Formula Transition Grant and Golden Pennies

July 2020 Tax Rate Workshop

What is the Formula Transition Grant?
GCISD receives a Formula Transition Grant (FTG) as part of House Bill 3 funding. This grant provides temporary additional funding to ensure that GCISD receives at least a 3% increase in funding per average daily attendance (ADA) when compared to the previous school funding law.

What makes up the total Maintenance and Operations (M&O) tax rate?
There are two tax rate elements that combined equal the maintenance and operations tax rate, which are the Tier 1 and Tier 2 tax rates.

The Tier 1 compressed tax rate is set by the State of Texas. Under current law, $0.33 cents of every dollar are subject to recapture also known as Robin Hood. This year, GCISD’s mandatory Robin Hood payment is projected to be $53.5 million, which is sent directly to the State.

The Tier 2 tax rate is referred to as “golden pennies”. There are a total of eight golden pennies that are available to school districts. The first four golden pennies are required by law in order to receive the Formula Transition Grant funding from the State. These golden pennies are not subject to recapture, meaning 100% of these funds stay in GCISD. The fifth golden penny was approved by the Board of Trustees to provide for additional funds when the temporary funding is no longer available in 2024-2025. Although the law states these additional funds are not sent back to the State, the District loses funding provided by the State as part of House Bill 3 if the pennies are accessed. The chart below is a visual representation of the Tier 1 and Tier 2 tax rate.

Elements of the current GCISD Maintenance and Operations Tax Rate

Tier 1 Compressed Tax Rate $0.9164 Set by the State

Recapture rate of 33%
Tier 2 Tax Rate - Required "Golder Pennies" $0.04 Required by law in order to receive the temporary funding from House Bill 3.

These funds are not subject to recapture
Tier 2 Tax Rate - Board-approved "Golden Pennies" $0.01 Approved by the board and not subject to recapture

By collecting this additional revenue, the State reduces the amount of funding provided through House Bill 3.
Total 2021 M&O Tax Rate $0.9664

Can GCISD access the remaining “golden pennies” through a Voter Approved Tax Rate Election (VATRE)?
HB3 allows districts to hold a Voter Approved Tax Rate Election (VATRE) to gain access to the remaining three golden pennies. These golden pennies are not subject to recapture; however, under current law accessing these three golden pennies would result in a decrease in Formula Transition Grant (FTG) funding. This is not officially called “recapture” in the law, but the result is much worse. If voters were to pass a VATRE for the remaining three golden pennies, GCISD taxpayers would pay approximately $5 million more in taxes; however, GCISD would only retain approximately $500,000. Essentially, 90% of these increased tax collections would be offset by a decrease in state funding.

Below is a chart that uses estimated amounts based on 2020-2021 data to demonstrate the collections and reduction in funding that would result in accessing the additional golden pennies:

Estimated tax collections per penny $1,662,503
Estimated tax collections for 3 golden pennies (if approved by voters) $4,987,508
Estimated reduction in State funding $(4,488,721)
Net increase in overall funding from 3 golden pennies (Line 2 minus Line 3) $498,787

Image of golden penny information that is previously shared in text of page
click to view larger image

How much additional funding is available to school districts through a Voter Approved Tax Rate Election?
Under current law, GCISD can access a total of 12 additional cents through three golden pennies and nine copper pennies. A copper penny is funding that is available to school districts once they have accessed all of the golden pennies. As illustrated above, the three golden pennies are not subject to recapture; however, GCISD would lose 90% of the additional funds collected by a reduction in state funding. If voters approved accessing the nine “copper pennies”, those additional funds would be recaptured at a rate of 52%, meaning under current law $0.52 cents of every dollar would be sent back to the State.

Can the District use Maintenance and Operations funds to pay down debt?
Current law dictates that school districts may not increase the maintenance and operations tax rate in order to create a surplus for the purpose of paying the District’s debt service. This is known as a “swap and drop.” However, the law does not prohibit districts from asking voters to approve an increase in the M&O tax rate and lowering the Debt Service tax rate, as long as the district has sufficient Debt Service tax collections to make annual bond payments.