An Audit Report on the Texas Education Agency's Administration of the Foundation School Program
April 2003
Report Number 03-033
Overall Conclusion
The Texas Education Agency (Agency) administers the Foundation School Program-the mechanism through which the State provides approximately $11 billion annually to school districts and charter schools-as statute requires. However, the Agency should address certain information technology issues to help ensure that it continues to properly administer this program.
As statute requires, the Agency makes Foundation School Program payments to school districts based on estimates of property values and student attendance. However, in fiscal year 2001 this process resulted in school districts making a $683.8 million net refund to the Foundation School Program. The State does not receive the interest on these funds; instead, the school districts retain the interest they earn on these funds.
It is also important to note that fluctuations in economic conditions could require the State to begin funding a larger share of the Foundation School Program. In fiscal year 2003, local revenue provided 59 percent of the total cost for the Foundation School Program, while the State contributed 41 percent. However, if economic conditions deteriorate, property values could decline, which could leave the State responsible for funding a larger share of the Foundation School Program.
Statutory wealth equalization requirements extend the reliance on property values to fund the Foundation School Program. If property values decline, the number of property-wealthy school districts could decrease. This would lead to a decrease in the amount of funds school districts return to the State through wealth equalization. In addition, if property values decline enough, some school districts would no longer be classified as property wealthy, which could require the State to start providing funding to those school districts. Through the statutory wealth equalization requirements, property-wealthy school districts contributed $2 billion directly or indirectly to the Foundation School Program during fiscal years 1999-2002.
In addition, one of the statutory wealth equalization options allowed school districts to receive a net gain of $200 million in excess of the amount allocated through the Foundation School Program in fiscal years 1999-2002. This represents a loss of revenue to the State because it reduces the total amount refunded to the State.
Key Points
- The Agency administers the Foundation School Program as statute requires,
but it should address certain information technology issues.
- The school district payment distribution process has led to school districts
returning significant amounts to the State after the end of the school year.
- Fluctuations in economic conditions could require the State to begin funding
a larger share of the Foundation School Program.
- Statutory wealth equalization requirements extend the reliance on property
values to fund the Foundation School Program.
- A report on the Cost-of-Education Index has highlighted an additional challenge
facing the Foundation School Program.
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