In Texas, as in other states, the tax system and the funding for public schools go hand in hand. The Legislature has set aside revenue from certain taxes to finance free public schools. A large portion of the state’s share of the funding for education comes from the General Revenue Fund.68 For the 2004-2005 biennium, this fund consists of revenue raised from the state sales tax (57.6%), motor vehicle sales and rental tax (10.6%), motor fuels tax (10.9%), the franchise tax (6.8%), insurance tax (3.7%), “sin” taxes (alcohol, cigarette and tobacco for 4.1%), gas and oil production taxes (3.7%) and other taxes (2.6%).69 Net proceeds from the Texas Lottery are also set aside for public education. However, the lottery proceeds make up less than 3% of the $30 billion appropriated to public education by the state.70 Another important funding source for public schools is the Permanent School Fund, which consists of investments in various stocks and bonds and extensive landholdings.

Currently, the majority of the funding for public education comes from local tax revenue comprised entirely of a school district’s local property tax. A local property tax rate has two components. The first is the maintenance and operations (M&O) portion which funds administrative and operational expenses.71 This portion is capped at $1.50 per $100 valuation.72 The second component is the interest and sinking rate (I&S). This rate finances debt connected to construction or renovation of facilities and the purchase of property or equipment.73

Statistics show that the state has steadily decreased the percentage of its contribution to the cost of public education.74 This has placed a heavier emphasis on local property taxes to pay for public education. Local school districts have been forced to increase property taxes to make ends meet. In 2005, the state’s projected contribution will be only 36.3% of the total cost of education spending for public schools compared to 47% in 2000.75 The following graph illustrates this decline.