The Twisted Saga of Texas School Finance: What We Do Now

Nicole Conley-Johnson: So is this going to be “stump the chump” or is this going to be a friendly conversation?

This is Nicole Conley-Johnson, Chief of Business and Operations at the Austin Independent School District.

Nicole Conley-Johnson: I manage all the district's finances, contracting and purchasing, transportation, food services, facilities, our capital bond program.  I used to love a rainy day until I became charge of an infrastructure of facilities with the average age of nearly 50 years old.

Throughout last year, she presided over a local budget task force charged with identifying possible savings for the district as they face a major budget shortfall.

Nicole Conley-Johnson: They're looking at whether or not we should be reducing salaries, and cutting pay, and increasing class sizes, or taking away planning times for teachers. None of which are things that anyone is rushing to do. What we expect our kids to know is substantially more than it's ever been. We know that's going to require investments. And so we've got to identify our most important priorities and then figure out how to pay for them within the resources that we have, all knowing that we're facing probably about a $20 to 30 million budget deficit off the top.

Austin ISD is being forced to make these hard choices in spite of the fact that its local property taxes, the main source of public education funding, have been increasing at a remarkable rate.

Nicole Conley-Johnson: Unfortunately because we're living under these old, antiquated school finance formulas that haven't been materially updated for 30 years, most of the money and growth that people see in their tax bills doesn't benefit their local schools. So it's difficult for them to understand why we're contemplating some of these potential decisions that could adversely affect their communities.

The outdated funding formulas don’t really account for the costs of needs today. And because it hasn’t kept pace with those costs, no one feels like they have sufficient dollars to serve their populations of students.
— Nicole Conley-Johnson

This is, indeed, a sentiment that has been echoed by many, from lawmakers to educators, Republicans and Democrats, CFOs and CEOs. Including each of the people you’ll hear from later on in this show.

State Rep. Diego Bernal [D-San Antonio]: Everyone is strapped for cash, right? There’s not enough money to go around. Every, every, every educator, every school, every district we've talked to have said they need more money.

State Board of Education member Dr. Keven Ellis [R-Lufkin]: There's no district out there that's sitting there thinking, well, we've got this made. There's going to need to be some new money involved.

Commit CEO Todd Williams: Texas has tremendous prosperity. Unfortunately, too few of our own kids are participating in that prosperity because we failed to adequately educate them in the K-12 and higher ed system.

Thankfully, Gov. Greg Abbott and Texas Legislature took note of the enormous challenges facing school districts across the state, and created the Texas Commission on Public School Finance. Six legislators and seven community members spent the past year studying these complex issues.  And one of its appointees was Conley-Johnson, who exerted a great deal of energy these last 12 months trying to represent Texas public schools

Nicole Conley-Johnson: A lot of my attention and activities have really been around trying to bring to light some of the issues and the burden that school districts face. I'm concerned about some of the comments that I've heard, some that assert that school districts have sufficient dollars and it's really just reallocating the pot. In my mind, that's just robbing Peter to pay Paul. Everything that we do is there to benefit a student or family in some kind of way. At some point in time you have recognize that school districts are probably as efficient as they're ever going to get. I do like to bring to light the practical implications and the realities of living under some of these policy decisions. And I think that's been my role in the commission.

And so, in their final report, Conley-Johnson and her fellow Commissioners voted unanimously to recommend a series of strategic investments that would infuse billions of dollars into our public education system in a measurable and data-driven manner.

Nicole Conley-Johnson: No CFO worth their salt is going to say, yeah, just throw money at a problem, right? It has to be strategic. It has to be directed towards the right thing. But I would say that we have insufficient resources just to serve the students. We need to make sure that there's core funding in place to ensure that baseline services and support are happening across all our schools and campuses and that all those basic needs are being met. And we can't really say that today.

So how can we work to ensure schools have the resources to meet those basic needs?  Well, let’s take a look at that report. I’m Joshua Kumler, and this is the Twisted Saga of Texas School Finance.  Powered by InvestEd TX.

Todd Williams: Anytime you're asking people to understand how much money you should invest in K-12, the natural thing to ask is, well, what's the goal?

