October 7, 2004
A Public Policy Failure
by Virginia Postrel, NY TIMES, October 7, 2004

LINK

DALLAS: Public policy experiments rarely produce complete successes or total failures. They usually leave room for people with different goals or values to keep arguing.

Occasionally, however, there's a policy disaster so catastrophic that everyone agrees that something has to change. California's convoluted attempt to deregulate electricity was one example. Texas's decade-long experiment in school finance equalization - universally referred to as Robin Hood - is another.

"In less than a decade, the system is approaching collapse; it has exhausted its own capacity," write Caroline M. Hoxby and Ilyana Kuziemko, economists at Harvard, in a new working paper for the National Bureau of Economic Research. "We show that the collapse was predictable." ( "Robin Hood and His Not-So-Merry Plan: Capitalization and the Self-Destruction of Texas' School Finance Equalization Plan)."

As school budgets fall and property taxes rise, Texans know Robin Hood is in trouble. But most do not really understand why.

Some blame the very idea of equalization, others say schools are too dependent on property taxes, and still others argue that taxes are too low. Some declare that schooling has simply become more demanding and expensive.

"Although it is a financially efficient model, the current system, as it is now designed, cannot live up to the standards of our 'outcomes'-based accountability system," Lloyd Jenkins, a school district trustee in the Dallas suburb of Plano, recently wrote in The Dallas Morning News.

In fact, argue the economists, the Robin Hood system is anything but financially efficient. Robin Hood does not just move money from rich school districts to poor school districts. It does so in a way that destroys far more wealth than it transfers, and that erodes the tax base on which school funding depends.

"Our estimates suggest that Robin Hood caused Texas to lose a net of $27,000 per pupil in property wealth," write Professor Hoxby and Ms. Kuziemko, a doctoral student. That's real money.

To understand why Robin Hood is so destructive, consider the market price of a given house. The home's value depends not just on how big the house is or whether it has walk-in closets and granite countertops. "It also depends on how many property taxes the homeowner is going to pay and what he or she is going to get in return for those property taxes," Professor Hoxby explains.

Property taxes depress the value of a house. The amenities those taxes buy, including good schools, increase the value. The final price reflects the net value of the taxes the homeowner pays.

Robin Hood essentially raises taxes while reducing benefits, creating a downward spiral in home values and property tax receipts. For each district, the state divides the total assessed value of property in the district by the number of pupils. (Districts get higher per-pupil weightings for such factors as students with learning disabilities or limited English proficiency.)

The state then compares this number with a confiscation threshold. The district keeps the taxes on the property base below the threshold. But every single penny collected on the property value above the threshold goes to the state.

"When you have these districts that are being told, 'Your property value above a certain amount will never go to help your students - it will go to the state' - the property value of those districts will fall,'' Ms. Kuziemko explains. Homebuyers no longer get as much education for their taxes, so buyers will not pay as much for houses.

During the 1990's, "a period of unusually rapid income growth for the wealthy," the economists note, the property value per pupil actually fell in the state's wealthiest 5 percent of school districts, even without accounting for inflation.

That drop was bad news for everyone. Robin Hood assumed that house prices would stay pretty much the same, so that property-rich districts would continue to provide ample tax dollars to the rest of the state. Instead, every year the tax base became smaller in the rich districts.

To meet its commitments to poor districts, the state effectively lowered the real value of the confiscation threshold. Corrected for inflation, the threshold was $340,000 per weighted pupil in 1994, when the system was established. By 2002, it had fallen to $305,000.

But lowering the threshold further depresses home values. A death spiral sets in.

As homebuyers switch from the once-rich districts into moderately priced districts, property values hit the threshold in those districts, setting yet another spiral in motion.

And while the state is pushing down the confiscation threshold, districts try to keep up by raising their property tax rates, pushing down home values even more.

