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Recapture reinterpretation lawsuit update

This is a bit in the weeds, so bear with me.

Houston ISD likely will keep an additional tens of millions of dollars more in property tax revenues each year following a widely expected Texas appeals court decision Friday.

Judges from the state’s 3rd District Court of Appeals ruled against two small school districts and a nonprofit that sued the Texas Education Agency over its re-interpretation of statutes related to “recapture,” the state’s method of redistributing tax revenues from property-wealthy districts to property-poor districts. The ruling means that property-wealthy districts, such as HISD, will face lower “recapture” payments back to the state moving forward.

HISD officials projected the ruling would result in the district keeping an additional $51 million in 2018-19. District leaders expected the Texas Education Agency to win the lawsuit, so the already factored the $51 million in revenue into the current budget. As a result, the district will not see a windfall that can be spent on additional costs.

The plaintiffs alleged the Texas Education Agency improperly re-interpreted state law to include optional property tax homestead exemptions into “recapture” calculations for districts with wealthy property tax bases relative to their student enrollment totals.

A district court judge granted a temporary injunction in favor of the plaintiffs. However, the appellate court found the plaintiffs could not prove they were harmed by the re-interpretation because it did not cause a shortfall in the state’s Foundation School Program, the fund through which state money is distributed to school districts.

See here and here for the background. Back when we were all arguing about HISD making recapture payments to the state, HISD successfully managed to get the TEA to interpret the law over how such payments are calculated to take into account the Local Option Homestead Exemption (LOHE) that some districts like HISD offer. Taking the LOHE into account, which the TEA had not previously done, causes the recapture formula to produce a smaller bill for districts like HISD that use it. That’s where that $51 million figure comes from. A couple of smaller school districts, along with MALDEF, filed suit over this reinterpretation on the grounds that it would cost them money, which was in conflict with the Foundation School Program. The Third Court of Appeals has ruled that the smaller districts could not prove that they were harmed, so the TEA rule as now interpreted was upheld, which in turn saves HISD some money. Makes sense? Of course, if the Lege follows through on its latest plan to reform school finance, any or all of this could change in ways we don’t yet know. But for now, this is where we stand.

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One Comment

  1. Mark Kerrissey says:

    “HISD successfully managed to get the TEA to interpret the law over how such payments are calculated to take into account the Local Option Homestead Exemption (LOHE) that some districts like HISD offer. Taking the LOHE into account, which the TEA had not previously done, ”

    So TEA soften its heart suddenly? Heck no. Chapter 41 requires voter approval for a district to buy “attendance credits” aka send property taxes to the state general fund. Houston voters rejected sending a Recapture check in the general election of November 2016 by margin of 200,000 to 100,000. TEA arm twisted then HISD president Wanda Adams and two other trustees in a February 2017 meeting to put the Recapture vote back on the May ballot as its only item. Anxious to secure voter approval to put HISD on a permanent Recapture payment plan with ballooning payments, TEA flipped the Wanda Adam’s pro Recapture camp a campaign sound bite, namely, the hard negotiating HISD team reduced the TEA Recapture bill from $150 million to around $76 million (estimates) by forcing the TEA to take into account the LOHE. The TEA also got help from Mr. Welcome Wilson, the dean of the Greater Houston Partnership’s real estate arm. His PAC dumped $250,000 into the May Recapture referendum so that the Galleria owners and such would avoid a the 10% Aldine tax rate if detached. The Recapture forces prevailed with 4% of the Houston voters in May compared to the November 62% voter rejection. Odd that the majority of the May votes came from the west side of HISD. Odd that the % of mail in votes dropped sharply.

    TEA conceded on LOHE in 2017 to get the big fish, HISD, into the boat. It has secured ballooning payments permanently from the largest school district in the state. Like a credit card company, its bill is $51 million less, but the final bill is around $350 million which causes a state created chronic financial budget crisis for HISD. For the third straight years, campus principals have already been told to cut staff and services for 2019 – 20. To use Jolanda Jones’ words, we were bamboozled. Where are the pro 2017 May Recapture advocates today? Welcome Wilson’s commercial property owners are content no doubt. Everyone else got played by TEA.