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Increased Funding & Deficits
House Bill 2 from the 89th Legislature increased statewide funding by approximately $8.5 billion dollars for the 2025-26 and 2026-27 school years. With this new infusion of revenue, the question has been asked, how is it that so many school districts are adopting deficit budgets, or, at a minimum, struggling financially? Based on internal Equity Center polling, in the 2023-24 school year, nearly 40 percent of districts had adopted a deficit budget. By 2024-25 that number increased to approximately 70 percent. After HB 2, the number dropped to 32 percent. By the 2026-27 school year, over 52 percent of responding districts stated that they anticipate adopting a deficit budget. We believe that in large part, the following factors are the reason:
Inflation:
Between 2019 and 2026, compound inflation increased by 30.26 percent based on U.S. Bureau of Labor Statistics data. To account for inflation between January 2019 and the 2025-26 school year, the Basic Allotment would need to be increased from the current $6,160 to approximately $8,000. The Basic Allotment has remained stagnant since the last increase in 2020, meaning that school districts bore the burden of inflation until the passage of HB 2.
Compensation:
While the creation of the Teacher Retention Allotment and the Support Staff Retention Allotment did provide compensation increases for most staff, they are one-time increases, with any future increase being the responsibility of the school district.
The average Texas teacher salary in 2019 was $59,000. To cover 30% inflation, the 2026 average would need to be $70,340. School districts attempted to keep pace, despite only modest adjustments from the state, by raising the average salary to $60,700 in 2024. Despite the Legislature dedicating more than half of the new revenue from HB2 to compensation increases, the average by 2026 was only $63,749, a 5% increase form 2024. The total increase from 2019 was only 18%, or 60% of what was needed to cover inflation. We estimate that over two-thirds of the increases come from local funds, rather than the state, which indicates the state covered 20% of cumulative inflation between 2019-25.
For districts over 5,000 students, the state salary increases were $2,500 (4.63% average) for teachers with 3 or 4 years of experience, and $5,000 (9.26%) for teachers with 5 or more years of experience. For districts with fewer than 5,000 students, the increases were $4,000 (7.4%) and $8,000 (14.8).
The failure of salaries to keep pace with inflationary costs is a component of why many districts are facing difficulties hiring and retaining certified educators, and in turn the increase in the number of uncertified teachers.
Enrollment Decline:
Between the 2014 and 2024-25 school years, enrollment increased by over 312,000 students, or 6 percent. In the 2024-25 school year enrollment increased by 0.2 percent, which TEA states is the smallest increase since the state began collecting enrollment data.
During the same 2024-25 school year, charter school enrollment increased by 3.1 percent, which means that traditional public school enrollment decreased. TEA indicates that of the 20 Education Service Center regions, only 8 have experienced enrollment growth between 2023-24 and 2024-25.
By the 2025-26 school year, enrollment declined statewide by over 76,000 students.
When this enrollment trend is coupled with birth rate and domestic immigration data, the picture is not encouraging. From 2007 to 2019, birth rates in Texas dropped 21 percent, which is faster than the national average. In the year 2000, there were 2.5 births per family. By 2022 that number had dropped to 1.84 per family. Further, the fertility age in Texas has both increased and shrunk. The fertility age in Texas peaked between 20 and 29 years of age. It has now shifted to 30-34 years of age. Both domestic and international immigration are on the decline, with domestic immigration alone being down 70 percent from the 2022 high water mark.
Increased Fixed Costs:
Fixed costs are something the state has not directly recognized through an allotment until the creation of the Allotment for Basic Costs. Between 2019 and 2026, property insurance costs in Texas have increased by approximately 60 percent. Electricity and water rates have been relatively stable; however, there are questions about the impact of data center development on both electricity and water rates.
The Transportation Allotment increased from $299 million in 2020 to $409 million in 2024-25. However, based on 2024-25 PEIMS data, school districts spent $2.19 billion on transportation statewide. Pressures to keep up with transportation costs continue to accelerate, with the average cost of diesel increasing from $3.59 a gallon in June 2025 to $5.596 in May 2026.
Lack of Increased Discretionary Revenue:
Of the total revenue in HB 2, 52 percent is dedicated to compensation, with lion’s share ($3.7 billion) being a direct pass through for the Teacher Retention Allotment. There is some discretion for the Support Staff Retention Allotment, with expenditures being limited to non-administrative staff not eligible for the Teacher Retention Allotment.
The Allotment for Basic Costs is similar, in that districts have some discretion, but are limited to expending funds on utilities, transportation, hiring retired teachers, TRS contributions, and property and casualty insurance.
There will be a relatively small influx of discretionary revenue during the 2026-27 school year when the Basic Allotment will increase by $55.
The long-term trend indicates that Texas’ public school funding is highly unlikely to catch up to the effects of inflation over the last six years. And, based on enrollment and demographic data, alongside the roll out of the state voucher program, it does not appear that enrollment trends will revert back to historical levels.
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