Senator Eliot Shapleigh - El Paso, Texas

Trustees of cash-strapped Texas school districts are being forced by budget deficits to consider the thorny issue of rescinding a local-option homestead exemption that some of them granted to homeowners during easier times.

Across Texas more than 200 districts grant the extra exemption — as high as 20 percent of the residential property value on top of the standard $15,000 homestead allowance — and can legally cancel it without a community vote.

Although eliminating the additional tax break during tough economic times would be unpopular, a letter from Texas education officials has some school districts thinking it might be necessary to make ends meet.

Robert Scott, Texas Education Agency commissioner, told the districts last month that the state — which has often refunded some additional homestead money to the districts — may not be able to afford future returns.

"School districts should not expect automatic continued adjustment and should plan accordingly," the letter reads. "There is no certainty that a surplus of appropriations will exist in future years and even less likelihood in the first year of a state fiscal biennium."

In Tarrant County, only the Crowley, Everman and Hurst-Euless-Bedford districts offer the exemption. None have moved to rescind it, though Crowley discussed it at early budgetary meetings last month.

Crowley, which gives a 10 percent optional homestead exemption, is looking at a $3 million budget shortfall for 2009-10 and is postponing the opening of two new schools for lack of money.

"There has not been any further discussion on [rescinding the exemption], but it has been mentioned," Superintendent Greg Gibson said.

Rebate money

The extra exemption is added after the $15,000 standard homestead exemption available to every Texas homeowner. Districts can recoup half the amount of the extra exemption from the state, but only if the state has enough money left over after paying its other school-finance obligations. Some years they get nothing.

Districts such as Crowley have two potential sources of extra revenue beyond property taxes and state funding, which is capped: They can rescind the homestead exemption or hold a tax ratification election. Crowley board members aren’t considering either option right now. A tax ratification election in Crowley last fall failed.

Crowley had already included the $523,517 in rebate money in its current budget, so it won’t be like extra cash.

Some large districts, including Dallas and Houston, also offer the exemption.

The Cypress-Fairbanks school district near Houston came close to rescinding its 20 percent extra exemption earlier this year, but ran into heated opposition from homeowners.

"It’s understandable that community members would be against it," Gibson said. "We’re in a very similar situation as Cypress-Fairbanks because we too were a growing district that was trapped with a lower per-student allotment when HB1 was passed two years ago." The law known as House Bill 1 forced school districts statewide to reduce their tax rates.

Crowley’s allotment from the state goes from $4,693 per student to $4,909 this year, but Gibson says it’s not enough.

Uneven playing field

The problem began, Gibson said, when districts could no longer receive their funding based on growth of appraised value.

"There was not this hardline targeted revenue system," he said. "We kept that [extra] exemption in place because we felt we were getting the benefit of the growth. The state keeps those dollars now, in the state’s general fund."

The Center for Public Policy Priorities, an Austin-based nonprofit, is opposed to the optional homestead exemption.

It has said the exemption’s benefit is concentrated in the highest income levels, with more than 43 percent of the benefit going to the 20 percent of households whose annual income exceeds $117,899.

"The regular homestead exemption of $15,000 gives a bigger exemption to those households that need it most," said Dick Lavine, the center’s senior fiscal analyst. "Also, it seems like regional competition. The way this panned out, some areas of the state are getting a little more than others."

Lavine said it also costs the state; this year the value lost to the exemption is projected at $428.2 million, according to the state comptroller’s office.

"The real story is that there is such pressure that Cy-Fair and others feel that they would consider rescinding this, because the state’s not providing enough money to pay for the schools we need and the property tax is being pushed to people’s limit," Lavine said.

Crowley: $523,517

Everman: $69,829

Hurst-Euless-Bedford: $68,533

Houston: $2,560,054

Dallas: $852,819

Cypress-Fairbanks: $6,197,516

The state paid a total of $23,586,512 in rebates in 2007.

Source: Annual property tax report, 2008, state comptroller’s office