Landmark changes for Texas school funding from SB4

The summer of 2025 will be remembered as one of the most significant seasons in Texas school finance history. Driven by Senate Bill 4 (SB 4)‡ and its Additional State Aid for Homestead Exemption provisions (ASAHE), school districts across the state moved decisively to secure record-setting bond programs and financing.

The legislative catalyst: SB 4 and ASAHE

SB 4, passed in the 89th legislative session, increased the school district homestead exemption from $100,000 to $140,000. To protect districts from the resulting loss of local revenue, the law created ASAHE, ensuring districts would receive additional state aid to offset reductions in their interest and sinking tax collections.

This legislative safeguard provided clarity and stability at a pivotal moment. For many districts, ASAHE created a window of confidence: the ability to pursue long-range capital planning without fear of eroding their maintenance and operations budgets while still meeting debt service requirements.

Superintendents and chief financial officers (CFOs) seized the opportunity, moving forward with facilities, safety, and technology projects at a scale not seen in prior cycles.

Summer 2025 impact in numbers

Preliminary data indicate that Texas independent school districts (ISDs) authorized an estimated $15-16 billion in new bonds during the summer of 2025. This marks one of the most significant combined issuance periods in state history.

Several key themes emerged.

• Scale: Multi-billion-dollar authorizations in large urban districts set the tone, while dozens of smaller programs advanced statewide.
• ASAHE assurance: With state aid offsetting revenue losses, districts were confident to proceed with ambitious capital plans.
• Investor demand: Municipal markets responded favorably, with Texas ISD bonds continuing to benefit from Permanent School Fund (PSF)‡ guarantees and strong institutional demand.

Key contributors behind the momentum

This historic wave of issuance was not accidental. It was the result of collaboration across multiple stakeholders.

• Legislators, through SB 4, provided the homestead exemption increase and ensured districts would not be penalized through ASAHE.
• Superintendents and CFOs identified capital needs clearly and structured bond plans responsibly.
• Municipal advisors and underwriters designed financings aligned with market realities, ensuring districts accessed capital competitively.
• The market itself has strong investor confidence supporting large-scale ISD issuance.

The outlook ahead

As we look beyond 2025, the path forward is both promising and challenging:

• Sustainability of ASAHE: Legislators will continue to evaluate the long-term cost of maintaining ASAHE protections. District leaders should plan for potential adjustments while maximizing today's stability.
• Market conditions: Interest rate volatility and investor appetite remain factors to watch. Districts with callable high-coupon debt may have refunding opportunities, while new-money issuers must remain disciplined in timing and structure.
• Execution and transparency: Ensuring bond proceeds are deployed efficiently will maintain confidence among taxpayers and investors.

Final thoughts

The historic bond issuance of summer 2025 represents more than a financial milestone-it underscores the leadership of Texas superintendents and CFOs who advanced critical projects in the face of ongoing funding challenges. While SB 4 and ASAHE provided temporary stability, district leaders translated that policy shift into actionable capital plans, securing facilities, safety improvements, and technology for students.

As we close the chapter on this extraordinary season, one thing is clear: Texas ISDs are better positioned to meet the needs of their communities because of the foresight, discipline, and persistence of district leaders-supported by ASAHE provisions and strong demand in the municipal markets.

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