This is Todd Williams, chairman and CEO of The Commit Partnership, a Dallas-area nonprofit working to equip students with an excellent and equitable education. (As well as produce the podcast you’re listening to.) Before his work in education, Williams had a long and successful career in the private sector.  And he’s unsure the goal set out for public ed in the Texas Constitution will continue to cut it.

Todd Williams: We have to be just a little bit more specific than the general diffusion of knowledge.

Williams served on the school finance commission as chair of the outcomes subcommittee, where he encouraged his colleagues to set a specific student outcome goal in order to maximize the impact of any funding strategies for all Texas students.

Todd Williams: It's just really important for us to know where our biggest leaks in our state educational and workforce pipeline are occurring and what strategies around the state seem to be working to attack those leaks, and how do we scale those strategies to try and transform outcomes in Texas.  

When the commission began its work, it already had an important guidepost to help develop a specific target: Gov. Abbott and the Texas Higher Education Coordinating Board have a goal of 60% postsecondary completion among Texans 25-34 years old by the year 2030.

Todd Williams: So what I tried to do in the commission work was just say, if we have a 60 by 30 postsecondary education goal, let's at a minimum try and have our K through 12 system produce 60 percent proficiency, hopefully better.  And then let's look at it every two years and see what progress we've made, and let's change strategies, change funding where appropriate, to make it happen.

This insight became the commission’s first recommendation: set a goal of 60% or higher proficiency for critical K-12 outcomes, including third grade reading and college readiness and access, and encourage local school boards to create long-term goals of their own.

Todd Williams: We're losing a tremendous number of kids by third grade. Only four in 10 kids meet the state standard in reading. And then when you get to the other end of the pipeline, we're losing a huge number of kids who don't bother to enroll in postsecondary education. Only one in four high school graduates is getting any type of credential and if we look back at eighth graders to make sure we're capturing those kids who drop out in high school, it's only one in five. So I think once you really laid it out for people on that commission, they understood what we needed to do. And then the question is how do we change our existing funding streams, and then what, equally important, what additional funding streams do we need to attack these problems?

One of those streams the commission proposed is outcomes-based funding. Essentially, districts would receive additional funds, totaling $800 million according to the report, for every 3rd grader who demonstrates reading proficiency, and every high school senior who graduates without needing remediation and enrolls in a postsecondary program, receives an industry certificate or enlists in the military.

Justice Scott Brister: At this point, I sense a lot of resistance to any kind of government program that wants more money unless people know what they're going to get for it.

This is school finance commission chair and former Texas Supreme Court Justice Scott Brister.

And so I think there is a chicken and egg problem. Do you give schools more funding under the promise that we will do better and focus it better? Or do you tell the schools you need to focus and better results before you get more funding? And what we're looking at in the commission is something in between, where we increase funding but only for focused programs.  You get money, but these are the rules, and you're just going to have to adjust those because no rule is going to be perfect.

Commission members, in their final report, took some of these possible imperfections into consideration.  That’s why they recommend an equitable distribution of all new funding. Schools would receive over twice as much in new funding for ensuring these important benchmarks are met by students who are learning English or from a low-income family. It’s a testament to the commission’s desire to meaningfully improve outcomes for all students. Here’s Todd Williams again, speaking about the achievement of our 60x30 goal.

Todd Williams: When you look at the numbers, it's pretty clear that our non-economically disadvantaged kids are already at that level, but our economically disadvantaged kids are half of that. And our english language learners are a third of that level. So it was pretty clear, when you just laid it out logically and rationally, which populations we need to invest significantly more in if we really want to hit a 60x30 goal and improve our K-12 proficiency levels.

So, in addition to outcomes-based funding, the commission also recommends investing $1.1 billion dollars into Compensatory Education.  That’s the technical term for supplemental funds provided to districts who serve students in poverty.

Nicole Conley-Johnson: We know that in order for our kids to even access the curriculum, there are things that they're dealing with at home that we have to satisfy first. Right?

Nicole Conley-Johnson again.

Nicole Conley-Johnson: They can't learn if they're hungry and have stress about knowing where they're going to sleep at night. They can't learn if they don't have a way to cope with their emotional stress. And so we try to build supports in counseling and mental health services and extended feeding time to make sure our kids can access the curriculum, because we know that that's what we have to do in order to satisfy our mission. But we're not funded for those things. We do them because it's the right thing to do.

