Public School Finance and the 300 Square Mile Penalty

In an attempt to clarify the needs of White Oak ISD and make some sense of two funding practices of the State of Texas, I have looked at the long standing financial penalty assessed to school districts with less than 1,600 students and less than 300 square miles of land area in the district. This Small School Penalty (SSP) has been in place for more than thirty years, as best I can determine, and is designed to “encourage” small land area/student population districts to consolidate with neighboring districts. There is no consideration for the identity of these school districts with the community they serve and/or the economic impact of moving to a centralized, consolidated location.

The second factor I considered in this effort to find relief for WOISD was the reality that funds are tight and adding to the state budget is not likely to take place in the upcoming 85th Legislative session. There needs to be a method of relief for the state in order to consider removing the penalty addressed in the previous paragraph. My attention turned to a temporary tax relief measure that has remained in affect ten years after it was first implemented, Additional State Aid for Tax Reduction (ASATR). This relief was provided to school districts that were not taxing at the highest rate allowed by the state at the time of tax rate compression in 2005. The thought was to provide some tax relief for those districts until they were able to increase their local tax rate to make up the difference. Ten years later, many have not made the tax rate adjustment and incorporated the ASATR funds into the budget-building process as sustainable revenue.


Now for the comparison of the two funding practices:

  • 462 school districts in the state are assessed the SSP and 174 districts receive ASATR funds as of the 15/16 school year
  • 116 of the 174 ASATR districts are also being assessed the SSP. ASATR lost revenue will be completely restored or offset by increases from the removal of SSP
  • The loss of revenue for districts to the SSP was $244 million in the last school year and the revenue received by the ASATR districts was $235 million in 2015 and $340 million in 2016
  • Removing the SSP and repealing ASATR will result in a fiscal note impact that is revenue neutral to a net gain of almost $100 million dollars depending on the year used in the comparison


At the state level, it is beneficial to more districts (462 to 174) to remove ASATR and the SSP. This move will also have a positive effect on the state budget by as much as $100 million per year. It is a given that ASATR funding is not sustainable and was not designed to be sustainable. There are some concerns that the Legislative Budget Board will attach a larger fiscal note to the removal of the SSP due to an increase in the average funds per student in state aid. I’m not sure how that is possible, especially if the moneys are being redirected and not added to the budget. It is my belief that the redirecting of these funds will benefit more school districts and will correct an arbitrary decision made more than thirty years ago.

In an effort to bring this closer to home, I want to share the impact on the school districts in House District 7 and Senate District 1.


House District 7:

  • 11 school districts
  • 8 districts subject to the SSP
  • 1 school district receives ASATR (Sabine ISD received $128,336 in 2015 but would receive $509,991 without SSP)
  • 4 school districts not subject to SSP and do not receive ASATR
  • Annual revenue increase for schools in HD 7 = $4.1 million dollars


Senate District 1:

  • 95 school districts
  • 60 districts assessed the SSP
  • 23 districts receive ASATR (16 of the 23 are also assessed the SSP)
  • 7 of 95 school districts would not receive any relief from the loss of ASATR funding
  • 12 of 95 have neither ASATR or the assessed SSP
  • Loss of ASATR funds = $11.9 million in 2015 dollars
  • Gain from repeal of SSP = $37.5 million annually
  • Increase in School revenue for SD 1 = $25.6 million annually


In the last legislative session, the repeal of the Small School Penalty was introduced in the House through HB 645 by Ashby and in the Senate through SB 324 by Nichols. I am asking that you review this information and partner with these legislators to make a positive change for the school districts in your respective legislative districts. There will be districts that do not see an increase in funding as a result of this change. I would ask that you look at the tax rates in those districts over the last ten years and compare those taxing efforts to the tax rates of schools like White Oak ISD. Many school districts, like White Oak, have not only had to tax at the highest rate allowed by the state but have also had to go to the voter for approval of a TRE to increase taxes to the level of $1.17 in order to maintain the ability to provide for the education of our students.

As I stated earlier in this document, I see the need to stay away from solutions that grow the state’s budget. The same lean times that are affecting White Oak ISD are affecting all of Texas. I believe that many of us that have looked at this solution see an opportunity to help close to 50% of the Public Schools in the state without growing the budget. I also feel that the revenue remedies used by non-ASATR districts can be applied to the districts that are affected by the absence of these funds. To be clear, ASATR funding was designed to go away and I am simply proposing that you look at alternative uses for those funds within the Texas Public Schools Finance System. The deadline for ending ASATR funding is September 1, 2017.

Thank you for your time and any consideration you may give to the solutions presented in this document. I would also like to thank you for your willingness to serve the citizens of House District 7 and Senate District 1. I look forward to working with you to support, promote and celebrate the work being done by over 680,000 public school employees that serve almost 5.3 million public school students in the great state of Texas.