This morning, Austin ISD CFO Nicole Conley testified on the current school finance system, focusing on the hardships created for AISD by the recapture system. 

Good afternoon, Chairman Otto, Chairman Aycock and members of the Committees. My name is Nicole Conley and I serve as the Chief Financial Officer for the Austin Independent School District. I appreciate the opportunity to come before you to discuss recapture and its effect on Austin ISD and Austin taxpayers.

When recapture was initiated in 1993, it was intended to ensure equity for school districts across the state. Today, however, more districts than ever are paying into Robin Hood, supplanting state dollars with re-appropriated local tax dollars. Though not originally designed to serve as a revenue stream, recapture has grown to $2 billion statewide—coming in at nearly double what the Texas Lottery brings in for education on an annual basis.

Nowhere is the impact of this ballooning obligation more visible than here in Central Texas. Property values have increased at a rapid pace across the state. In Central Texas, they have absolutely skyrocketed. While school districts in the area comprise less than 8 percent of the state’s student population, we pay more than 28 percent of the state’s total recapture amount. This amounts to more than $583 million each year.

The cost of living, and therefore the cost of educating students, is higher in Central Texas than it is elsewhere in the state. Yet, our districts have less per-student funding today than we had prior to the massive budget cuts of 2011. No business could keep their employees and expand to serve more customers, who in our case are students, if they had to operate with less funding than they had six years ago. And, when you account for inflation, the funding gap for our community widens even more.

Austin ISD is the single largest payer of recapture in the state. Our payment alone comprises 13 percent of all state collections. During the next five years—between fiscal years 2016 and 2020—Austin ISD is projected to pay almost $2.6 billion in recapture payments to the state. By 2019, more than half of every tax dollar collected in Austin will go to the state. As part of our testimony, we have included compelling charts and data that demonstrate the severe financial effect of recapture on Austin ISD and Austin taxpayers.

Austin is in a unique and unfortunate circumstance. We are taxing people out of their homes in Austin and pushing them out to surrounding school districts. As a result, the district is losing enrollment, which further exacerbates our recapture obligation.

In addition, our students and families face many challenges. We require additional resources to help them overcome those barriers to ensure students can learn. Nearly 60 percent of our students live in poverty, 28 percent are English-language learners, and more than half are considered to be at risk of dropping out or not meeting the state’s academic standards. The lack of additional state funding to address these areas of need for our students places an unfair burden on property tax payers, renters and school districts because even though we are considered to be a property wealthy community, the families we serve are not.

A few weeks ago, the Texas Education Agency submitted its Legislative Appropriations Request and requested $2.1 billion less than what was budgeted for the 2016-17 biennium. This is due to rising property values, which siphons more funds from local communities and lowers the state’s obligation. 

Additionally, the amount of general revenue required to fund the Foundation School Program will decline by an even greater number as a result of the increase in recapture, another symptom of rising property values. Recapture is expected to fund almost $3.7 billion of state aid in the 2016-17 biennium. And, it is likely to exceed $5.1 billion of the state’s FSP payments in the 2018-19 biennium.

As property values increase, so do the costs to operate schools. Texas school districts are left to struggle to find ways to absorb inflationary costs while the state benefits from changes in market conditions, namely increasing property values. We need our leaders to recognize that the state’s over-reliance on recapture means that local taxpayers are paying more when the state pays less by reducing its share of funding for Texas education. This puts financial pressure on school districts to absorb increasing inflationary costs because there have been no significant adjustments to the state’s outdated formula indexes, which were developed more than 30 years ago in 1984.

We are serving kids with greater needs to meet stricter standards imposed by the state with no additional funding. As local property values increase, taxpayers should see the value of their taxes reflected in their local schools.

We have few options to deal with the increasing cost of operating our schools, as well as paying our teachers’ salaries comparable to other urban and Central Texas school districts. Raising tax rates when the district has to pay a large percentage of any increase to the Robin Hood system is a hard sell with voters, who see more and more of their local tax dollars siphoned off by the state. If AISD were to increase its tax rate, we would send more than 60 percent of any new revenue to the state. Other districts would send 90 percent.

In effect, there is no local discretion to support additional programming. Simply put: We need more of our local dollars to stay in our local schools.

To put it in perspective, AISD could lower its tax rate by 35 cents if it were not for the $406 million we must pay in recapture this year. For our average homeowner, that would amount to about $1,400 in lower taxes per year. That would make our district a lot more affordable for many who have been forced to move. Without some kind of relief in recapture for our taxpayers, we will continue to face many challenges.

• We cannot afford to pay a competitive wage, and teachers cannot afford to live in Austin.
• We are one of a handful of districts in Texas that must pay social security. This $33 million-per-year expense is not incurred by most other districts.
• We are putting programs proven to improve student achievement like full-day Pre-K at risk of elimination.
• We don’t receive the transportation allotment. It costs us $28 million per year to transport 22,000 students on more than 600 routes, which covered more than 6.5 million miles during the 2015-16 school year. Sixty percent of AISD’s bus routes are affected by toll roads. AISD must pay these tolls—unlike many other public entities that are exempt from tolls.

We would like to offer a few solutions that all districts should be able to support:

• Index school funding for inflation so that the state shares in its responsibility to fund basic educational programs.
• At a minimum, tie property value increases to an increase in the basic allotment.
• Update outdated formula elements like the cost of education index and the transportation allotment and adjust interpretation to allow Chapter 41 districts to receive the transportation allotment as a credit against recapture.
• Increase the number of “golden pennies” that are not subject to recapture or wealth equalization levels.
• Consider a cap on the level of recapture that districts have to pay so that taxpayers can see some level of relief to this ballooning financial burden.

Even some measure of relief would have a tremendous, positive impact for our children. If Austin ISD's recapture payment were reduced by $11.12 million, our teacher-student ratio in Pre-K classes could be reduced from 18:1 to the TEA-recommended 11:1 ratio. 

Also, if Austin ISD's recapture payment were reduced by $17 million, we could expand our mental health clinics from 19 to 130 campuses. Investing in our children early saves money in the long run, as the cost of incarceration and inpatient mental or behavioral care is far more costly.

Unfortunately, the state’s over-reliance on recapture is leading to an unintended, inequitable burden for some communities’ taxpayers who are shouldering much more of the expense to educate our state’s children.

We know there are districts throughout the state that need additional funds to educate their students, but it is the duty of the state to provide those funds, not local property taxpayers.

Thank you for the opportunity to testify. I’m happy to answer any questions.

Learn more about AISD's legislative priorities.