On July 21, 2026, the Midland Independent School District Board of Trustees voted 6-0 to authorize a lawsuit against the Texas Education Commissioner and the state, arguing that the school finance system's recapture mechanism violates the Texas Constitution. The 74-page petition, filed in Travis County District Court, asks a judge to declare provisions of House Bill 3 and related education code chapters unconstitutional.
The lawsuit's arguments
The petition targets the Maximum Compressed Rate structure created by House Bill 3 in 2019, which requires the commissioner of education to set each district's Tier One tax rate. Midland ISD argues this constitutes a state ad valorem tax prohibited by Article VIII, Section 1-e of the Texas Constitution. The district also claims the Tier One levy has never been approved by local voters, violating Article VII, Section 3(e). The petition cites the Texas Supreme Court's identification of similar defects in the Edgewood III and West Orange-Cove II rulings, according to the court filing.
According to the petition, the Texas Education Agency set Midland ISD's 2025-26 Maximum Compressed Rate at $0.5814 per $100 of taxable value. That rate generated approximately $313 million in Tier One collections. Of that amount, the state permits the district to retain only $241 million for its Tier One Entitlement.
Recapture costs and local impact
The petition contends that more than twenty categorical allotments dictate how the retained Tier One money must be spent, leaving the elected board with control over only a fraction of locally raised tax revenue. Midland ISD is among the top 10 districts in Texas for recapture payments, according to TEA data reported by the Dallas Express. Nearly 60 percent of the district's students are economically disadvantaged, yet the district is classified as property-wealthy because of oil and gas mineral values within its boundaries, the Texas Tribune reported.
Board President Josh Guinn and trustee Matt Friez argued during the meeting that property wealth is not educational wealth and that the recapture formula does not account for the local costs of hiring and retaining teachers, according to the Texas Tribune.
Legal precedent
The Texas Supreme Court last ruled on the school-finance system in 2016, upholding it as constitutional but noting that lawmakers still needed to make improvements. More than two-thirds of the state's 1,200-plus districts had joined that suit. The court left open the possibility that a single district could prove a constitutional violation by demonstrating it had no meaningful choice but to tax at or near a state-imposed rate, the Houston Chronicle reported. Midland's petition explicitly builds on that opening.
The precedent also includes the Edgewood III and West Orange-Cove II cases, in which the Texas Supreme Court found that state control over tax rates and revenue distribution effectively created a statewide ad valorem tax, according to the petition. Those rulings forced legislative overhauls of the funding system. Midland's suit argues that House Bill 3 reintroduced the same defect by requiring districts to adopt a commissioner-calculated rate. Austin ISD, a high-recapture district, paid roughly $8.3 billion through recapture between 2000 and 2025, the Texas Tribune reported, illustrating that the mechanism affects districts with declining enrollment and high poverty rates despite the property-wealthy label.
Research on recapture
The Texas Education Agency describes recapture as a method of addressing unequal access to school revenue and financing the Foundation School Program, and characterizes it as a tool for equalization. However, the TEA's documentation notes that formula changes in HB 3 eliminated certain disparities between recapture and non-recapture districts but does not evaluate whether recapture achieves its equity goals in practice. No independent research evaluation of recapture's effectiveness at improving educational outcomes for recipient districts was identified in available records.
Next steps
Attorney Kevin O'Hanlon told the board before the vote that the Texas Attorney General's Office had contacted him about the upcoming recapture obligation. O'Hanlon said the district would seek a Rule 11 agreement to hold the $83 million in escrow during litigation or deposit it into the court registry to maintain technical compliance. He estimated the case could take about 18 months and cost approximately $1 million, according to the Dallas Express.