In March, state Rep. Dan Huberty, R-Humble, unveiled a plan to boost public education spending by $9 billion, lower property taxes, fund full day pre-K for low-income students and allow districts to create ways to reward successful teachers with merit pay. It’s a massive piece of legislation at nearly 200 pages long and is called “The Texas Plan,” though its official title is House Bill 3.

1. How could property tax reform affect school finance?

   Property tax reform is another major priority this session for Republican leadership. Abbott has proposed a 2.5 percent cap on revenue growth. Governments would have to get two-thirds of voters to approve anything more than that. Because the current school finance system relies heavily on property taxes, the proposal would give more relief to homeowners than extra money for schools . Similarly, an Express-News analysis showed that the proposal could siphon billions from public schools. It sets up a potential clash between education advocates and homeowners, who are desperate for relief from escalating taxes.

   What are the major challenges facing the public education system in Texas?

   Biggest problem Facing K-12 public education in Texas (February 2019).

   What are the two biggest sources of funding for schools in Texas?

   Most funding comes from local property taxes, which are collected by school districts, and state funding.

   Where does Texas rank in funding for education?

   Our growing Texas public school system is underfunded, ranking 43rd in school spending compared to the rest of the nation.

   How should Texas fund its K 12 public schools?

   Local funding for Texas public schools is generated primarily by an M&O property tax levied on local taxable values. Each school district adopts a certain M&O tax rate per $100 of taxable property valuation.