United States: Texas District Court Rules School Finance System Is Unconstitutional

On August 28, Judge John Dietz1 of the 250th District Court ruled that the method the state of Texas currently uses to finance public schools is unconstitutional in several respects.2 The decision discussed state constitutional deficiencies in the equity of the distribution of educational funding, the adequacy of the amount of funding, and effectively constituting a prohibited state property tax. However, the court found that the school finance system does not violate taxpayer equity under the state constitution. The court has given the Texas legislature the opportunity to correct the constitutional deficiencies by July 1, 2015 before the state is enjoined from distributing educational funds under the current school finance system. The state is expected to appeal the decision to a higher court.


The Texas public grade schools and high schools are funded by a combination of local school district property taxes and state funding. Under the current system, some property tax revenues from the wealthier districts (as considered by total property tax revenues) are shared with the poorer districts. This "share-the-wealth" or "Robin Hood" system has resulted in numerous controversies between the state of Texas and its school districts with respect to the constitutionality of the school finance system. The following summary of litigation and legislation represents only the more noteworthy developments.

Beginning in 1984 when the Edgewood Independent School District (ISD) filed a lawsuit claiming the system was inequitable through the current court challenges, there have been several successful legal challenges by both property-value-poor districts and property-value-wealthy districts. Financial transfers from wealthier to poorer school districts began in 19933 when the Texas legislature finally responded to the Texas Supreme Court's 1989 ruling that concluded there were glaring and unconstitutional funding disparities between poor and wealthy districts.4 The Texas Supreme Court upheld the Robin Hood system and the overall new school funding system in 1995.5

In 2003, property-value-wealthy districts legally challenged the Robin Hood system as inefficient and effectively constituting an unconstitutional state property tax that pushed many districts to raise tax rates to the maximum legal rate. By being forced to impose the maximum tax rate, the districts argued that they had effectively lost the discretion to set their own tax rates. Numerous other districts joined the case arguing that the system was inequitable and insufficiently funded public education. In a trial involving over 300 districts in 2004, District Judge Dietz ruled the system unconstitutional and inefficient and set a deadline of October 2005 for the legislature to fix the problem.6 The Texas Supreme Court ruled in 2005 that the system was effectively an unconstitutional state property tax.7

Under pressure from the courts, the legislature in 2006 sought to allocate more state funding to districts while cutting local school Maintenance and Operations (M&O) property tax rates by almost one-third.8 One funding mechanism created in that session was the Revised Texas Franchise Tax, which was intended to increase franchise tax revenues. Minimum school funding requirements based on the amount spent per student that year were set in place to make sure no district lost money by freezing these thresholds.

While districts were given some discretion over their tax rates, the maximum M&O tax rate that could be imposed by the districts was set at $1.17 per $100 of valuation. Prior to 2006, the school M&O tax rate was capped at $1.50 per $100 (except for seven districts in Harris County). Also prior to 2006, the school Interest and Sinking Fund (I&S) tax rate was capped at $0.50 per $100 valuation; a limit few districts had reached. The $0.50 I&S rate cap remains in effect. Currently, total property tax rates within Texas, including school district, city, county, and special district rates, vary from under 2 percent of property value to well over 3 percent of value.

In 2011, the legislature cut more than $4 billion in state spending on public schools in its effort to balance the state budget without raising taxes or draining the state's rainy day fund.9 Consequently, many school district tax rates were raised to the maximum limit. As a result, numerous plaintiffs filed lawsuits in 2011 and 2012 claiming the school finance system was again unconstitutional on a variety of grounds. More than 360 districts claimed the system was inequitable and inadequate, and more than 120 other districts claimed the tax rate cap constituted an unconstitutional state property tax.

In the initial school finance trial of the combined plaintiffs from the 2011 and 2012 lawsuits, Judge Dietz informally ruled the school finance system to be unconstitutional because of inadequacies of funding and inequitable distributions of those funds.10 The judge deferred action pending a second trial after the legislature had an opportunity to meet in 2013 and pass legislation and a budget that might mitigate the defects in the system.

In its 2013 session, the legislature restored much of the prior funding cut, and reduced the number of standardized tests required for high school graduation, but did not make fundamental changes to the school finance system.11 The reduction in standardized testing was thought by the legislature to reduce the amount of funding required to be "adequate." After considering the 2013 legislation in the most recent trial, Judge Dietz has formally ruled the Texas school finance system is unconstitutional on grounds that included inadequacy.

Texas School Finance System Court Ruling

Judge Dietz ruled the school finance system in Texas is unconstitutional because of defects in equity and adequacy and because the system is effectively a state property tax. From an equity perspective, the court found that the system violates Article VII, Section 112 of the Texas Constitution since the system fails to provide equal access to revenues necessary for the education of students by arbitrarily funding districts at different levels. From an adequacy perspective, the court decided that the system violates Article VII, Section 1 of the Texas Constitution since funding is inadequate for support and maintenance of public schools and providing education to students of poor families. Finally, the court concluded that the system can be construed as imposing a state property tax violating Article VIII, Section 1-e13 of the Texas Constitution, since poor districts are forced to tax at or near the $1.17 cap and no longer have meaningful discretion in setting their tax rates.

