Maintenance & Operations
Funding coming into this bucket is primarily used for operating the district. Employee salaries and benefits; student educational resources; classroom supplies and equipment; and contracted services – like utilities, insurance, legal and audit services, etc. – are paid from this source of funding.
To relate this to the average community member, this is similar to things like car fuel and routine maintenance, groceries, clothing, cleaning supplies, and utilities like electricity and water.
Compression of the M&O tax rate – or the automatic reduction of the M&O portion of the tax rate introduced as part of HB3 – is meant to limit revenue growth from local property taxes to about 2.5 percent each year. Because of this, an increase in property values does not equal a proportional increase in revenues to the district.
The M&O funding source is split into two tiers: Tier 1 and Tier 2.
The Tier 1 Entitlement is based on the Basic Allotment (BA), as set by the Texas legislature, guaranteeing every school district a certain amount of funding for each student based on the Average Daily Attendance (ADA). The BA is currently set at $6,160 per student, with additional funding depending on district and student characteristics such as transportation miles/costs and fast growth.
Funds that enrich the educational offerings a school district provides students – on top of the Basic Allotment, currently set to $6,160 – fall into M&O Tier 2. Examples of these enrichments include small class sizes and specialized programs or courses that go beyond those required in the Texas Essential Knowledge Skills (TEKS). Funding in this tier comes in two forms: Golden Pennies and Copper Pennies.
Maximum Compressed Rate
A portion of the tax rate generates revenue to fund the Tier 1 Entitlement. Each year, the MCR is recalculated by TEA. Compression is based on the comparison of statewide property value growth and local property value growth, and the extent to which they exceed 2.5 percent.
Compression of Tax Rate
HB3 created a system of funding meant to limit the amount of additional revenue generated from the M&O tax rate on rising property values to approximately 2.5 percent year over year. As a result, as property values grow, a school district is required to reduce the M&O tax rate to meet this 2.5-percent cap. Because of this, an increase in property values does not equal a proportional increase in revenues for a school district.
A portion of the tax rate that brings in revenue above the Tier 1 Entitlement and is not subject to Recapture, meaning 100 percent of the revenue generated from this part of the tax rate stays in the district. They are referred to as “golden” because of their high value to a school district and because state aid can be generated to fully fund the calculated entitlement.
Cedar Hill ISD currently uses 5 golden pennies as part of its M&O tax rate and has access to the remaining 3 golden pennies – a total of 8 allowable golden pennies – through a VATRE.
M&O Funds Restrictions
Can Use Toward …
Student educational resources
Classroom supplies and equipment
Legal and audit services
A portion of the tax rate brings in revenue above the Tier 1 Entitlement and can generate additional state aid but is subject to recapture. Current estimates for 2022 project 60 percent of this revenue would stay in Cedar Hill ISD and 40 percent would be sent back to the state as recapture.
Cedar Hill ISD currently does not use any copper pennies as part of its M&O tax rate and has access to 9 copper pennies through a VATRE.
Cannot Use Toward …
Paying debt when raising M&O rate while lowering I&S rate.