Target Revenue

In some recent posts, I have talked about the target revenue used in the calculations of state aid for school districts. Today, I want to talk about the general concept of target revenue and how it got into education finance.

Basically, target revenue came about from the Texas Supreme Court’s decision regarding school finance in 2005. In response to that ruling, the Texas Legislature passed House Bill 1. In this bill, tax rates for maintenance and operations (M & O) were “compressed” to offer relief for property owners. Prior to HB 1, the maximum M & O rate that a school district could adopt was $1.50 (note: the M & O rate does not include the rate necessary to pay for voter approved bonds. This is a separate rate called interest and sinking, or I & S). Following the passage of HB 1, the M & O rate, for most school districts, was compressed down to a maximum rate of $1.00. This happened over a two-year period.

With the compression of the tax rate, came a loss of local revenue in the form of decreased property taxes. To offset this, the state provided a “hold harmless” provision that substituted state aid for the loss in local tax revenue. Theoretically the revisions that the state made to the business tax were supposed to provide this additional state aid.

Target revenue came about in 05-06 to ensure that a school district would not realize a loss in funding due to the decrease in property values. Target revenue looked at several factors in school districts 05-06 funding, such as revenue per student in weighted average daily attendance, salary increases for teachers, and other state funding mechanisms.  Target revenue was designed to be a short term solution until a better model could be developed.  However, target revenue remains as the driving force behind the current state funding model.

Now, how did EISD end up with such a low target revenue? In talking with various experts, all seemed to focus on the fact that EISD has and continues to offer an optional homestead exemption for property owners. This optional homestead exemption is on top of the state exemption of $15,000. In essence, because EISD has been trying to keep property taxes as low as possible by offering the optional homestead exemption, it hurt EISD because the state looked at it as we were not fully utilizing the property taxes of the district. So, EISD has been stuck with a low target revenue based on aid received from the 05-06 school year.

Yet, EISD has achieved the rating of “Exemplary” and our campuses continue to garner other recognitions for academic achievement. Regardless of the situation, we will never make excuses for not providing our children with a “World-Class Education”! I hope everyone has a great weekend!

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