On November 6, voters in the El Paso Independent School District (EPISD) residential area will decide whether to approve a change to the district’s local property taxes. The district has proposed a “penny swap” that would generate about $7 million.
While the proposal has been met with some opposition, the penny swap would bring much needed resources to our community. Importantly, if the proposal passes, our publicly elected school board members would be responsible for holding district leaders accountable for the judicious spending of these funds.
How does the penny swap work? UTEP College of Education students who have taken my school finance course, or my school budgeting course, should understand the process. For many others, a little bit of background on school finance is warranted.
Property taxes are typically described in dollar terms, where a 1.07 percent property tax is the same as a tax of $1.07 for every $100 of property value. As with most states, districts in Texas raise funds through two types of local taxes, one is the maintenance and operations tax (M&O), which pays for employee salaries and other ongoing expenses, and the other is the interest and sinking tax (I&S), which pays for debt that districts take on for capital projects like school building construction and upgrades.
The EPISD penny swap proposal would move 10 “pennies” from I&S taxes to M&O taxes. The M&O rate would increase from $1.07 to $1.17 and the I&S rate would decrease from $0.24 to $0.14, with no change in the overall property tax rate that El Pasoans pay.
The penny swap benefits the district for two reasons. First, the district can use that extra M&O tax revenue to pay for ongoing expenses, rather than pay off debt. A penny swap typically becomes possible when a district refinances debt or otherwise lowers interest payments. Second, the Texas school finance system provides matching funds for low-wealth districts like EPISD and others in our region. But those matching funds are primarily for M&O tax revenues, not I&S tax revenues, so swapping pennies from I&S to M&O tax revenues brings significantly more money from Austin to El Paso.
There is a key issue missing from the recent discussion about the penny swap. The Texas school finance system is one of the least equitable in the country. In Texas, districts serving wealthier students receive more funding than those serving higher numbers of students in poverty. What does that mean for El Paso? In a recent policy brief published by the UTEP Center for Education Research and Policy Studies, we explained that our region is the most underfunded in the state.
In many states, like California, Massachusetts, Minnesota, and New Jersey, state legislators have made a concerted effort to ensure that students born in poverty have equal educational opportunity. In El Paso, students have many educational opportunities because of well-designed educational programs, but those opportunities have resulted in spite of, not because of, state funding for education.
But does money really make a difference? Yes, of course it does. Throughout the 1980s and 1990s, some researchers argued that districts receiving more funding did not have better outcomes. Many of those researchers served as expert witnesses on behalf of states in school finance supreme court challenges.
The past decade has seen a paradigm shift in how researchers understand the role of school resources. The resounding consensus among scholars is that additional funding targeted to high-need students increases test scores, graduation rates, college enrollment, and labor market earnings.
Individuals will need to decide for themselves how to vote on the penny swap election. A smaller, three-cent penny swap vote in EPISD passed in 2015 with 81% approval. However, the current tax ratification election has received some resistance. Many community members are skeptical that the district will follow through with the proposed spending plans, and the result of this election is currently uncertain.
What is much clearer from the educational research conducted at UTEP and elsewhere is that students in our region attend severely underfunded schools. While local school districts have found ways to target resources and create programs that promote success among El Paso students, bringing in much needed additional funding, and ensuring that funds are allocated effectively will strengthen and expand educational opportunity in our region.
Author: David S. Knight, PhD
David S. Knight, Ph.D. is the Associate Director of the Center for Education Research and Policy Studies and an Assistant Professor at The University of Texas at El Paso. His research focuses on economics of education and school finance.
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