the abcs of school finance

180 Pages·2015·1.45 MB·English

by  Susan Andres

A BRIEF HISTORY OF TEXAS SCHOOL FINANCE:
Litigation, Legislation and Other Engrossing Events from the Civil War to the Present
Vol. I, 2nd Edition

David Webb, CPA, RTSBA, CSRM
First Vice President
George K. Baum & Company
Texas Municipal Finance Division

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Foreword
School finance in Texas has been a very exciting topic for the past sixty years, and a key
political issue in our State from the very beginning. Its history is littered with lawsuits over
equity and adequacy; legislative attempts to remedy the school finance system and infuse
additional funding into public education; and a litany of spending mandates, some from the
legislature, and some directly from the governor’s office.
Texas public school finance is reasonably uniform throughout the state, as districts utilize a
standard chart of accounts and a formula funding system based on weighted average daily
attendance and a complex, delicate balancing act between state and local property tax
funding.
This book will describe and discuss various aspects of Texas school business including
governance structure, school funding, budgeting practices and law, property taxes, the
“Robin Hood” school finance mechanism, purchasing laws, the standardized accounting
format, and the litigation and legislation that has shaped Texas public education.
This book was developed to assist in the education of Texas students who are completing
requirements in their master’s or doctoral program and those individuals enrolled in teacher,
administrator, or superintendent certification programs. It will provide each student with a
better understanding of the complex subject of Texas school finance, the budget process, and
school business management. This book will also help school board members or potential
school board members to have a better understanding of Texas school finance.
This book was not written with the express purpose in mind of writing a book. In that regard,
it is a big mistake that turned out reasonably well. To make a long story short, I had written a
ten or eleven page white paper for my Board of Trustees in La Porte ISD around the year
2000, mostly to bring new Trustees up to speed on how school finance had evolved over the
years. They asked lots of questions about that topic at the time, so I was attempting to pre-
emptively answer them. When I got to Deer Park ISD in 2004, I realized that I had a more
sophisticated and experienced Board of Trustees. So I set about re-writing my short white
paper in a more complete fashion. Before I knew it, I had the makings of a book. I self-
published it under the title “A Brief History of Texas School Finance: Litigation, Legislation
and Other Engrossing Events from the Civil War to the Present” – every writer should self-
publish at least one book! I sold out the entire small printing of 4,000 books. Several years
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later, a publisher asked me to update and alter the original version, and it was re-published
as “Leading Schools Financially: The ABC’s of School Finance, Texas Edition” as part of a
series of textbooks on this topic for different states. Unfortunately, publishing is a tough
business and my publisher went bankrupt in 2012 and closed their doors. While that is bad
for them, it was good for me because the rights to the second book reverted back to me, to do
with as I pleased.

So this final, updated version of my book, the best of the first two books combined, is
presented under the original title as a second edition.

A Brief History of Texas School Finance:
Litigation, Legislation and Other Engrossing Events
from the Civil War to the Present,
Volume I, 2nd edition
David Webb, CPA, RTSBA, CSRM
ISBN-13: 978-0976408000
ISBN-10: 0-9764080-0-7
Copyright © 2005

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Table of Contents

Chapter 1. A Brief History of Texas School Finance
Chapter 2. The Team of Eight—The Board of Trustees & the Superintendent of Schools
Chapter 3. Budgeting, Auditing, and Accounting in Texas
Chapter 4. State Funding and “Robin Hood”
Chapter 5. Local Property Taxes
Chapter 6. Expenditure Requirements
Chapter 7. School Business Support Organizations
Chapter 8. Purchasing Laws and Procedures
Chapter 9. Investing Public Funds
Chapter 10. Maintaining & Improving Bond Ratings

