Educational Overview · Foundation School Program

How Texas Property Taxes
Fund Public Schools

From your home's appraised value to the classroom — a step-by-step guide to how Texas assesses, collects, and distributes school funding to its 1,000+ independent school districts.

County Appraisal District

Property Is Appraised

Each Texas county has a County Appraisal District (CAD) that determines the market value of all taxable property — homes, businesses, and land — typically as of January 1 each year. Property owners may protest their appraisal before the Appraisal Review Board (ARB).

Key Insight

The CAD's appraised value is the foundation of everything that follows. A higher appraisal means more local revenue collected — which can eventually push a district into recapture territory. Homestead exemptions directly reduce your taxable value before the rate is applied.

Market Value Homestead Exemptions Annual Reassessment ARB Protests

ISD Tax Levy

School Districts Set a Tax Rate & Collect Taxes

Each ISD's elected school board adopts a tax rate, divided into two parts: the Maintenance & Operations (M&O) rate (funds day-to-day operations) and the Interest & Sinking (I&S) rate (funds facility bonds). The Texas Comptroller sets a Maximum Compressed Rate (MCR) that caps M&O without a voter-approved election.

County tax assessor-collectors then bill and collect the taxes based on appraised values from Step 1.

Key Insight

The I&S rate funds facility bonds — and this revenue stream is not subject to recapture. That's why many wealthy districts continue voting for bond packages even as they send millions in recapture to the state each year. It's the one lever they fully control.

M&O Rate (operations) I&S Rate (bonds/facilities) Max Compressed Rate cap VATRE for overrides

Texas Education Agency (TEA)

TEA Calculates Each District's Entitlement via the FSP

Here's something most Texans don't know: property tax revenue in Texas is treated as state money — not local money. The state controls how much each district gets to keep. TEA uses the Foundation School Program (FSP) — the master formula system — to calculate exactly how much funding each district is entitled to receive based on its students.

Local property tax collections are applied first toward that entitlement, and the state covers whatever is left over. The state pays its share from two sources: the Foundation School Fund (FSF) (fed by state general revenue: sales taxes, oil & gas taxes, etc.) and the Available School Fund (ASF), a separate endowment-backed fund. Together these two state buckets fill the gap between what a district collects locally and what the FSP formula says it's owed.

The Big Reveal

Neither the FSF nor the ASF adds extra money on top of the formula. They're just two different state accounts used to pay the same obligation. Think of them as which state checkbook writes the payment — not how large the payment is.

FSP = the formula Local taxes applied first FSF fills the gap (general revenue) ASF fills the gap (endowment)

Step 4 · How the FSP Calculates & Pays Each District's Entitlement

The Formula Engine & How the State Writes Its Check

FSP Formula · How Entitlement Is Calculated

Tier I & II — ADA Formula

Basic Allotment
(The FSP Calculation Engine)

The FSP formula starts with a guaranteed amount for every student — the Basic Allotment — currently set at $6,160 per student. But it doesn't just count warm bodies: it counts Average Daily Attendance (ADA), meaning the number of students who actually show up each day, averaged across the school year. Miss school, and your district gets less funding.

That base is then adjusted upward for students who cost more to educate — special education, English learners, career-tech, and gifted students all generate higher weights. Districts in small or rural areas get size adjustments too.

Tier I (simplified): $6,160 × ADA + student weights + size/cost adjustments = district's total entitlement

Tier II adds a "guaranteed yield" per penny of extra M&O tax effort, so that property-poor districts can raise more money by taxing harder — the state makes up the difference.

FSP Funding Sources · How the State Pays Its Share

Foundation School Fund + ASF

How the State Writes
Its Check to Districts

Once the FSP formula says how much a district is owed, the state pays its share from two buckets — and this is important: neither adds extra money on top of the formula. They're just different state accounts paying the same obligation.

① Foundation School Fund (FSF) — The primary bucket. Fed by Texas general revenue: sales taxes, oil & gas production taxes, franchise taxes, and other state income. If local taxes don't cover the district's full entitlement, the FSF makes up the difference.

② Available School Fund (ASF) — A flat per-student payment (~$415–$471 per ADA) drawn from the Permanent School Fund, a state endowment built from public land proceeds, plus motor fuel and occupation taxes. Every district gets this regardless of wealth — it offsets what would otherwise come from the FSF.

District's entitlement = Local taxes + FSF + ASF

Think of it like a bill: local taxes pay part, ASF pays a flat amount, and FSF covers the rest. If local taxes cover it all — or more — FSF pays nothing, and recapture kicks in.

⚖️

Step 5 · Chapter 49

Recapture — "Robin Hood"

When a property-wealthy district collects more in local taxes than its FSP formula entitles it to receive, the state takes the surplus and redistributes it statewide.

Trigger

A district becomes subject to recapture when its local M&O property tax revenue exceeds its Tier One FSP entitlement. This happens in communities where high property values — driven by commercial real estate, oil & gas holdings, or affluent neighborhoods — generate far more tax revenue per student than the state formula requires. The excess is not theirs to keep.

Where the Money Goes

🏠

Taxpayers in Wealthy ISD

Pay property taxes at the district's adopted M&O rate on their appraised value

→

🏫

ISD Keeps Its Entitlement

District retains only what the FSP formula says it is owed per student in ADA

→

🏛️

Surplus → TEA / State

Excess flows directly to the state's Foundation School Fund via Option 3 payment (the only option used today)

→

🗺️

Pooled & Redistributed Statewide

State uses recaptured funds as a method of finance to meet FSP entitlements of low-wealth ISDs across Texas

🚫

Taxpayers in recapture districts receive nothing back

There is no rebate, no credit, and no local reinvestment of recaptured funds. A homeowner in Round Rock ISD or Leander ISD pays their full tax bill — and the portion above their district's entitlement is permanently transferred to benefit students in other communities statewide. The district also cannot lower its tax rate to compensate; the state formula determines the rate. Many residents in these districts also vote for I&S bond packages on top of this to fund their own facilities, since bond revenue is the one stream not subject to recapture.

Williamson County ISDs — Recapture Payments (FY 2024–25)

Adopted/estimated recapture amounts from district budgets, sorted highest to lowest. Tax rate shown is the combined M&O + I&S rate as a percentage of your home's taxable value — what you see on your property tax bill for the school district portion. Higher property values in a district can mean a lower tax rate yet still trigger recapture, because the same rate applied to expensive homes generates more total revenue than the FSP formula allows the district to keep.

↓ No Recapture Paid — FY 2024–25 ↓

Sources: District budget documents, board meeting minutes & Community Impact reporting. Values marked (~) are budgeted estimates; final amounts are certified by TEA after each school year closes.

📌 Round Rock ISD — Notable Recapture Swing: RRISD paid ~$115M in FY 2022–23, making it one of the largest recapture payers in Central Texas that year. It then dropped sharply to ~$11.6M in FY 2023–24 — a reduction driven by the state's increase of the homestead exemption from $40,000 to $100,000, which reduced taxable property values and therefore local revenue. By FY 2024–25, recapture climbed back to ~$19.9M as property values continued rising. This three-year swing illustrates how sensitive recapture obligations are to both legislative changes and local market conditions.

~53% of school funding from local property taxes

~39% from state funds (FSF + ASF), both part of the FSP

1,000+ Texas ISDs funded through the FSP formula