Topics and Explanations
Topics and Explanations
- Inflation
- Budget & 10 year spending information
- Recapture
- Fund Balance
- Unfunded/Underfunded Mandates
Inflation
Using the CPI measures of inflation for Texas, between June 2019 and October 2024, inflation grew 23.21 percent. Due to this, the district's expenses have also increased due to the inflated cost of student transportation, fuel, electricity, food services, instructional materials, safety & security, technology, and insurance, to name a few.
Source: US Bureau of Labor Statistics and Comptroller of Public Accounts, based on data provided by Bureau of Labor Statistics *Excludes food and energy.
Budget & 10 year spending information
While the district's expenses have increased over the past few years, a large portion is attributed to the state-mandated recapture payments.
Recapture is a budgeted expense that must come off the top when building the budget.
There are also other required costs associated with the district budget, including utilities, property insurance, tax collection, and appraisal costs to name a few. Along with payroll and maintenance costs, there is not much left in the overall budget to put towards other needs across the district.
Over the past decade, the district has grown by over 4,000 students, which has also increased the expenses such as additional staff and supplies. With that, the increased student population has also increased the district revenues to help offset the additional costs.
Over the past few years, the district has also been able to increase expenses related to construction and facility improvements.
Recapture
Recapture requires school districts with high levels of property wealth per student to send local tax dollars to the state to create equalized funding. Taxpayers still pay the same amount of taxes regardless of whether enrollment changes. However, as enrollment increases, more local tax dollars stay with the school district rather than being sent back to the state.
Recapture is a required expense for property wealthy school districts and must be budgeted annually. This expense must come off the top of the budget to meet the annual obligation. There could be short-term and long-term consequences if a school district were to not pay their recapture due to insufficient funds or refusal. If a district is in default of its recapture payment obligations, TEA will notify them, stating the delinquency. If it’s not resolved in a timely manner, the district will not be allowed to adopt a tax rate for the following year, and TEA will start the process of detaching property. This would create financial instability since most of the district's cash flow is from local tax collections and could hinder the district from meeting the annual debt payment obligation. It would also create a long-term consequence of property value being detached from the district-taxable values. These are just a few of the consequences a district could face if they do not meet their obligations annually to pay back recapture.
Over the past 11 years, the district has paid approximately $914.5 million back to the state in recapture. It’s estimated that at the end of the current fiscal year, based on the budget projections for 2024-25, the district will have paid the state just over $1 billion dollars since the 2013-14 school year.
Fund Balance
TEA recommends districts keep three months of operating expenses in unassigned fund balance to ensure adequate funds throughout the year. The district currently has an estimated 3.08 months of operating expenses in the unassigned fund balance and 6.27 months of operating expenses in total spendable fund balance, which includes some restrictions. Out of the spendable fund balance, 25.2% is assigned to help the district transition away from the formula transition grant, which expired at the end of the 2023-2024 fiscal year.
Most of MISD’s cash flow occurs between December and January when local tax collections are coming in. Having sufficient funds in fund balance allows the district to continue day-to-day operations without running out of funds and having to borrow money to cover payroll expenses.
Sufficient fund balance results in a higher bond rating, which in turn, reduces the district's interest cost when selling bonds. This can save millions of dollars over the course of the payback period.
It also allows districts to respond to unforeseen costs, like natural disasters, rather than having to borrow money or wait for federal funds to become available, if any, before addressing needs.
Unfunded/Underfunded Mandates
During the 88th legislative session, HB3 mandated an armed security guard on all instructional facilities throughout a district. Prior to this mandate, the state provided a school safety allotment of $9.72 per average daily attendance (ADA). HB3 increased the allotment by 28 cents, for a total of $10 per ADA. The legislatures also added a campus allotment of $15,000 per campus on top of the allotment; however, the allotments are significantly inadequate to fund the required mandate fully.
To put this in perspective, the difference between the state funding and the district's actual expenses to solely be in compliance with having an armed security guard at each instructional facility is approximately $2.23 million underfunded, which the district has to make up from other revenue sources.