When starting a discussion about public school funding, it is sometimes better understood by making some correlations between school budgets and home budgets. Prosper ISD (along with all other school districts) has two basic tax rates that generate a majority of the funding for our school system. The first tax rate is commonly called the Maintenance and Operation Tax and is referred to as M & O.  This tax is levied to fund the basic operations of the schools.  Everything from electricity to salaries is encompassed under this umbrella much like bills that we pay as individuals such as utilities, insurance and groceries. The second tax rate is levied in order to pay for our construction projects that have been previously voter approved. This tax is commonly called I&S or Interest and Sinking tax. An individual budget would correlate this tax to a home mortgage payment.

Let’s first examine how our operations budget is funded. We reference the term current law when speaking to school finance due to the volatility of the system and the numerous changes that have affected school finance in recent years. Some basics of the system however have been consistent through the years. The funding sources for school systems come from three main sources. The first and obviously largest amount of funding is from school property taxes. The second source comes through the State Foundation School Program and this portion is designated as revenue from the State. The third source of revenue available to schools is from federal funding and is primarily based on the number of students that receive free and reduced lunches (which is a very small amount in PISD).

This information is very important for stakeholders of the district to understand. The State contribution to Prosper ISD has decreased and continues to be on the decline.  Specifically, the State will only be contributing approximately 25% of the 2020-2021 budget with the remainder coming from local tax dollars. Ironically, as the State share decreases they continue to impose legislation to reduce “local” control.

There are really only two mechanisms to build schools.  One, which basically no school district can do – especially fast growth districts, is simply pay cash.  Philosophically that sounds great, but it is just not feasible. The other way to fund the construction of schools is through voted bonds.  For those who might have an objection to voted debt, honestly I do not disagree; however, the reality is that this is the ONLY mechanism that state allows school districts to build schools.  We can’t even go to the bank and get a loan to build a school under the current system, which is counter-intuitive. So, I always encourage you to contact our state legislators and make the case to better fund schools and provide various means to build schools – especially in fast growth school districts like Prosper ISD.

Essentially, once authorization is granted through an election, bonds are sold against the value of property within the boundaries of the district.  Prosper ISD has currently sold all the bonds that it can against the current value (those that already live in Prosper ISD). A bond issue would grant the district to sell bonds against the new value (all the new homes and businesses that come to PISD after today).  Current home owners grant authorization through an election to sell bonds against the new value (new homes and businesses) that are coming to Prosper ISD.

Well, the answer is complicated yet simple.  The I&S (Interest and Sinking) tax rate is the portion of the rate that is applied for the debt incurred by selling bonds and is capped by the State at 50 cents.  PISD is currently at the cap of 50 cents; therefore, in order to access more bond money, we must be able to apply that 50-cent rate to NEW value (homes, commercial, retail, etc.).  ISDs are allowed to use 5-year projections in order to pass the 50-cent test and PISD continues to evaluate all possibilities in an effort to pass the required 50-cent test to sell additional bonds for construction projects.  All sales must ultimately be approved by the Office of the Attorney General.