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Budget ballyhoo

Many more school districts are feeling the pinch

Not just HISD. Not by a long shot.

For eight-straight years, Cypress-Fairbanks and Conroe ISDs earned the Texas Smart Schools Award, bestowed on school districts with prudent financial practices and high academic achievement.

Now, Cypress-Fairbanks faces a $50 million deficit next school year, and Conroe is projected to face its first deficit in nearly a decade in the next two to four years.

They are not alone.

As the Texas Legislature studies potential changes to the state’s school funding mechanisms, the majority of large Houston-area school districts are facing budget shortfalls they say stem from a lack of state aid. Of the 10 largest Houston-area school districts, all but three approved budgets last summer that included deficits of more than $1 million, according to a Chronicle review. At least nine say they may have to dip into reserve funds within the next three to five years if revenues do not increase.

For some, it is more dire. If nothing changes at the state or local level, district officials say Spring Branch ISD in west Houston will be financially insolvent in three years. Cypress-Fairbanks ISD will use up all its reserve funds in four or five years. Pasadena ISD only avoided a $20 million shortfall for the next school year by passing a tax hike referendum, and multiple districts are considering similar measures to keep their schools afloat.

That pain is felt in large and small districts across the state. North East ISD in San Antonio expects to cut $12 million from its budget next year, likely leading to teacher layoffs, according to the San Antonio Express-News. By 2020, budget documents in Ysleta ISD near El Paso show the district likely will draw down its reserve funds by $12 million. Friendswood ISD, which educates roughly 6,000 students in a sliver of southeast Greater Houston, is facing a $1.9 million budget shortfall next year.

“If we’ve been one of the most efficient districts in the state, and we’re facing this crisis, imagine what other districts are dealing with,” Cy-Fair ISD Chief Financial Officer Stuart Snow said.

[…]

Sen. Paul Bettencourt, R-Houston, who sits on the Commission of Public Education Funding, said districts should expand their revenue streams to include sources other than local property taxes and the state. He pointed to Dallas ISD, which pulls in about $10 million annually from philanthropy. United Airlines also staffed one of DISD’s schools with 25 full-time employees, a partnership Bettencourt said should inspire districts elsewhere.

“It’s not going to be one-size fits all — there are many, many ways to do it right,” Bettencourt said. “At end of the day, we want the education system to get students the best educations they can get for best deals taxpayers can support. But we need to look for all the ways we can do it right.”

First of all, to Paul Bettencourt: You cannot be serious. Philanthropy? Are you kidding me? Dallas ISD’s 2017-2018 general revenue expenditures were over $1.4 billion. That $10 million represents 0.7% of the total. You gonna suggest everyone search their couch cushions, too? Oh, and I don’t know about you, but I’m old enough to remember when two of the biggest philanthropic entities in Houston were Enron and Continental Airlines. Good thing HISD didn’t make itself dependent on them, you know?

This is entirely the Legislature’s responsibility. We are here because they refuse to adequately fund schools, and because they use the increases in property valuations to fund the rest of the budget, while blaming local officials for their shortfalls and tax hikes. As with everything else in this state, nothing will change until the people we elect change. If you live in one of these districts, don’t take your frustrations out on your school board trustees. Take it out on the State Reps and State Senators who skimp on school finance, and the Governor and Lt. Governor who push them to keep doing it.

From the “Grab that cash with both hands and make a stash” files

Same song, second verse.

If budget writers don’t come up with money to address a state employee pension shortfall and mounting needs for public schools, health care and transportation, credit agencies are likely to downgrade Texas’ AAA rating in the near future.

That was the warning Comptroller Glenn Hegar gave lawmakers at a Tuesday hearing of the Senate Finance Committee in Austin. Though the Texas economy is growing at a healthy pace, Hegar said, the state’s budget is riddled with enough unfunded liabilities to worry credit rating agencies such as Moody’s and Standard and Poor’s.

“We’re not at a crisis,” Hegar said, but “we’re going in the wrong direction.”

A downgrading of Texas’ credit rating would make it more expensive for the state to borrow money — and perhaps damage state leaders’ credibility when advertising Texas as “open for business.”

“I want to avoid that, because I think that’s a black eye on the state of Texas,” Hegar said.

Rebounding oil prices, natural growth and migration to Texas have led to an increase in tax collections, according to the comptroller’s office. But much of that new revenue is already dedicated to historically underfunded programs such as the state highway fund, meaning that Texas lawmakers likely won’t have more money at their disposal in 2019 when crafting the next two-year budget.

