Midland ISD sues TEA over recapture 'Robin Hood' program, argues it's unconstitutional

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(The Center Square) – A school district in an oil rich county in far west Texas has sued the state over a public school tax recapture program. The lawsuit could upend how public schools are funded and ultimately decide who controls how local property tax revenue is spent.

Midland ISD sued the Texas Education Agency, arguing the current state recapture policy is unconstitutional. It asks the judge to declare that the recapture program is violating Article VIII, Section 1-e of the Texas Constitution, which states, “[n]o State ad valorem taxes shall be levied upon any property within this State.” 

In the fiscal 2026 school year, the lawsuit says that the state "recaptured" $83 million of the $313 million in property taxes Midland ISD collected, or 27% of the total.

It also argues the Maintenance and Operation (M&O) tax for the Foundation School Program, designed to ensure “all school districts, regardless of property wealth, receive ‘substantially equal access to similar revenue per student at similar tax effort’," has never received voter approval required by the Texas Constitution. 

The state currently takes 27% of Midland ISD’s M&O revenue and redistributes it to Austin. Some lawmakers claim the funds are redistributed to poorer school districts. Others argue it isn’t and is repurposed in the general budget.

Under the current system, property taxes collected by a school district do not stay in the district if it receives more revenue than the basic allotment for per-student funding. In property tax rich districts, excess revenue districts receive isn’t returned to the taxpayer or kept by the district. The state determines how much the district keeps and sends to the state, known as “recapture.”

Midland ISD, located in the heart of the Permian Basin and the oil and natural gas capital of Texas, should have buildings, swimming pools and roads made of gold, critics argue – simply from the windfall it receives in oil and gas industry taxes and royalties. Last year, the district received $222 million, representing 50% of its tax base, The Center Square reported. That was up from $113 million it received in 2022. Every year the district receives a windfall but doesn’t get to keep the money.

In 2023, voters approved a $1.4 billion bond to build three new school buildings in Midland ISD. When interest is included, the debt owed is closer to $3 billion.  

The billions of dollars the district will send to Austin over time through recapture could have gone toward the building projects instead of putting residents into 40 years of debt, critics argue, The Center Square reported.

The district’s constitutional challenge also questions the legality of HB 3, which the state legislature passed and Gov. Greg Abbott signed into law in 2019. Prior to HB 3, Midland ISD’s board and voters set the district’s M&O property tax rate. Their discretion to do so was eliminated by the law. 

“Texas law grants Midland ISD’s Board of Trustees the exclusive authority to govern the district, adopt a budget, set a tax rate, and appropriate funds,” but under HB 3, the TEA commissioner determines the M&O rate “with no discretion to adopt a different rate,” the lawsuit argues. This forces the district to adopt a budget the state controls. The TEA is now controlling “nearly every dollar. And it must certify tax-increase notices for tax decisions the Board itself did not make,” the lawsuit argues.

The state also dictates how the district can spend the remaining funds, “leaving the district's own board with almost no say over its own taxpayers' money,” the lawsuit argues.

In the 2025-2026 school year, the M&O rate produced $313 million in revenue, of which the state allowed Midland ISD to keep $241 million. After formula adjustments that can raise or lower the total amount of property tax revenue collected, $83 million of the $313 million, or 27%, “was confiscated by the state through recapture and appropriated by the Texas Legislature for State purposes that do not benefit Midland ISD, including tax relief for other districts’ taxpayers and funding for charter schools that compete with Midland ISD for students,” the lawsuit argues. 

The $241 million the district was allowed to keep “is not its own to spend: more than twenty categorical allotments dictate how nearly every dollar must be used by Midland ISD, leaving the Midland ISD Board with control over only a fraction of its own locally raised tax revenue,” the lawsuit says.

At a Tuesday night board meeting, the Midland ISD board unanimously agreed to sue. 

Its board president, Josh Guinn, discussed the problem the district faced. “In theory, we already approved the budget, so we know how much money we need for next year. When Austin is compressing our tax rate higher than the amount that we've already approved, and already said we need, so we can send money back to the state — that is essentially a property tax, a statewide property tax for this for the 2025–2026 school year,” he said. 

The TEA “set our tax rate $83 million higher than what we essentially needed” for the district to write a $83 million check next month. That’s “a statewide property tax, and it's in violation of Article 8 of the Texas Constitution,” Guinn argued. “When you're making school districts set a tax rate higher than what their community, their district needs, in order for us to send money back to the state — that's a statewide property tax. You can paint an apple orange and it's still an apple. All [the district is] is the middleman tax collector for them.”

The lawsuit “in a nutshell,” Guinn argued, is “we, as elected officials, do not have the authority to set the tax rate for Midland ISD. And I just find that a huge problem.” 

Earlier in the month, he announced the board’s plan to sue.

The school district serves 29,600 students. The majority, 68%, are Hispanic; 60% are economically disadvantaged, 22.5% are emergent bilingual, 12.7% are in Special Education, according to TEA data. The district has received a C grade for student aptitude.