Which method is most often employed to recapture property tax dollars for poorer school districts? near XiAn, Shaanxi

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DATE: July 25, 2019
SUBJECT: Recapture Formula changes and Reductions Under House Bill 3 (HB 3)
CATEGORY: Funding Implications
NEXT STEPS:  Share with business and finance staff

House Bill (HB) 3 was passed by the 86th Legislature, 2019, and signed into law by Governor Abbott on June 11, 2019. As a result of HB 3, recapture was reduced by a variety of methods and is projected to be reduced over prior law by $3.6 billion in the next biennium.

Today, the agency released a HB 3 in 30 Recapture webinar providing background on recapture, recapture formula changes as well as procedural changes for recapture required under HB 3. You can access that webinar and other resources at: https://tea.texas.gov/hb3.

This is not a notice that you are subject to recapture. This is general information provided to all LEAs about changes to the structure of recapture as a result of HB 3.

Overview of Recapture Formula Changes The formula for recapture is now local revenue in excess of entitlement instead of on a wealth per WADA basis. Under HB 3, recapture and non-recapture school districts are treated more equitably, and districts only pay tier one recapture on the amount above their formula entitlement. HB 3 modifies local revenue subject to recapture to be local revenue in excess of entitlement and is calculated by subtracting a district's tier one entitlement (and credit for appraisal costs) from its available school fund (ASF) distribution and local fund assignment.

HB 3 reduces recapture in three primary ways:

  1. The calculation of recapture is now based on local revenue in excess of entitlement instead of equalized wealth levels
    • CEI: Disparities between recapture and non-recapture districts caused by the CEI have been eliminated
    • Transportation: Costs for transportation are now funded equally between recapture and non-recapture districts
    • Entitlement prevails over recapture: Districts are now guaranteed that recapture will not reduce revenue below their entitlement level (TEC, Section 48.257, HB 3 Enrolled Page 92)
  2. Total entitlement increased – note the BA increase as well
    • New allotments were created (Early Education Allotment, CCMR Bonus, Teacher Incentive Allotment, etc.)
    • Existing allotments were expanded (State Compensatory Education, special education, bilingual/dual language)
  3. Lowered property tax rates
    • HB 3 lowered tax rates, resulting in fewer collections
    • HB 3 contains a mechanism to lower future property tax rates

Other formula changes to recapture
The previous method to calculate recapture used prior year values to arrive at a proportional tax base reduction percentage. This percentage was applied to current year tax collections to arrive at recapture amount. This recapture formula created budget instability, i.e. surpluses and deficits. The shift to current year values aligns recapture with entitlement. More details forthcoming in correspondence regarding current year values.Portions of income from the Permanent School Fund distributed to the Available School Fund (ASF) are intended to be provided to school districts on a per-student basis; however, prior to HB 3, not all districts benefited equally from the ASF. For non-recapture districts, this money counted toward the total entitlement funding a district receives. For recapture districts, the constitutional funds were often provided on top of the locally generated entitlement funding. To provide this funding more equitably under HB 3, all districts now receive ASF funding as the first method of finance before incorporating local and other state revenues into the funding calculations.HB 3 also eliminates the benefit received by districts subject to reduced recapture based on information from the district in the 1992-93 school year over a five-year period, through the creation of the Equalized Wealth Transition Grant. The increase in the basic allotment and other formula changes will mitigate recapture by an estimated $3.6 billion over the next biennium.

Procedural changes for recapture

The early agreement credit under former Chapter 41 is repealed, with funding redirected to the basic allotment. Therefore, the September 1 deadline to submit contracts to reduce local revenue levels in order to receive the early agreement credit is no longer relevant.Under HB 3, districts now have the option of making one lump-sum payment in August. The payment option to submit seven equal payments from February through August remains unchanged. Districts subject to recapture will select a payment option in the Excess Local Revenue subsystem of the online Foundation School Program (FSP) system to the Texas Education Agency (TEA) by January 15 annually.