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Chapter 1—A Brief History of Texas School Finance
The Early Years of Texas School Finance
Prior to the Civil War, farm communities randomly and irregularly populated
Texas, and most inhabitants tended to rely on private education providers, as there was no
organized approach to state–supported or state–funded education. The earliest efforts to
educate the inhabitants of Texas focused on domesticating Indians and educating children
of garrison troops and Spanish colonists. The first known or recorded school was located
in northeast Texas at the San Francisco de las Tejas Mission in 1690. This is not far from
what is now Mt. Pleasant, Texas, just south of Interstate 30, almost rock–throwing
distance from the Red River. As early as 1802, the government issued proclamations in
an attempt to require compulsory attendance in school, but mission schools were poorly
equipped and such a requirement was virtually impossible to enforce. There was no
organized or cohesive effort to fund schools this early in Texas history, so most schools
had great difficulty in keeping their doors open for any consistent period.
The Constitution of 1824 provided for the establishment of elementary schools in
Texas and Coahuila, Mexico, but it provided no funding. Settlers complained about the
requirement to establish schools with little or no funding to accompany this requirement.
In fact, their complaints almost two hundred years ago likely sounded a lot like
educator’s complaints today regarding unfunded mandates from the legislature. Other
efforts to establish and fund schools in Mexican Texas fizzled due to a general disinterest
and absence of a consistent and cohesive desire in the various sparsely populated
communities. In fact, the Texas Declaration of Independence listed the failure of the
Mexican government to establish any organized system of education in Texas as one of
the primary grievances.
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After Texas gained its independence from Mexico in 1836, there was a brief
period of renewed efforts to establish an educational system in Texas, and several charter
schools popped up. Between 1839 and 1849, President Mirabeau B. Lamar established
land grants to fund County Permanent School Funds, the forerunner to the Permanent
School Fund. Each land grant contained 17,712 acres of land, but land prices were too
low at the time to generate adequate revenue to support a school system. In 1845, Texas
gained statehood and the Constitution of 1845 provided for the establishment of free
schools and for state taxes to support them. One-tenth of the state’s general revenue was
dedicated to education. The Constitution of 1845 was almost twice as long as the
Constitution of the Republic of Texas. The members of the Convention of 1845 drew
heavily on the newly adopted Constitution of Louisiana and on the constitution drawn by
the Convention of 1833, but used the Constitution of the Republic as a working model for
a general plan of government and bill of rights.
In the constitution’s article on education, the Texas legislature made what was
then adequate provision for the financial support of public schools and set aside 10% of
state tax revenue as a Permanent School Fund. School lands were not to be sold for
twenty years but could be leased, with the income from the leases becoming a part of the
Available School Fund. Land provisions of the Constitution of 1836 were reaffirmed, and
the General Land Office continued in operation. The Masonic Lodge was responsible for
early efforts to organize education in Texas. The Grand Lodge established an education
fund in 1847 and appointed a superintendent of education in 1848. Between 1850 and
1873, the legislature chartered seventeen Masonic–sponsored schools. Texas Masons also
helped establish more than one hundred other unchartered schools. In addition, many of
the early public schools initially met in lodge buildings. The lodge was often located on
the first floor with the schoolroom or rooms on the second floor of the facility.
In 1850, the U.S. Congress settled its dispute with Texas over coastal land issues
for $10 million, and $2 million was set aside for general appropriations. This $2 million
became a permanent endowment for public education, and earnings were to be distributed
on a per capita basis. This money formed a de facto voucher system, as it was available
for students in any kind of educational setting. Unfortunately, the government transferred
this $2 million to the military board for the Civil War effort and none of it remained by
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1865. The idea that education was primarily a responsibility of the local community
prevailed, and this local independence and general distrust of centralized government
hampered the effort to organize a strong, state–funded public education system.
After the Civil War, Republican Reconstructionists adopted the Constitution of 1869 that
dictated mandatory school attendance for all students between the ages of eight and
fourteen, designated proceeds of land sales for a Permanent School Fund, and earmarked
one-fourth of general revenue for public education. The constitution also established a
poll tax to support education, adopted a state ad valorem property tax for education,
mandated a strong central education agency, and approved additional local taxation
sufficient to support a ten–month school year. In 1871, the legislature approved a $1 per
$100 of value state property tax, and a tax revolt immediately ensued. Many Texans
refused to pay the new property tax and only 26% of the original tax levy was ultimately
collected.
In 1873, Democrats took back control of the state legislature, throwing out the last
of the Republican Reconstructionists and tossing aside virtually all provisions for
education adopted earlier. In a remarkable turnaround, and only after a great deal of
debate, the Constitution of 1876 was adopted. It established the Permanent and Available
School Funds and a poll tax of $1 per male and mandated that one-fourth of general
revenue be dedicated to education and that there be some decentralized state authority
and a community school system rather than districts. The historic wording adopted in
Article VII, §1, of this constitution states: “A general diffusion of knowledge being
essential to the preservation of the liberties and rights of the people, it shall be the duty of
the Legislature of the State to establish and make suitable provision for the support and
maintenance of an efficient system of public free schools.” This wording may sound
familiar because the equity and adequacy lawsuits that have flavored the school finance
landscape in Texas for the past thirty years have reiterated it countless times.
The article on education drastically changed the system established by the
Republicans in 1869. In the first section, the framers ordered the legislature to establish
and make provision for the support and maintenance of an efficient system of free public
schools but then added provisions that made that directive impossible. To support the
system, the article authorized the legislature to levy a poll tax of $1 on all male
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inhabitants between the ages of twenty-one and sixty and to appropriate not more than
one-fourth of the general revenue for educational expenditures. In addition, it set aside as
a perpetual fund all proceeds from lands previously granted to the schools, including all
