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Texas Public School Funding

Texas funds public education with a combination of local, state and federal revenue.

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.

In the 2008-09 school year, local property taxes contributed 36.7 percent of Texas public school funding.

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.

Exhibit 9.

Texas Public Education Funding

Note: Local maintenance and operations (M&O) and interest and sinking (I&S) tax amounts are from calendar 2009; the remaining state and federal amounts are for fiscal 2009. Numbers may not total due to rounding.

Source: Comptroller of Public Accounts, Texas Education Agency and Legislative Budget Board.

See funding details.

Exhibit 10.

Reported Total Fund Balances VS. Optimum Balances

see alternate

Source: Texas Education Agency

See fund balance details.

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)

All links were valid at the time of publication. Changes to web sites not maintained by the office of the Texas Comptroller may not be reflected in the links below.