In Edgewood Independent School District et al. v. Kirby et al., a landmark case concerning public school finance, the Mexican American Legal Defense and Educational Fund filed suit against commissioner of education William Kirby on May 23, 1984, in Travis County on behalf of the Edgewood Independent School District, San Antonio, citing discrimination against students in poor school districts. The plaintiffs charged that the state's methods of funding public schools violated at least four principles of the state constitution, which obligated the state legislature to provide an efficient and free public school system. Initially, eight school districts and twenty-one parents were represented in the Edgewood case. Ultimately, however, sixty-seven other school districts as well as many other parents and students joined the original plaintiffs. The Edgewood lawsuit occurred after almost a decade of legal inertia on public school finance following the Rodríguez v. San Antonio ISD case of 1971, which asked the courts to address unfairness in public school aid. The Rodríguez plaintiffs ultimately lost in the United States Supreme Court in 1973. The plaintiffs in the Edgewood case contested the state's reliance on local property taxes to finance its system of public education, contending that this method was intrinsically unequal because property values varied greatly from district to district, thus creating an imbalance in funds available to educate students on an equal basis throughout the state. In its opinion deciding the case (1989), the Texas Supreme Court noted that the Edgewood ISD, among the poorest districts in the state, had $38,854 in property wealth per student, while the Alamo Heights ISD, which is in the same county, had $570,109 per student. In addition, property-poor districts had to set a tax rate that averaged 74.5 cents per $100 valuation to generate $2,987 per student, while richer districts, with a tax rate of half that much, could produce $7,233 per student. These differences produced disparities in the districts' abilities to hire good teachers, build appropriate facilities, offer a sound curriculum, and purchase such important equipment as computers. In its original 1984 brief, MALDEF had declared that such gaps amounted to the denial of equal opportunity in an "increasingly complex and technological society," and asserted that this was contrary to the intent of the constitution's Texas Education Clause.
On June 30, 1984, about a month after MALDEF filed its petition, the legislature passed a school-reform measure to increase state aid to poor schools. MALDEF challenged this law in 1985 by refiling an amended lawsuit that sought additional monetary reforms. MALDEF also deemed the legislature's bill "intolerably illegal." The court accepted the MALDEF petition and heard the Edgewood case in Austin between January 20 and April 8, 1987, with state district judge Harley Clark presiding. On April 29, 1987, Clark ruled in favor of the plaintiffs. He found that the state's public school financing structure was unconstitutional and ordered the legislature to formulate a more equitable one by September 1989. The state appealed his decision to the Third Court of Appeals. On December 14, 1988, the appeals court justices reversed the lower court by a two-to-one decision on the grounds that education was not a basic right. It further proclaimed that the present system of public school financing was constitutional. The plaintiffs appealed the decision, however, taking it to the Texas Supreme Court on July 5, 1989. On October 2 the court delivered a unanimous 9–0 decision that sided with the Edgewood plaintiffs and ordered the state legislature to implement an equitable system by the 1990–91 school year.
Following the court's order, the legislature met in four consecutive and often contentious special sessions to resolve the financing issue. On June 1, 1990, with the legislature still unable to pass a bill, a master appointed by the state Supreme Court offered an alternative plan to be implemented if the legislature failed in its mission. It called for a transfer of money from property-wealthy school districts to poor ones to equalize the amount each district spent to educate students. The press nicknamed this redistribution scheme, and similar proposals suggested later, the "Robin Hood" plan. On June 6, 1990, the legislature finally reached consensus and approved a funding bill that would increase state support to public schools by $528 million. Governor William Clements signed it into law the following day. The plaintiffs, however, were dissatisfied with the latest legislation and asked for another hearing in the Travis County District Court. A month later Judge Scott McCown, who replaced the retired Harley Clark, heard MALDEF's arguments against the constitutionality of the new law. Two months later, McCown agreed with the plaintiffs, affirming that the new legislation did not provide "substantially" equal access to public school funds. He instructed the legislators to organize a new financing system within a year. Dismayed with this challenge to the legislature, the governor promptly responded that the state would appeal McCown's ruling. The case was returned to the state Supreme Court, which, on January 22, 1991, once again asserted that the present system of public school funding was unconstitutional, arguing that the legislation approved had not fundamentally altered the state's unfair property-tax system. The court also suggested that one solution might lie in the consolidation of the state's 1,058 school districts. It gave the legislature slightly more than two months, by April 1, 1991, to come up with a final plan. The legislature entered a new round of debates to devise an acceptable finance plan. After McCown threatened to cut off state funds to schools and extended his deadline for a plan to April 15, the legislature approved a reform bill.
The legislature's new financing formula, taking the Supreme Court's advice, consolidated the 1,058 school districts into 188 County Education Districts to assure that public money spent per student would be equal. This would amount to $2,200 per student immediately and rise to $2,800 in four years, the result of setting a tax rate of 72 cents per $100 valuation, with an eventual increase to $1.00 per $100 valuation. Governor Ann Richards signed the bill into law on April 15, 1991. The lawyers for fifty-seven wealthy school districts, which would lose money under the new plan, appeared before McCown in June 1991 to argue against its legality. McCown, nonetheless, upheld the legislation. After continuous protest on the issue from property-wealthy districts, the Supreme Court heard more arguments challenging the latest method of school finance and concluded in a 7–2 decision on January 22, 1992, that the plan was illegal. It held that the legislature had acted improperly in setting up the County Education Districts because they were unlawful taxing units under the Constitution of 1876. The court ordered the legislature to devise a new plan by June 1, 1993, but in the meantime it allowed school funding to continue through the CEDs. On May 28, 1993, the legislature passed a multi-option plan for reforming school finance. Under the plan, each school district would help to equalize funding through one of five methods: (1) merging its tax base with a poorer district, (2) sending money to the state to help pay for students in poorer districts, (3) contracting to educate students in other districts, (4) consolidating voluntarily with one or more other districts, or (5) transferring some of its commercial taxable property to another district's tax rolls. If a district did not choose one of these options, the state would order the transfer of taxable property; if this measure failed to reduce the district's property wealth to $280,000 per student, the state would force a consolidation. This plan was signed into law by Governor Richards on May 31, 1993, and was accepted by Judge McCown. The action guaranteed that schools would receive funding for the 1993–94 academic year. Many poorer school districts still challenged the constitutionality of the new law, however, and Judge McCown set September 1, 1993, as the deadline for them to file their complaints. In January 1995 the Texas Supreme Court ruled that the options plan was constitutional but that the legislature still needed to work on equalizing and improving school facilities throughout the state.