Legal history of school finance in Texas
by Lavang Zehawi, J.D.
A detailed legal history of school finance in Texas is given on a separate page. We give a brief overview here.
School finance decisions in the last fifty years can be categorized within three different “waves” of school finance litigation, starting in the late 1960s (Evans, Murray, and Schwab, 1999, 72-73; Heise, 1995, 1736; Dinan, 2009, 96-97).
The first wave consisted of federal equity claims filed under the Equal Protection Clause in the United States Constitution (U.S. Const. amend. XIV, § 1). This wave ended with the 1973 United States Supreme Court decision San Antonio Independent School District v. Rodriguez (Dinan, 2009, 97). In its 5-4 decision, the court ruled that education is not a fundamental right protected under the U.S. Constitution. Additionally, the court ruled that the Texas school finance system did not institute wealth-based discrimination because wealth, unlike race, was not a "suspect classification" under the Constitution (San Antonio Indep. Sch. Dist. v. Rodriguez, 1973, 29-39, 44-53).
The second wave (1973-1988) was grounded generally on state equity arguments (Dinan, 2009, 97). After Rodriguez, rather than focusing on federal equal protection rights, school finance reform advocates focused on state equal protection rights, as all state constitutions contain clauses concerning education. School finance reform plaintiffs argued that education was a fundamental right under their respective state constitutions and therefore would call for state equal protection analysis (Buszin 2013, 1619). State courts in favor of the plaintiffs held that education was a fundamental right or that wealth was a suspect classification. However, most state courts during the second wave period upheld school finance systems through the Rodriguez decision (Dinan, 2009, 98; Buszin, 2013, 1620).
The third wave (post-1989) primarily consisted of adequacy challenges based on education clauses in state constitutions (Dinan, 2009, 98). Plaintiffs generally claimed that school finance systems provided insufficient and minimally adequate educational resources as prescribed by state constitutions (Buskin, 2013, 1621). For example, in Texas, third wave suits revolved around the state constitution’s education provision, which was interpreted to require that different districts have similar and adequate educational resources. But redistribution of resources from rich districts to poor districts led to challenges grounded in the state’s 1982 constitutional prohibition of a state property tax (TTARA ,2012, 25).
The Edgewood cases and the “Robin Hood” system
In Edgewood I (1989), the Texas Supreme Court ruled in favor of plaintiffs who argued that there was great variance in school districts’ property tax rates, as school districts with lower tax rates were able to gain more revenue because of the type of properties located in their districts. The court ruled that Texas’ school finance system violated the state constitution education provision requiring maintenance of an "efficient" system so as to achieve "general diffusion of knowledge." In order for the education system to be “efficient,” school districts need "substantially equal access to similar revenue per pupil at similar levels of tax effort" (Edgewood Indep. Sch. Dist. v. Kirby, 1989).
After the ruling in Edgewood I, there was a sequence of legislative actions by the Legislature to revise Texas’ school finance system (National Education Access Network 2016). The first two legislative responses in 1990 and 1991 were ruled unconstitutional by the Texas Supreme Court in Edgewood II and III. The third legislative response, SB 7, was ruled constitutional in Edgewood IV (1995).
SB 7, the "Local Option Plan," better known as the "Robin Hood" system, called for the partial recapture of local revenues from property wealthy districts to be redistributed to property poor districts (National Education Access Network, 2016).
Texas state property tax litigation (2001-2006)
The M&O tax rate was viewed as a state property tax because a great number of districts were taxed at the cap and did not have local authority, or meaningful discretion, on how to otherwise raise funding (TTARA, 2012, 25). The district court held in 2004 in West Orange-Cove I the following: 1) the school finance system failed to provide an adequate and efficient education system as required by the Texas Constitution and 2) the tax rate system was unconstitutional because it was essentially a state property tax (National Education Access Network, 2016).
In Neeley v. West Orange-Cove Consolidated ISD (West Orange-Cove II) (2005), the Texas Supreme Court upheld the district court's ruling that the $1.50 M&O tax rate cap was unconstitutional because it constituted a state property tax, as school districts did not have meaningful discretion in setting their own local M&O tax rates (Neeley v. West Orange-Cove, 2005; TTARA, 2012, 26-27).
However, the court found that the school finance system did not violate the state constitution education clause. The court stated that the state met its constitutional obligation to provide students an adequate education through its school finance system based on evidence of students’ improvement on standardized tests (Neeley, 2005, 789; Kronberg, 2005).
In 2006, the Texas Legislature responded to West Orange-Cove II with HB 1, which gave school districts “meaningful discretion” in setting tax rates. HB 1 compressed M&O tax rates by one-third and provided school districts a minimum of $0.17 taxing authority above the compressed M&O tax rate that school districts can access at their own discretion. As a result, HB1 provided districts local authority and meaningful discretion in setting tax rates (TTARA, 2012, 26-27; Equity Center, 2016).
Recent Texas Supreme Court decision
The 2016 suit Morath, Commissioner of Education, et al. v. Texas Taxpayer & Student Fairness Coalition, et al. (2016) stemmed from the Texas Legislature’s $5.4 billion cut in education funding in 2011, as well as lawsuits filed by over 600 school districts since 2001, claiming that the “Robin Hood” school finance system in which property wealthy districts share local property tax revenue with property poor districts was unconstitutional (Morath, et al., 2016; Collier, 2016).
Plaintiff school districts argued that the 2011 $5.4 billion cut resulted in unfairly distributed funding and forced districts to tax at the maximum rate to provide a basic education to its students, resulting in the school districts lacking meaningful discretion in setting their own tax rates and a violation of Texas' constitutional prohibition of a state property tax (Morath, et al., 2016; Strauss, 2016; Collier, 2016).
In Morath, the Texas Supreme Court unanimously ruled that the school finance system was constitutional, while urging the legislature to reform the current system. "Our Byzantine school funding 'system' is undeniably imperfect, with immense room for improvement," stated Judge Don Willett, “but it satisfies minimum constitutional requirements (Collier, 2016). The court declined "to usurp legislative authority by issuing reform diktats from on high, supplanting lawmakers' policy wisdom with our own," thereby leaving the question of overhauling the school finance system at the discretion of the Legislature (Morath, et al., 2016, Isensee, 2016).