At the same time, lawmakers will need to plug holes in the pension system for state employees, and they’ll face pressure to make solvent a health insurance program for retired teachers. On top of that, big bills coming due for Medicaid, the federal-state health insurance program for the poor and disabled that is perennially underfunded by the Legislature, could put the state budget $2.5 billion in the red before lawmakers even convene in 2019. (The state’s current two-year budget is about $217 billion.)

In addition, state leaders will have to tackle the bills from Hurricane Harvey recovery.

I’ll just say again here what I said in January: The vast majority of these issues are the result of deliberate choices made by our Governor, our Lieutenant Governor, and our Republican-controlled Legislature. Instead of seriously addressing the needs of the state, current and future, our Republican leaders have been obsessed with trivia, from bathrooms to plastic bags to trees. We have gotten by and done all right because times have been good, but we are in a far more precarious position for when the economy goes south than we should be. In the meantime, we are squandering this opportunity to ensure a better future for all of us by making such cavalier and ill-advised fiscal choices. Every Democratic candidate running for state office needs to internalize and articulate that message going forward.

From the “Nothin’ but good times ahead” department

Given the good economic conditions in Texas right now, you’d think the budget outlook would be better than it is.

The Texas economy is growing healthily, but that doesn’t mean state budget writers will have more money at their disposal next year, state officials said Tuesday.

In fact, though unemployment is low and tax revenue is on the rise, big bills coming due for the state’s highways and health care programs are giving Texas lawmakers reason for concern.

“I would like to offer a few words of caution for reading too much into the positive recent economic numbers,” Texas Comptroller Glenn Hegar told lawmakers at a Senate Finance Committee hearing.

As they often do, state budget writers last year underfunded Medicaid, the federal-state insurance program for the poor and disabled, which, alongside public education, makes up one of the largest shares of the state’s $217 billion two-year budget.

Then, during a special session called by Gov. Greg Abbott over the summer, state lawmakers shifted another $500 million away from the Texas Health and Human Services Commission to pay for public education programs.

As a result, lawmakers could face a $2.5 billion Medicaid bill shortly after they reconvene in Austin in 2019. Then there are the additional drains on Texas coffers from Hurricane Harvey recovery efforts, Hegar said.

That’s bad news for lawmakers given the comptroller’s prediction that the state will only have a $94 million “beginning balance” when lawmakers convene in 2019. By comparison, lawmakers had an $880 million beginning balance in 2017, which was ultimately a tight year for the state budget. Two years before that, lawmakers enjoyed a $7.3 billion beginning balance.

[…]

Another source of heartburn for budget writers is the ravenous state highway fund. In 2015, amid complaints of a highway system in disrepair, Texans voted to amend the state Constitution to require that up to $2.5 billion in sales tax revenue be dedicated to the highway fund.

That means that even as Texas collects more money from sales taxes — Hegar testified that sales tax revenue grew by an average of 10.3 percent over the last three months — the rest of the state budget will not benefit from that revenue since it is earmarked for the highway fund.

That was also an issue for budget writers in 2017. Last year, in order to free up some of that money for other purposes, Senate lawmakers pushed for an accounting trick that delayed a payment to the state highway fund into the next two-year budget cycle. That freed up about $1.6 billion for lawmakers last year, but it means there will be another bill to pay in 2019.

“In short, despite a strong economy and positive outlook for revenue growth in this biennium, it seems likely the next budget will be much like the one crafted in 2017, having to contend with restricted revenue relative to the spending trends of the state,” Hegar said.

Just a reminder: Underfunding Medicaid was a choice. Shifting money away from HHSC was a choice. The amendment to require all that highway spending was ratified by the voters, but it was there to be ratified because the Lege chose to put it there. Deferring that payment to the highway fund was a choice. And though the story doesn’t include it in its litany, spending nearly a billion dollars on boondoggle “border security” stunts was a choice, too.

We’ll probably be fine in the 2019 session, though the potential for shenanigans is always high. But remember, winter is coming, because it always does. When it does, we’re going to have a mess to clean up, one that was caused by the Republicans in charge of our state, one that could have been mitigated in many ways. I hope we’re ready for it.

(Note: This is the inspiration for the post title.)

The Harvey effect on the state budget

You know what the solution to this is, right?

Senate leaders warned Tuesday that Hurricane Harvey could put a billion-dollar hole in Texas’ budget, an ever-growing number that could affect how much money is available for other state programs.

Only $20 million remains in the state disaster-assistance fund, Senate Finance Committee Chair Jane Nelson said at a public hearing Tuesday on the status of hurricane recovery efforts.

“Our state costs are escalating,” said Nelson, R-Flower Mound. “We need to be judicious. … If we, God forbid, had another disaster in the next 18 months, where would we get the money?”

The Legislature will not convene in a regular session until January 2019.

