The Fix Is In, But Will It Work?

Now that the Legislature has passed and the Governor will presumably sign the Texas Tax Reform Commission’s proposals which have been billed as the fix that will allow the state to meet the Texas Supreme Court’s deadline of June 1 to come up with a school funding plan, the question has been raised of whether or not this fix will work.

The Dallas Morning News made a half-hearted attempt to answer the question over the weekend and talked to a number of experts in the field who offered differing opinions. While it talked to a lot of excellent experts like Scott McCowan who heard many of the Edgewood cases as a state district judge, there were scant references made to the Supreme Court’s actual opinion.

I went back and took a look at the actual opinion (.html; .pdf), rendered last November and was surprised at what I found. For one thing, it appears as though some of the early numbers batted around by the TTRC and the House ($1.33, remember $1.33?) were lifted straight from the Court’s decision with only minor edits.

I’ve excerpted a number of paragraphs from the Court’s decision and will endeavor to examine those in the context of the Legislature’s actions and some of what has been said about the legislation by those quoted in the DMN article and in other places.
First, let’s look at a few paragraphs that appear early in the court’s decision:

We held in Edgewood III that “[a]n ad valorem tax is a state tax when it is imposed directly by the State or when the State so completely controls the levy, assessment and disbursement of revenue, either directly or indirectly, that the authority employed is without meaningful discretion.

I’d suspect that if a verbatim transcript of every word said by anyone in the House during debate on the legislation were prepared, the phrase “meaningful discretion” would have appeared no less than 1,000 times.

I find that funny for a couple of reasons. First off, the Supreme Court grants that meaningful discretion is a very, very objective term:

Meaningful discretion cannot be quantified; it is an admittedly imprecise standard. But we think its application in this case is not a close question.

Let’s address those issues of of a “state tax” and “meaningful discretion.”  We heard a great deal about meaningful discretion from the Legislature. Though the words weren’t used, remember this exchange between Chisum and Coleman in the House:

Coleman: This bill puts not a penny into public schools when it works with every other bill that’s new, is that correct?
Chisum: No, because school districts can access three pennies…

Coleman: So they can acces three pennies, but it limits [access to funding] accept what’s in those…bills. There’s a hole in the tax cut.
Chisum: This whole bill is about spending the surplus…it doesn’t require a tax to work.

And, on the first day of the Session, when John Sharp addressed the House, he had this to say about ‘meaningful discretion,’:

…”We couldn’t wrap our arms around what meaningful discretion was…”

And, 30 days later, I still don’t think the Legislature wrapped its arms around ‘meaningful discretion,’ either. The plans that the Lege approved do not make it any less of it “not [being] a close question,” than the plan did before.

The stringent requirements on schools relating to raising additional local dollars and the limit on local dollars they can raise does not come close top providing menaingful discretion. Further, in a few short years, it will result in us being back where we started from with an unconstitutional tax.

Does the possibility of future unconstitutionality preclude court approval of the plan? No, but you can bet the court will take note of it, as they had previously. Again, from last year’s opinion:

We now hold, as did the district court, that local ad valorem taxes have become a state property tax in violation of article VIII, section 1-e, as we warned ten years ago they inevitably would, absent a change in course, which has not happened. [emphasis added]

Relating to this and harkening back to “meaningful discretion,” for a moment, consider this:

The Legislature, we said, is constitutionally obligated “to make suitable provision for a general diffusion of knowledge through free public schools”, and because it “has chosen to rely heavily on school districts to discharge its duty”, school districts must tax at levels necessary to achieve the constitutional mandate as well as to meet statutory accreditation standards that the Legislature has imposed to achieve a general diffusion of knowledge.

From the DMN article, relating to “Meaningful Discretion:”

“Is that enough?” Dr. Brooks asked. “The answer is no.”

That money, over time, will not produce the “vibrant curriculum that most people want.”

Scott McCown agrees. The director of the progressive Center for Public Policy Priorities, a former state district judge who presided over a key school finance lawsuit, said that the 4-cent range provided by the Legislature doesn’t put sufficient money into the school system.

“It’s like you took your son and said, ‘You have meaningful discretion to drive the car whenever you want, but there won’t be any gas in it,’ ” Mr. McCown said.

Here, again, we have something that was kind of addressed and kind of not addressed. The new money addresses that the school districts aren’t relied upon so heavily to discharge the constitutional duty to fund an education system of free public schools, but there are no new dollars to aide in meeting the constitutional mandate or statutory accreditation standards, or, at least, no significant new dollars. Rep. Chisum admitted this in debate on HB one:

“This bill has a guaranteed yield for Chapter 42 districts so they are yielding the same amount of pennies. Likewise, it has a hold harmless clause in here so that no school districts use any money.”

