"The truth of the matter is there is no money," the Plano Republican said.

She added that lawmakers are working with an "antiquated" system for financing education that has been in and out of legal trouble in the courts for several years.

"Rather than rearranging the chairs on the Titanic, which we have been doing all these years, why don’t we take them off the deck and look at things from a completely different perspective?" she told the committee, made up of eight House and Senate members and seven citizen appointees.

She asked for proposals for an entirely new system of funding schools. Currently, local school districts levy significant property taxes on homes and businesses, the state provides tens of billions of dollars in funding every year, and districts get a small amount of federal money.

Property taxes are the first priority for any fix, Sen. Dan Patrick said.

"What we are facing is 4 million homeowners and a handful of business owners who are carrying the entire education system on their shoulders, and there’s a limit to how much people can pay in property taxes," said Patrick, R-Houston.

He warned that retirees or businesses might flee to escape high annual property taxes.

"They will leave the state and we’ll be forced to find another fundi ng source," he said.

Nearly four years ago, the Legislature approved a massive school finance bill that cut the school property tax rate for operating expenses by a third, but rising property values and the ability of school districts to gradually raise their tax rates have eroded much of the relief.

Sen. Royce West, D-Dallas, voiced skepticism that any major alternative funding sources for schools can be found.

"It’s a question we have asked over and over again for years. Where are we going to get the revenue from?" West said. He noted that property taxes and the sales tax are still the only available sources of funding. In addition, the state’s business franchise tax was increased in 2006 to help pay for the property tax cut that year.

Committee members were briefed Tuesday on the looming financial crunch by one of their budget experts.

John McGeady of the Legislative Budget Board said several factors are contributing to the funding pinch, including the need to replace $3.25 billion in federal stimulus money that was used to pay for public education in the current two-year budget.

In addition, he said, property value growth has slowed tremendously across Texas – meaning the state will have to put more money into the system unless there is a dramatic turnaround.

While state officials had projected a nearly 3 percent growth in property values in 2009, the actual increase was less than half that, about 1.29 percent. Generally, the lower the growth in values, the more state aid is needed to fund schools. That could mean a $500 million shortfall in school funding.