the alternate sections of land already reserved for the state or afterwards reserved out of
grants to railroads or other corporations and the proceeds from the sale of one-half of all
other public lands. The document abolished the office of state superintendent, founded a
board of education composed of the governor, comptroller, and secretary of state,
eliminated compulsory attendance, provided for segregated schools, and made no
provision for local school taxes. The Constitution of 1876 provided for the establishment
of The University of Texas and made Texas A&M University, which the legislature had
founded in 1871, a branch of it.
The constitution further required the legislature to establish an institution of
higher education for the instruction of the black youth of the state. To support the
university and its branches, the constitution set aside one million acres of the public
domain, with all sales and proceeds therefrom to be placed in a Permanent University
Fund. It also provided that proceeds from the lands previously granted for the
establishment and maintenance of the university (including the fifty–league grant by the
legislature in 1858 but not the one-tenth of the alternate sections of land granted to
railroads) and all future grants would permanently belong to the university.
Overall, the Constitution of 1876 met with public approval. It provided for biennial
sessions of the legislature, low salaries for public officials, precinct voting, elimination of
the road tax, a homestead exemption clause, guarantees of a low tax rate, and a less
expensive, locally controlled, segregated school system.
In 1883, a constitutional amendment did away with the general appropriations to
education, instead dedicating one-fourth of occupation taxes to education, lowering the
ad valorem tax to $0.20 per $100 of value and allowing local districts up to $0.20 of local
enrichment with a two-thirds vote of property owners. By the turn of the century, school
building programs were in full swing for the first time, bolstered by the State Board of
Education investment in school building bonds. A separate state textbook selection board
was established in 1903, but the funding of textbooks was yet non-existent.
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Another constitutional amendment in 1908 changed the local enrichment rate to a
maximum of $0.50 per $100 of value and reduced the two-thirds majority vote of local
property owners to a simple majority. In 1915, the legislature appropriated $1 million for
the biennium for special rural school aid, which constituted the first equalization funds. It
required rural districts to tax locally at the maximum rate of $0.50 per $100 of value to
form a “guaranteed yield.” By 1918, a constitutional amendment provided for state
funding of textbooks and funded them with an increase in the state ad valorem tax. In
1919, the legislature established a nine–member State Board of Education, for which the
governor appointed each member. It also established a state superintendent as an elected
position. Obviously, the first twenty years of the twentieth century in Texas school
finance were busy, full of change and pointing towards organization, state support of
education, and a bit of complexity in what had previously been a simple system.
In 1929, previously established rural equalization aid was adjusted for a district’s wealth
and tax effort. Adjustments to funding for a district's wealth would become an
increasingly important and common aspect of state funding formulas in later years, but
this was one of the first recorded “equity adjustments.” Rural school aid laws were
rewritten in 1937; the financing was altered again and was renamed the “Equalization
Fund.” Local tax effort was still required to obtain these funds, but the development of a
teacher–unit allocation formula necessitated the creation of a statutory minimum salary
schedule. The 1938 Texas School Adequacy Study recommended a number of changes in
education, including massive consolidations of school districts. The legislature ignored
most of the recommendations, following a time–honored tradition that still exists today of
legislative indifference to the results of studies they themselves commission. Clearly, the
world of school finance was just as busy in the 1930s as it was in the first two decades of
the century. Many changes and improvements in education were made in the first thirty
years of the new century, most of them enabled by alterations in funding mechanisms and
increases in overall funding levels.
It seemed like the 1940s would be a less interesting time in the history of school
finance, with the nation mired in an economic depression and war looming in Europe.
Actually, not much changed in the school finance structure in the early 1940s. However,
as soldiers began to trickle home from the successful allied effort in the war, many
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changes were already taking form, some of which would have a permanent and enormous
influence on the face of school business and funding for education in Texas.
The legislature created the Gilmer–Aiken Committee in 1947 to design a new system for
financing public schools. This committee probably started out like any other number of
committees or commissions tasked with studying the education system and asked to make
recommendations many times in the past. Expectations were that the committee would
devise a number of recommended improvements in the funding system. It was assumed
that the legislature would ignore many, if not all, of its recommendations. The actual
result was very different. The legislature in 1949 approved several bills embodying the
bulk of the Gilmer–Aiken Committee’s recommendations (Senate Bills 115, 116, and
117), the impact of which we still see today in the patchwork maze of school funding
formulas, the school calendar, and the basic tenets of our school districts’ financial
structures. At the same time, a loose association of school business managers organized
themselves as the Texas Association of School Business Officials, and the Texas
Association of School Boards set up shop in Austin not far from the Capitol.
Equity and Adequacy in Other States
Because state legislatures are responsible for funding schools, how they arrive at
the funding mechanism is critical to each school district’s educational program. If the
funding mechanism leaves the school district with inadequate revenue, what remedies are
at its disposal? The school district could focus on lobbying the legislature for changes or
file a lawsuit against the state. Both approaches take time and place the school district in
a position to “hold the line” or reduce staff and programs.
A lawsuit for adequate funding was successful in Idaho’s Supreme Court in 1993.
The ruling is still in appeals. When the legislature makes changes pursuant to a court
ruling, then the courts determine if the changes meet the spirit of the court ruling. This is
the case in a 1999 Kansas Supreme Court ruling. Adequate funding for facilities is
another approach. The Ohio Supreme Court in 1997, the Arizona Supreme Court in 1999,
and the New Jersey Supreme Court in 2002 have ruled in favor of school districts and
inadequate funding for facilities. “According to the Campaign for Fiscal Equity, only five
states—Delaware, Hawaii, Mississippi, Nevada, and Utah—have not had litigation
challenging the constitutionality of K-12 school funding” (Kennedy, 2005). School
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