AUSTIN Independent School District Overview AISD Budget Challenges  Unprecedented and permanent state cut to AISD revenue of nearly $50 million net of restoration from last session  Possibility of future state reductions looming with the elimination of ASATR in FY2018 which means a loss of nearly $19 million for AISD  State Revenue per student at the compressed rate has been Frozen since 2007 and the state funding formula does not account for inflationary costs or new mandates  Projected increases in operational costs for: fuel, electricity, inflation, Strategic Priorities, M&O impact of bond and AAFR initiatives and new unfunded state requirements under HB5 1

AUSTIN Independent School District Overview of AISD Budget Challenges (continued)  A slight decline in enrollment of nearly half a percent over the next ten years will adversely impact district revenue  Rising appraisal values only increase the district’s recapture (Chapter 41) liability in the future to where it more than doubles by FY2017. In FY2018, nearly a third of every local tax dollar collected will go to the state  No immediate relief from the school finance lawsuit is expected for a few fiscal years as it is anticipated that the case will be appealed to the Texas Supreme Court, with a decision sometime in  Staff compensation was frozen for two years, exacerbating already low teaching salaries; AISD ranks 8 out of 10 when compared to local peers and 10 out of 10 when compared to urban peers 2

AUSTIN Independent School District Overview of AISD Budget Challenges (continued) Of districts in Texas, Austin is one of less than 20 districts federally mandated to participate in social security for nearly all employees at a cost of $35.5 million which most districts do not have to bear  AISD has implemented and exhausted several budget balancing solutions and savings options to address previous budget shortfalls; over $75 million in cuts, efficiencies and revenue strategies over last four years  The district has progressed with implementing a multi-year financial strategy that includes the use of reserves to balance the budget which is not a sustainable solution  Under current law, and unlike other taxing jurisdictions, school districts must seek voter approval through a tax ratification election (TRE) to increase the tax rate for M&O purposes beyond AISD successfully passed a TRE in 2008 to increase its tax rate by 3.9 cents to There are approx. 9 cents remaining under law that could be ratified by voters-(max under law is 1.17), but it is difficult to garner taxpayer support when over 50% of the revenue collected is sent to state under recapture 3

AUSTIN Independent School District Simple View of State’s Funding Formula  The majority of money each school district is entitled to every year is determined by two “layered” systems: 1. Formulas in the Foundation School Program 2. “Target Revenue” system implemented in 2006 when school district M&O rates were compressed  Increased costs are borne by the district (unless the formulas increase)  The benefit of increased values goes to the state budget (less GR needed to fund the existing formulas) and state budget gets the benefit of local tax base growth  Formula based on outdated weights and indexes that haven’t been updated in over 20 years - Example: AISD’s Cost of Education (CEI) index which is supposed to account for regional costs differences is lower than that of Northside ISD, North East ISD, Round Rock ISD, Fort Worth ISD, El Paso ISD, Fort Bend ISD, Dallas ISD, Cypress-Fairbanks ISD and Houston ISD. An adjustment to the CEI index could provide additional revenue to AISD of $2 to 14 million  State took steps in 2013 to add equity to funding formula 4

AUSTIN Independent School District Simplified Explanation of Equalized System Cont.  Only three ways to increase total formula funding per student: 1. Legislative action to increase funding (beyond district’s control) 2. Increase in # of students and attendance rates (beyond district’s control and comes with added expense) 3. Increase tax rate  RECAPTURE, also known as Robin Hood or Chapter 41 is a function of Chapter 41 of the Texas Education Code which equalizes wealth for educational spending. The Chapter 41 provision is intended to “recapture” local tax dollars from “property-rich” districts and redistribute the funds to “property-poor” districts - Under this law, golden pennies represent the six cents above the compressed rate that school districts are allowed to retain that are not subject to recapture, all else are subject to various levels of recapture - Any revenue collected on property taxes above these six cents is subject to recapture by the state. In other words, over 50% of the revenue generated beyond the six cents is sent to the state to redistribute to property-poor school districts. In FY2015, AISD will submit $173.1 million to the state 5

AUSTIN Independent School District Net Revenue AISD will pay another $1.1 billion in recapture in the next five years 6

AUSTIN Independent School District Over the last 10 years, AISD has paid the state over $1.5 billion in recapture payments AISD is the single largest payer of recapture representing approximately 11% of the total $1.1 billion collected by the state in When Eanes and Lake Travis ISD are included, the Capital area accounts for over 21% of all payments. 7