The economists are quick to note that their critique is not a condemnation of redistributing school funds. Rather, it's a brief for bringing well-established principles of efficient taxation to bear on school finance. Transfers, Professor Hoxby argues, should be funded through a statewide tax, while local taxes pay for local amenities.

But even local taxes could be more efficient. Instead of confiscating 100 percent of everything above a certain property-value threshold, says Ms. Kuziemko, the state could take a much smaller percentage of the whole tax base.

"One of the principles of public finance is that having a high tax rate on a small base is very inefficient," she says, "whereas having a lower tax rate on a larger base is less distortionary."

Just as ideological foes of electricity deregulation exploited the California experience to attack deregulation in general, some people opposed to redistribution on principle now point to Robin Hood. But just as California's complex system was not true deregulation, so Robin Hood does not represent the only way to transfer funds to poor school districts.

What was the fundamental reason for the failure, according to Professor Hoxby and Ms. Kuziemko? "Lawyers, not economists, designed the system.''

Virginia Postrel (www.dynamist.com) is the author of "The Substance of Style: How the Rise of Aesthetic Value Is Remaking Commerce, Culture and Consciousness,'' just published in paperback by Perennial

Robin Hood and His Not-So-Merry Plan: Capitalization and the Self-Destruction of Texas' School Finance Equalization Plan

See "Education Funding is a Mess and State Education Finance Lawsuits Hope to Change This. Texas is Next."

"Spreading the Pain Among Superintendents"
by Donna Garner
Sept. 16, 2004

Newspaper reporters asked school superintendents in various parts of Texas to react to Judge Dietz's ruling yesterday which rejected as unconstitutional the "Robin Hood" system of share-the-wealth. Nearly every one of these superintendents is quoted as lamenting poor school funding, loss of teachers' jobs, and increased class sizes.

The question to ask is do these superintendents have real grounds to complain? One way to see how wisely a district is spending its money is to see what kind of salary its superintendent is making. It might be a good faith effort if some of these superintendents would volunteer to have their outrageously high salaries cut so that the "pain" could be spread around equally among all their school employees. Until that occurs, I will continue to withhold my support for increased school funding and will continue to advocate for no new tax hikes.

Was Judge Dietz fully apprised of the superintendents' salaries when they came before him with their hard-luck stories? If not, why not? Was Judge Dietz told that federal education spending in Texas (Pre-K through Grade 12) for Year 2005 is set to climb to $3.1 Billion? From what I read of the trial, Judge Dietz refused to consider any federal dollars even though they will amount to over $738 per Texas student.

I got city council, that caused the crash?The case will now be appealed to the Texas Supreme Court. My hope is that the state of Texas will mount a stronger case to prove that (1) increased funding does not necessarily raise academic achievement, (2) schools are presently receiving enough funding when federal and state amounts are totaled together, and (3) Texas taxpayers are providing schools with enough revenue to make sure that most children can master basic skills.

The 2003-04 superintendents' salaries listed below do not include benefit packages. *The number in parentheses indicates how the schools rate in the number of students enrolled with (1) being the largest school in the state and (1,041) being the smallest.

Dallas (*2) -- $337,500

Richardson (25) -- $191,055

Plano (14) -- $210,125

Irving (32) -- $191,500

Carroll (114) -- $188,289

Highland Park (135) -- $213,304

Brazosport (74) -- $157,000

Allen (70) -- $174,400

Spring (36) -- $195,700

Houston (1) -- $271,288

Waco (62) -- $156,000

Crawford (632) -- $87,588

Lorena (373) -- $85,000

Hallsburg (983) -- $71,800

Pringle-Morse (996) -- $66,500

Dimmitt (451) -- $78,000

Borger (253) -- $92,000

Darrouzett (1013) -- $60,000

Dalhart (361) -- $92,700

West Orange Cove (229) -- Not reported

Port-Neches-Groves (167) -- $116,503

Austin (4) -- $249,384

To get data on a Texas school district:

To check the superintendent's salary of a Texas district:

The TEA website seems to work best by looking up the school district number on the Texas Comptroller's website and then inserting that district number on the TEA website.