An increase to compensatory education would begin to address these needs.  But commission members didn’t stop there. Knowing how crucial early grades are to future success, they also recommend increased funding, totalling $780 million, for every Kindergarten through 3rd grade student who is an English language learner and/or a comp ed student.  Here’s Williams again:

If resources are somewhat limited, we have to focus on those kids who are least participating in the prosperity of Texas and that’s low income and english language learner kids, and we’ve got to put them first, in my opinion.
— Todd Williams

These funds could be used to fund full-day high-quality pre-K programs, in addition to other early education initiatives.  In working toward greater early literacy, the commission also recommends providing $100 million for dyslexic students and $50 million for dual language programs that teach English and Spanish speakers together, rather than isolating the English Language Learners.

Rep. Bernal: They work well and they bear incredible dividends-

This is San Antonio State Representative Diego Bernal.

Rep. Bernal: -not just for the ELL students, but also for the starting off monolingual English speakers. And not only do students’ language scores and abilities increase, but the same can be said for their math scores, their science scores and everything else. They just make them better students.

Bernal has served as vice-chair of the House Education Committee and as a member of the school finance commission.  He has also visited every school in his district. Twice. And one of the school districts he represents, Edgewood ISD, is among the poorest in the state.

Talent is distributed equally. But resources and opportunity are not, and when you give these students what they need to succeed, they succeed. So why don’t you marry need with experience, need with resources, need with a sort of understanding that it requires more to get these kids to the academic standards that you set.
— State Rep. Diego Bernal

Bernal’s firsthand experience, and data gleaned from Dallas ISD’s successful Accelerating Campus Excellence program, made it easy for him to support another commission recommendation: encourage local school districts to develop a multi-measure evaluation system for teachers and principals that allows effective educators to be paid more to work on the campuses where they’re needed most.  The commission provided explicit instruction in this recommendation to work with local educators to ensure any new evaluation system is equitable and fair.

Rep. Bernal: If you're going to scale it, you've got to do it in a way where it makes sense for them. But this idea that you identify dedicated people who are best suited for certain situations and then bring them to those schools under the leadership of a sort of visionary, go-getting, uncompromising principal- that works. And so some version of that, absolutely, I want to bring to the entire state. I mean that's my interest here is, how do you scale success?

One other method of scalable success informed by Bernal’s hands-on approach is a focus on the amount of time kids spend in the classroom.

Rep. Bernal: You talk to any teacher and they are being asked to do way more than just teach. They're the Swiss army employee. And you'll find that one of the things they put at a premium is instructional time.

That’s why the commission recommends the creation of an optional program for districts to offer up to 30 additional instructional days to combat what is referred to as a “summer slide” in student achievement, beginning at at cost of $50 million.

Other commission recommendations have to do with slightly less interesting, though no less important, concerns such as transportation and facilities.

Dr. Ellis: In times past the state funded a large, large majority of the facilities and I think we're about down to eight percent.

This is Dr. Keven Ellis, State Board of Education member, former school board president, and vice chair of the school finance commission. Dr. Ellis was one of only two members representing a rural area of the state, and provided an important perspective when suburban representatives suggested providing transportation funds per student, rather than per mile.

Dr. Ellis: A district in Katy or in Frisco or the Woodlands, they'd be happy to have a certain dollar amount per kid because they're going to drive their buses down a nice concrete subdivision road and before they get a mile or two, they're going to have a bus full of kids, and they're going to turn it around, drop them back off at the school house, and they're going to be done. Pretty simple system for them. When you look at the distance we have to travel out here at roads that may start on concrete and then turn to asphalt and then gravel and then eventually end up to a dirt road to go get a kid, it’s a different system. And so we're going to get to a mileage based system that actually shows the need.

The commission recommends a targeted increase in facilities and transportation funding.  But not all of the recommendations are requests for new money. Some aim to generate cost-savings- up to $3.5 billion of them- by ending old programs that have outlived their usefulness.

