Budget Basics

School finance in Texas and what it means for Round Rock ISD

As the only school district in Texas to earn a AAA Credit Rating by both Moody’s and Fitch, Round Rock ISD currently operates on a $445.4 million general operating budget. With declining contributions from the state due to the current school finance formulas and their reliance on property values, coupled with other decisions made by the Texas Legislature, Round Rock ISD has faced budget challenges in recent years that will only become more pronounced in the future.

Round Rock ISD’s  budget is divided into two main funds:

1) maintenance and operations, also called the M&O fund

2) interest and sinking, also called the I&S or debt service fund

Money in the maintenance and operations fund is used for daily operations (i.e. salaries, supplies, utilities, etc.).

Money in the interest and sinking fund is used to repay bonded indebtedness. School districts hold school bond elections to obtain authorization from local voters to sell bonds for capital projects.  Taxes are collected for the repayment of the bonded indebtedness. Monies from the bond sale are used for construction and capital improvements to facilities and to buy furniture, equipment and/or to purchase land.

The money collected on the I&S side of the ledger cannot be used for maintenance and operations costs.  Simply put, you cannot use I&S funds to pay salaries, which account for more the 80 percent of the District’s budget.

Have a budget question or interested in hearing a budget presentation at your school or community group? Contact us.

 

Chapter 41 or Robin Hood

Currently, Texas is operating under the Recapture or “Robin Hood” system, where districts deemed “property wealthy” must send money back to the state of Texas to be distributed to districts deemed “property poor.” As property values have gone up in Texas, state funding for schools has gone down—and now Round Rock ISD must send money back to the state because of rising property values. Recapture payments are intended to go toward other school districts, but in effect, simply reduce the amount of funds that the state must contribute to public education.

While the Board of Trustees has decreased the debt service portion of the tax rate over the past five years, the Board is limited in its ability to adjust the maintenance and operations tax rate which represents 80% of the total tax rate.  So with many homeowners property values increasing, even with a reduced total tax rate, the amount paid for school taxes has increased. Unfortunately, the state of Texas is the beneficiary of those value increases, not Round Rock ISD.

Download How “Robin Hood” affects Round Rock ISD infographic

District Impact

Round Rock ISD must make a recapture payment to the state of $32.3 million in 2018-19. For 2019-20, the recapture payment is estimated to be $58.2 million.

Taxpayers may be writing a larger check to Round Rock ISD for taxes, but the District does not get to keep all of it. The system is designed to put a greater financial burden on taxpayers for funding schools while the state’s contribution decreases.

2018-19 Tax Impact

The average homeowner’s tax bill that will be sent to the state as “Robin Hood” payments:  $277

2019-20 Tax Impact

The average homeowner’s tax bill that will be sent to the state as “Robin Hood” payments:  $473

Funding Allocation for Public Education

%

2008 state funding allocation

State Funding: 50%
Local Funding: 50%

%

2019 state funding allocation

State Funding: 39%
Local Funding: 61%

The Solution

Reversing the increasing flow of local taxpayer dollars to the state’s budget rests with the Texas Legislature. It requires additional funds from the state and a commitment to higher prioritization of public education in order to ensure an educated workforce for the future of Texas.

What can you do?

Staffing Study

Round Rock ISD engaged Gibson Consulting Group Inc. to conduct a Staffing Evaluation and Analysis beginning in October 2017. The report was presented to the Board of Trustees in March. The purpose of the evaluation was to evaluate staffing resource allocations and identify opportunities for improved efficiencies, given long-term financial outlooks which include a state school finance system that does not adequately fund public schools.

Overall, the results show that Round Rock ISD is more richly staffed than many of our peer districts, though the report acknowledged intentional programmatic differences that may require different staffing levels.  The District will fully evaluate all recommendations. In the meantime, we are soliciting suggestions from District staff on potential efficiencies in the District.

Have suggestions? Contact us.

