DALLAS - the-wealth school finance law, ending more than 10 years of court battles over education funding.
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But bond industry sources and legislative leaders said the school finance debate is not completely settled.
For one thing, they said, the court needs to clarify language in the ruling that further restricts the issuance of bonds without a special election and reduces exceptions to a $1.50 tax rate cap. They also said the legislature should consider better methods to equalize school construction funding.
In the Monday ruling, five of the nine justices affirmed the constitutionality of the state's most recent school finance law redistributing property taxes between the rich and poor school districts in Texas.
"We conclude that Senate Bill 7 is constitutional in all respects," the opinion said. "Children who live in property-poor districts and children who live in property-rich districts now have substantially equal access to the funds necessary for general diffusion of knowledge."
The school finance law affects some of the $16.5 billion in state and local money that funds the 1,050 Texas school districts. About 45% comes from state aid and the rest comes from property taxes.
The decision shot down appeals by both wealthy and poor school districts that had challenged an earlier ruling by state district court Judge Scott McCown.
However, while the ruling upheld much of McCown's order, it reversed the district court's decision to halt all school bond issuance by Sept. 1, 1995, if the state legislature did not come up with a more equalized system for school construction funding.
"We emphasize...that the challenge to the school finance law based on inadequate provision for facilities fails only because of an evidentiary void. Our judgment in this case should not be interpreted as a signal that the school finance crisis in Texas has ended," the majority opinion said.
In a dissenting opinion, Justice Rose Spector said the ruling does little to provide equalized revenues for schools and "instead sanctions dissimilar revenues for similar tax effort."
Several Texas political leaders praised the ruling and said it clears the way for additional actions to change or equalize funding.
"The Supreme Court's ruling makes it more important than ever that the state act to relieve pressure on local property taxes by making education funding our number one priority and gradually increasing the state's share of funding for our schools," Texas Gov. George Bush said.
Under the school finance law, the 1,050 Texas districts can collect property taxes on up to $280,000 in property wealth per student. The richer districts must share their wealth by one of five methods to redistribute property tax revenues. That amounted to shifts of more than $400 million in property taxes in 1994.
Despite those distributions, the poorer districts maintain the funding is not equalized and could file for a rehearing before the Texas Supreme Court.
"We are very disappointed with it," said Richard Kirkpatrick, director of member services for the Equity Center, an Austin-based group that represents poor school districts. "It still leaves too large of a disparity."
Industry sources, meanwhile, said the Texas Supreme Court justices inadvertently indicated that special elections would be required to exceed the $1.50 tax limit for debt service, eliminating some exclusions used in the past for old debt and other items. It would affect the issuance of unlimited tax school bonds.
They said the Texas attorney general's office is now trying to clarify the opinion and plans to request that the Texas Supreme Court reword some of the ruling. "It will take about 10 days to resolve the issue under the best of circumstances," one source said.
"The most I can say right now is that we are reviewing the opinion," said Ron Dusek, a spokesman in the attorney general's office.
Meantime, legislative leaders are moving to introduce legislation that would equalize school construction funding, although it is not immediately required by the Supreme Court ruling.
On Tuesday, Texas state Sen. Teel Bivens, R-Amarillo, filed a bill to require the state to assist local school districts with the cost of constructing school buildings.
"Texas has a moral responsibility to help local school districts pay for building classrooms," Bivens said. "I believe that even in light of (the) Supreme Court ruling. While the court vacated the lower court injunction, the court made it clear the state has a duty to fully fund a school finance system that includes facilities."
Under SB 5, the state would provide supplemental funding for school districts to build or renovate facilities based on the wealth of the districts. The bill would essentially guarantee a tax base of $280,000 per pupil for the facilities financing system.
In simple terms, the state would pay a portion of the school's debt service for construction and capital improvement relative to their wealth. About $170 million would be available for the 1996-97 biennium. That could help finance an estimated $2 billion in construction debt, officials said.
The bill stems from a recommendation made by the Senate Interim Committee on Public School Facilities, which was appointed by Lieut. Gov. Bob Bullock and headed by Bivens. The committee had been waiting for the Supreme Court ruling before filing the legislation.
"The state should be more of a partner in funding facilities as well as educational programs," Bivens said.
To help equalize school facilities funding in the future, another bill was filed this week by Texas state Rep. Robert Junell, D-San Angelo, who is chairman of the Appropriations Committee.
The Junell bill calls for the Texas Legislative Budget Board to recommend a fund budget every two years to help build and improve school facilities and pay principal and interest on bonds. The funds would be used to help equalize construction funding in school districts throughout Texas.
While investment banking and bond industry sources had not seen the Junell bill, they said alleviation of funding problems for construction in Texas school districts was needed, as well as tax limit relief.
Leon Johnson, an investment banker and school finance expert at Rauscher Pierce Refsnes Inc., said school districts throughout the state were pushing the limit and the legislature probably would have to raise the $1.50 tax limit in the next session.
"Texas districts are rushing to the wall," he said.
He said fast-growing suburban and poor districts were among the hardest hit, and the Texas Supreme Court ruling does not address all the issues.
Johnson added, though, that the Supreme Court ruling removes at least some of the uncertainty about bond issuance in the state.
Cliff Youngblood, a bond attorney with Vinson & Elkins in Houston, said the Supreme Court decision shouldn't affect bond issuance in the near term, which will continue to be restrained by the tax rate limits.