The state has spent more than $1.7 billion so far in state funds, along with billions in federal assistance, according to updated numbers provided to the committee on Tuesday. Legislative Budget Board officials said as much as $2 billion in additional state funds may be needed in 2019 to cover hurricane-related school costs.

[…]

[Land Commissioner George P.] Bush said that $1 billion in immediate state funding would allow temporary housing assistance to be speeded up. Those funds could be fully reimbursed later by the federal government, he said.

State Sen. Royce West, D-Dallas, suggested those funds could be borrowed quickly from the state’s Rainy Day Fund – a savings account – to expedite the housing recovery for thousands of Texans, some of whom are living in tents.

“We’d need to have a special session” to approve that borrowing, West said, drawing silence from other committee members.

Yes, that is what the Rainy Day fund is for. Not specifically for disaster recovery – that was the bogus justification invented by Rick Perry in 2011 as an excuse for not alleviating cuts to the public education budget – but to help cover budget shortfalls in bad times. The choice is pretty simple, either we draw money from the Rainy Day fund to help the thousands of people who remain displaced by Harvey, or we decide they’re not worth our time and compassion. No wonder Sen. West got no response when he brought it up.

No special session needed to address Harvey flooding

So says Greg Abbott.

Gov. Greg Abbott said Friday another special session of the Texas Legislature won’t be necessary to deal with the response to Hurricane Harvey.

“We won’t need a special session for this,” Abbott told reporters, noting that the state has enough resources to “address the needs between now and the next session.”

[…]

In recent days, some members of the Texas Legislature have speculated that a special session to address the recovery seemed likely. They included state Sen. Paul Bettencourt, R-Houston, an ally of Lt. Gov. Dan Patrick and the chairman of the Senate GOP caucus.

“My personal assumption right now is that we will probably be back in Austin at work no later than January,” Bettencourt told the Houston Chronicle on Thursday.

Here’s that Chron story. A few details from it to help clarify:

“My personal assumption right now is that we will probably be back in Austin at work no later than January,” said Senate Republican Caucus Chair Paul Bettencourt, R-Houston, echoing the sentiments of other House and Senate members.

“The governor and the Legislative Budget Board have the ability to move around quite a bit of money in current appropriations, but it probably won’t be enough when all the bills come in. This storm is going to cost more than (hurricanes) Katrina and Sandy put together, and I’m thinking we’ll be breaking the $200 billion mark before this over.”

While the state would be liable for only a fraction of that amount, after insurance and federal payments come in, but whatever that (remaining) amount is will be something the Legislature will probably have to address.”

That, say other lawmakers, will most likely involve a politically charged debate over tapping the state’s so-called Rainy Day Fund — a $10 billion account officially known as the Economic Stabilization Fund — to pay for some of the storm-damage tab.

[…]

In a Thursday letter to House members, House Speaker Joe Straus said he will be issuing selective interim charges — directives for legislative recommendations — “in the near future to address these challenges” resulting from the massive destruction caused by Harvey, especially to schools.

“The House Appropriations Committee will identify state resources that can be applied toward the recovery and relief efforts being incurred today, as well as long-term investments the state can make to minimize future storms,” the San Antonio Republican said in his letter. “When the appropriate time comes, other committees will review the state’s response and delivery of services.”

The Legislative Budget Board, jointly headed by Lt. Gov. Dan Patrick and Straus, can make key decisions on reallocating state funds to meet emergency needs — up to a point, officials said. Half of its members — three senators and two House members — represent areas devastated by Harvey.

My guess is that Abbott is probably right and the LBB can cover this for now. Tapping the Rainy Day Fund, which I will point out again was created for the purpose of helping to cover budget shortfalls in times of economic downturn before being bizarrely recast as in-case-of-disaster savings by Rick Perry in 2011, may require the Lege, but that may be done in a way as to defer that action until 2019. My wonk skillz are limited in this particular area. Point being, if Congress can manage to allocate relief funding without tripping over their ideologies, there shouldn’t be that much for the state to have to pick up. We’ll see.

Budget passes

The Legislature’s one mandated duty has been completed.

Both chambers of the Texas Legislature voted Saturday evening to approve a $217 billion, two-year budget that would boost funding for the state’s beleaguered child welfare agency, increase the number of state troopers on the Texas-Mexico border and avoid serious reforms to the state’s much-criticized school finance system.

The final vote in the House was 135-14. The vote in the Senate was 30-1.

Scrounging for cash in a tight-fisted legislative session, budget leaders from both chambers agreed to a compromise that settled a bitter debate over how to finance the state budget. The two-year budget is shored up by both $1 billion taken from the state’s savings account, often referred to as the Rainy Day Fund, and an accounting trick that would use nearly $2 billion from a pot of funding intended for highway projects. The House had favored tapping the Rainy Day Fund and leaving the transportation funding alone. The Senate had taken the opposite position.

