Optional Homestead Exemption, Part 2

by Coy Holcombe.  

Yesterday, we talked about the fact that TEA announced plans to fund the optional homestead exemption for districts that offer such an exemption. Today, we will look at the impact that this will have on EISD. Below is the breakdown that compares using the T2 values (without the homestead exemption being funded) with the T4 values (with the optional homestead funded):

With T2 value:
Available =           $372,317
Foundation =       $4,982,453
Total =                  $5,354,770
With T4 value:
Available =          $372,317
Foundation =      $5,017,696
Total =                 $5,390,013
Gain = $35, 243
This gain is a result of an increase in Tier I funding and an increase in Tier II funding. The Tier I funding increase occurs because our local share decreases. The local share is subtracted from our total Tier I aid. So, as it decreases, our state aid increases. The Tier II aid is based on tax effort. With a lower overall value, but with the same tax base, we would have more tax effort. This increases our Tier II yield.
While any additional state aid is appreciated, the $35,243 is a very modest increase. Why isn’t the increase more? After all, our T2 value was $437,968,189 and our T4 value decreased to $417,510,752. That’s a difference of over $20,000,000. To see why this decrease in value did not affect our state aid more, we need to look at a number in the calculations called "Additional State Aid for Tax Reduction" (ASAFTR). This funding amount was introduced to compensate schools for the loss of local tax revenue when the tax rate was compressed. It is also a driving component in the hold harmless system. Under the 08-09 funding system, districts are funded based on target revenue. Anything that increases funding in one area is likely to decrease the funding in another area, especially the ASAFTR.
With the T2 values, our ASAFTR was $1,527,435; however, when we substitute the T4 value into the formulas, the ASAFTR decreases to $1,329,672. Bottom line: while we will realize a modest increase in state funding, unless the calculations are changed, the majority of the increase will be offset by a corresponding decrease in the funding amount for ASAFTR.

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