How does the money get Spent? The Texas Budget: K through 12 Public Education

So what do we spend money on in the State of Texas?  The approved budget for the 2010-2011 biennium was $182 billion.  About 36% of that money comes from the federal government, 47% from general revenue funds (taxes, fees, etc) and about 16% from other sources. By state law the budget has to be balanced, no deficit spending allowed.  The chart below shows that the bulk of the budget is spent on K-12 Education, Health and Human Services, Higher Education, Business and Economic Development, and Public Safety and Criminal Justice.

Based on figures from the Fiscal Size Up done by the Legislative Budget Board (LBB)

By far, the biggest expense in the Texas budget is K-12 Education.   The state will receive $9.077 billion directly from the federal government and another $5.875 billion through the American Recovery and Reinvestment Act to help cover this expense.  The rest of the money ($37.77 billion) comes from the General Revenue Fund and other funds.  An interesting side note to all this is that even though expenditures for All Funds (Federal Funds, General Revenue Funds and Other Funds) has gone up by 24% since the 1996-97 biennium, General Revenue Funds expenditures, where our taxes and fees go, after being adjusted for population increases and inflation, has actually dropped by 1.4%.   Also, according to the Fiscal Size Up (by the LBB) even though spending on Education (Pubic and Higher Ed) has risen from $45 billion in 2000-01 to $75 billion in 2010-11, its share of the revenues has actually dropped 3.2% since 2000-01.

The Texas school population was predicted to rise by 14% by 2008 back in the late 1990s.  But in actuality, between the 1996-97 school year to the 2008-09 school year the number of students in Texas schools rose by 24%, from 3,838,975 in 1996-97 to 4,749,571 in 2008-09. So part of the dramatic rise in school spending is due to population increases.  But, according to the Financial Allocation Study for Texas (FAST) per pupil spending has also increased dramatically. In the 1998-99 school year, Texas spent an average of $7,095 per pupil, by 2008-09 an average of $11,564 was spent per student, a rise in per pupil spending of  63% over 10 years.  Inflation during this period would make $7095 in 1998 dollars be equivalent to $9331 in 2008, so even accounting for inflation school spending went up by over $2,000 per pupil ($1520.57 in 1998 dollars).

There are legislators who believe spending for Public Education needs to be cut.  They point to efficiencies that would lower costs and not hurt education.  Some, like Rep Warren Chisum R-Pampa, who is running to replace House Speaker Joe Strauss R-San Antonio, says that over the years we have doubled money spent on education and gotten poorer results.   But even though spending on public education went up by $15.3 billion between 2006 and 2009 to $75 billion (or 44% of the State budget) Texas still ranks 43rd in the nation in spending per student.  Also, according to the Texas Sunshine Review site, even though schools ranked academically unacceptable went up 4.4% between 2008 and 2009, the number of recognized schools went up by 10.4% and the number of exemplary ranked schools went up by 6%.

In order to evaluate public school spending and academic performance, the Texas Legislature commissioned the Comptroller (through HB 3) to 

identify school districts and campuses that use resource allocation practices that contribute to high academic achievement and cost-effective operations.

The Comptroller Office responded with the Financial Allocation Study for Texas (FAST).  Now of course, not all school districts spend the same amount of money per pupil, so the FAST study looked at each school district individually and scored them based on a three-year average of math and reading scores with a three year average of operating expenditures.  In order to determine the spending index for a school district 

• Texas districts and campuses operate in a variety of “cost environments” —socioeconomic and geographic characteristics that influence the cost of education and are often beyond a school district’s control.
• The research team evaluated financial data for each district and campus by comparing them to “fiscal peers” — districts and campuses that operate in similar cost environments, are of similar size and serve similar students.
• To ensure the validity of financial comparisons, the research team employed a technique called propensity-score matching to identify up to 40 peers for each Texas school district and campus, based on common cost factors such as wages, school district size and geography and student demographics.
• After a group of fiscal peers is identified for a school district, the district is then assigned a “spending index” based on its spending relative to its fiscal peers.

