Crafting a Budget in the Wake of HB 2

By Jim Schiele

Review District Runs

Start with a review of the district runs produced by the Legislative Budget Board. These will provide a general estimate of your M&O revenue.  

• FY 2026 district runs
• FY 2027 district runs

While you shouldn’t use these numbers to set up your budget, they can provide helpful projections.

For the first time, the state has used enrollment for the calculation of one element of state funding. I’ll use a sample district to explain how to develop your budget. Below are the numbers for our sample district and definitions for each type of allotment calculation.

Enrollment (from your registration system)	8,000	Number will be generated from your registration system
Average Daily Attendance (ADA)	7,520	Enrollment based on your historic absentee rate. – In this case we used 94%
WADA	10,000	For purposes of this example, WADA is calculated at 133% of ADA.  WADA varies significantly by district, but it helps with projections to know the historic relationship between ADA and WADA in your district.

Teacher Raises

The bill contains $4.2 billion for teacher salary increases, provided through a new teacher retention structure.

In districts with more than 5,000 students:

• $2,500 for is provided for teachers with three to four years’ experience
• $5,000 for teachers with five or more years of experience.

For districts with 5,000 or fewer students:

• $4,000 for teachers with three to four years’ experience
• $8,000 for teachers with five or more years of experience.

The first question to answer is whether or not your district will also raise salaries for teachers with less than three years of experience. Funding for these raises is included in the allotment for “non-administrative staff pay” portion of the bill, which I breakdown in the section below. 

With a teacher shortage in Texas, competitive districts may want to consider additional raises, above the state allotment, to attract qualified teachers. Discuss this strategy with your HR department and leadership team, as teacher payroll drives every district’s budget. 

Once a salary structure and raise structure is confirmed, you can estimate the cost of your teacher pay for the upcoming year. Be sure to change the underlying formulas to account for these changes. If you use an average teacher salary, that number may increase significantly and will need to be applied to the estimated number of teachers at each experience level. 

It is likely you will need to model several budget scenarios to determine the impact given different teacher salary schedules.

Non-Administrative Staff Raises

HB 2 does not define the methodology for wage increases among non-administrative staff, giving you more flexibility here. Raises included under this provision include teachers who have less than three years’ experience, counselors, librarians, nurses, teacher assistants, custodians, food service staff, bus drivers, administrative assistants, and other support staff.

The increase for non-administrative staff pay raises is provided through a $45 per adjusted average daily attendance (ADA). The calculation of the impact of these raises requires an estimate of future ADA as well as accurate counts of employees in all of these areas; and estimates of any changes by categories in each of these areas.

For example, if you are opening a new school, you will see increases in some categories and decreases in others. You may have a reduction in the number of bus routes/bus drivers, but increase the number of librarians and administrative assistants.

Let’s apply this allotment to a district with an ADA of 7,520, which includes a salary increase for teacher with less than three years’ experience, along with other staff.

Income
ADA (From Chart above)	Allotment		Total funding
7,520	$45		338,400
Expense
Category	Next year estimated expenditure at current wage levels	Increase (calculated or %	Estimated increase
Teachers not eligible for the retention allotment	10,000,000	2%	$200,000
Counselors	3,000,000	2%	$60,000
Librarians	1,000,000	2%	$20,000
Nurses	1,000,000	2%	$20,000
Teacher Assistants	1,700,000	2%	$34,000
Custodians	1,300,000	2%	$26,000
Food Service Staff	600,000	2%	$12,000
Bus Drivers	1,200,000	2%	$24,000
Administrative Assistants	700,000	2%	$14,000
Other Support Staff	500,000	2%	$10,000
Total	21,000,000		$420,000
Surplus / (Deficit)			($81,600)

In this example, the district is $81,600 to the negative. With staff turnover during the school year, that deficit may change or even result in a surplus, depending on how long positions remain open. With total salaries in these categories of an estimated $21,000,000, savings from turnover and vacant positions of $81,600 is reasonable and may not require you to recalculate.

TEA has not released rules related to compliance in this area, so I recommend that a district ensure they spend the allocated amount on salaries for these employees.

