DALLAS -- Travis County District Judge F. Scott McCown yesterday upheld Texas's controversial wealth-sharing school finance law, rejecting arguments that it created an unconstitutional statewide property tax.

The decision is expected to be appealed to the Texas Supreme Court or challenged in federal court by lawyers for property-rich schools, which stand to lose an estimated $400 million in tax wealth to poor districts under the so-called Robin Hood plan.

Judge McCrown noted in his 41-page ruling that remaining legal questions about the system would be answered only after the Texas Legislature finished writing its two-year budget, adding, "For Senate Bill 351 [the new law] to provide equity it must be funded."

Gov. Ann Richard agreed yesterday, telling reporters it is now up to lawmakers to include $1.7 billion in new funding in the budget for the fiscal year that begins Sept. 1.

"She's delighted about the ruling," said Bill Cryer, a spokesman for Ms. Richards. "It means that we now have to fund the education plan, and the governor has said she is going to keep the legislature's feet to the fire to fund the program."

Also, it is not yet certain how the ruling may affect a pending decision by the Texas Attorney General on whether to approve local school bond issues after Sept. 1.

Earlier this week, Assistant Attorney General Jim Thomassen, chief of the public finance section, said he might stop approving new issues in the absence of a ruling.

Mr. Thomassen yesterday declined to say how the ruling in favor of the new school finance law would affect his decision, saying he had to review the opinion and discuss it with bond lawyers.

"It might help, especially if there is some [specific] language in it," he said.

Texas schools have already sold more than $1.5 billion of debt this year -- twice the issuance for all of 1990 -- as the legal fight continues.

Lawyers for taxpayers and wealthy school districts said yesterday they would pursue appeals of the new law after the judge flatly rejected their arguments that the new system was illegal because it was a state-mandated ad valorem tax.

"Unlike the federal Constitution, a state constitution is not a grant of power but instead a limit on power," Judge McCown wrote in his ruling, "The state can do anything not prohibited by the Constitution.

"Thus the legislature has unlimited power to tax or require its political subdivisions to tax unless the Constitution imposes a limit," he added.

Approved by lawmakers in April, the plan creates a two-tier funding system by establishing countywide education districts empowered to collect a state-set tax of 72 cents per $100 of assessed valuation next year. That property tax would rise to $1 per $100 in 1994.

The money collected would be re-distributed within the district to schools on an equalized basis.

At the same time, the new system allows each of the state's 1,054 districts to levy up to 50 cents per $100 of assessed valuation to pay new debt service, build facilities, or finance academic programs.

During a hearing in June, lawyers for property-rich schools argued that the new system was nothing more than a statewide tax system mandated by the Texas Legislature. The judge rejected that assertion, saying that because the money does not go into the state general fund it is not a statewide tax.

"The tax authorized by S.B. 351 is not assessed by the state, does not go into the treasury of the state, and is not appropriated by the legislature," he wrote. "It is assessed by each local CED [county education district], goes into the treasury of the local CED, and from there a share goes to each local school district within the CED, where it is appropriated by the local district.

"It is therefore not a state tax, but a local tax," he continued.

The ruling yesterday is the latest in the seven-year legal battle over equitable funding for all Texas schools. In January, the state's high court Court struck down a school funding plan approved by lawmakers last year for the second time since Nov. 1989.

Kevin O'Hanlon, general counsel to the Texas Education Agency, said the county education districts will meet again soon to set their final tax rates after voters decide in statewide elections Saturday which property-tax exemptions will be allowed.

"They'll set the tax rates before Sept. 1," he said. "Now it's time to get going."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.