HISD voters flip on subsidy Reversal allows recapture funds to go to state

If HISD doesnât pay its recapture bill, the Commissioner of Education will remove enough commercial property from HISDâs tax rolls to reduce the districtâs property tax collections by the amount it owes. HISD loses the recapture money, one way or another, even if it doesnât actually write a check. And the state gets its money one way or another, because the taxes from the removed properties will go to a poorer district in Harris County, letting the state reduce its funding to that district..(Chronicle File Photo) less If HISD doesnât pay its recapture bill, the Commissioner of Education will remove enough commercial property from HISDâs tax rolls to reduce the districtâs property tax collections by the amount ... more Photo: Marie D. De Jesus, Staff Photo: Marie D. De Jesus, Staff Image 1 of / 1 Caption Close HISD voters flip on subsidy 1 / 1 Back to Gallery

Houston ISD voters changed course Saturday and opted to allow the district to write a check to subsidize less property-wealthy school districts across Texas, a proposition voters soundly rejected in a November election.

About 84 percent of constituents voted "for" HISD's Proposition 1, giving the school district the green light to send $77.5 million to the Texas Education Agency rather than let the state forcibly remove some of most valuable commercial properties from the district's tax rolls.

The reversal from the "come-and-take-it" mentality followed trustees' meetings with state officials and lawmakers earlier this year. Board members feared vindictive action from Austin and also had second thoughts about going with the more costly "detachment" option.

Christopher Busby, an HISD teacher at the Sam Houston Math, Science, and Technology Center who voted for Proposition 1 on Saturday, said paying recapture was the lesser of two evils.

"Recapture is not on the ballot; recapture has already happened. This is about how we handle recapture," Busby said. "The solution that does the least damage to the district is a 'for' vote."

Mark Jones, a political science fellow at Rice University's Baker Institute, said HISD gained nothing through the two referenda, which cost the district an estimated $1.7 million.

"In the end, what HISD has done is use a lot of its political capital and has gained absolutely nothing," Jones said. "They used political capital in (the) fall to persuade people to vote no, and they used political capital this spring to get those same people to vote yes. But they could have just said yes and paid the state like everyone else."

In November, about 62 percent of Houston ISD voters sided against paying the state recapture, which was originally expected to be about $162 million. Possibly because of the "no" vote, the TEA lowered the amount by discounting a portion of the money HISD loses through its generous homestead exemption.

But recapture will soon more than quadruple in cost, ballooning from the $77.5 million owed this year to $376 million by the 2019-2020 school year, according to HISD estimates. That would be more than 15 percent of the district's current $1.8 billion annual budget, said Glenn Reed, HISD's managing director of budgeting and financial planning.

Voters' other option - refusing to write the recapture check and seeing some of HISD's most valuable commercial real estate credited to other districts - would have had escalating costs as well. This year, the district could have lost about $98.4 million in tax revenue, Reed said, and about $413 million by the 2019-2020 school year if property values increased.

But Reed said homeowners would have been on the hook for more taxes if the state had "detached" some of the district's commercial property.

"When we raise taxes to increase teacher pay or pay for cost increases, my penny of tax effort is not worth as much because there are fewer properties to tax," Reed said. "We'd have to raise a higher rate for those leftover."

They would have also lost the portion of taxes on the commercial properties that go toward bond debt.

This is the first year Houston ISD property values triggered recapture. Statewide, about 250 property wealthy districts, including Spring Branch ISD, pay a collective $1.87 billion to the state. That represents about 5 percent of the state's education budget.

When the "Robin Hood" school finance system started in 1993, only 34 districts paid a total of $131.5 million to the state.

Houston ISD officials argued that while their property wealth pushed them over the threshold, the district serves a large number of students who need more resources to succeed. About 77 percent of Houston ISD students are economically disadvantaged and about 30 percent are English language learners.

After learning Houston would have to pay the state, HISD trustees and others campaigned for the referendum in November that saw voters refuse to hand over the money.

"They'll retaliate harder than they have already," trustee Rhonda Skillern-Jones said of lawmakers and the TEA in February. "We could say fight the fight, but I don't believe showing up to a fight unless we can win."

Most trustees agree that referendum produced some desirable outcomes - the Senate authorized a work-study committee to look into overhauling the state's school finance system in January, and Rep. Dan Huberty, R-Houston, proposed a bill that would increase state education spending and lessen the amount districts would pay under recapture.

After the November vote, board President Wanda Adams and trustees Skillern-Jones, Anna Eastman and Mike Lunceford grew worried that refusing to pay the state recapture fee willingly would have dire consequences for the district and the board.

Trustees Jolanda Jones and Manuel Rodriguez Jr. insisted that the district hold fast in its decision to withhold the recapture money. Otherwise, they argued, HISD risked losing ground in getting the state to rethink recapture and its school funding formulas.

"The whole point was to get the Legislature to move on this. The only reason they're paying attention was not because we have a great lobbying team, it's because we voted no," Jones said in February. "The second we relent and bend over, it'll ruin this for rest of state and our momentum because everyone is looking at Houston."

Jones with Rice's Baker Institute said the state's actions were more likely the result of a May 2016 Texas Supreme Court ruling that found while the state's school finance formula was constitutional, it desperately needed to be overhauled.

He added that either outcome of Saturday's election would have made Houston ISD and its board look foolish, even though their concerns over the state's funding formula and their high needs students are justified.

"This is a school district with so many students with significant needs who are more costly than the average student to educate, and now they have to pay recapture, so they're totally justified in saying this is not right and is indicative of the broken nature of Texas' public education finance system," Jones said. "But in reality, their gambit in (the) fall was never going to change that. They used up political capital and made themselves look foolish."

Houston Chronicle reporter Marialuisa Rincon contributed to this report.