4. State funding per student: did it actually fall?¶
This is the question the investigation began with. The short answer is no. Formula funding per attending student rose, and state aid nearly doubled in 2025-26. Most of the extra state aid replaces local property tax that the Legislature cut, but not all of it.
Corrected October 8 and 12, 2026
Earlier versions of this page gave formula funding per attending student as $9,225, $9,964 and $9,899. Those figures added Tier One's full entitlement to only the state-aid part of Tier Two, leaving out the part of Tier Two paid by HISD's own enrichment taxes. The corrected figures, below, include both. Earlier versions also counted $29.5 million of aid tied to the Teacher Retention Allotment as tax-relief backfill. Both errors were found by an independent review. A recheck on October 12 corrected the explanation of the Tier Two increase: it comes from HISD's $0.0294 one-year "disaster pennies," not a one-cent rise. See the audit summary.
How the formula works¶
Texas funds districts through the Foundation School Program. The state sets a per-student entitlement in two tiers:
- Tier One (the basic program) starts from a flat per-student amount, the Basic Allotment, multiplied by weights for student needs such as special education, bilingual education, low-income students and career and technical education. Local property tax at a state-set ("compressed") rate is expected to cover part of it, and the state pays the rest. Where local revenue at that rate exceeds the entitlement, Texas "recaptures" the excess for property-poor districts: the mechanism popularly known as "Robin Hood."
- Tier Two (enrichment) applies to tax pennies a district levies above the compressed rate. The state guarantees a yield per penny per student and pays the difference when the district's own penny raises less.
HISD's tax base is wealthy enough that its local share covers its whole Tier One entitlement, so HISD receives $0 of Tier One state aid (2025-26 Summary of Finances, line 50). Its state money comes from Tier Two, the Available School Fund (a flat per-student payment every district gets), and add-on programs.
The three-year trend, from TEA's own Summary of Finances reports¶
| 2024-25 | 2025-26 | 2026-27 | |
|---|---|---|---|
| Basis | TEA Final | TEA estimate (Near-Final) | TEA estimate (Preliminary, Oct. 9, 2026) |
| Basic Allotment | $6,160 | $6,215 | $6,215 |
| Refined average daily attendance (attending students) | 156,871 | 150,014 | 148,533 |
| Tier One entitlement (state + local) | $1,420.4M | $1,458.0M | $1,439.9M |
| Tier Two entitlement (state + local) | $131.6M | $201.8M | $192.8M |
| — of which paid by HISD's own enrichment taxes | $105.0M | $165.0M | $161.7M |
| Formula entitlement (Tier One + Tier Two) per attending student | $9,894 | $11,064 | $10,992 |
| M&O tax rate (Tier One compressed rate) | $0.7016 ($0.6516) | $0.7116 ($0.6322) | $0.7048 ($0.6254), TEA's assumption; HISD adopted $0.6754 on Oct. 8, 2026 |
| Total state aid | $172.0M | $313.7M | $283.2M |
| — tax-relief aid (§48.2542 homestead limitation, §48.283 compression) | $2.8M | $115.9M | $99.4M |
| — aid tied to the Teacher Retention Allotment (§48.257(b-1)) | $0 | $29.5M | $29.5M |
| Recapture paid to the state | $49.1M | $0 | $0 |
Source: TEA Summary of Finances reports for Houston ISD (2024-25 Final, run 46849; 2025-26 Near-Final, run 47299; 2026-27 Preliminary, run 47363 of Oct. 9, 2026, which superseded run 47318 of Oct. 5), including each report's Tier Two Detail page. Formula entitlement = (Total Cost of Tier One + Tier Two Level 1 and Level 2 entitlements) ÷ refined ADA. The same figures for every school year back to 2018-19 are in Section 9. Data: data/sof_key_figures.csv (scripts/sof_extract.py).
The 2025-26 and 2026-27 columns are TEA estimates. TEA re-issues them as attendance, tax and property-value data come in, and has kept adjusting "Final" figures for up to six years. These are formula entitlements, not cash received or a measure of adequacy, and they exclude add-on programs. HISD's own budgets carry different state-aid figures on a different basis (they include, for example, about $103 million a year of TRS pension on-behalf revenue); see Section 2.
What changed in 2025-26¶
The Basic Allotment did not fall. It rose from $6,160 to $6,215 under a 2025 state law (House Bill 2, 89th Legislature).
Formula entitlement per attending student rose 11.8%, from $9,894 to $11,064 (TEA estimate). In total it rose $107.7 million even though attendance fell 4.4%:
- Tier One rose $37.5 million. New or larger allotments added about $70 million: Teacher Retention Allotment $29.5M, Allotment for Basic Costs $17.8M, Support Staff Retention Allotment $5.7M, school safety +$6.4M and Teacher Incentive Allotment +$10.7M. Falling attendance cut the regular program allotment by $38.4M.