Section 41.0041, Education Code, which provided certain districts the option of authorizing the Commissioner to withhold state aid in lieu of holding an election has been repealed. However, provisions in the TEC, §48.257(c), allow districts to offset the reduction of excess local revenue against Chapter 48 funds provided in Subchapter F. All districts will have the option to use state aid calculated under Subchapter F, Chapter 48, Education Code as an offset to their attendance credit for purposes of reducing their local revenue level. Districts using this option are required to submit the district intent/choice selection form and complete an Option 3 netting contract, which can be found in the Options and Procedures for Local Revenue in Excess of Entitlement 2019–2020 School Year and on the Excess Local Revenue webpage

Options to Reduce Local Revenue in Excess of Entitlement

A district with local revenue in excess of entitlement has the following five options available to reduce the district’s revenue level under TEC, Chapter 49.1) Consolidation with another district as provided by Subchapter B2) Detachment of territory as provided by Subchapter C3) Purchase of average daily attendance credit as provided by Subchapter D (“Option 3”)4) Education of nonresident students as provided by Subchapter E (“Option 4”) 5) Tax base consolidation with another district as provided by Subchapter FDistricts have historically selected Option 3. A voter election is required when exercising any form of Option 3 or Option 4. All districts notified as having a local revenue level in excess of entitlement must hold an election authorizing the purchase of attendance credit under Section 49.156, Education Code. Successful elections conducted under TEC former Chapter 41, carry over into TEC, Chapter 49.

How Does the State Use Recapture Revenue?

The most commonly chosen method of paying recapture is Option 3 (paying directly to the state). This option currently represents 100% of recapture. Funds received by the state from recapture are appropriated in the General Appropriations Act as a method of finance to help pay for the Foundation School Program (FSP).

Final Determination Regarding Payment of Excess Local Revenue

Each year, the TEA notifies school districts with local revenue levels estimated to exceed the tier two, level two guaranteed yield of $49.28. However, the final determination of whether a school district will be required to make recapture payments is based on the district’s tax effort and the extent to which the district’s local revenue level exceeds the Tier One entitlement, or the tier two copper penny guaranteed yield of $49.28, if the district is assessing copper pennies.The TEA will make a final determination regarding the payment of excess local revenue using the district’s final enrollment, entitlement and local share under Chapter 48, final state certified property values for tax year 2019, adopted maintenance and operations (M&O) tax rate for tax year 2019, and M&O taxes collected by your district in 2019–2020.

QuestionsIf you have any questions related to this TAA on the formula or procedural changes for recapture required under HB 3, please contact the Division of State Funding by phone at (512) 463-9238 or by email at .

Sincerely,Leo Lopez, RTSBA,

Associate Commissioner for School Finance

By Jason Stanford

Austin ISD, which already sends the most local property tax dollars to the state by a wide margin, is projecting a $37.3 million increase—to $798.6 million in the 2022–23 school year.

Level Set: Recapture, which is also known as “Robin Hood,” has been part of the state’s school finance system. A minority (157) of “property-rich” school districts that includes Austin ISD pays some local property tax collections to the state that are supposed to go to districts that are considered “property-poor.”

  • Because of Austin’s skyrocketing property values and the district’s stagnant enrollment, Austin ISD pays more in recapture than the next three highest-paying school districts in Texas—Houston, Plano and Midland—combined.
  • Put another way, only 157 ISDs in Texas are considered “property-rich” enough to pay into recapture, which will total $2.87 billion this year.
  • That means that more than $1 out of every $4 paid into the system comes from Austin taxpayers.

Yes, but: When the Texas legislature created the recapture system in 1993 to make sure poor students received a well-funded education, they did not account for a district such as Austin, where property is expensive but a majority (53%) of our students come from low-income families.

Dig Deeper: It gets worse. (Sorry.) It’s difficult to prove that any recapture funds are actually going to the property-poor districts the system was created to help. (Yes, you read that right.)

  • In the past five years, local property tax payments to the state have gone up 30%, to $29.1 billion.
  • That’s more than the state’s share of K–12 public education funding, which, at $20.5 billion, only has gone up 8.5% during that time.
  • The superintendents in the property-poor districts are telling us that their checks from the state have not gone up anywhere close to 38.5%, and they’re wondering where all the money is.

What it all means: In other words, we’re paying a lot more in school property taxes, but it looks like the state is using Austin’s local tax dollars to balance its state budget and to fund pet projects – and not to ensure that poor kids get the excellent education that every kid is promised in the Texas Constitution.

Next Steps: We have already proposed a couple of tweaks to the system that could save Austin ISD about $100 million a year.

  • We could get the same 10% discount for paying recapture early that businesses get for paying their taxes early.
  • The state could also let us deduct our Social Security contributions from our recapture payment.
  • Did you know that Austin is one of the very few school districts in Texas where you can retire with both your Texas Retirement System pension and Social Security retirement?
  • Others have proposed that the state could simply increase its share of public education funding so the burden doesn’t rest so heavily on local property taxpayers, an idea long discussed but never implemented.
  • We want to hear what you think. Here’s a survey. Next week we’ll report back the results.

