The Texas Legislature has now been given another deadline – June 1, 2006 -- to come up with a constitutional funding system for the state’s public schools.  As expected, the state Supreme Court ruled Tuesday that the current system of funding schools from local property taxes is unconstitutional.

Yet, while the Court ordered an overhaul of the tax system, it did not rule that lawmakers must order vast new spending for public education.  Rather, it found not enough evidence that facilities in poor districts are underfunded by the current system that provides about $33 billion a year for public schools.

Simply put, the court ruled that the state’s control of local taxation, which requires rich districts to contribute money to poor districts, amounts to a state property tax. This is true because the current school property tax rate cap of $1.50 per $100 valuation has been reached in too many districts.

The court ruling notes that 48 percent of Texas districts, with 59 percent of the students, are taxing at the cap, and 67 percent of the districts, with 81 percent of the students, are taxing at or above $1.45.

Writing the 7-1 majority opinion, Justice Nathan Hecht notes: “The current situation has become virtually indistinguishable from one in which the State simply set an ad valorem tax rate of $1.50 and redistributed the revenue to the districts.”

He also writes:

“The tax rate cap that makes the public education funding system a state property tax is also intended to keep the system efficient. The two roles of the cap are inseparable. To remove the cap so as to allow districts meaningful discretion in setting tax rates at higher levels would be to increase the revenue disparity among the property-rich and the property-poor districts, creating the financial inefficiency that the cap is intended to prevent…The constitutional violation cannot be corrected without raising the cap on local tax rates or changing the system.”

It is clear that the system must be changed, and that is what John Sharp’s tax restructuring commission is looking into. The former comptroller, appointed to head the commission by Gov. Rick Perry, has said that businesses are willing to pay more for public schools in order to reduce the reliance on the property tax – if the system is fair. The hope is that his commission can recommend a restructured system that the Legislature can agree on.

Lawmakers couldn’t agree in the regular session earlier this year, nor in two special sessions called by Gov. Perry. But the court-imposed deadline of June 1 puts the pressure on the Legislature to unite behind a new system in time for districts to plan for the 2006-2007 school year.

Justice Hecht, in the majority opinion, recalls language of the U.S. Supreme Court ruling in the San Antonio ISD v. Rodriguez case, which was the first case to challenge the constitutionality of the public school finance system in Texas more than 30 years ago:

“The need is apparent for reform in tax systems which may well have relied too long and too heavily on the local property tax. And certainly innovative thinking as to public education, its methods, and its funding is necessary to assure both a higher level of quality and greater uniformity of opportunity. These matters merit the continued attention of the scholars who already have contributed much by their challenges. But the ultimate solutions must come from the lawmakers and from the democratic pressures of those who elect them.”

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