Katy ISD projects $26.7M budget gap but says state funding from HB2 narrows shortfall

KATY, Texas — Katy Independent School District officials on Monday presented a draft 2025–26 budget that shows a $26.7 million deficit in the general fund but says the district expects to reduce that gap through underspending, property‑value audit receipts and state funding tied to House Bill 2. The presentation by district presenter Chris Smith and budget staff laid out how HB2’s new funding streams — including a large teacher compensation allotment, an enrollment‑based “ABC” fixed‑cost allotment, higher school safety and modest transportation funding — will change Katy ISD’s revenue and expense picture for next year. District staff said HB2 increases state funding to Katy ISD by roughly $50 million (their consultants’ estimate and the district’s models range around $50–53 million) but noted much of that money is restricted: roughly $28.9 million must be used for classroom teacher pay increases, and other allotments are tied to particular uses or to future rulemaking by the Texas Education Agency. Smith told trustees that HB2 creates a new basic cost (ABC) allotment that the district estimates at $106 per enrolled student, and that HB2 also uses enrollment in places (PEIMS snapshot) rather than average daily attendance — a change that could penalize rapidly growing districts if enrollment after the snapshot rises. He also said the state re‑directed prior “golden penny” yield increases to make room for the $55-per‑student basic allotment increase, a swap he called “Rob Peter to pay Paul.” The district’s draft budget assumptions shown to the board include: modest enrollment growth (about 524 students), property‑value growth budgeted at 5 percent, a modeled teacher hiring scale that averages ~6.5 percent for teachers across steps, and a 3 percent local increase for non‑teacher staff. Smith and Assistant Superintendent of Finance Jamie Hines said payroll remains the district’s largest expenditure and that current underspending provides the most likely near‑term cushion. Trustees pressed staff on specifics: Trustee Champagne asked whether the state’s teacher pay design would cause overlapping payments for teachers in their third year if the district advanced earlier payments locally; staff said district‑funded local payments for year‑1 and year‑2 teachers could be structured as an advance and then reconciled when the state payment begins to flow for those employees. Trustees also asked about the budget line for teacher recruitment and retention and about whether the district could reallocate state allotments (for example, special‑ed or the ABC allotment) to cover locally adopted pay actions; staff said some allotments are flexible while others are legally restricted and TEA rules are still forthcoming on several items. Why it matters: HB2’s large, targeted investments for teachers, special education and safety materially increase state revenue to Katy ISD, but many elements require TEA rulemaking or are limited to specific purposes. The district must translate those new streams into a local compensation and staffing plan, while preserving fund‑balance policy and preparing for the November homestead‑exemption referendum that will reduce taxable values and shift state/local shares for maintenance and debt service. Supporting details: Smith and Hines highlighted these line items and constraints discussed with trustees: the teacher compensation allotment (state model with $2,500 for some mid‑career steps and $5,000 for longer service in HB2’s design), a forecasted $3.6 million from a $45 per regular‑program average daily attendance allotment for non‑admin staff, roughly $10.3 million from the ABC fixed‑cost allotment (enrollment basis), and an estimated $2.3 million for school safety increases. Smith said TRS and TRS‑Care costs rise with higher salaries and that statutory minimum pay rules create additional TRS contributions when local pay exceeds minimum schedules. Staff direction and next steps: Smith and budget staff said they will return in July with more detailed revenue and expenditure schedules once TEA rules and fall PEIMS snapshots are clarified; the district will adopt a budget in August. Trustees were offered options for what to include in a June compensation plan vote and staff said the board can adopt a comp plan now and leave some items (for example, a locally funded retention stipend) for later direction. Ending: District staff emphasized the draft nature of the figures and that historical underspending (they cited typical underspending figures near $30 million) and property‑value audit receipts are the most likely short‑term sources to narrow the gap before the formal August adoption.