As the Killeen school district seeks a second round of taxpayer-funded bond money, it’s facing a loss of federal money and uncertainty over two key state sources.
The district expects to lose a total of about $30 million in federal money over the next five years and has no guarantee state House Bill 3 money and recapture funds, nicknamed Robin Hood funds, will continue.
The district receives a total of around $46 million to $47 million annually from federal Impact Aid, and the district’s total state funding revenue is just over $314 million, according to the district’s spokeswoman Taina Maya.
Property tax, by comparison, raises about $70 million a year.
The total state revenue included money from House Bill 3 funding and recapture funds, but the district doesn’t have specific figures for those two sources, Maya said.
Dax Gonzalez with the Texas Association of School Boards, said via email it is hard to determine the impact on Killeen if HB3 and recapture funding sources were cut.
“Any cut would be at the discretion of the Legislature. Just like any reduction in revenue — whether it be from a state funding cut, loss of Impact Aid, or loss of some other source of funding like IDEA (Individuals with Disabilities Education Act) or CTE (Career and Technical Educational) allotments — a school district would need to either draw money from its fund balance; reduce staff, programs, and services; increase its tax rate; or, most likely, implement all three to some extent if the loss is significant enough,” Gonzalez said.
KISD has about $115 million in its reserve fund, according to a 2018 financial report on the district’s website. That would cover about three months of operating expenses, Maya said.
House Bill 3 was passed as part of the 86th legislative session this year and provided additional state funding to Texas school districts. To receive money from HB3, Texas school districts had to reduce their maintenance and operations tax rate to reduce the property tax burden on residents within the school district.
KISD reduced its maintenance and operations tax rate from $1.04 to 97 cents in accordance with HB3. That tax rate is solely for the maintenance and operation of the school district and is not related to the bond debt service portion of property tax. Maya said the bond is the district’s only current debt.
The next legislative session will be in 2021, and the current legislature cannot allocate money for a future legislature. Therefore, there is no guarantee the HB3 funding will be available after 2021.
Gonzalez said, “It is certainly possible that the state will not have enough revenue to maintain funding levels set in HB 3 last session. This would require the state to reduce overall funding, which would likely impact most districts equally – at least with regard to the basic numbers.”
State District 54 Rep. Brad Buckley, R-Salado, said the intent is to continue funding at the same level that HB 3 requires as the years go on. It is a lot of speculation to talk about HB 3 funding going away, said Buckley, a former Killeen school board member who serves on the House Appropriations Committee .
Another source of state funding is recapture funding, known as Robin Hood funding because the state takes money from wealthier districts and gives it to poorer districts.
Gonzalez provided more details on Robin Hood funding.
“Districts in areas with properties valued at lower levels than other districts are provided more state assistance for their students than districts in areas with higher property values,” Gonzalez said. “The state recaptures what it deems excess property tax revenue and uses that to help support its public education expenditures.”
Austin ISD is an example of a property rich school district and it has funds recaptured by the state. The Texas Education Agency divides the funding among school districts like KISD to make up for their lower property tax revenue.
The method has some political opposition as property rich districts have said they also struggle to fund schools. For example, Austin ISD took out a $1 billion bond in 2017 to fund schools.
Federal Impact Aid likely will drastically decrease because KISD’s growth is coming from the private sector, not federally connected families.
The amount of money allocated is based on the percentage of students within the district that are connected to the military.
Federal Impact Aid or Heavy Impact Aid is a legal statute under the Elementary and Secondary Education Act of 1965. It replaces funding that districts lose because a portion of their local tax base is on federal, property tax-exempt land.
KISD has received $46 million to $47 million of heavy Impact Aid annually in recent years based on the percentage of students connected to Fort Hood. KISD has transferred that money into its strategic facilities fund every year to help build new schools or use for other projects.
That source could be drastically reduced by school year 2021, because the percentage of federally connected students is close to falling below the 35% required to receive the heavy Impact Aid, according to estimates provided by KISD Superintendent John Craft.
The number of federally connected students has remained about the same but the number of other students has increased, according to Maya.
The district already has $47.78 million budgeted for fiscal year 2019-20 and $46.6 million budgeted for FY 2020-21 from heavy Impact Aid. If the district does fall under the 35% threshold, it will begin receiving less money each year starting in fiscal year 2021-22. The district would receive $41.94 million in that year, $35.65 million in 2022-23, $28.52 million in 2023-24 and $16.7 million in 2024-25. The district would continue to receive around $16.7 million from Impact Aid annually.
“The district anticipates a gradual reduction over the course of several years resulting in a net loss of 25mm-30mm ($25 million to $30 million) annually if Heavy Impact Aid is cut,” Maya said in an email. The district would have to reduce expenditures and would look to cut expenditures in areas that would have the least impact on the classroom, according to Maya.
The district could raise its current maintenance and operations tax rate from 97 cents to $1.04 without voter approval. If the district wanted to raise the M&O rate higher than that, it would have to be voter approved in a Tax Ratification Election, according to the Texas Association of School Boards. The highest the M&O rate can go if it is approved by voters is $1.17.
Scot Arey, a member of the bond steering committee, said that tax increases are coming on the maintenance and operations side when the district loses heavy Impact Aid.
If that happened and a bond is approved in 2020, taxpayers would see an increase in their taxes on the debt service side and the M&O side.
Arey also mentioned the demographics of the bond steering committee. He said that around half of the committee is 65 years old or older, and they would not be responsible for paying the taxes from a future bond.
NEW BOND PROPOSAL
KISD is looking at a second bond election in two years as it goes through the process of getting the new bond election on the ballot for May 2020.
Taxpayers are currently paying back the debt for two school bonds totaling $426 million that were approved in an election May 2018. Residents will be paying the taxes for that bond for the next 25 years, and the projects associated with the bond, headlined by the new high school in south Killeen, will be completed in 2022.
The new bond has had estimates ranging from $180 million to $343 million from Craft and the school district.
The $343 million estimate includes three new elementary schools, a new middle school, the rebuilding of Harker Heights and Peebles elementary schools and athletic stadium upgrades at Shoemaker, Ellison and Harker Heights high schools. The improvements to the athletic stadiums would have to be a separate bond issue from the instructional facilities so the total instructional facilities bond would be $283 million.
Derek Honea with RBC Capital Markets gave a presentation at the last bond steering committee meeting Dec. 3 that provided estimated debt service tax rates if the new bond was $275 million. This estimate included current state and federal funding.
The district’s current debt service tax rate is around 19 cents. If the bond was $275 million, the debt service tax could rise around 10 cents to just under 29 cents. That would put the district’s total tax rate at around $1.26 per $100 valuation, assuming Impact Aid and state funding remained at current levels . The current tax rate is $1.16 per $100 valuation.
Federal Heavy Impact Aid to KISD could decline starting in 2021-22 if the percentage of Fort Hood-connected students falls below 35% of all KISD students. KISD received $47.78 million this year from Impact Aid and expects about the same next year.
2021-22: $41.94 million
2022-23: $35.65 million
2023-24: $28.52 million
2024-25: $16.7 million
Source: KISD Superintendent John Craft