86th LegislatureEducationState HouseTaxes & SpendingAudit Component of School Finance Reform Seeks More Efficient Spending

Efficiency audits become a central part of the school finance debate in the wake of some ISDs spending to excess.
April 26, 2019
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Texas lawmakers seeking to remedy inefficient school spending are considering requiring public school districts to undergo “efficiency audits.”   

Section I of the School Finance Reform bill (HB 3) that passed the House last month requires school districts to undergo an “efficiency audit” prior to seeking voter approval for maintenance and operations (M&O) tax increases.  The audits, which must be conducted by an external third party, will analyze “fiscal management, efficiency, and utilization of resources.”

Under the proposed statute, audits must be completed at least four months before holding a tax-rate election.  Auditors would apply a rubric to be developed by the Legislative Budget Board in consultation with the Texas Education Agency.  The board of trustees must then present and discuss the results and recommendations in a public meeting, and publish audit findings on the ISD website at least 30 days prior to the election.

House Education Committee Chair Dan Huberty (R-Houston), a former school board trustee, emphasized the importance of the audit requirement for transparency purposes.  “If you’re going to go to your voters for some reason, you should prove that you’ve been operating as efficiently as possible.”

Extreme examples of wasteful school spending have contributed to calls for greater accountability from lawmakers and policy groups. Grand Prairie ISD taxpayers learned last year that the district spent over $800,000 to purchase and renovate a residential property which it then leased to the superintendent for $2,000 per month.  La Joya ISD used $20 million of general funds to construct a recreational water park, for which the district reportedly lost nearly $250,000 in yearly operating costs, and which even garnered notice from Governor Greg Abbott.  

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La Joya and other districts have also come under fire for hefty superintendent severance payments, some of which totaled more than twice the superintendent’s annual salary. In a recent op-ed, policy analyst James Quintero of the Texas Public Policy Foundation called these expenditures “an affront to taxpayers,” and added, “it’s up to the Texas Legislature to rein in the bad behavior.”

In addition, recent student achievement measures have raised concerns school districts are not setting spending priorities appropriately.  The Texas Education Agency and the Texas Supreme Court have determined that increasing education spending does not necessarily correlate with improved student outcomes.  

Proponents of efficiency audits believe they could nudge school boards to better manage existing revenue and re-focus on improving student achievement.  

While Texas Education Agency data indicates that per-pupil funding in the state increased by about 20% between 2007 and 2017, student achievement has not improved.  According to the TEA’s 2018 annual report, fewer than half of Texas third-grade students read and/or perform math at grade level. The National Assessment of Educational Progress (NAEP) also reports declining results for Texas students.

Erin Covington, a Managing Director with global consulting firm Alvarez & Marsal, has participated in public sector efficiency audits throughout the U.S. During a panel discussion at the Texas Public Policy Foundation in Austin on April 17, Covington shared that efficiency audits elsewhere have often yielded significant savings.  

Some of the tactical solutions her firm has recommended include realigning employee schedules and duties, improving employee benefit costs, and implementing better contract management practices.  Covington added that some clients had not practiced any contract management whatsoever, and could not even confirm receipt of contracted goods or services for which they’d paid.

Opponents of the measure claim that an efficiency audit requirement will impose another cost burden on public school districts, but Covington noted that Alvarez & Marsal auditors often identify savings that are “at least ten times the cost” of the audit itself.  A performance audit of Detroit public schools conducted by the firm identified $53 million in annual savings.

The Texas House legislation permits school boards to use the same auditor or CPA that conducts the district’s annual financial audit, limits audits to a three-month time frame, and allows financial and efficiency audits to occur at the same time.   Although the efficiency audit includes review of whether expenditures will improve student outcomes, the auditor’s familiarity with the district would help reduce audit costs.

Under the current proposal, audits trigger only when a district seeks rate increases for maintenance and operations (M&O) taxes.  No such requirement is proposed for bond debt elections impacting interest and sinking (I&S) taxes despite the fact that some school districts are now proposing bonds in excess of a billion dollars.  

Although the HB 3 requirement also applies to public charter schools, charters cannot levy local property taxes so a different trigger mechanism applies. Prior to revising an existing charter or establishing a new campus, charter operators would be subject to the efficiency audit.   

Starlee Coleman, CEO of Texas Charter Schools Association, stated that while her group agrees that all schools should “be efficient and responsible stewards of taxpayer money,” the amendment seems to duplicate existing charter requirements.  

Charter schools face higher student achievement standards and are already required to provide a business plan as part of any expansion request.  Coleman said the proposed policy is “incredibly broad because [audits] would be required for any revision to a school’s charter—even something like moving to a new building or making a change to the length of the school year.”

There are currently no legislative proposals to require efficiency audits for other political subdivisions in Texas.    

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Holly Hansen

Holly Hansen

Holly Hansen is a freelance writer living in Cypress, Texas. Her former column, “All In Perspective” ran in The Georgetown Advocate, Jarrell Star Ledger, and The Hill Country News, and she has contributed to a variety of Texas digital media outlets. She graduated summa cum laude from the University of Central Florida with a degree in History, and in addition to writing about politics and policy, also writes about faith and culture.