How the oil and gas industry offers vital, fickle funding for Texas school districts

AMARILLO, Texas (KAMR/KCIT) – Texas leads the United States in oil and gas production, including producing 43% of the nation’s crude oil and 27% of its natural gas in 2023. In fiscal year 2024, the industry also paid a record-breaking $27.3 billion in state and local taxes and state royalties, contributing to funding for community necessities ranging from roadways to school districts.

The Texas Oil and Gas Association reported that 99% of the state’s oil and gas royalty payments in fiscal year 2024 were deposited into the Permanent School Fund and the Permanent University Fund, with the industry noted as “the only significant contributor of fresh investment capital to these critical Texas education funds.”

Revenue from oil and gas property taxes can and do offer substantial boosts to school districts across Texas. However, that revenue doesn’t always benefit the communities in which industry workers live, nor does it offer steady funding year-to-year.

Here’s a look at how school funding in Texas works, and the oil and gas industry as one of its essential, albeit fickle, resources.

How Texas school funding functions in 2025

The Texas State Constitution establishes the responsibility of the state to provide free, equitable public schooling for every school-aged inhabitant. To do so, Texas school districts rely on local property taxes and a shared pool of state funds to make sure every student has a minimum amount of money put toward resources for their education.

Texas lawmakers decide how much money each student should have and designate that number as the “basic allotment,” which as of June 2025 is $6,215 per student. A school district’s size and attendance, targeted funding amounts, extra money needed for special services, and other attributes are then taken into account to create a target minimum budget for the district to meet to be considered adequately funded.

Once a school district has that target budget amount, they’re expected to hit it by mostly using local property tax revenue. If a district can’t meet that minimum budget amount, funding from the state pool comes in to help fill the gap.

Meanwhile, school districts also have an upper limit on how much money they’re allowed. As explained by the Texas Education Agency, each district has a unique funding cap calculated depending on its characteristics and local property value estimates. If a district gets enough money to surpass its funding limit, there are a few different options for getting its budget back under; usually, Texas sends a bill the district then has to pay, which goes into the shared funding pool.

Sometimes called the state’s “Robin Hood” law, Texas uses this “recapture” to redistribute property tax revenues to help other districts meet their budget requirements while minimizing the use of state funds.

The lower and upper limits and a focus on using local property tax revenues means that, at the system’s best, Texas school districts should all be able to manage a relatively equal amount of funding for every student, no matter where they live. However, with inflation and stagnant funding, school district officials and organizations like Raise Your Hand Texas, the Texas Association of School Business Officials and the Texas School Coalition have criticized both ends of the system. Districts have reported struggling to fund schools even when the minimum budget is reached, as well as difficulties keeping up with increasing recapture payments.

At the same time, for many of Texas’ more than 1,200 school districts, hitting the target for surpassing the budget minimum for a year while keeping below the limit to trigger recapture payments may depend on the well-being of the community’s oil and gas industry.

The ‘boom’s and ‘bust’s of oil, gas and Texas school funding

As noted above, the oil and gas industry in Texas contributes to school districts and other local funding by paying local property taxes and state royalties.

As reported by the TXOGA, oil and gas-related taxes can make up a significant percentage of the property taxes school districts use for funding each year, especially in rural areas with a higher density of property related to the industry. In fiscal year 2024, Texas school districts received $2.92 billion in property taxes from mineral properties producing oil and gas, pipelines and gas utilities.

In the Texas Panhandle, TXOGA reported Perryton ISD received $4.8 million from oil and gas property taxes in fiscal year 2024, which accounted for nearly 40% of the district’s total tax base. Oil and gas properties made up 71% of Canadian ISD’s tax base that same year, and paid the district $9.6 million. 

However, operating as a school district reliant on oil and gas industry revenues has unique issues of its own. Taxes aren’t always paid directly to or distributed in the same neighborhoods in which oil and gas industry workers live, and the industry’s commodity cycle can cause significant variations in how much it pays in property taxes from one year to the next.

Due to the wide-ranging nature of oil and gas properties, industry workers and their families may not live in the same district that benefits from an oil and gas company’s taxes. For example, a family in Canyon may have several members commute to work on the oil and gas properties near the unincorporated community of Masterson. The taxes from that property likely contributed to the $1.4 million Bushland ISD received in fiscal year 2024 from oil and gas taxes, while Canyon ISD only received $0.4 million. 

It isn’t uncommon for workers in the oil and gas industry to live in higher-density urban areas and commute to their workplaces. As oil and gas fields grow to produce more and hire more workers, the communities where those workers live need to accommodate schools and local infrastructure for population growth; however, the oil and gas property taxes may not contribute proportionally because they may go to a different area than where many of the workers live. 

This quirk of the property tax system as it relates to oil and gas has been noted by researchers and analysts such as those from Headwaters Economics, citing historical trends in taxation practices in different states that have resulted in disproportionate or delayed tax revenues for communities compared to the affects of oil and gas industry growth and change.

