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Last fall, when Houston ISD’s new superintendent, Mike Miles, first laid out his expensive plans for Texas’ largest district, several key dominoes still had to fall regarding HISD’s financial future. 

Would the number of students enrolled in the district change? Would HISD receive new funds from the state legislature? What would Miles’ overhaul plans look like past Year One?

Now, as HISD begins its process of budgeting for next year, some tiles have landed — and they haven’t gone HISD’s way.

A combination of lost funds, missed opportunities and new programs means HISD will have to find or cut hundreds of millions of dollars to balance next year’s budget if Miles wants to stick to his blueprint for overhauling the district, a Houston Landing analysis shows.

The size of HISD’s budget hole — which totals $250 million this year — raises questions about how Miles will ensure the financial sustainability of Texas’ largest district without cutting some of its roughly 24,500 employees. About three-quarters of HISD’s yearly spending, expected to reach $2.2 billion this year, pays for staff salaries. The other quarter goes to supplies, contracted services, building maintenance and other costs.

Miles has pledged to balance HISD’s budget, acknowledging cuts may be necessary. However, the state-appointed superintendent has declined to discuss which jobs or programs might be impacted. He has vowed student learning and classroom instruction would not be hurt by cost-saving measures.

“In order to expand in some of the areas and prioritize, that means some other areas are deprioritized,” Miles said in mid-December.

But achieving significant cost savings would likely require making significant staffing cuts, not just trimming other parts of the budget, said Bradley Davis, associate professor of educational leadership at the University of Houston.

“If you’re making fractional cuts there to what’s already a fractional portion of the overall budget, that doesn’t strike me as sufficient … to address these larger shortfalls,” Davis said.

The specifics of HISD’s spending plans will likely come into focus in May, when Miles has said his team will present a draft budget to the district’s board of trustees. However, many of the factors contributing to potential financial challenges have already solidified. 

Here’s seven reasons why balancing HISD’s budget will be an uphill battle.

1. Existing deficit

This year, HISD is dipping deep into its savings to pay for Miles’ expensive slate of programs. District leaders expect spending to outpace revenue by $256 million, partially due to the rollout of Miles’ “New Education System,” which he previously estimated to cost over $100 million. The NES model involves paying teachers more, hiring more staff members and adding programs at dozens of schools across the district.

That means HISD needs to close a quarter-billion-dollar gap to balance its budget next year, as Miles has promised to do. The district had enough money in reserves to afford this year’s level of investment, but it can’t keep spending at that rate. Without significant cuts, HISD’s reserves likely would fall below state-recommended levels for emergency cash on hand — about $550 million — in the next year or two.

HISD officials also have warned that the deficit this year ultimately might top $300 million after spring budget amendments, largely due to higher-than-expected spending on staff salaries.

Texas School Alliance Executive Director H.D. Chambers said he had to close budget deficits caused by the global financial crisis while serving as superintendent of Alief Independent School District and Stafford Municipal School District in the early 2010s. Alief’s gap was about half the relative size of HISD’s current deficit, he estimated, yet the process still caused immense pain in the community, he said.

“It ain’t fun. I’ll tell you that,” Chambers said. “(Children) suffered because we had to do some things that were not in the best interest both academically or emotionally or socially for kids. But the state put us in a bind, and they’re doing the same thing right now.”

2. No new state funding

HISD missed out on what could have been tens — or even hundreds — of millions in extra dollars when state lawmakers did not allocate significant amounts of new money for public schools during their 2023 legislative sessions.

Armed with what the state comptroller called a “once-in-a-lifetime” surplus of nearly $33 billion, lawmakers proposed several ways to boost school funding, including increasing the amount of money given to districts for each student. However, the bill became ensnared in a bitter fight over school vouchers and did not make it over the finish line.

HISD Chief Financial Officer Jim Terry said the most generous proposals lawmakers floated could have brought up to $200 million extra to the district per year.

“(The funds) essentially would have wiped out the deficit that we’re sitting on right now,” Terry said.

The lack of legislative action means HISD and many other districts across the state now face budget deficits without extra financial assistance from Austin.

3. Lost enrollment

Another blow to HISD’s expected revenue, to the tune of tens of millions of dollars, comes from this year’s loss of students. 

The district has been hemorrhaging students for years, but, this year, enrollment dropped by roughly 6,000 students, the second-steepest drop in a decade. About 183,900 students attend HISD, down from 189,900 in 2022-23.

