School Finance 101
Breaking Down Complex Facts
Texas public schools are funded through a combination of state aid and local tax collections. The Basic Allotment – the state’s per-student funding amount – has increased by $55 since 2019.
During that same period, inflation has risen by more than 20 percent. Based on inflationary trends, the Basic Allotment would be approximately $1,500 higher today if it had been adjusted to match inflation.
Tax Rate Breakdown
Public school tax rates are made up of two parts: Maintenance & Operations (M&O) and Interest & Sinking (I&S).
Maintenance & Operations (M&O)
The M&O budget funds the daily operations of the district. This includes:
Employee salaries and benefits
Student instructional resources and classroom supplies
Equipment and contracted services
Utilities such as electricity, water, and internet
Insurance, legal, and audit services
Think of M&O as the day-to-day operating expenses of running a school district, similar to groceries, gas, and utility bills in a household budget.
Interest & Sinking (I&S)
The I&S budget—sometimes called the “debt service” budget—can only be used to pay for voter-approved bonds. These funds cover:
Construction of new schools
Major renovations and repairs
Purchase of land
Large capital projects such as new technology systems or transportation fleets
I&S is comparable to a mortgage or car loan in a household budget. It finances long-term investments, and the funds are restricted by law to paying off bond debt and associated interest.
A Note on Tax Rate Compression:
Since the passage of House Bill 3 in 2019, the state has required districts to reduce (or “compress”) their M&O tax rates when property values increase. This caps local revenue growth from M&O taxes at about 2.5% annually. As a result, higher property values do not directly translate into proportional increases in local funding for school operations.
Liberty Hill ISD’s Tax Rate
Tax Rate by Year (M&O + I&S)
Rates shown are dollars per $100 of taxable value.
Three Main Funding Sources
Texas public schools get their funding from three main sources:
Local Funding
The Liberty Hill ISD Board of Trustees sets the local property tax rate each year once the State determines the Maximum Compressed Rate (MCR) allowed. Meanwhile, the Williamson Central Appraisal District determines the market value of homes and business properties within Liberty Hill ISD.
The primary source of local revenue for education is property tax collections.
For Liberty Hill ISD, local property taxes make up the majority of the district’s general operating revenue. Over the past several years, the share of local vs. state funding has shifted significantly.
In some years, local funding has accounted for more than 85% of the district’s operating revenue, while in others, state funding has risen to nearly 40%, depending on the state’s school finance formulas and property value growth.
State Funding
Texas school districts receive a basic allotment per student based on Average Daily Attendance (ADA). This means state funding is tied to how many students attend each day, not just total enrollment.
The current state basic allotment is $6,215, which is then adjusted for each district based on attendance.
Liberty Hill ISD also receives additional funding for students who require special services such as special education, gifted and talented, early childhood, or career and technical education (CTE) programs.
For the 2025–26 budget, Liberty Hill ISD anticipates receiving roughly $30 million in state funding, making up about 38% of the district’s revenue.
The district’s budget projections are built on an assumed 95% student attendance rate.
Federal Funding
Federal funding for Texas school districts comes through formula programs and competitive grants, generally intended to support specific student groups or services.
In Liberty Hill ISD, these funds account for less than 1% of the overall operating budget, making them the smallest revenue source for the district.
Federal dollars are typically restricted for designated purposes such as Title I, career and technical education, or services for students receiving special education.
Because these allocations depend on program requirements and annual appropriations, the amounts can vary from year to year.
In recent years, Liberty Hill ISD has seen adjustments in funding tied to Title I and Special Education services such as School Health and Related Services (SHARS).
Does increasing the Basic Allotment change the “cup”?
Yes. The Basic Allotment is the per-student funding amount set by the state. If it increases, the overall funding “cup” grows larger, which raises the total funding schools receive. Local property taxes fill the cup first, and state aid covers the rest, but a higher Basic Allotment increases the total amount guaranteed per student.