The ruling enjoins the state of Texas from distributing funds under the current school finance system after July 1, 2015 if the Texas legislature does not remedy the constitutional violations. If the state of Texas appeals the decision (to the Third Court of Appeals14 or to the Texas Supreme Court), the injunction is automatically stayed. The court also awarded "reasonable and necessary" attorney fees to the public school district plaintiffs, but not to other interveners including charter school plaintiffs.


The issues litigated in this case are similar in nature to those previously litigated and discussed above. The lengthy decision, which relied on numerous findings of facts and conclusions of law, surprised few and places heavy reliance on those prior decisions and rationale.

In the process of adopting the Texas Constitution of 1876, the concept of "(a) general diffusion of knowledge being essential to the preservation of the liberties and rights of the people" was the most controversial and debated issue in the Constitutional Convention of 1875.15 From a tax perspective, the "inadequacy of funding" may have the greatest impact, as that same finding has had in the past. Expert witnesses testified that state spending would have to increase by over $6 billion per year to be considered adequate. That is a significant sum of money even for a Texas-sized economy.

The Texas Attorney General is expected to appeal the district court's ruling directly to the Texas Supreme Court. The appeals process could take about a year without a decision from the Supreme Court until after the legislature meets again in 2015. Alternatively, the Texas Attorney General could appeal the district court's ruling to the Third Court of Appeals. If so, the entire appeals process through the Texas Supreme Court could take over two years.

In any event, the legislature should have an opportunity to address the legal challenges with school finance system changes in the next legislative session scheduled for 2015. Historically, the legislature has been reluctant to increase funding or make significant modifications in anticipation of a court mandate because such funding or actions may be inconsistent with any eventual mandate. Texas public schools are funded significantly by local property taxes and those taxes and educational issues are always high on legislative agendas and priorities. School taxes comprise the majority of Texas property taxes and the Texas property taxes are already high by national comparison. However, the recent decision by the Texas district court means that some form of change to the funding and possibly the structure of the school finance system could at least be considered by the legislature. As potential changes to the school finance system may have a significant impact on taxpayers in Texas, developments relating to the constitutionality of the school finance system should be monitored until the legislature and the courts resolve the issue.


1 Texas tax practitioners may recognize Judge Dietz from his decision in Southwest Royalties, Inc. v. Combs, 353rd District Court, Travis County, Texas, Cause No. D-1-GN-09-004284, April 30, 2012; aff'd, Texas Court of Appeals, Third District, No. 03-12-00511-CV, Aug. 13, 2014 (refunds of Texas sales and use tax denied for oil and gas above-ground and below-ground production equipment). In the instant school finance system case, Judge Dietz survived the Texas Attorney General's Motion to Recuse.

2 The Texas Taxpayer & Student Fairness Coalition v. Williams, 250th District Court, Travis County, Texas, Cause No. D-1-GN-11-003130, Aug. 28, 2014.

3 S.B. 7, Laws 1993.

4 Edgewood Independent School District v. Kirby, 777 S.W.2d 391 (Tex. 1989).

5 Edgewood Independent School District v. Meno, 917 S.W.2d 717 (Tex. 1995).

6 West Orange-Cove Consolidated Independent School District v. Neeley, 250th District Court, Travis County, Texas, Cause No. GV-100528, Nov. 30, 2004. This was decided by the same judge as the instant case.

7 Neeley v. West Orange-Cove Consolidated Independent School District, 176 S.W.3d 746 (Tex. 2005).

8 H.B. 1, Laws 2006.

9 H.B. 1, Laws 2011.

10 The Texas Taxpayer & Student Fairness Coalition v. Williams, 250th District Court, Travis County, Texas, Cause No. D-1-GN-11-003130, Feb. 4, 2013.

11 S.B. 1, Laws 2013.

12 This section of the Texas Constitution provides for the support and maintenance of a system of public free schools. Specifically, this section provides that "[a] general diffusion of knowledge being essential to the preservation of the liberties and rights of the people, it shall be the duty of the Legislature of the State to establish and make suitable provision for the support and maintenance of an efficient system of public free schools." TEX. CONST. art. VII, § 1.

13 This section of the Texas Constitution provides that "[n]o State ad valorem taxes shall be levied upon any property within this State." TEX. CONST. art. VIII, § 1-e.

14 This is an intermediate appellate court that is located in Austin, Texas.

15 Neeley v. West Orange-Cove Consolidated Independent School District, 176 S.W.3d 746 (Tex. 2005), quoting TEX. CONST. art. VII, § 1.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.