Today's articles about Judge Dietz's ruling:
School finance ruling welcomed

School districts across region had joined sit against Robin Hood
By GREG CUNNINGHAM
greg.cunningham@amarillo.com

Wednesday's ruling finding the state's school finance system unconstitutional came as welcome news to school districts across the region.
More than a dozen districts in the Panhandle had joined in the suit against the current system, and superintendents from those districts said they were hoping the ruling would lead to a new, more fair system for funding schools.

"I'm hoping now that the Legislature will look at the entire school-funding situation and determine what is best for all school districts," said Les Miller, Dimmitt Independent School District superintendent. "They need to remember that the small districts need help just like the large districts do."

Dimmitt joined the suit on behalf of the property-poor districts, but numerous property-rich districts also joined the fight against the current funding program. Officials from those districts said the broad spectrum of opposition likely played an important part in the outcome.

"I think that probably made all the difference: showing that all schools, whether we're rich or poor, we're all facing the same financial crisis," said Kent Hargis, superintendent at Pringle-Morse ISD. "We're all at the maximum tax rate, and we all need to generate more income."

That maximum tax rate of $1.50 per $100 property valuation has become a burden for districts across the state, leading many of them to seek relief through the courts, school officials said.

"We are struggling very hard financially," said Linda Rotramel, assistant superintendent at Borger ISD. "We're trying to look very closely at teacher positions and other things, and just running as tight a ship as we can to maintain costs.

"We're squeaking by, but it isn't going to get any better if things don't change."

The issue likely will move to the appeals courts, but if Wednesday's ruling is upheld, school officials said the key to the solution will be getting the state to take on more of the burden of school finance.

"We need to see something that's more adequate," said Darrouzett Superintendent Glen Waldo. "We'd like to see the state contributing more of their share, instead of putting so much of that burden on the local taxpayers."

Another crucial step will be putting the oppositional approach of the courts aside and working together with state officials to come up with a plan that works for everybody, said Dalhart Superintendent David Foote.

"I think they (legislators) have been working hard to find a solution, but now there's a deadline (one year) that will make us all come up with something new," Foote said. "The legislators and all the organizations that represent the schools are going to have to get together and fix it. We all want to be part of the solution."

Sept. 16, 2004, 7:15AM
Judge overturns 'Robin Hood'
State to appeal finding that school financing is illegalBy JANET ELLIOTT
Copyright 2004 Houston Chronicle Austin Bureau

THE RULING
• Decision: State District Judge John Dietz finds Texas' school funding system unconstitutional.
• Action ordered: Dietz gives Texas Legislature a year to devise an equitable school finance plan.
• What's next: State will file a direct appeal to the Texas Supreme Court.

AUSTIN - A state district judge declared the school funding system unconstitutional Wednesday, saying Texas faces a bleak future if it fails to spend more on public education.

"Are we prepared for a future in Texas that is dismally poor, needy and ignorant?" asked Judge John Dietz of Travis County. "The answer is, 'I think not.' "

In a landmark decision that could result in sweeping changes to Texas' tax structure, Dietz ruled that the school funding law violates the Texas Constitution's requirements that the state provide sufficient and equitable funding for public schools.

The judge gave lawmakers until October 2005 to come up with a new system. If they fail to come up with a plan, he said he would halt state funding.

The existing school finance law is the result of a previous court battle over funding equity between property-rich and property-poor districts. It relies heavily on local property taxes and has been dubbed "Robin Hood" because it requires 13 percent of the state's 1,037 districts to share a portion of their revenue with less-wealthy districts.

Associated Press
Judge John Dietz gestures just before pronouncing judgment in the school finance trial Wednesday in Austin. Dietz ruled that Texas' $30 billion system for financing public schools is unconstitutional, and that the state must stop funding education within a year if the Legislature doesn't find a new, equitable method.

