Public Education Spending in Texas

Public and higher education together constitute the largest category of state spending by far, accounting for 41.4 percent of all appropriations and 60.7 percent of general revenue spending in the 2010-11 biennium.

• K-12 schools alone receive about 43.7 percent of Texas’ general revenue, twice the share of Medicaid, which accounts for 21.6 percent of all general revenue appropriations.²
• Public education also drives much local government spending – as Texas homeowners recognize when they pay their property taxes.
• Texas public education spending is growing rapidly, rising by 95 percent during the last decade (Exhibit 2).

Texas is a rapidly growing state, of course, and higher enrollment is responsible for some of the increase in spending. Enrollment in Texas public schools rose by about 19.7 percent in the last decade (Exhibit 3).

In the last decade, total spending rose nearly five times as fast as enrollment (95.3 percent versus 19.7 percent) (Exhibit 4).

Thus higher enrollment explains only part of the increase in spending. Texas public education spending per student is rising rapidly (Exhibit 5).

• Texas’ public school districts’ spending per student rose by 63 percent over the last decade.
• Texas’ public school districts spent $11,567 per student in 2008-09.
• State spending not included in reported school district expenditures, such as textbook purchases and other direct state expenditures lifted total spending per student to $11,642.

These increases cannot be explained solely by inflation, as the growth in per-pupil spending has greatly exceeded the general inflation rate (Exhibit 6).

To understand what state and local spending on public education buys, one can examine individual categories of school expenditures.

Texas school districts report expenditures by “objects,” broad categories of expenditures. Exhibit 7 examines statewide school district expenditures reported to the Texas Education Agency (TEA):

• Payroll – salaries, wages and benefits for school district employees, account for 59.4 percent of all state and local spending on public education;
• Other Operating – operating expenses such as food services, vehicle fuel, supplies, materials and services;
• Capital Outlay – spending on fixed assets such as buildings; and
• Debt Service – principal and interest payments on bonds and other debt.

Exhibit 8 shows the growth trends in major expenditure spending categories. It also shows the growth of school district fund balances, an available source of funds.

Texas funds public education with a combination of local, state and federal revenue (Exhibit 9). Totals for these revenue sources will vary somewhat from the school district spending reported above as they include state spending not reported by school districts, such as direct state contributions to teacher retirement and state purchases of textbooks.

Texas public school revenues include:

Local Funds

• Local Property Tax – the school district property tax includes two elements, a maintenance and operations (M&O) tax used to fund daily operations and an interest and sinking (I&S) tax used to pay debt service on any bonds issued to fund the construction of schools and other facilities.
• Local Bonds and Sale of Real Property – local revenue from the sale of bonds and real property and the proceeds of capital leases.
• Other Local Revenue – revenue derived from shared-services agreements, tuition and fees, facility rentals and other sources.

State Funds

• Foundation School Fund – the Texas Constitution dedicates 25 percent of all revenue from state occupation taxes (the oil production tax, natural gas production tax and others) to this fund, which also receives amounts transferred from state general revenue.⁶
• Available School and Textbook Funds – earnings from the state’s Permanent School Fund (PSF) are transferred to the Available School Fund (ASF), which is appropriated by the Legislature for textbooks and direct aid to school districts. The PSF is an endowment consisting of state-owned land and mineral rights, royalty earnings, stocks and bonds, and designed to be a perpetual funding source for education.⁷ The ASF also receives one quarter of all revenue generated by the motor fuels tax.
• Lottery Proceeds – profits from the operations of the state lottery.
• Other State Funds – TEA-administered grants that support initiatives to improve student performance as well as teacher merit pay and awards.
• Property Tax Relief Fund – established by the Legislature in 2006, this fund consists of revenue gained from changes made to the state franchise tax, cigarette and tobacco taxes and the tax on the sale of used motor vehicles.⁸ These amounts were intended to replace revenue lost from M&O property tax rates that state law required school districts to reduce by about one-third.
• Teacher Retirement System (TRS) Retirement and Health Benefits – the state’s contribution for active school employee health benefits and retirees retirement and health benefits.

Federal Funds

• Federal Funds – funding from the U.S. Department of Education, most of it administered by TEA and flowing through the state treasury.
• American Recovery and Reinvestment Act (ARRA) – federal “stimulus” funding for 2009 through 2011, resulting in a temporary increase in the share of school district revenue derived from federal funds.

In the 2008-09 school year:

• local property taxes contributed 36.7 percent of Texas public school funding;
• bonds and other local funds accounted for 18.2 percent;
• state funds accounted for 37.3 percent; and
• federal funds accounted for the remaining 7.8 percent. Less than 1 percent of 2008-09 funding was provided by ARRA.