When spending was compared to academic achievement some school districts fared better than others.  In San Antonio, the highest scoring school district was North Side ISD with four stars for high academic acheivement and average spending.

The FAST study identified several strategies that school districts used to reduce spending.  Some reduced staffing (60% of most school budgets) through attrition and staff consolidations.  The FAST Study identified many efficiencies used by the highest rated school districts from online education classes, to refinancing bond debt, to transportation coops and facility sharing, to architectural prototypes for new schools and energy efficiencies.

Based on these efficiencies and other FAST Study findings, the Comptroller has made the following recommendations to the Texas Legislature and the Texas Education Agency:

1. Eliminate the 22-student limit for each K-4 classroom and institute an average 22-student class size instead.
2. Instead of rewarding teachers for years of service or advanced degrees, teacher salary schedules should reward teachers based on performance.
3. The Legislature should amend state law to facilitate the dismissal of ineffective teachers.
4. Study patterns in school district administrative staffing. From 1998-99 to 2008-09, the number of teachers in Texas rose from 256,276 to 325,809, a 27.1 percent increase. During the same period, the number of administrators rose from 18,531 to 25,130, a 35.6 percent increase.
5. Ensure that teacher preparation programs produce high-quality teachers.
6. Reduce barriers to on-line course work.
7. Require book publishers to provide textbooks in a format compatible with common electronic reading devices.
8. Standardize the reporting of campus financial data.
9. Include questions in the State of Texas Assessments of Academic Readiness (STAAR) that evaluate high-performing students.
10. Integrate education and work force data into TEA's database.
11. Allow school districts and other local governments to publish public notices on their websites instead of requiring newspaper advertisements.
12. Assist school districts in placing their financial records and budgets on their websites to increase transparency.
13. Continue to update the FAST study data and use it to identify school districts that deliver quality education in a cost effective manor and to target LBB school performance reviews. 
14. Take advantage of the Comptroller's Purchasing Cooperative so that school districts get the best prices possible.
15. Encourage shared-service arrangements.
16. Create an efficient strategy for organizing transportation cooperatives.
17. Use architectural prototypes in new construction.
18. Maximize the use of school facilities.
19. Take advantage of opportunities to manage energy costs more effectively.

Just the savings from going to an average class size, statewide, of 22 could save an estimated $557.5 million annually.

So, can we save money in K-12 Education?  Yes, but remember, Education is one of our most important resources.  If Texas wants to be The financial powerhouse of the 21st Century, it is imperative that we have a well educated workforce.  If the FAST findings are followed in an efficient, careful and unpolitical way, I believe we can achieve this goal and save some money at the same time.

Where does the money come from? The Texas Budget

The state of Texas receives money from several funding sources, with about half of its income (approximately $44 billion in 2010-2011) coming from the state sales and use tax rate of 6 1/4% (.0625).   City, county and transportation authorities can also collect sales taxes, but the combined tax can be no more than 8 1/4% (.0825). The Sales and Use tax is imposed on

all retail sales, leases and rentals of most goods, as well as taxable services.

Sales tax is highly dependent on consumption, luckily, Texans have been willing to spend money so revenue was actually up by 2.2% by June 2010.

Motor Vehicle Sales and Use taxes make up the second largest source of income for the state and the Texas Franchise Tax is the third largest source of general revenue.  This tax collects 0.5 to 1.0% of  the margin from all corporations, Limited Liability Companies, Partnerships (with exceptions), Professional Associations,Joint Ventures, Business Trusts, and Other legal entities chartered in the State of Texas.  But what the hell is Margin?

Margin equals the lowest of three calculations:

• total revenue minus cost of goods sold;
• total revenue minus compensation; or
• total revenue times 70 percent.

Here is a table from the Window on Open Government that details the General Revenue fund sources.

 As you can see revenues from the general sales tax, the motor fuels tax and alcoholic beverages taxes are up slightly, but revenues from all other funding sources are down, with total tax collections down by 2.5% and non tax collections down by 4.7% lowering General Fund Revenue by about $9 billion, a hole Texas can't really afford right now.