The latest lawsuit was filed by both rich and poor districts, who criticized the state for allowing its share of education funding to drop to a historic low of 38 percent as rising local property values and higher school tax rates made up the difference.

But the system does not provide enough money for schools charged with meeting higher state and federal standards, Dietz said. He also said lower test scores among low-income students indicate a widening gap in educational achievement between rich and poor districts.

"The solution seems obvious. Texas needs to close the education gap," Dietz said. "But the rub is that it costs money to close the educational achievement gap. It doesn't come free."

Texas Attorney General Greg Abbott said he would expedite an appeal to the Texas Supreme Court.

"The reality is that just because the education system in Texas is not perfect, that does not make it unconstitutional," Abbott said.

Gov. Rick Perry and legislative leaders pledged to work on a new school finance plan when the next regular session begins in January. There was no indication they would try to meet in a special session before then.

Meanwhile, Education Commissioner Shirley Neeley said schools would operate as usual.

"Learning is still occurring, and funding will continue," said Neeley.

Dietz issued his ruling to a packed courtroom 10 minutes after final arguments in a six-week trial of a lawsuit filed by more than 330 school districts. Houston, Katy, Spring Branch, Cypress-Fairbanks and Humble were among the districts that sued the state.

"This is a victory for the children of Texas," said David G. Hinojosa, staff attorney for the Mexican American Legal Defense and Educational Fund, which represented some of the plaintiff school districts.

Many of the districts that sued the state have been forced to tax at the statutory cap of $1.50 for school maintenance and operations. They argued that amounts to an unconstitutional statewide property tax, and Dietz agreed.

"These districts have lost all meaningful discretion for setting the tax rate for their districts," said Dietz.

Dietz also declared that the $30 billion system does not meet the constitutional requirement of being efficient because of a "significant gap of more than 10 points in educational achievement" between economically disadvantaged students and those who are not economically disadvantaged.

"Half of our students in Texas are significantly behind in achievement compared to the other half," said Dietz.

Perry, Lt. Gov. David Dewhurst and House Speaker Tom Craddick all said they will work to find a legislative solution on school finance. The three were unable to agree on how to raise taxes to provide additional funding for schools during a special session called by Perry last spring.

"I will continue to work with legislators to find common ground on property taxes and school finance regardless of how the courts ultimately rule," said Perry.

Dewhurst said he's discussed with Perry declaring school finance an emergency measure in the next regular session. Such a designation would allow lawmakers to avoid legislative rules that can delay passage of bills.

Dietz said that if the state fails to close the gap, it faces a future with a population that will be poorer and will have a higher percentage of Texans likely to be imprisoned or in need of government services.

HISD Interim Superintendent Abe Saavedra said Dietz made the right decision. He said the district has been forced to cut its budget nearly $100 million in the past four years as revenues from the state have steadily declined.

"Clearly, the Texas system of school finance is broken and must be fixed," said Saavedra.

David Thompson, a lawyer with Houston's Bracewell & Patterson who represented the Harris County districts, said he hopes the Supreme Court will resolve the case in a more timely manner than it did with the cases that resulted in Robin Hood. Some of those appeals took years to work their way through the legal system.

Witnesses during the six-week trial included school superintendents and experts who studied student test scores and dropout rates. Several superintendents testified that at the same time the state is implementing a more difficult standardized test, they have been unable to raise any more local property-tax revenue.

Lawyers from the attorney general's office presented evidence that Texas students are getting a good education and are able to meet rising standards. Assistant Attorney General Jeff Rose said during his closing argument that many high schools offer dozens of courses and costly extracurricular activities unrelated to the state's graduation requirements.

Austin reporter Polly Ross Hughes contributed to this report.

janet.elliott@chron.com

9/16/04 Area school officials say funding solution is overdue

Thrilled with decision, area school leaders say relief still in distance

State Loses School Battle

Donna Garner
wgarner1@hot.rr.com