The Latest on School Finance Reform

Last week we reported that lawmakers had lumped this session’s most prominent pieces of legislation — property tax reform, school finance reform, and a sales tax — into one codependent heap. Yesterday, the Senate took steps to remove and kill the sales tax portion of the heap.

Legislators had argued that it made sense to tie property tax reform to school finance reform because taxes by school districts comprise the majority of Texans’ property tax bills. Texans were demanding relief from rapidly rising property taxes, but lawmakers still had to fund schools.

The Backstory:

The Texas House passed their version of school finance reform, House Bill 3 (HB3), on April 4. When the Texas Senate took up the bill in committee on May 1, Senator Larry Taylor, the Chairman of the Senate Education Committee, made the Senate’s version of school finance reform contingent on a tax “swap” in the form of an increase in the state sales tax.

Just last Friday, Governor Greg Abbott, Lieutenant Governor Dan Patrick, and House Speaker Dennis Bonnen held a press conference reiterating their commitment to property tax and school finance reform, and contending that the only way to make these legislative priorities happen was by passing a sales tax increase. They promised the increase in sales tax would pay for a reduction in property taxes while still meeting school funding needs.

It seemed, at least to Abbott, Patrick, Bonnen, and the Senate Education Committee Chair Taylor, that the sales tax increase was the lynchpin to hold the other two pieces of legislation together — until it wasn’t.

The Latest:

Yesterday, when HB3 was debated before the full Senate, Taylor seemed to have changed his mind. He moved to strip the clause which made the bill contingent on a sales tax increase. Instead, the Senate approved an amendment by Senator Kirk Watson which funds school finance reform and property tax relief from three other sources of revenue:  an internet sales tax, increasing the transfer from the General Land Office to school funding, and diverting oil and gas severance taxes above a certain amount from the so-called Rainy Day Fund. (Officially known as the Economic Stabilization Fund, this is basically Texas’ savings account. It was tapped to help with Hurricane Harvey relief efforts, for example.)

After considering more than 100 amendments and debating for hours, the Senate passed their version of HB3, which relies on Watson’s funding mechanisms rather than raising the state sales tax for funding.

Likewise, today, the proposed sales tax increase was defeated in the Texas House. It is somewhat surprising to see the defeat of a bill ardently supported just last Friday by Texas’ Big Three (Abbott, Patrick, and Bonnen), but opposition came from the right and the left. It was opposed by Democrats as a regressive tax on the poor, and by conservative Republicans who prefer to lower spending rather than to raise one tax to pay for a reduction in another. Opposition only grew stronger when, just hours after the press conference by the Big Three, the Legislative Budget Board released a finding that approximately 75 percent of all Texans would have an increase in their overall tax burden if the sales tax “swap” were implemented.

Reactions were mixed. Taxpayer advocacy groups cheered the development, while State Rep. Dan Huberty, Chairman of the Public Education Committee, and State Rep. Dustin Burrows, Chairman of the House Ways and Means Committee, both publicly bemoaned the defeat.

The Next Step:

Now the differences between the House and Senate versions of HB3 (yes, both the House and Senate versions of legislation relating to school finance are now referred to as HB3) will be ironed out in conference committee. While both chambers agree on two key features (increasing base student funding for schools across Texas and funding all-day pre-kindergarten education for low income students), they disagree on two other important features (how to fund it all and the criteria for giving teachers a pay raise).

The House version of the bill provides an average teacher pay raise of $1,388 along with extra money at the district leadership’s discretion. The Senate has approved a $5,000 across-the-board pay raise for teachers and librarians. The Senate also wants to fund bonuses for merit pay as well as performance on third grade standardized test scores. Both of these merit-based incentives are opposed by teachers unions and advocacy groups across the state, who argue that these incentives are inherently unfair because they are tied to the STAAR test. In response, the Senate added a provision to SB3 that would allow school districts to use alternatives to the STAAR exam.

What to expect:

With only 19 days left in this legislative session, the conference committee will have to work quickly to iron out the differences between the House and Senate versions of HB3, the property tax reform bill. After they reach an agreement, the revised bill must be approved by a majority vote in both chambers before being sent to the Governor’s desk for his signature.

Stay tuned as we keep an eye on this legislation and introduce you to the key players (and the money behind them) in the school finance reform debate.

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