Texas also receives money from the federal government, about $55.1 billion during the 2010-2011 biennium.  In 2005 (according to the latest figures available by the Tax Foundation) Texas received $0.94 per dollar of taxes paid by Texans to the federal government.  So Texas is getting most of its money back and only actually contributing $0.06 to federal programs. Looks like we are getting off pretty cheap, especially compared to states like California, that only received $0.78 per dollar paid in income taxes.

Texans as a general rule are allergic to taxes and raising tax limits is tantamount to political suicide, but can we really afford to keep taxes this low???  

My next post will detail where the tax money is spent in Texas.

The Texas State Budget: How did we get that HUGE Shortfall???

Over and over in the news I see reports of budget shortfalls for states.  Estimates in newspapers for the Texas Budget shortfall range from $18 billion to $25 billion.  So I decided to write a new series of posts on the Texas Budget.

Then the confusion set in.  When I started to investigate the shortfall by going to websites where these things are actually calculated, like the Center on Budget and Policy Priorities (CBPP), which gathers data on all the states, and the Center for Public Policy Priorities (CPPP), which deals specifically with the State of Texas, I started finding a lot of discrepancies.  The CBPP which gets its numbers for Texas from the CPPP says the budget gap is $4.6 billion for 2011.  But the CPPP says

Texas needs to make significant public investments in infrastructure and services to ensure our prosperity. Unfortunately, Texas is a low-tax state with a structural deficit. In 2006, the state made its structural deficit worse by pledging to pay for a local school property tax cut. The "hole" or uncovered cost of that tax cut is now almost $10 billion per biennium. To add to the state's woes, just before the legislative session began in 2009, the country went into a severe economic recession that substantially reduced state tax revenues. Fortunately, the federal government stepped in with Recovery Act funding. Even so, many important projects and programs were left unfunded or inadequately funded.

Now, I guess you could figure that $10 billion per biennium has added up since 2006 to about $20 billion.  Not quite sure where the $4.6 billion figure comes from.  According to the Sunshine Review of the 2009-11 budget there was a projected amount of $9 billion in the Rainy Day Fund, which probably helps balance the budget out to the point that in 2010 the gap in the budget is $3.5 billion, with an added $1.3 billion in 2011, which adds up to $4.8 billion.  But usually, legistators hate touching the Rainy Day Fund.

In an article by Veronica Flores-Paniagua in the Express, she says the shortfall is about $25 billion, so if you add $20 billion for the last four years plus $4.6 billion from the CBPP, then it sort of makes sense.

Since the Texas legislature only meets every other year they have to come up with a budget that covers the government until the next legislative session in 2013, two more years, another $10 billion.  Public School Districts across Texas have been ordered to cut their budgets by 5-10%.  Now there is always fat in a large bureaucracy that can be trimmed, but if you are looking at $60 million for the next school year like Northside ISD, limiting paper use doesn't go very far, and hiring freezes can only work for a limited time in a fast growing school district.

Then to add to the pain, Perry refused to sign off on the latest school funding bill which would have given some relief to cash strapped districts.  The political wrangling on that bill was just plain STUPID in my opinion.  I blame both Perry and Lloyd Doggett for being pig-headed.  Lloyd Doggett basically drew a line in the sand by requiring Perry (the only governor required to do this) to pledge that federal funding would not replace state funding for schools (which apparently happened the last time Texas got federal school funding).  Perry, of course, refused to sign it, saying it was illegal for him to tie the legislature's hands for the future budget process, making him a Tea Party Darling.  Lloyd Doggett was trying to make Perry look bad, because he wasn't taking money for the schools, well that BACK FIRED, and now the school districts are paying the price.

Texas is 35th in the nation in per pupil spending.  Now if you are anti-taxes you probably think this is great and spending per student is not necessarily an indicator of how well students do in school.  But when budget cuts have to continue, because there is no money to make up for the gap in spending, after awhile it will effect student performance.  Can Texas afford to lower its student performance at a time when it is becoming the place for high tech and biomedical companies to locate, grow and proper?  Remember that old saying, you get what you pay for.