Cy-Fair ISD facing decision on tax breaks
With financial shortfall looming, home exemption might be reduced
Posted on Saturday, April 26, 8:54 PM CST
By Ericka Mellon
Cy-Fair homeowner Lisa Lee feels conflicted: She loves the 20 percent discount on her school property taxes, but she also wants the best education for her two children.
The Cypress-Fairbanks Independent School District is one of a few statewide that for years has given homeowners the maximum tax break allowed by law. But now district officials are facing a multimillion-dollar shortfall next year and possible layoffs.
If the school board wanted to eliminate the tax discount, known as the optional homestead exemption, it could. And Cy-Fair likely would have millions more in its coffers.
But Superintendent David Anthony said last week he doesn't think local homeowners should have to pay for what he and many other school leaders consider a seriously flawed state funding system. And Lee, the Cy-Fair mother who also is a certified financial planner, agrees.
"I don't think the district should be penalized by the state because of the homestead exemption," she said.
Statewide, about one in five districts has chosen to grant homeowners the exemption. Most give the maximum 20 percent discount, though some go as low as 1 percent, based on 2006 data from the state comptroller's office.
Anthony said he doesn't plan to ask trustees to revoke the optional 20 percent exemption, which saves homeowners an estimated $46 million a year. For one, he said, he has no written guarantee that the district would get to keep any extra tax money it would collect.
State Rep. Scott Hochberg disagreed. The Houston Democrat said a bill he passed last year does, in fact, ensure districts would get more money if they revoke or reduce their tax exemptions (or less money if they increase them).
TEA weighs in
The Texas Education Agency still is writing the rules on the issue, but Lisa Dawn-Fisher, the agency's deputy associate commissioner for school finance, said districts can expect additional funds if they stop giving homeowers the optional tax break.
"It was a question prior to 2007," she said, "but that bill made it very clear that (districts) would have access to the additional revenue they would generate if they reduced or eliminated their optional homestead exemption."
In the Houston area, eight of the 20 largest districts — including Houston ISD, Cy-Fair, Pasadena and Spring Branch — grant 20 percent or 10 percent exemptions. That's on top of the $15,000 taxable value break that all homeowners are guaranteed under state law.
Under the Texas school funding system, districts get money based in part on their ability to collect property taxes. But the formula does not credit those districts that collect less because they offer the optional tax breaks.
To some, that makes sense. "They chose to offer it," said Hochberg, vice chair of a special House committee formed to review school finance. "If the state were to pay for that, then it wouldn't be a locally determined homestead exemption anymore because everyone would take it, and everyone would take it at the maximum rate."
Others, including state Sen. Dan Patrick, R-Houston, and Rep. Dan Branch, R-Dallas, countered that districts should get credit for granting extra tax relief.
"It's something we ought to work to end so these school districts don't get penalized," said Branch, who chairs that special school finance committee.
The Houston school district, the largest in Texas, has had the maximum 20 percent tax break in place since 1987, and that saved homeowners an estimated $97 million last year, according to the district.
"The homestead exemption is the biggest tax relief we give to taxpayers, and to me it's sacred," HISD board President Harvin Moore said.
Cy-Fair relies on residences
In Cy-Fair, the tax break to homeowners is especially costly because so much of that school district's property values come from residences rather than businesses.
To Anthony, it seems odd that state lawmakers have promoted taxpayer relief but don't reward districts that grant it. Faced with legal challenges, the Legislature required districts to cut their tax rates as part of a revamp of the school funding system in 2006.
Now, many school leaders, and even some lawmakers, are increasing their calls for major changes during the 2009 legislative session.
Districts are especially hurting, they say, because the funding system essentially capped per-pupil funding and doesn't include extra money for inflation.
School boards, though, can ask voters to approve a tax increase, and some already have done that.
"So far I've not heard that any grand overhaul is being designed," said state Rep. Rob Eissler, R-The Woodlands, who chairs the House Education Committee. "Of course ... school finance has never been altered without the threat of the courts."