District Fund Balances

District fund balances represent the difference between a district’s assets and liabilities. Each district’s total fund balance consists of three separate balances:

• reserved/nonspendable or restricted funds
• designated/committed or assigned funds
• unreserved, undesignated/unassigned funds

Reserved/nonspendable or restricted funds are those that cannot be spent or are reserved for a specific legal purpose, such as funds associated with the federal National School Lunch program.

Designated/committed or assigned funds are amounts earmarked by the district’s school board for a specific purpose, such as money designated for construction projects not funded by bond debt, or for self-insurance programs.

The remaining amounts not reserved or designated are unreserved and undesignated/unassigned fund balances.⁹ It is important to note, however, that while these amounts are not designated for a specific purpose, they are not necessarily available for spending on any purpose. They represent reserve funds, and help to guarantee districts’ cash flow, since state, local and federal funds arrive at different times throughout the year.

TEA works with school districts to set an optimum fund balance for each district’s General Fund, including both designated and reserved balances.

According to TEA, actual district fund balances have tracked the optimums closely in recent years (Exhibit 10). For more on this topic, visit the FAST Study Appendix.(PDF, 4.7MB)

Various state and federal laws and rules require Texas school districts to create specific programs or maintain certain standards, which they believe increases their costs. As part of the FAST project, the Comptroller’s research team asked districts to identify any policies or legislation that impede their progress or represent underfunded or unfunded mandates. The following issues provide examples of mandates related directly to factors driving school costs, such as payroll and operating costs.

Texas school districts must limit class size to 22 students per teacher in kindergarten through grade four.

• Districts may apply to TEA for waivers from this requirement.¹⁰
• Districts must obtain a waiver for each grade level and each campus for which they seek exemption from the 22-student limit.
• According to TEA, in 2009-10 the agency granted 940 waivers to 543 campuses in 143 districts, or about 14 percent of all districts. A school must request a waiver for each classroom.
• These school districts had 735,646 students in kindergarten through fourth grade.

Many school officials believe the “22:1” limit interferes with their ability to staff campuses cost-effectively, asserting that classes with up to 25 students can operate without any loss of instructional effectiveness. Some suggest that the 22:1 requirement be based upon average class size rather than applying to all classes, giving districts more flexibility to set class size, allocate resources and limit costs.

For example, a district with 66 students in second grade currently must have three teachers, but the addition of just one more student would require the hiring of another teacher plus the acquisition of additional classroom space.

• Mandating that all K-4 classes have no more than 22 students per teacher results in many having significantly fewer than 22 students per teacher.
• Currently, the average K-4 classroom in Texas has 19.3 students.
• Based on average teacher salaries in kindergarten through fourth grade, the cost difference between the current average of 19.3 students per K-4 classroom and a statewide average of 22 students per classroom is $558 million.

Retirement benefits generally are funded by state and employee contributions.

• The state contributed 6.58 percent of each teacher’s salary to the TRS pension plan in 2008-09.
• The state contribution rate, however, applies only to the amount of each teacher’s salary set in the state minimum salary schedule; districts must supply the state’s share of any teacher salary amount above the state minimum.¹¹

School districts, their employees and the state also contribute to the Teacher Retirement System for health benefits.

• TRS-ActiveCare provides health insurance for active school district employees.
• TRS-Care provides health insurance for retirees.

Exhibit 11 shows school district and employee contributions to various TRS programs in 2008-09.

State law requires TEA to test public school students on what they have learned. TEA developed the Texas Assessment of Knowledge and Skills for this purpose. School districts incur some costs associated with state testing requirements.

• School districts often spend weeks preparing for and administering the TAKS tests, an effort including staff training on security and test administration.
• School districts must keep test records for five years, which can involve storage costs.¹²
• School districts also are responsible for some of the costs of testing materials, such as benchmark tests administered to assess student progress in acquiring the knowledge and skills assessed in TAKS.
• In 2008-09, school districts reported expenditures of nearly $37 million on testing materials. Not included in this amount was staff time devoted to test preparation and administration.

In addition to academic and financial reporting, districts must prepare many other reports and public notices (Exhibit 12). The costs of these reporting requirements can be significant.

• Eight of the required notices must be published in local newspapers, often for several days.
• The costs of newspaper ads can range from a few hundred dollars in the smallest regional papers to thousands of dollars up to $6,000 in larger cities such as Corpus Christi and major markets such as Dallas.
• Districts only have to buy ads when they have a reason to issue one of these required notices; not all of these notices are required each year.
• Assuming three notices per district each year at an average cost for newspaper notices, required reports cost Texas school districts about $4 million annually. If districts average more than three such notices each year, the costs are greater.