Texas provides districts $6,160 per student, based on average daily attendance, a level unchanged since 2019. Losing 6,000 students means HISD could see a decline in state revenues in the neighborhood of $40 million.

4. Longer school year

At the same time, HISD is preparing for changes that will likely cost tens of millions of dollars, including lengthening the school year.

District officials plan to increase the number of days that students spend in class from 172 this school year to 180 next year. Teachers and many other staff members also would work a longer year and get paid more for the extra time, Miles assured, though he hasn’t detailed how much they would make.

Adding 15 extra workdays, as HISD officials recently proposed in drafts of a 2024-25 calendar, likely would cost HISD tens of millions. If HISD paid the district’s roughly 16,800 employees working at campuses and in student transportation at their same per-day rate, the bill for the extra work days would reach roughly $80 million.

5. Scaling up expensive programs

Another costly change slated for next year is the continued expansion of Miles’ NES program.

The program is expected to cost over $100 million this year to serve 85 schools, Miles has said. Next year, he is considering adding more schools, including as many as 45 campuses he expects to receive D or F rating under the Texas Education Agency’s accountability scores this year. (The release of school ratings, which was scheduled for September 2023, has been held up in court.)

At over $1 million extra per NES school, on average, adding new campuses to the program would likely run in the tens of millions of dollars.

6. Certain cuts off table

Miles’ expensive plans have left some community members to wonder whether they should brace for painful cuts ahead. However, Miles has taken some of the most-feared changes off the table the 2024-25 year — including school closures.

In early December, Miles said there are no plans to close any schools next year, a move that could save the district tens of millions of dollars. Miles argued many campuses have families living in the area that have not been compelled to send their children due to poor academic standards or reputation.

“I think it's incumbent upon the school district to try to improve those schools first, before we try to close those schools, because that's a failure of the adults, not a demographic problem,” Miles said.

Miles has also promised not to reduce the forces behind HISD’s beloved wraparound program, which costs the district roughly $15 million each year in staff salaries. Wraparound specialists work on each HISD campus and assist students with out-of-school needs, typically related to living in poverty.

7. Lost special education funds

HISD is also set to lose about $9 million in special education funding as the federal government readjusts its compensation for Texas districts after years of overcharging under the school Medicaid program.

When school staff provide services to special education students that are medical, not educational, they can be reimbursed by the federal government. However, a 2017 audit found Texas was improperly coding its claims, resulting in overpayments. 

In January, officials made a final decision that means Texas districts will receive only 56 percent of the Medicaid funding they previously expected. HISD’s funding is dropping from $27.6 million to $18.3 million, according to the Houston Chronicle.

The bottom line

As HISD faces financial headwinds and simultaneously lays out plans for expensive programming, onlookers are questioning the long-term viability of the district’s direction.

University of Texas at Austin education professor David DeMatthews, who has criticized Miles’ leadership, said he worries the new programs will only be able to last a couple years before funding dries up.

“(If) a year later, two years later, you can’t sustain any of these changes, the investment is not going to be really wise,” DeMatthews said. “I think that needs to be a really big concern right now for everyone in the district.”

Several times in recent years, HISD has been so conservative in its budget estimates that it ran surpluses once all the dollars and cents were tallied, despite having predicted deficits. However, Terry said he has no evidence to suspect that would happen this year. 

Terry also said he does not expect donors or state officials to bail out HISD. 

“We don't see any white horses coming to save the general fund,” Terry said.

HISD’s spending worries Lantrip Elementary School parent Sarah Malik, who said she wants Miles’ administration to communicate plans more effectively with the community and take the voices of families like hers into account.

“There’s this saying … ‘Sunlight is the best disinfectant,’” Malik said. “I feel like with some of the changes going on right now in HISD, a lot of it just goes on in the dark. And nothing good breeds in the dark.”

As HISD begins to put together its plans for next school year’s budget, Anne Sung, an HISD parent and former trustee, has her eyes a year further out, into 2025-26. She said previous HISD leaders were too frugal with their spending, but that has changed under Miles.

“I think that this administration has swung way in the opposite direction, not being cautious,” Sung said. “I think we're setting ourselves up for a big collision in 2025.”

Asher Lehrer-Small covers Houston ISD for the Landing and would love to hear your tips, questions and story ideas. Reach him at asher@houstonlanding.org.

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