Special Legislative Session in Texas Ends with No Solution

The special legislative session on school finance called by Governor Rick Perry in Texas has failed to come up with a solution to change Texas’ troubled school funding system. The session that began on April 20 ended on May 17 when legislators were unable to agree on a way to reform the school funding system. The special session was called in response to a looming financial crisis faced by many Texas school districts due to caps on local property taxes, as well as the West Orange-Cove Consolidated ISD v. Nelson lawsuit, originally filed by property-wealthy districts but now joined by many other districts who raise the question of funding “adequacy.”

The lawsuit creates additional pressure for the Legislature to overhaul the Texas school finance system. The state was hoping to come up with a solution before the trial begins August 9. Texas has used a “Robin Hood” school finance system since 1993, when the legislature adopted the system in response to a state supreme court order to improve the equity of state spending on public schools. About 100 very wealthy districts, out of the state’s 1,100 districts, submit revenues to the state for distribution to other school districts through the “recapture” system. However, districts are capped at a $1.50 property tax rate and, in recent years, have complained that the system needs to be revised. Many lawmakers ran their campaigns on reforming school funding.

The special session was called by Governor Perry to consider proposals to overhaul the education finance system. However, as reported in the Dallas Morning News, lawmakers overwhelmingly rejected Governor Perry’s proposal and did not come up with an alternative. The Governor’s plan sought to lower residential property taxes by 17% by imposing various “sin” taxes, including state-taxed video gambling at racetracks, charging a $5 “admission fee” to adult entertainment establishments and a $1 a pack tax on cigarettes. One of the more outspoken critics of the governor’s plan is the state comptroller, Carole Keeton Strayhorn who refers to the taxes as “sleaze” instead of sin taxes. She also claimed that while the plan would raise approximately $12.1 billion, it would still leave more than a $10 billion deficit.

Since the legislature was unsuccessful, the Lt. Governor, David Dewhurst, and the House Speaker, Tom Craddick, have appointed two dozen lawmakers to a Joint House and Senate working group on education excellence and school finance to continue working on the issue throughout the summer.

The Income Tax Debate

As reported in the Houston Chronicle, some lawmakers and business leaders are considering using income tax as a possible solution to the school finance issue while at the same time allowing for some local property tax relief. Currently Texas does not currently have an income tax and the governor and most legislators do not support implementing one.

However, the Austin Chronicle cited a poll conducted by Baselice & Associates, a firm often used by the governor, that reported Texans do support the use of an income tax to help finance education. According to the poll (1,002 respondents with a margin of error of plus or minus 3.1%) 69% oppose an increase in the sales tax rate, which has been part of most plans being considered by legislators, but 55% said they would support a "statewide education flat tax on income" dedicated to public education and deductible from federal income taxes.

Prepared by Melissa Mangino, May 26, 2004