Tax Swaps and the Commissioner’s Request for an AG Opinion
By staff. Filed in Opinion, Podcast, Uncategorized, Wayne_Pierce, economics, economy, education, elections, politics, property_taxes, school boards, school_boards, school_districts, texas_government, texas_legislature |Tags: Wayne_Pierce
Equity Center Radio |An Interview with Attorneys Buck Wood & Ray Bonilla
Buck Wood
Ray Bonilla
Today we are interviewing Buck Wood and Ray Bonilla, partners in the law firm of Ray, Wood & Bonilla. The broadcast will concentrate on the request by the Commissioner of Education to the Attorney General of the State of Texas for an opinion about whether school districts can use monies raised from maintenance and operations can be used to pay debt service on school district funds. You may download the Commissioner’s Request for Opinion in a PDF format by clicking here.
As everyone in the school district community knows, the target revenue system perpetuated by HB 3646 has created a situation where many school districts are faced with incredibly tight budgets this school year. The outlook for upcoming years is even less favorable in many cases. Numerous districts were forced to use available fund balance to avoid making cuts in important programs and services.
In this environment, there has been tremendous pressure on districts to look for creative ways to expand funds available for operations, and there has been a great deal of talk about “tax swaps” and the appropriate use of M&O
and I&S tax revenues. In obvious response, on August 17, 2009, Commissioner of Education Robert Scott requested an opinion of the Attorney General on three important issues.
The questions presented to the Attorney General are:
- May current year M&O tax collections be used to pay debt service on school district bonds?
- May school districts pay debt service on bonds from unrestricted fund balance?
- May school districts pay debt service from Tier 1 funds received from the State?
The Equity Center recognizes the financial pressures on its member districts, and believes that the flexibility afforded by a positive AG opinion has the potential to provide at least some relief to many school districts. We filed a letter brief with the AG in which we emphasize the opinion of the Beaumont Court of Appeals in the 1939 case of Madeley v. Trustees of Conroe Indep. Sch. Dist., 130 S.E.2d 929 (Tex. Civ. App. – Beaumont 1939, writ dism’d, judgt cor.). In that case, the court concluded that surplus maintenance funds could be used to pay for capital expenditures. The relevant statutes have not changed in a material way. We contend that the operative question, then, is not whether maintenance taxes are current but whether they are needed for the support and operation of the schools. If not, they are surplus and can be used for debt service.
As for the use of unrestricted fund balance to pay debt service, we believe that such funds may be used for any constitutionally permissible purpose. That certainly includes payment of debt service on bonds issued by the district. Similarly, a review of the relevant statutes, as well as the legislative and administrative history relating to the permissible uses of Tier 1 funding, makes it clear that Tier 1 funds can be used to pay debt service costs.
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