Houston ISD administrators on Monday forecast a budget deficit of about $76 million in 2019-2020, which would require a second consecutive year of significant cuts and a freeze on virtually all employee salaries.

District leaders cautioned that the projected deficit could be reduced in the coming months if conservative estimates for property value increases are exceeded.

HISD leaders also floated the possibility of asking voters to approve a tax increase that could generate up to $130 million dollars for district operations, though Interim Superintendent Grenita Lathan said she would not recommend seeking an increase amid administrative and governance tumult.

Nevertheless, HISD leaders sounded an early alarm during the district’s first presentation on the 2019-2020 budget, which would total roughly $2 billion. The combination of increasing expenses, declining enrollment and a rising bill for “recapture,” the state’s method of redistributing money from property-wealthy districts to property-poor districts, likely will necessitate cutbacks.

Lathan said district administrators will map out potential cuts over the next several weeks, including reductions in campus-level spending, trims to administrative and operations staffing, and the closure of low-enrollment schools. She expressed skepticism that state lawmakers, who have talked of making school finance reform a top priority during the early 2019 legislative session, will reach consensus that aids HISD’s finances.

“We’re going to have to be creative in how we go through, really, the next 10 years, unless we get some relief from Austin,” Lathan said.

HISD trustees have sought to begin public budget discussions earlier — administrators made their first presentation for the 2018-19 budget in late January — after back-to-back years of last-minute changes to the district’s financial plans.

The district faced deficits totaling about $210 million over the past two budget cycles. Trustees voted to cover about $125 million of the shortfalls using rainy-day funds, with the remaining covered through spending reductions. HISD leaders have avoided mass layoffs of teachers in recent years, choosing instead to eliminate positions through attrition.

HISD’s financial woes have been exacerbated in recent years by its state-mandated “recapture” payment, which is projected to total about $312.5 million in 2019-20. The district’s “recapture” bill has outpaced its growth in property tax revenues since 2016-17, when the district first entered “recapture” due to fast-rising property values.

The payment grew in 2018-19 partly due a loss of about 4,000 students, which Lathan attributed to the effects of Harvey, increased charter school competition and declining trust in the district. District leaders are projecting an enrollment decline of about 1,500 students in 2019-20.

Administrators have made dire deficit projections in the past, only to significantly reduce that total in subsequent months. For the 2018-19 budget, for example, district leaders estimated a shortfall exceeding $200 million before reducing it to about $100 million.

For the 2019-2020 budget, HISD could see more revenue than initially estimated Monday. District leaders are forecasting district property values to increase about 2 percent in 2019, the same as 2018, the first year after Hurricane Harvey destroyed thousands of homes in the region. In the six years before Harvey, property values in HISD had increased 5 percent to 12 percent annually.

“We probably, between today and the end of April, may adjust it up (to) 3 or 4 percent,” HISD Chief Financial Officer Rene Barajas said. “But we just don’t know, so it’s better to just start at 2 percent and be very conservative.”

HISD administrators said the district’s initial projections include no salary or “step” increases for district staff. HISD trustees passed a budget in June 2018 with no employee raises for 2018-19, but trustees later approved “step” increases for teachers, compensating most of them for an additional year of experience, following pushback from many educators.

Zeph Capo, president of the Houston Federation of Teachers, a union representing the largest number of HISD educators, called the district’s proposed salary freeze “an extremely detrimental position to take.”

“Every time they do a zero increase, they get dramatically outpaced by every district surrounding them,” Capo said. “There’s still money that can be saved in HISD.”

Trustees asked several questions Monday about the mechanics of asking voters to raise the district’s tax rate by up to 13 cents per $100 in taxable value, which could eliminate the projected shortfall and fund staff raises.

However, none of the trustees publicly embraced the option, with a few cautioning that the district needs to improve its public image before seeking a tax increase. HISD has been marred by administrative turnover — superintendent Richard Carranza unexpectedly left the district in March — and public displays of in-fighting among board members in recent months.

“We would have to set our mission, our vision, our priorities as a board, have some effective collaboration, before I could go out and ask HISD taxpayers to trust us with more of their money,” HISD Trustee Elizabeth Santos said.

Holding a tax-ratification election would cost the district about $1 million, administrators said. It would be held in June 2019 at the earliest.

Dallas ISD voters passed a tax increase of 13 cents per $100 in taxable value in November, with 60 percent supporting the measure. However, Dallas ISD has received significantly more praise for its academic reforms and governance in recent months compared to HISD.

jacob.carpenter@chron.com

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