Still more:

If school districts are forced to tax at or near maximum rates to meet constitutional and statutory requirements, then control over local ad valorem tax rates and spending effectively shifts to the State, depriving school districts of any meaningful discretion to tax below the rate cap set by the State or to spend on programs other than those required by the State and the Constitution.  The result, we again warned as we had in Edgewood IV, would be a state ad valorem tax in violation of article VIII, section 1-e. Footnote  We concluded that the plaintiffs’ pleadings had fairly alleged that such a violation was occurring…

In debate in the House early on, we consistently heard talk about what the districts ‘new’ tax rates would be. I was bemused to, while reading the opinion, note that the “$1.30″ which was so hotly discussed during those first days seems to actually have come from the Court’d opinion with a slight difference, as the court actually mentioned $1.33:

To generate the same revenue per student that the FSP [that's Foundation School Program] guarantees to an average chapter 42 district that taxes at the maximum $1.50 rate, taking into account differences between Tier 1 and Tier 2 formulas, the average chapter 41 district need only tax at the rate of $1.33. A different comparison was made in Edgewood IV. There we calculated that to generate $3,500/WADA, which the trial court had found to be the cost of an adequate education — or in the words of article VII, section 1 of the Texas Constitution, “[a] general diffusion of knowledge” Footnote  — districts at or below the 15 percentile level of property value per student, averaging a $26.74 yield per $0.01 of tax, were required to tax at a $1.31 rate while districts at or above the 85 percentile level, averaging a $28.74 yield per $0.01 of tax, needed only a $1.22 rate.   The parties in this case have not attempted to replicate this calculation for current data.

From an earlier post:

The Sharp Commission plan would cut the tax rate in all school districts to $1.00 by tax year 2007 and permit districts to raise their local rates by up to 6 cents per year, up to a maximum rate of $1.30.

Here’s another passage from the opinion that I think is going to present some problems for the Legislature’s plans:

Also, many districts have been created as tax havens—lots of property and few students — allowing property owners to escape paying their fair share of the cost of public education in Texas and making it more difficult to achieve efficiency.

If I’m not mistaken, this isn’t something that’s been corrected. I think that some provisions in the plan may have, in fact, made this situation worse than it already is.

One area where the Lege might have made some progress was addressed in the court’s opinion below:

The State makes a few other contributions to public education finance besides the programs and allotments we have described. It paid districts $110 per student for the 2003-2004 school year, and it has funded other projects, like Head Start and the High School Completion Initiative. But 95% of all funds for public education flow through the Foundation School Program, including the IFA and the EDA, and are thereby equalized among the districts. The other 5% includes tax revenue that is not recaptured, taxes above the $1.50 M&O level in seven districts, and I&S tax revenue that exceeds the IFA and EDA yields or is not included under these allotments. On the whole, about 85% of the student population resides in districts with revenue equivalent to a district with $271,400/student.

While the state has increased its fair share, though, it increased its fair share only to the point that, combining that with local revenue, schools are only guaranteed as much money as they would have received under the old plan. While the surplus money, tobacco tax dollars, etc., bring new money into the mix, that new money is going to fund the same old stuff; the state has not actually added new dollars into the mix, only new money.

Finally, let’s look at this:

Borrowing from two statutory pronouncements, the district court concluded:

To fulfill the constitutional obligation to provide a general diffusion of knowledge, districts must provide “all Texas children . . . access to a quality education that enables them to achieve their potential and fully participate now and in the future in the social, economic, and educational opportunities of our state and nation.” Tex. Educ. Code § 4.001(a) (emphasis added). Districts satisfy this constitutional obligation when they provide all of their students with a meaningful opportunity to acquire the essential knowledge and skills reflected in . . . curriculum requirements . . . such that upon graduation, students are prepared to “continue to learn in postsecondary educational, training, or employment settings.” Tex. Educ. Code § 28.001 (emphasis added) . . . .

We agree, with one caveat. The public education system need not operate perfectly; it is adequate if districts are reasonably able to provide their students the access and opportunity the district court described.

Therein lies the “out” clause the Legislature must pray it’s met.

This new system is adequate if the districts are able to provide their students the access, “to a quality education that enables them to achieve their potential and fully participate now and in the future in the social, economic, and educational opportunities of our state and nation,” and the opportunity to “acquire the essential knowledge and skills reflected in . . . curriculum requirements . . . such that upon graduation, students are prepared to ‘continue to learn in postsecondary educational, training, or employment settings.’”

Within this, most assuredly, is the ‘out clause.’ The statutes cited withn that are pretty vague. So vague, in fact, I think they might require the court to actually allow this plan to be taken out for a spin, so to speak, for a year or two to actually determine whether they offer the “access” and “opportunity” that were at the heart of the District Court’s decision readily echoed by the Supreme Court.

Hand-in-hand with the “access and opportunity” clause of the Court’s decision lie the “dequacy and equity” mentions that go to the heart of meaningful discretion:

“The whole session has been about cutting taxes. This is a net tax cut of about $2.5 billion a year,” Mr. McCown said. “There will be less money for education down the line, not more.”

He expects that “adequacy, equity and meaningful discretion will all be back in play,” he said. “I think they’ll be back in court in a year.”

David Thompson, a lead attorney for school districts in the lawsuit that resulted in the Supreme Court’s ruling, said that the plan will definitely require monitoring on issues of adequacy and equity. Still, he said, the Legislature has “done something that is very significant, and I personally applaud them.”

This issue of tax relief brings up another interesting point: nowhere in all of the 88 pages of the Court’s opinion are the words “tax relief” or “property tax relief” found. If you don’t believe me, open up the documents and do a “find” for yourself.

Yet, the people of Texas have been misled to believe that the Supreme Court mandated a school finance fix that provided for property tax relief. Nothing could be further from the truth.

In fact, the Court’s opinion even commented on the failure of some of the poorer schools to utilize their local tax base to the fullest extent possible through the issuance of general revenue bonds:

There is much evidence that many districts’ facilities are inadequate, but it is undisputed that some 25% of the districts levy no I&S taxes.

Food for thought, no doubt.

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