- Tier Two rose $70.2 million, almost entirely because of HISD's one-year "disaster pennies." In October 2025 the board added $0.0294 per $100 to the M&O rate for Hurricane Beryl repairs, which Texas allows without an election for one year. Those pennies count as enrichment, so HISD's Tier Two rate rose from 5 to 8 cents (2025-26 Summary of Finances, line 10; the effective rate rose from $0.0443 to $0.0703). The state's compressed rate fell from $0.6516 to $0.6322 at the same time, so HISD's total M&O rate rose only one cent, from $0.7016 to $0.7116. HISD's own taxes pay $165.0M of the $201.8M Tier Two entitlement; the state pays $36.8M.
So the increase is a mix of new state allotments and a one-year local tax. The 2026-27 Preliminary figure assumes HISD keeps an M&O rate of $0.7048 (8 enrichment pennies). TEA's latest run, issued October 9, still uses that rate. On October 8, 2026, HISD's board had adopted $0.6754 instead: the compressed rate plus 5 enrichment pennies, without the disaster pennies (HISD Legistar file 26-346). Tier Two will therefore come in well below TEA's preliminary figure. Scaling the Tier Two entitlement to 5 pennies gives roughly $10,500 per attending student for 2026-27, not $10,992. That is our approximation, not a TEA figure; TEA's later runs will show the actual result.
Why state aid jumped¶
State aid nearly doubled, from $172.0 million to $313.7 million, between 2024-25 and 2025-26: an increase of $141.6 million. By component:
| Component of the $141.6M increase | Change |
|---|---|
| Aid for the elderly/disabled homestead tax limitation (TEC §48.2542) | +$71.6M |
| Aid for districts affected by tax compression (TEC §48.283) | +$41.5M |
| Additional aid for districts no longer subject to recapture (TEC §48.257(b-1)), tied to the Teacher Retention Allotment | +$29.5M |
| Homestead aid for facilities (debt service) | +$13.8M |
| Tier Two state aid | +$10.1M |
| Instructional materials (§48.307, §48.308) | +$3.1M |
| Other items (mainly the supplemental TIRZ payment) | −$0.4M |
| Available School Fund (per-capita rate fell from $619.87 to $470.81) | −$27.6M |
Source: TEA Summary of Finances, 2024-25 Final and 2025-26 Near-Final, Other Programs and Tier Two detail pages. Details: data/hisd_sof_trend.md.
About $113 million of the increase is tax-relief aid: the state replacing property tax revenue that the Legislature cut. In 2023, Senate Bill 2 (88th Legislature, 2nd Called Session) cut school districts' maximum compressed tax rate by an additional $0.107 per $100 of value and raised the homestead exemption from $40,000 to $100,000. In 2025 the 89th Legislature raised the exemption to $140,000, with an additional $60,000 for homeowners who are elderly or disabled. Lower local tax collections shrink the "excess" local revenue subject to recapture, and in HISD's case eliminated it.
The $29.5 million under §48.257(b-1) is different. The Summary of Finances computes it as the lesser of HISD's local revenue shortfall or its Teacher Retention Allotment (2025-26 Near-Final, p.59). It is the state's way of paying the new 2025 Teacher Retention Allotment to a district that no longer pays recapture. It is new money tied to teacher pay, not tax replacement. (The allotment is counted once in the entitlement above; this aid is how it is paid.)
TEA's own compression worksheet shows the counterfactual: without the additional tax-rate compression, HISD would have owed $156.3 million in recapture for school year 2026-27. Instead it owes $0.
Falling enrollment does not explain the jump. A smaller entitlement from fewer students tends to push recapture up, not down, because the formula compares a smaller entitlement against local tax revenue that does not automatically fall with enrollment.
What's actually true, if funding feels tighter¶
If someone says HISD is getting "less per student" from the state, the per-student figures above do not support it. Three things are real, though:
- Total formula dollars shrink as attendance falls, because the formula is attendance-based. HISD's own FY2027 budget assumes about $50 million less revenue from a projected 4,000-student enrollment decline (May 20, 2026 workshop, slide 14).
- The Basic Allotment has lost ground to inflation. It rose only $55 (less than 1%) between 2019 and 2025, while consumer prices rose about 26%.
- Part of the 2025-26 increase rested on a one-year tax. HISD's April 2026 budget workshop lists the "Loss of Disaster Penny Revenue" among FY2027 pressures, and its May 2026 workshop puts it at about $50 million.