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    Moak, Casey & AssociatesTASA Midwinter Conference

    Tuesday, January 31, 2012

    Calm Before the Storm: Interim

    Developments in School Finance

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    Introduction

    January 31, 2012Moak, Casey & Associates

    Litigation

    Budget Context

    Impact of 82nd Legislature

    Interim Issues

    2

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    LITIGATION

    January 31, 2012Moak, Casey & Associates3

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    Litigation and Public Policy

    January 2012Moak, Casey & Associates

    The role of the courts in Texas publicschool finance

    Mechanism to cure legislativeimbalances

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    Quality Counts (2012 State Rankings)

    January 31, 2012Moak, Casey & Associates

    Standards and Accountability A-(13th)

    Transitions and Alignment A (3rd)

    Achievement C- (17th)

    Status D (23rd) Chance for Success C (40th)

    Teaching Profession C+(15th)

    School Finance D+(40th

    ) Spending F (35-49th)

    Per Pupil Expenditure 49th of 50

    5

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    Status of Litigation

    January 2012Moak, Casey & Associates

    Causes of Action: Adequacy: Rising standards and funding cuts leave

    insufficient revenue to provide the GDK.

    Meaningful discretion: Remaining tax rate

    capacity is insufficient to offset for funding cuts, andprovide meaningful discretion to enrich.

    Efficiency/Equity: Target revenue disparities incombination with unequalized funds producesunconstitutional student / taxpayer inequity.

    Rationality: The state has failed to provide arational system based on appropriate costadjustments and structure

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    Adequacy Challenges

    January 2012Moak, Casey & Associates

    What are the standards?

    Must the state face disaster before the courtsact?

    How do the multi year evolving statestandards work into the equation?

    Do the outdated cost adjustments impair the

    adequacy of the system? Does the potential for rising dropout rates

    indicate trouble for the Texas economy?

    7

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    Demographic Environment

    January 2012

    Public school enrollment demographics The new minorities-Anglo (39%) and the

    Economically Advantaged (41%)

    Rising challenges-At risk (46%) and limited Englishproficient (17%)

    Family characteristics: Single parent families (35%)

    Children in poverty (24%)

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    Educational Environment

    January 2012

    Rising standards Curriculum reform

    4x4

    Criticism 50% administrative costs

    Investment beyond inflation and growth

    Growth and staffing resources

    Efficiency Comptrollers FAST reports District concern over budgetary reductions

    Limited flexibility

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    Educational Results

    January 2012

    Cumulative pass rate, Exit-level (2011) 92%

    Completion rate, 5-yr. (Class of 2009) 85%

    RHSP/DAP graduates (Class of 2010) 83%

    TAKS passing rate, All Tests (2011) 76% NAEP Gr. 4 reading, Basic+ (2011) 66%

    College ready (Class of 2010) 52%

    NAEP Gr. 4 reading, Proficient+ (2011) 32%

    SAT/ACT at criterion (Class of 2010) 27%

    TAKS Commended, All Tests (2011) 16%

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    Equity Challenges

    January 2012Moak, Casey & Associates

    Is the degradation of system equity since2004 severe enough to warrant renewed

    judicial intervention?

    Did the state go too far in creating the targetrevenue system?

    What weight does the state commitment toeliminate target revenue by 2017 have?

    Should the analysis be based on total taxrates or only operational rates?

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    Rationality Challenge

    January 2012Moak, Casey & Associates

    Does a separate but unequal funding schemeconstitute suitable and efficient provision?

    Does the use of 1980s weights and

    adjustments provide the state with a rationalbasis for funding public education?

    Are the state long term commitments to adjuststandards and financing sufficient?

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    Meaningful Discretion Challenge

    January 2012Moak, Casey & Associates

    Does the system provide both adequacy and theopportunity for enrichment?

    Has the state so controlled the tax that it operatesin a manner indistinguishable from a state

    property tax? What is the impact of the cuts?

    Do districts at $1.17 have meaningful discretionto enrich?

    Should the effective combination of limited voterappeal and the potential for recapture beconsidered in the analysis?

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    Litigation Timing

    January 2012Moak, Casey & Associates

    Four groups have filed Texas Taxpayers and Student Fairness Coalition, et

    al. (Equity Center)

    Fort Bend ISD, et al. (Thompson)

    Coalition of Revenue Contributing Schools, et al.(Texas School Coalition)

    Edgewood ISD et al (MALDEF)

    Discovery process underway

    District court ruling sometime in fall Supreme Court could direct brief rehearing

    after the 2013 legislative session

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    Closing Lawsuit Observations

    January 2012Moak, Casey & Associates

    Potential additional parties

    Legislative Committee

    Constitutional challenges as an element in a

    larger debate Proclivity of the court to grant state discretion

    in all but clear out of bounds situations

    Need for a clear constitutional priority forpublic education funding

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    BUDGET CONTEXT

    January 31, 2012Moak, Casey & Associates16

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    Property Tax Issues

    January 31, 2012Moak, Casey & Associates

    125 appraisal districts subject to review in2011 51% had no fails in review

    13% had more than 2 fails Majority of failures in areas of appraisal standards,

    operating procedures and governance

    77% exceeded standards for taxpayer assistance

    TCEQ has finally ruled against Valero onpollution control amendment Issue has been extent to which other state and

    federal mandates are covered beyond at-the-site

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    State Budget Context

    Ongoing structural deficit (continued use of one-time funding sources)

    Competing demands from various areas withinstate government Public Education Health and Human Services

    State Water Plan

    Higher Education

    Transportation Growing balance in Economic Stabilization Fund

    Improved economy since last revenue estimate

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    State Structural Deficit

    2010-11 School Year Impact of Property TaxRelief (in billions) M&O tax revenue at 2006 rates $23.9 B

    Reduced M&O property tax - $17.2 B School district M&O tax relief $ 6.7 B

    Reduced by $1.1 B due to increased values/rate increases

    State revenue offset - $ 2.2 B

    $1.3 B from margins tax Shortfall to be financed $ 4.5 B

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    One-time Revenue Sources

    January 31, 2012Moak, Casey & Associates

    2007 State used surplus and phased-in property tax

    reductions

    2009 Federal Stimulus Funds: $6.4 billion GR reductions

    paid for through stimulus

    2011 FSP payment delay: $2.0 billion

    Tax speed-ups: $700 million Under-funded Medicaid: $4.8 billion ($3.8 billion

    after certification of surplus funds by comptroller).

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    Economic Stabilization Fund

    January 31, 2012Moak, Casey & Associates

    Rainy Day Fund estimates growing $7.3 billion currently estimated by end of 2013

    $6.5 billion estimated at the end of the legislative

    session Rep. Donna Howard was right during floor debate

    about improvements in Rainy Day Fund revenue Sought offset against FSP cuts from future rainy day fund

    revenue gains above estimate

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    Improved State Economy

    January 31, 2012Moak, Casey & Associates

    Job growth, sales tax collections both frombusiness and consumer purchases as wellas automobile sales, signal that the Texas

    economy has emerged from the recentrecession.

    --Susan Combs, January 6, 2012

    22

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    Revenue Estimate

    January 31, 2012Moak, Casey & Associates

    Biennial Revenue Estimate January 2011 $77.3 billion anticipated revenue

    May 2011

    Comptroller added $1.2 billion to estimate Other changes (speed-ups, etc.) added $1.7 billion

    Certification Revenue Estimate December2011 $82.7 billion anticipated revenue

    Increase of $2.5 billion from May

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    Moak, Casey & Associates January 31, 2012

    Improved S