The Texas Supreme Court declared the state's school finance system unconstitutional Tuesday because school boards lack control over the tax rates they set, handing a partial victory to school districts and prompting what could be major changes to Texas' tax structure.

But the court also ruled that the system does allow enough overall spending on public education to meet the state and federal demands students and teachers face and that money is distributed fairly enough to satisfy the Texas Constitution. Although that decision on overall spending is an immediate setback for school officials who have pressed lawmakers for significantly more money, the high court did warn that the school system is drifting toward an underfunded state.

"The court recognized, as all Texans recognize, that we can and should do a better job of educating students in Texas," said Attorney General Greg Abbott, whose office defended the system in a lawsuit brought by more than 300 districts. "But just because we can do a better job does not mean that the job being done now is unconstitutional."

The court, in its 7-1 opinion, gave the Legislature a June 1 deadline to restructure the tax system, which now relies heavily on local property taxes to pay for public schools. The Legislature is likely to meet in a special session next spring.

In the meantime, the decision will have little immediate effect on the daily operations of the state's $33 billion-a-year school system and its 4.3 million students.

"For the past decade, the Legislature has been shifting the responsibility of funding Texas schools onto local districts and onto the local property tax, but the local property tax can no longer bear this heavy burden," said David Thompson, a lawyer for some of the school districts, including Austin, that sued the state. "The Supreme Court's decision makes clear that it is time for the Legislature to step up to the plate and pay for the high academic standards it has imposed on districts and students."

The court was acting on a ruling last year by state District Judge John Dietz of Austin that the system was unconstitutional for three reasons: because school boards had lost control over their tax rates, because the system lacked enough funding for schools to meet constitutional standards and because districts did not have equal access to money to build and renovate schools.

The Supreme Court did not specifically address the "Robin Hood" nature of the system, meaning the state can continue to require districts that have high property values relative to their student populations to share some of their local tax money with districts that have lower values per student.

But if lawmakers reduce schools' dependence on property taxes to pay for education — a likely outcome of Tuesday's decision — most, if not all, wealthy districts will keep a higher percentage of the dollars they collect, proposals made earlier this year showed.

Forbidden state tax

Under the current school finance system, districts may not set tax rates for the portion of the revenue they use to maintain and operate existing schools any higher than $1.50 per $100 in assessed property value. They may exceed that cap to pay for construction.

Because of a lack of state funding to balance out the local dollars, school districts argued, they have had little choice but to tax at or near the $1.50 cap, robbing them of the tax-setting discretion that prior court decisions have said they must have.

The Texas Constitution forbids a statewide property tax, but the court said Tuesday that that's effectively what the current cap has become. More than 80 percent of Texas students are in districts that tax within 5 cents of the $1.50 cap, including Austin, up from 6 percent of students in 1994.

The court pointed out that districts are spending more than 97 percent of the revenue that would be available if every district taxed at maximum rates, up from 83 percent in 1994.

"The current situation has become virtually indistinguishable from one in which the state simply set an ad valorem tax rate of $1.50 and redistributed the revenue to the districts," said the court's majority opinion, written by Justice Nathan Hecht.

The Legislature, anticipating that the court would order changes in the tax system, tried repeatedly this year to cut property taxes and replace those taxes, dollar-for-dollar, by increasing taxes on consumers and businesses, such as the sales tax and a proposed payroll tax. Most of the plans benefited higher-income Texans, according to legislative analyses.

They never approved a final plan because House and Senate leaders could not agree on whether businesses or consumers should bear the brunt of the increase. But the proposals floated during the regular legislative session and two special sessions generally gave voters the option of adding slightly to their school districts' tax rates — an option intended to make sure communities are able to raise more money if they want.

Some school officials argued that schools would need that extra money just to meet minimum standards on such things as the state tests that students must pass to graduate or be promoted. The court decision warned against that, which school lawyers interpreted as a call for larger funding increases than state leaders have pushed.

"The state cannot provide for local supplementation, pressure most of the districts by increasing accreditation standards in an environment of increasing costs to tax at maximum rates in order to afford any supplementation at all, and then argue that it is not controlling local tax rates," the court's opinion said.

Warning on adequacy

On the question of whether Texas students are receiving an adequate education, Dietz had ruled that there was not enough money in the system overall to provide the "general diffusion of knowledge" that the constitution requires.

But the Supreme Court said in its ruling Tuesday that Dietz did not find that such a diffusion is impossible in the current system, just that the state has not provided enough money to get there.

The court warned that "substantial evidence" suggests that continued improvement will not be possible without significant change, although it did not limit its definition of change to an increase in spending. School district lawyers said the court's warning was another call for more education spending.

Gov. Rick Perry downplayed talk of spending increases.

"The court also made note of an important point: While the $10 billion in increased funding Texas has provided for education since 1999 has had a positive and measurable impact on our schools, it is possible for the Legislature to implement new reforms that will improve student success without necessarily spending additional dollars," Perry said.

The governor did not say when he would call lawmakers back for a special legislative session. The fact that a Perry-appointed commission studying the state tax system held its first meeting Monday suggests such a session is several months away, perhaps after the March political primaries. Perry is among the incumbents running for re-election.

The Supreme Court rejected the state's argument that judges should stay out of this discussion and bow completely to the Legislature on questions of adequate funding for education.

"Had the state won that argument, adequacy would have been off the table forever," said Mark Trachtenberg, a lawyer for school districts. "When the Legislature meets again, it is going to meet knowing it has a constitutional duty to provide an adequate education that is enforceable in the courts."

Next: more litigation?

Dietz had also called the school finance system unconstitutional because some property-poor school districts don't have the same access as other districts to money to build facilities.