Budget FAQs

What makes up a district tax rate?
A school district’s tax rate consists of two parts: 1) Maintenance and Operations (M&O) and 2) Debt Service (I&S). Maintenance and operations taxes fund the General Operating Fund, which pays for regular operating expenditures of the District such as salaries, supplies, utilities, insurance, equipment and other costs. The Debt Service tax pays for school bonds and can be used only to retire the principal, interest and expenditures of bonds sold for specific purposes. The Board of Trustees adopts the tax rate each year, typically in September.
What makes up a district budget?
Round Rock ISD’s  budget is divided into two main funds: 1) maintenance and operations, sometimes called the M&O fund 2) interest and sinking, sometimes called the I&S or debt service fund Money in the maintenance and operations fund can be used for daily operations (i.e. salaries, supplies, utilities, etc.). Money in the interest and sinking fund is used to repay bonded indebtedness. School districts hold school bond elections to obtain authorization from local voters to sell bonds and collect taxes for the payment of the bonded indebtedness. Monies from the bond sale are used for construction and capital improvements to facilities and to buy furniture, equipment and/or to purchase land. The money collected on the I&S side of the ledger cannot be used for maintenance and operations costs. By Texas law, you cannot use I&S funds to pay teacher salaries.
What are bonds? How long does it take to pay them off?
School districts can only sell bonds if authorization is received by voters.  A bond is a debt instrument in which an investor loans money to the District. The proceeds from the bond are used to finance capital projects and other long term items.  The District repays the principal of the bonds, along with interest, over a period of time. Under current Texas laws, the maximum maturity of a bond is 40 years.  However, the maximum maturity ever issued by Round Rock ISD is 25 years, even though projects financed by the bonds have a longer life than 25 years.  When a bond sale occurs, many bonds are issues with maturities that range from 1 to 25 years. Assets financed by the bonds that have a shorter asset life, are sold with shorter maturities that align with the asset’s useful life (example:  technology devices).
What are fund balances?
School districts are required to use “governmental fund accounting” to track the sources and uses of funds. Texas school districts typically have up many types of fund accounts, each of which consists of three components: assets – the fund’s economic resources; liabilities – the district’s financial obligations associated with a particular fund; and fund balance, the value of the assets that remain after accounting for liabilities. Round Rock ISD maintains a sufficient fund balance in order to maintain operations during periods of negative cash flow. The use of nonspendable and restricted fund balance is limited by externally enforceable limitations such as law and regulations. The Board of Trustees allocates committed and assigned portions of fund balance for specific purposes. This includes funds for emergencies, small capital projects, one-time items and educational equipment, including musical instruments. The District’s Board Adopted Fiscal and Budgetary Strategy requires a minimum unassigned fund balance of 25 percent of budgeted operating expenditures.  Due to the timing of receipt of payments from the state of Texas and tax collections, sufficient reserves are necessary to meet ongoing monthly expenditures.
Can the District use fund balances as a “rainy day” fund?
Fund balances are not a “rainy day fund.”  A fund balance is the amount of assets the District has in excess of its liabilities.  These assets are not entirely liquid. They do include cash and investments, but also include delinquent taxes, accounts receivable and inventories.  Further, the amount within a fund balance fluctuates considerably throughout the year. When a district reports a fund balance, it is a snapshot in time that will change as assets are collected and financial obligations are met.  Districts like Round Rock that have a June 30 fiscal year end, will have larger fund balances represented simply due to timing.
Can a school board use the fund balance in any way they deem fit?
School Boards do have discretion over the use of fund balance.  However, as noted above, not all of fund balance represents liquid assets available for spending.  In addition, due to the timing of cash flows, 85% of revenues are not due or received until six to seven months into the fiscal year, while expenditures are relatively even each month.  Therefore, a large portion of unassigned fund balance, which the Board has discretion over, is used to cover expenditures during times of negative cash flow. The other portions of fund balance (nonspendable, restricted, committed, and assigned) have limitations on spending.

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