Dr. Ellis: Part of our biggest task is fixing the outdated-ness of the system. When you go back and look at all the different programs in place, most of them are 20 to 25 to 30 years old…  For example, there's a hold harmless provision from 1992. We're 25 plus years away from that. That's when the state said, you know, we're going to change the system, but we're going to hold these districts harmless because we've made a change. Well it happened a quarter century ago. You know, there's times to move past that. But some of those districts are still getting an advantage because of that. But every dollar you take out, inefficiently, is a dollar you've literally pulled from another school district. So those are some of the inefficiencies you see. And those add up.

One such program is called the Cost of Education Index, or CEI. It was created adjust funding for differences in labor costs across the state.  But it hasn’t been updated since it was created in 1989.

Dr. Ellis: And these numbers we're still operating on today, they were done when Frisco literally had one stoplight. You can imagine what the differences are now with that. So the recommendations are actually to get rid of the cost of education index, with the idea that the legislature has proven to us over the past 30 years, they can't fix this. And so the idea is that if you're not going to fix it, just get rid of it and, and put that money into other areas.

The CEI is not without its defenders. (We featured one in our first episode) And the fact is, districts that had higher labor costs in 1989 will be negatively impacted by its removal.  Solving for other inefficiencies in the system will also have one-time costs for certain districts.

Dr. Ellis: Districts are funded based on where their revenue was a year ago, not where they are currently.

Switching to current year property values in our funding formula will put districts like Nicole’s in Austin in a tough spot, because higher values means more local tax dollars go back to the state through a system called recapture, a major cause of the district’s budget crisis.

Nicole Conley-Johnson: 52% of every single dollar that we collect in property taxes is going to the state under school finance. Austin's going to send $670,000,000 to the state this year in recapture funds. No one ever thought recapture was going to balloon to the level it is today.

But while one element of the commission’s report may have negative impacts for certain districts, everyone will benefit from greater efficiency, in a direct way.  That’s because the state would take the cost-savings from eliminating outdated programs like the CEI and put the money back into the Basic Allotment. That’s the funding guaranteed every Texas student.  Doing so would decrease the amount owed by districts like Austin back to the state.

Nicole Conley-Johnson: I think we're doing the right thing by redistributing. But we're redistributing and putting a burden on a narrow scope of property tax payers and the burden is incredibly high. If I could have my one thing, it's to have a commitment that monies that are collected from property taxes, from school districts, be reinvested back into public education.

The commission has made this commitment, and not just by recommending an increase to the basic allotment.  They’ve also worked to ensure that more local tax dollars stay in local school districts by looking at something called “copper pennies.”

Simply put, all school districts have a maximum tax rate they can impose on residents, $1.17 per $100 valuation.  But for school districts with enough property wealth to enter recapture, any penny raised above $1.06 is a rusty, crusty, green-colored copper penny.  That’s because a great deal of it, currently, has to go back to the state. Here’s Dr. Ellis again:

Dr. Ellis: When you look at the copper pennies, that's recaptured at a much quicker level than the other parts of the revenue system is. So some districts are trying to decide, they can go up five, six, seven, eight cents on their tax rate, but they're starting to look at 60, 80, maybe 90 percent of any additional revenue is going to be sent straight over to recapture. And they need that money. But it's such a tough situation to go ask your voters, saying "we need this extra tax revenue, and whatever we collect additionally, we're only keeping 10 percent, the rest is going to the state." And that’s a tough sell but that's a sell they're having to make when they've got these issues that have to be be funded.

That’s why the commission recommended increasing the yield on any pennies raised over $1.00 per $100. This would allow local school districts greater autonomy by keeping more local tax dollars in their own district.  It could even allow some districts to lower local property tax rates without affecting services. Finding ways to provide property tax relief is, in fact, a top priority of the governor this year. It’s also something Nicole Conley-Johnson can get behind.

Nicole Conley-Johnson: We have our workers and staff and teachers who can't afford to live in the communities they serve. We've got people that are being priced out of their homes. Their property tax bill exceeds their mortgage. Why do we keep adding to the pile of the same local property tax payers when there's opportunities to redistribute or diversify our sources of revenue that would just reallocate the burden in a way that makes better sense, and that adds a better balance, right? And then we can still satisfy the goal of putting more into public education.

But providing this necessary tax relief, while simultaneously putting more into all of the programming we’ve talked about, will require increased state spending, even after we factor in the important step of eliminating inefficiencies in the system. Commission members formally recommend dedicating a percentage of revenue growth from oil and gas production toward these new programs, as well as prioritizing education in projected sales tax growth and general revenue figures. They also provide an appendix with several other possible revenue sources, proposed primarily by one member.