The bottom line: Poor children deserve the same excellent education as everyone else. We should know – 53% of our kids should be benefiting from this system that was designed to help them but that appears now mostly to be relieving lawmakers of their obligation to fund public schools.

Por Jason Stanford - Traducción por Margarita Ruvalcaba-Ordóñez

El Austin ISD, que ya envía la mayor cantidad de dinero de los impuestos locales sobre la propiedad al estado por un amplio margen, está proyectando un aumento de $37.3 millones, a $798.6 millones en el ciclo escolar 2022-23.

Nivel establecido: La recuperación, también conocida como "Robin Hood", forma parte del sistema financiero escolar estatal. Una minoría (157) de los distritos escolares "ricos en propiedades", entre los cuales se incluye el Austin ISD, pagan parte de la recaudación de impuestos locales sobre la propiedad al estado, que se supone que debería ir a los distritos que son considerados "pobres en propiedades".

  • Debido a que se disparó el valor de la propiedad en Austin y se estancó la matrícula en el distrito, el Austin ISD paga más en recuperación que los siguientes tres distritos que más pagan en Texas: Houston, Plano y Midland combinados.
  • Pongámoslo de otra manera: solo 157 distritos escolares independientes de Texas se consideran suficientemente “ricos en propiedades” para pagar recuperación, lo que será un total de $2.87 millardos este año.
  • Eso significa que más de $1 de cada $4 que se le paga al sistema procede de los contribuyentes de Austin.

Sí, pero... cuando la legislatura de Texas creó el sistema de la recuperación en 1993 para asegurarse de que los estudiantes de bajos recursos recibieran una educación bien financiada, no tomaron en cuenta un distrito como el de Austin, donde la propiedad es cara, pero la mayoría (53%) de nuestros estudiantes proviene de familias de bajos ingresos.

Profundizando más: Y la cosa se pone peor. (Disculpen). Es difícil comprobar que cantidad alguna de los fondos de la recuperación realmente se esté destinando para los distritos pobres en propiedades, para los cuales fue creado el sistema. (Si, leyeron ustedes bien).

  • Durante los últimos cinco años, los impuestos locales sobre la propiedad que se le pagan al estado han subido un 30% a $29.1 millardos.
  • Eso es más que la parte del estado para los fondos de la educación pública de K–12.o, que, de $20.5 millardos, solo ha subido 8.5% durante ese tiempo.
  • Los superintendentes de los distritos pobres en propiedades nos están diciendo que sus cheques del estado no han subido ni cerca de 38.5% y se preguntan dónde estará todo el dinero.

Qué significa todo esto: En otras palabras, estamos pagando mucho más en impuestos escolares sobre la propiedad, pero parece que el estado está utilizando el dinero de los

impuestos locales de Austin para equilibrar su presupuesto estatal y para financiar otros proyectos y no para garantizar que los niños de bajos recursos reciban la excelente educación que la Constitución de Texas promete para todos los niños.

Próximos pasos: Ya hemos propuesto un par de ajustes al sistema que le podrían ahorrar al Austin ISD aproximadamente $100 millones por año.

  • Podríamos recibir el mismo 10% de descuento por pagar la recuperación temprano que los negocios reciben por pagar sus impuestos temprano.
  • El estado también podría permitirnos deducir nuestras contribuciones al Seguro Social de nuestro pago de recuperación.
  • ¿Sabían que Austin es uno de los poquísimos distritos escolares en Texas donde se pueden jubilar tanto con la pensión del Sistema de Pensiones de Texas como con la pensión del Seguro Social?
  • Otros han propuesto que el estado podría simplemente aumentar su parte del financiamiento a la educación pública, para que la carga no caiga tan pesada sobre los contribuyentes de impuestos locales sobre la propiedad, una idea que se ha discutido mucho, pero nunca se ha implementado.
  • Queremos escuchar lo que piensan. Aquí está la encuesta. La próxima semana les informaremos sobre los resultados.

En conclusión: Los niños de escasos recursos merecen la misma excelente educación que todos los demás. Deberíamos saberlo: el 53% de nuestros niños deberían beneficiarse con este sistema que fue diseñado para ayudarlos, pero eso parece estar aliviando principalmente a los legisladores de su obligación de financiar a las escuelas públicas.