City, Austin school board look to save millions with tax swap plan

As the state takes $266 million in property tax revenue from the Austin school district this year, the school board and the city are researching ways to keep more of that money in Austin in the future.

An initial analysis by the city staff shows that a limited tax swap — in which certain school services could be taken over and funded by the city — would keep the district from having to pay $11 million to the state. That amounts to a savings of $27 a year for the average Austin homeowner.

But while the staff report finds such a tax swap a feasible idea, it raises multiple concerns. There is the possibility that some homeowners — including senior citizens — would pay more in property taxes. Some district employees could lose their jobs. And as costs escalate in the future for those school services, the city could get stuck with the bill.

Austin Mayor Steve Adler said Monday that none of those warnings changes his belief that the school board and the city can make it work.

“The memos are a starting point in that they set out some of the challenges that might be involved, and now we have to put our creative minds against those challenges to see if there are good solutions,” Adler said. “Sometimes change is complicated, and sometimes it involves exploring uncharted territories, and I think that is where we are. Along with many new things, the answers are not obvious and not easy, but the benefit is so great that as we are now armed with a list of challenges, we need to go see if we can find solutions.”

Texas’ complex education funding formula has long required Austin, which benefits from high property values, to give millions of dollars in revenue to help fund poorer school systems across the state.

But with the rapid escalation of home prices here, the amount of that so-called recapture payment continues to spiral upward. The school district pays more in recapture than any other district in the state, and Austin officials contend that the district’s financial situation is becoming increasingly dire as the amount of the payments rises.

The district is projected to pay $544 million in 2019. As the bill gets bigger, the school district is searching for a way to hold on to more of that money. Trustees say they need more resources to provide a growing array of services to students, 60 percent of whom are from low-income families and more than one-quarter of whom speak little or no English.

The tax swap could be a solution.

Under one scenario, the city would take on $7.1 million of services provided by the district, which would reduce the district’s tax rate by 1.9 cents and cut the Austin area’s total property tax levy by nearly $11 million. Or the school district could leave its tax rate the same and keep the savings. Austin district Trustee Gina Hinojosa said the district must “charge the taxpayer about twice as much” to deliver the same social services to account for the state’s share.

“I believe it’s essential that we explore every opportunity to see this tax swap through,” Hinojosa said. “AISD cannot keep shouldering the brunt of the cost of the social services that our families need simply because those services are provided on our campuses. We once had the luxury of paying for these non-educational services. Because of the broken and outdated state finance system, we now do so to the financial detriment of the majority of Austin taxpayers.”

But not all would benefit from the agreement as it is proposed, and both city and district officials said they would need to get community input before moving forward.

Because the district and city don’t have the same boundaries, only taxpayers who live within both jurisdictions would pay less. While the majority of those affected do, those taxpayers who live within the city’s boundary but in another school district would actually pay more in taxes. In addition, seniors could be negatively affected because the homestead exemptions offered by the district and city are different.

One of the greatest obstacles involves how to handle district employees if the services they provide are transferred to the city. City staffers outlined that hundreds of district employees could be laid off and said they could not guarantee those displaced employees would become city workers.

There is also concern that legislators could take some kind of punitive action against the city and district, “given that the intent of this concept is to circumvent the state’s school financing system,” City Manager Marc Ott wrote in a memo to the mayor and the City Council.

Advocates for property-poor districts have said Austin is not ­unfairly burdened by recapture and has long had more to spend per student than many other districts. They might see the arrangement as a way to shortchange them.

It is unclear whether city and district officials will be able to resolve the issues in time for the district’s new fiscal year, which will begin July 1.

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