Fixed Cost Allotment

The bill provides for an increased fixed cost allotment for utilities, transportation, fees for hiring retired teachers, health insurance premiums, and other employee benefits. This increase will help address the inflationary prices that have impacted the cost of these services.

In HB 2, the increase comes from allocating $106 per enrolled student, which is a departure from the typical ADA-based calculations. The accuracy of your projected increase will depend on how accurately you can estimate not only enrollment but attendance.

One way to estimate is to refer to the number you have for your current school year. Then, consider whether the number should be adjusted based on whether your district is growing or shrinking. You may also consult with a demographer to estimate this number going forward.

Here’s an example of the calculation using our sample district numbers from above.

Enrollment (from your registration system)	Allotment	Total increase
8,000	*$106	$848,000

Basic Student Allotment Increase

The final major increase from HB 2 includes a $55 increase in the basic allotment per weighted average daily attendance (WADA). Let’s take a look on how this impacts our sample district.

WADA (Calculated at 133% of ADA.	Allotment	Total increase
10,000	*$55	$550,000

The Bottom Line

Basic student allotment increase	$550,000
Fixed cost allotment increase	$848,000
Total	$1,398,000

Taking this increase in the basic student allotment and adding the increase in fixed cost allotment, state revenue for our sample district increases by $1,398,000.  It is important to note that any changes in local values will impact state revenue. Make sure you review the information you receive from the CAD to populate your templates.  

Given an estimated total budget (net of salaries) of a district this size is anywhere from $45 million to $55 million, this increase is approximately 2.8 percent of your total budget to cover ordinary expenses.

For many districts, a 2.8 percent increase is critical to ongoing financial stability, however, HB 2 does little to solve the financial pressures faced by many districts.

My advice is to be cautious in allocating these increased allotments, as inflationary pressures are expected to continue and it’s difficult to predict the timing of any future M&O expense increase. Some financially strapped districts will face tough decisions, such as closing schools and reducing programs.

Other Provisions in HB 2

The remaining provisions in HB 2 that will impact your budget are not as significant as the items explained above. TEA soon will release templates that contain the calculations to determine state aid. Some of these provisions require increased spending in specific categories.

Other funding elements include:

• $677 million for early learning programs
• $430 million in additional school safety funding to increase the per-student allotment from $10 to $20 and to increase the per-campus allotment from $15,000 to $33,540 
• $850 million increase for special education to include a move to an intensity-based model of funding
• $300 million for an increase to the small- and mid-size school allotment
• $153 million for career and technical education
• $135 million for teacher preparation and certification initiatives, as the bill requires that all teachers in foundation courses will need to be certified by the 2029-30 school year

Next Steps to Develop a Budget

Work your template and, if possible, have someone else work the template or review your calculations.

1. Understand the provisions of HB 2 and be ready to explain the impact to your board and community. They should understand how the new legislation impacts the budget – and what issues it leaves unresolved.
2. Ensure compliance with the requirements, specifically those that target certain categories of expenditures. 
3. Model your salary calculations in multiple ways as personnel costs are critical to the budget. Gather information on retirements or resignations as soon as possible, which may impact the experience level for teacher raises.

In addition to HB 2, the legislature passed many other new laws that will impact school districts. Most of them will impact your board policy, while others may impact budget allocations. We’ll provide a more in depth look at these new laws in our legislative roadshow. Contact Pete Slover or Katy Estrada for additional details on those events.  

Consistent with previous years, this is going to be a difficult year to develop a budget with the addition calculation complexities and category requirements. If I can help in any way, please send me an email. We are here to assist with questions.

Jim Schiele is Linebarger’s School Financial Consultant. He offers free assistance to Linebarger school district clients as they navigate budgets and meet financial deadlines. He can be reached at jim.schiele@lgbs.com.

---

This content is intended and provided solely for educational and/or informational purposes. It is not intended to provide legal advice, nor does your receipt of this content create an attorney-client relationship. This content is not a substitute for the specific legal advice of an attorney licensed in your jurisdiction.

If you are a current or prospective client this content may be subject to the attorney-client privilege or the attorney work product privilege or otherwise be confidential. Any dissemination, copying or use of this content by or to anyone other than the designated and intended recipient(s) is unauthorized.