Dr. Ellis: Nicole Conley-Johnson, she's already given them 40 different ideas on ways to come up with additional revenue.

Nicole Conley-Johnson: I offered suggestions for revenue that included things like internet sales tax, higher yield investments, looking at expanding some of the sales tax, updating the motor fuels tax which hasn't been updated in over 20, 25 years. Rolling back some exemptions to add more diversification. The more that we can diversify that base, the more that it takes some of that burden off of that single group of property tax payers. I obviously did do my homework.

So it’s not from a lack of ideas of how to come up with the revenue, it’s going to be based on the willpower of the legislature to do something with that.
— Dr. Keven Ellis

But even if it comes with property tax relief, any shifts in the tax code will be politically unpopular.  Every exemption is protected by its beneficiaries. Every new fee has a built in constituency aligned against it.  The report of the Texas Commission on Public School Finance provides an excellent roadmap for effective reform. But making it happen will require all of us to demonstrate a willingness to invest in our students.

Todd Williams: You can pay me now or you can pay me later.

Again, Todd Williams.

Todd Williams: Right now we have a tremendous number of costs that we as a state are incurring in three areas: uninsured medical, incarceration rates, and the fact that so many of our kids could be having much more success in life with living wage jobs that provide benefits including medical care that allow them to buy more cars, buy more houses, be greater consumers in our economy. We figured out that there's 200,000 kids every year who graduate high school, who six years later still don't have a living wage credential, and roughly a million dollars more they will make more in their lifetime if they get that credential. And when you multiply those two numbers out, that's $200,000,000,000 of lifetime earnings with each and every graduating class. And to put that in perspective, that's about one eighth of the Texas economy.

Nicole Conley-Johnson: If you ask any sort of business leader, they're going to say that investing in education is the most important thing, right? We've got corporate entities who want to be able to source talent from Texas.

Todd Williams: So I would make a strong argument that smart investing in key strategies that are data driven and proven to work will have a ROI that is off the chart, a return on investment that is so significant, that it will make the conversation about whether or not we spend a billion dollars or a billion and a half or even two billion dollars more in new funding seem like one of the greatest investments that Texas ever made.

Nicole Conley-Johnson: I think Texas is proud of its economic prowess and I think it should be, right? Texas has lasted when others didn't. You can testify to that prowess. But at the same time, I think that if we don't sustain that through investing in public education, we're going to see that same point of pride diminish right before our eyes. And so I'm hopeful that education will become a priority, a focus, an area of investment that's front of mind across all of our legislature.

Todd Williams: We've had almost a year long special session, in effect, on public education. We've had people from both chambers, from both sides of the aisle, along with a lot of interested and valuable citizens playing different roles at the table. It would be a tremendous waste of opportunity if we come away from this and get caught up in the minutia. We can't let the perfect be the enemy of the good. We have 5.4 million kids counting on us to at least do good. If not great.  We won't solve this problem in two years. We'll solve it over 10 years, hopefully, but we've got to have a strategic plan with a goal and some key strategies that it seems are going to make a big difference.

Paying our best teachers significantly more so they stay in the classroom versus going into administration or even leaving the profession. Making sure every child can read. Making sure every child is supported in some type of postsecondary education. If we don’t adequately invest in those three things, we’re going to find it really hard to be the Texas we want to be in 20 years.
— Todd Williams

The Twisted Saga of Texas School Finance is powered by InvestEd TX, and produced by me, Joshua Kumler.  It is executive produced by me, along with Kathryn Mikeska and Rob Shearer. Mixed and mastered by Adrien Palmer.  Music by Trevor Yokochi. Special thanks to each of our interview guests and the rest of their fellow commission members for all of their hard work over the course of this past year.  If you want to dive into the entire report, you can read it on our website, Once you’re there, you can sign up to learn who your state lawmakers are and stay up to date on how you can make your voice heard in this year’s legislative session.  This podcast is dedicated to two groups of hard-workers who don’t get paid enough for all they do: teachers and Texas legislators. The future is in both your hands. We’ll be back next month with more of the Twisted Saga.

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