As Austin ISD prepares next school year’s budget under a widening deficit, families and teachers face a future of school closures and potential classroom cuts to close the gap. How did the district get here?
Austin is one of many districts in Texas closing the current school year in the red, as enrollment declines, inflation, local property taxes and state funding combine to strain budgets. Every two years, the Texas Legislature determines how much revenue districts receive based on average daily student attendance and other factors. Districts then build annual budgets on projections that don’t always match reality. When enrollment falls short, costs remain and deficits grow, leaving few options to recover.
In Austin ISD, that gap is projected to reach $181 million if left unchecked, setting up tough decisions ahead of the next budget cycle and intensifying scrutiny of how the district is funded and spends its money.
How school funding works in Texas
The Texas Legislature allocates money to schools on a per-student basis, determining how much each district receives. That funding is largely generated through local property taxes. If local revenue falls short, the state makes up the difference using sales taxes, business taxes, the lottery and other sources. When districts generate more property tax revenue than the state determines is needed, the excess goes to the state. It’s a process that was intended to equitably disperses local property tax revenue to “property poor” districts, but the funds are actually routed into the state’s general fund, where it is not required to be spent on education.
Districts build budgets based on projected state funding, factoring in enrollment, average attendance, student demographics, such as whether a child is low-income or has special needs, and district size. Austin ISD leaders also consider potential revenue from sources such as land sales or leases, which are not subject to state recapture, intended to redistribute property tax revenue from wealthier districts to districts with lower property value. The resulting budget outlines how those funds will be spent in the coming year.
At the end of the school year, districts may owe the state money if average daily attendance falls below projections, or receive additional funding if average daily attendance exceeds expectations.
Districts can also seek voter-approved bonds to fund long-term investments such as new schools, campus upgrades or technology. Austin ISD voters approved bonds in 2017 and 2022, providing billions for renovations, technology and new school buildings, infusing the district with billions not subject to recapture but are restricted to capital projects. Some of that spending is now under scrutiny as campuses slated for closure received those investments.
Voters also approved a tax rate increase in 2024, giving Austin ISD an estimated additional $41 million in funding after recapture.
When districts spend less than they collect, the remainder goes into a fund balance, a reserve used for emergencies or shortfalls; districts designate reserves must stay above a specific percentage or amount of their operating budgets. Duncan Klussmann, Clinical Associate Professor of Education Leadership and Policy Studies at the University of Houston, said many Texas school districts are now drawing down those reserves because state funding has not kept pace with inflation since the COVID-19 pandemic.
“As a result you have school districts that are going into their fund balances much earlier than you would anticipate them doing,” Klussmann said. “Typically, you want to go into your fund balance as little as possible.”
Austin ISD policy calls for maintaining at least 20% of operating expenses in its general fund, but board members voted to temporarily lower that threshold to 15% from 2024 through 2027 as the district works to stabilize its finances.
How much money districts get per student
In 2025, Texas lawmakers approved an $8.5 billion investment in public schools, the largest one time increase in recent years. House Bill 2 increased the per-student allotment for the first time since the 2019-20 school year. Schools will receive $6,215 per student in average daily attendance for the 2025-26 and 2026-27 school years, up from $6,160.
Funding varies based on district size and student needs, including special education, bilingual education, career and technical education, and early childhood education. Because these services cost more, districts get more money for these students. The final amount is based on that weighted average daily attendance.
Why Austin ISD faces mounting pressure
Districts like Austin ISD, labeled “property rich” because of high property values relative to student enrollment, are subject to a state policy called ”recapture.” The policy requires those districts to send a portion of property tax revenue to the state for redistribution to lower-wealth districts. Austin ISD reports it has paid about $8.3 billion through recapture between 2000 and 2025.
In an April presentation of preliminary estimates for the 2026-27 budget, the district projected $1.4 billion in revenue, with $604 million of that required as a recapture payment.
When Austin ISD voters approved the 2024 tax rate increase, it generated an estimated $171 million in additional property tax revenue. About $130 million was required by the state under the recapture, drawing criticism even from public education advocates. Austin ISD retains about $41 million annually, and said it would use $17.8 million for cost-of-living adjustments for teachers and staff.
Klussmann, a former superintendent of Spring Branch ISD, said the biggest challenge districts face is accurately projecting expenditures for the next year based on projected enrollment. Staffing and operations become fixed costs for that year even if enrollment drops.
Austin ISD lost more than 3,000 students this school year, and those fixed costs have remained high despite the decline, a key factor driving potential cuts to teachers and programs. Klussmann said inflation and rising academic expectations with insufficient funding add further strain.
“The state raises expectations on performance but necessarily does not increase the funding to meet those expectations,” Klussmann said. “The challenge is districts then have to figure out how to fund the programming the parents expect, meet high performance standards, but at a time where they are receiving less funding than inflation.”
