For 2nd time, HISD voters eye subsidies

State ‘recapture’ worth millions at stake for district

For the second time in seven months, voters within the Houston Independent School District will determine how — and if — it should pay tens of millions to help subsidize districts that collect little in property taxes.

The vote Saturday comes as some HISD trustees have reassessed a decision by voters in November not to write a $77.5 million check to the state to comply with Texas’ “recapture” policy.

While district leaders don’t think it’s fair that an urban district with many poor students and Englishlanguage learners should be slapped with such a financial penalty, they’re split over the best way to respond.

Some trustees argue that Proposition 1 will deal a blow to progress in getting state legislators to rethink Texas’ widely criticized school finance system. They believe refusing to pay will allow the district to sue the state to free HISD of its recapture obligations.

Others believe that voters should hold their nose and vote for the measure, especially with Texas Education Commissioner Mike

Morath threatening that a “no” vote would prompt him to move some of Houston’s most valuable commercial properties out of the district’s taxable area. ‘Either scenario is bad’

That “detachment” scenario has never happened in Texas and could cost HISD $98.4 million in lost tax revenue this year, district officials estimate.

“Either scenario is bad,” acknowledged Glenn Reed, HISD’s general manager of budget and financial planning, adding that the district could end up losing more than 15 percent of its annual budget in a few years under either option. “You get used to living at a certain level, but now you can’t deal with cost increases. You have to start selling off furniture and only eat out once a week. It causes you to change how you do business.”

The voters’ decision on Proposition 1 could reverberate well beyond HISD. State officials across the country have wrestled with how to redistribute school funding so that districts in poor and rural areas get the same kind of financial support as those in urban and wealthier districts.

At least 16 other Houston-area school districts will be required to pay the recapture fees by June 1, including Cypress-Fairbanks, Spring Branch, Katy, Tomball, Fort Bend and Conroe ISDs.

“This is going to become more and more of an issue as years move on,” said Mike Griffith, school finance strategist for the nonprofit Education Commission of the States. “Are you going to get above 50 percent of school districts being recaptured? You might.”

At issue is Texas’ schoolfunding formula, instituted after the state Supreme Court ruled in 1989 that the state must provide equitable financial support across rural, urban, property value-rich and property valuepoor districts.

But because the Texas Constitution prohibits levying a state income tax or statewide property taxes, lawmakers have few other options to fund its poorer school districts than “recapture.”

Only Texas and Vermont use such recapture measures to adequately fund schools across their states, Griffith said. But in Vermont, such recapture measures primarily affect vacation homes owned by wealthy part-time residents from Boston and New York. Texas is an anomaly in how it funds education, Griffith said, and for voting on whether or not to pay the state money even though it’s mandated by law.

“This is pretty unique to have this ‘recapture’ impacting a large number of districts, and it’s unique because constitutionally there’s no income tax or statewide property tax, which would be options most other states would look at,” Griffith said. Fee began in 1993

It would be virtually unprecedented nationwide if the state took properties off of Houston ISD’s tax rolls to provide those taxes to other districts, he added.

Since recapture became part of Texas law in 1993, the state has leaned more on property value-wealthy school districts to keep their rural and less wealthy counterparts afloat.

When recapture began, 34 school districts paid the state about $131.5 million to help buoy others statewide. This year, as many as 379 of Texas’ more than 1,200 school districts have been told they likely must pay a total of about $1.87 billion in fees to the state. In fact, as many as 43 percent of Texas’ more than 5.3 million students live in districts that could be subject to recapture this year.

Recapture fees will account for 5 percent of the state’s education budget, according to Texas’ Legislative Budget Board.

But while many of the Houston area’s suburban districts also owe recapture fees, 77 percent of Houston ISD’s students come from low-income families.

Griffith said state budget directors aren’t talking about the student populations when they refer to a district as “wealthy,” instead simply dividing tax revenue by the weighted number of students enrolled in a district.

“Originally people were thinking, ‘Oh, recapture is targeting very wealthy places,’ and in the beginning that’s kind of what it was,” Griffith said. “But now you’re looking at places people don’t think of as wealthy, and having places like Houston paying these fees makes people say ‘Hey, it shouldn’t be us — we’re not wealthy.’ ” Debating detachment

While Houston will owe $77.5 million in recapture fees this year, that number will soon balloon to $376 million owed just for the 2019-2020 school year, according to Houston ISD budget estimates. That same school year, Houston could lose as much as $413.2 million under the “detachment” scenario if property values rise (it would lose less than that amount if property values remain stagnant or decline).

Trustees including board President Wanda Adams, Rhonda SkillernJones and Mike Lunceford said they now fear vindictive action from the Texas Education Agency and lawmakers if the district doesn’t pay the recapture fees. But other trustees, including Jolanda Jones and Manuel Rodriguez Jr., want the district to hold steadfast in its decision not to pay the recapture fees. Jones said the district could take the state to court and argue that detachment is unconstitutional.

She contends that Houston ISD — the state’s largest school district — has the power to pressure the state to change its funding formulas.

“We can’t debate detachment until there’s an actual detachment,” Jones said. “No district has voted to detach, so that hasn’t been heard at all (in the courts).”

Either way, officials say the district faces losing a large chunk of its $1.8 billion budget each year to recapture payments, or to detachment, if nothing changes at the state level.

“I know, yes, there are things we could do better in this district, but taking $300 million or $500 million of our budget — it’ll be hard to fill that hole,” Reed said. “If there’s something we want to do (in the future), and we were missing that much money, that’s where cannibalizing comes in. We’ll either have to raise our tax rates or have to cut programs within.”