DALLAS -- A recent Texas court ruling on a school finance reform law could significantly boost the state's role in school construction and other capital improvement funding if the law and the subsequent ruling are not overturned by the Texas Supreme Court on appeal, political and bond industry sources said.
"Now all school bonds are local obligations. In the future, we will have no share those obligations either by direct state aid or a state aid formula," said Wardaleen Belvin, special assistant to Lieut. Gov. Bob Bullock. "It means we would need additional money."
Belvin's remarks followed State District Court Judge Scott McCown's ruling last week, which upheld the constitutionality of a state school finance law -- Senate Bill 7. After a lengthy trial this fall, the judge issued an opinion that said the new law provided a fair funding system that would help shift taxes from rich to poor districts.
But, McCown also said that while the operating and maintenance funding was sufficiently equalized, capital improvements funding still was less than fair. "S.B 7 does not complete our work," he said in the ruling. "The state still has no equitable method of financing capital expenditures."
As a result, McCown said if the Legislature did not devise a more equitable plan for school construction and capital improvements by Sept. 1, 1995, he would halt all school bond issuance.
The order left groups that had challenged the law -- from both rich and poor districts -- scrambling to file appeals.
Low-wealth districts contend that the law still leaves sizable funding gaps between poor and rich districts, while the high-wealth districts object to the shifting of $450 million in local property taxes to other districts. Almost 100 of the approximately 1,100 school districts in Texas are considered high-wealth -- having more than $280,000 in property value per student.
"We don't think the position will stand," said Earl Luna, A Dallas attorney who is representing 18 high-wealth districts. "We think it is unconstitutional."
Luna said his group plans to file an appeal next month.
Fredric Weber, an attorney with Fulbright & Jaworski, a law firm in Houston, said he considers the trial court decision "almost a non-event."
"The trial court's opinion is not a good indication of what the Supreme Court will do," Weber said. "I think it is premature to conclude the financial portion is unconstitutional."
However, several groups are proceeding to comply with the Judge's order and assess the impact.
The state's Bond Review Board could hold a special meeting in January to discuss the issue and see whether it affects a school bond pool program, which the board is in the process of implementing. "Everyone is still trying to digest the court opinion," said Albert Bacarisse, executive director of the Bond Review Board.
Belvin said the Lieut. Governor's office plans to organize a working group of legislators from both the Texas House and Senate to come up with options to comply with the plan. It should be formalized next month, she said.
Some additional state appropriations could be required to comply with the Judge's order, Belvin said, but it was premature to give an estimate. Currently, state funding to schools totals about $7 billion a year.
The state's litigation team for the recent trial has estimated that Texas would have to pay $200 million a year more in fiscal 1996 and 1997 to pay debt service under the judge's order, a spokeswoman from the Texas Education Agency said.
Whatever the extra cost, the involvement would be much greater, bond industry sources said.
"They will have to develop a system to participate in school debt financing," Dallas bond attorney Ray Hutchison said. "They can't afford to leave the decisions up to the local school districts" because the state would want to protect its bond credit rating.
Hutchison said state government could consider several options, including having the state pay a portion of the debt service for local school districts based on their wealth.
However, Hutchison predicted the case would continue for years. "There is no end to it," he said. "The courts should never have gotten into this morass."
The nine-year legal battle over education funding began in 1984 when the Edgewood School District in San Antonio led other poor districts in filing a state court suit against the state to change the funding formula.
The issue has gone to the Texas Supreme Court several times. The latest effort to come up with an equitable plan to satisfy the courts occurred this year when the Legislature passed a new state finance law.
The law gave 98 districts that were designated high-wealth districts five options to share their property tax.
