Katy ISD trustees hear $34 million audit windfall; administration outlines one-time staff payouts and warns of ongoing budget uncertainty

Katy Independent School District leaders told trustees at a June 15 work study that a comptroller property-value audit will deliver roughly $34,000,000 in one-time cash to the district and outlined how administration plans to use that infusion while preserving fiscal health.

“It is a one-time injection of cash,” said Chris Smith, the district’s chief financial officer, describing the audit outcome. Smith said the district will recognize the money in the general operating fund and that administration is proposing to return part of it to staff as one-time payments rather than rely on the funds for ongoing expenses.

Smith said administration — and in particular a recommendation expected from Mr. Schuss at a future meeting — will propose a 1% lump-sum cash payment to all employees in August (cost estimated at about $8,000,000) and another 1% lump sum around Christmas. He cautioned that a 1% ongoing pay increase would be more difficult to sustain because the $34 million is a nonrecurring resource: “That’s as from a chief financial officer standpoint, that’s tough to do when you’re working in an environment that’s fixed income,” he said.

Why it matters

Trustees were briefed that although the one-time funds would substantially reduce the district’s near-term deficit projections, several structural pressures remain: slow or flat enrollment, limits set by state funding formulas, an uncertain new special-education funding methodology, and rising benefit and food‑service costs. Those items will affect next year’s structural budget regardless of the audit money.

Special-education funding uncertainty was a prominent theme. Smith and trustees discussed a state request for districts to manually upload 19,350 individualized education program (IEP) records into a state database, a labor‑intensive process Smith said will cost the district about $65,000 to staff. The state has signaled $850,000,000 set aside for special-education funding changes statewide but has not finalized formulas; Smith said the district cannot yet forecast whether it will gain or lose material funding under the new approach.

Bond, debt and reserves

Smith also described active work to refund callable bonds — roughly $165 million to $175 million of callable debt — and said refunding could yield present-value savings he estimated near 8% in the current interest-rate environment. He described a $50,000,000 money-sale transaction being prepared to preserve eligibility for certain state aid tied to bond sizing.

Board reaction and next steps

Trustees asked for additional context and cautioned about committing ongoing dollars. Several trustees said they favored returning money to employees but not at the cost of future fiscal stress. President Redmond and staff said the board will see formal budget amendments and a proposed compensation amendment in coming board agendas; staff committed to bringing more detailed financial analyses in July and, if warranted, an amendment to pay items in August.

The district’s administration also told trustees it will not rely on projected increases from possible new programs, such as education savings accounts, when calculating sustainable recurring raises until those revenues are confirmed.

The work study concluded without a formal board vote on the proposals; staff will return with budget amendment language and specifics for trustee action.