One analysis from Headwaters Economics also noted the strategies for oil and gas property tax collection and distribution may also vary in effectiveness and stability for “unconventional” oil and gas production – the most common type in the High Plains.

“The conventional model of oil development involved a relatively brief, high-impact drilling base followed by a long production phase with lower, stable employment, and decades of significant tax collections,” said Headwaters Economics. “In comparison to the conventional cycle, emerging unconventional plays are characterized by an extended, more intense development phase and less predictable production phases. Community impacts often are more intense and extend over a longer period of time, heightening the importance of collecting revenue in adequate amounts, distributing it effectively, and saving and investing for the future.”

The commodity cycle of the oil and gas industry also contributes to how much and when a community most benefits from the property taxes collected from the industry.

Oil and gas property valuation for taxes has a specialized appraisal process that includes data on oil and gas production, the starting price per barrel, and operating expenses, as explained by the Scurry County Appraisal District. This means from year to year, oil and gas prices and production levels can dramatically impact the amount of taxes paid for each individual property.

For school districts like Claude ISD, where TXOGA noted oil and gas properties only made up 2% of the tax base in 2024, a drastic drop in value or production may not be a dealbreaker. However, for a district like Follett ISD that had oil and gas make up 76% of its tax base, or the 40% tax base in Perryton ISD, a boom or bust in oil and gas can have drastic implications for the next school year.

Richard Beyea, a former member of the Perryton ISD School Board and current chairman of the Panhandle Producers and Royalty Owners Association, spoke in more detail about the impact of the oil and gas commodity cycle on schools in the Texas Panhandle. He said the effects of an industry crash or decline can be devastating, particularly to industry-dependent schools.

“You go from actually funding your school system – and you are in pretty good shape – and then a crash comes along, and then you start having to lay people off or evaluate that, or raise taxes, and none of them are good choices,” said Beyea. “So the rural communities need, probably, some additional help from the state. And there were some little bits of fine tuning in this year’s legislative session, but probably not enough to make up for it, so a lot of the rural school districts are still struggling.”

Beyea called to the need for a strategy on a state level to better help rural school districts weather oil and gas industry “busts” while also effectively using and saving unexpected windfalls from “boom” years, such as longer-term budgeting and extra assistance from the state that “smooth out the spikes and makes it easier to, for me and the school district superintendents, to put their budgets together, so you aren’t reacting to just kind of extreme changes.”

Unfortunately, while Beyea said some ideas to combat the issue exist – including his own – none have been widely embraced by lawmakers.

“It’s been where we’ve got a lot of flush cash,” regarding the state budget surplus, according to Beyea, “The Texas budget’s been really good. Nobody worries about it unless you’re in the rural school districts… so I don’t think it ever caught on. I also think that, quite honestly… sometimes Austin forgets we are up here. So I think they love our tax revenues, but at the same time… there’s a lot of attention paid for all the needs downstate.”

During the 89th Texas Legislature, lawmakers passed a wide array of education-related bills and took steps to restructure school funding in the state, including establishing a private school voucher program and increasing or creating funding allotments for certain things like teacher pay raises and school safety improvements. Basic allotments for school districts were also tied more closely to increases in local property values, meaning a district’s allotment should continue to increase even without additional legislation, and the basic allotment per student was also somewhat increased.

However, there was no specific legislation for equalizing the impacts of the “boom” and “bust” cycle for districts in oil and gas-focused communities. There was also no significant change to the state’s recapture program, meaning school districts still have to rely on the same calculations for the cap on how much money they can keep before having to pay the state.

While any increase in school funding has been welcomed by the state’s largely struggling districts, as previously reported by KXAN, the increase in the basic allotment is not expected to be enough to sustainably fix the issues. Further, school districts have also expressed concerns about the inflexibility of the new funding, which focuses heavily on allotments for specific items instead of leaving spending up to local discretion.

Regarding oil and gas, Beyea emphasized the importance for community members and lawmakers alike to recognize the broader-reaching impact of the industry as well as the need for educational resources. Successfully understanding and managing the impact of the industry, particularly when it brings money into the state’s education funds, can give Texas the opportunity to improve its education system as a whole.

“And I think that’s part of the disconnect, let alone all the other things that come out of the oil and gas industry that are positives for the state of Texas. I think of the direct impact on education… because I was sitting on the school board, you can see the detrimental effects on when things go down and we don’t get enough support up here. So I think they could do some things.” Beyea continued. “You want to prioritize education, you want to make it as successful and rewarding to the students and staff as you possibly can. I think those revenues need to be consistent and need to be adequate for funding education. I think that’s probably part of my issue, when I saw we did some good things but we could have done better.”

Altogether, Texas school districts will continue to work to provide their students with education and resources, even amid stringent funding policies and uncertain commodity cycles. For the foreseeable future, whether it be during “boom” or “bust”, the Texas oil and gas industry will also continue to be a resource upon which many of the state’s school districts depend.