[…]

The compromise proposal was skimpier than the original budget draft that the House voted out in April. In the House, the final version won the approval of Tea Party Republicans who had originally opposed the House version, while losing the support of almost one-third of the chamber’s Democrats.

State Sen. Sylvia Garcia, D-Houston, was the lone no vote in the upper chamber.

“This budget is more of the same and fails Texas families,” Garcia said in a statement. “There’s no new money for pre-k, there’s continued spending on more border militarization, and it continues to shortchange education and healthcare.”

The budget includes funding to cover growing enrollment at public schools, but it reduces state funding for schools by about $1.1 billion. That funding is offset primarily by growth in local property taxes.

See here for some background, and read the rest for the details if you want. The thing I want to focus on is in that last paragraph, and for that let me quote from a post Deece Eckstein wrote on Facebook:

The state budget adopted today relies on school property taxes increasing by 7% annually to balance the State budget. In other words, the Legislature is reducing its aid to schools because it assumes your taxes will increase by at least 7% a year.

So, when you’re frustrated by rising property taxes and someone tells you to blame your local school board, just read them the language below. School property taxes now exceed 55% of the average person’s property tax bill. We will not get property tax relief until the Legislature fixes school finance!

Kudos to Kirk Watson and Donna Howard, who have been calling out their colleagues on this hypocrisy. Jeers to Dan Patrick and Paul Bettencourt, who insist on manufacturing villains at the local level to blame for rising property taxes.

It’s an effective con, you have to admit. But if you’ve paying attention, now you know the real story. Don’t be a sucker.

So the big remaining question is whether this will herald the end of the legislative season, as it normally does, or whether Dan Patrick will succeed in strong-arming Greg Abbott into calling a special session to try and force through a bathroom bill. Patrick’s gonna do what Patrick’s gonna do, so do what you can do and call Abbott’s office at 512 463 2000 and tell him no special session. There’s no reason to go down without a fight. RG Ratcliffe has more.

Budget deal reached

The one bill that must get passed is on its way.

After months of private squabbling and public threats of a legislative overtime session, the Texas House and Senate finally compromised to unveil a joint budget late Saturday.

Lawmakers, scrounging for cash in a tight-fisted legislative session, agreed to dip into the state’s savings account and to make use of an accounting trick using funds set aside last session for highway projects.

“We have reached a consensus on what I believe is a responsible, compassionate and smart budget for the people of Texas,” said state Sen. Jane Nelson, R-Flower Mound and the upper chamber’s top budget writer, at a committee hearing that lasted late into Saturday night.

“This has been a laborious process, I have to say,” said state Rep. John Zerwas, a Republican from Richmond and Nelson’s counterpart on the House Appropriations Committee. He called the budget “fiscally conservative” during “a time when it’s a little bit more lean.”

Budget documents indicated around $1 billion would come from the state’s Rainy Day Fund, a $10 billion savings account available to shore up the budget in difficult years. That money would pay for priorities such as repairs to the state’s aging mental health hospitals and bulletproof vests for police officers.

Nearly $2 billion more would come from an accounting trick related to transportation funding approved in 2015. The proposed budget would delay a payment to the state highway fund in order to free up that funding for other needs in the current two-year budget. The House had previously been critical of the possibility.

Though lawmakers were creative in tapping alternative money sources to avoid steep cuts this budget cycle, some high-dollar expenditures, notably Medicaid, the federal-state health insurance program for the poor and disabled, were not fully funded. That means lawmakers will almost certainly need to address those underfunded parts of the budget in 2019 — their next legislative session — in the form of a supplemental budget.

The House had originally intended to use $1.4 billion from the Rainy Day Fund, then considered upping it to $2.4 billion, while the Senate aimed for $2.5 billion in pay-delay gimmickry. Nice to see everyone can give a little to get a little, I guess. No budget is ever going to be good under our current political circumstances, but this one could have been worse, and that’s about all you can hope for.

In other business from Saturday:

On property taxes, the lower chamber unanimously approved an amendment that contained key language from Senate Bill 2 — which, among other things, requires local governments to give constituents more information about proposed property tax increases — and attached it to Senate Bill 669.

The House sponsor of the bill, state Rep. Dennis Bonnen, R-Angleton, had been trying to move the legislation for weeks, and it wasn’t scheduled to come to the House floor until early next week.

The Senate bill is an item Lt. Gov. Dan Patrick has deemed must-pass legislation — he threatened on Wednesday to ask Gov. Greg Abbott to call lawmakers back for a special session if that and other measures didn’t pass. Whether Bonnen’s amendment is enough for Patrick and the more conservative Senate is still unclear: Bonnen’s amendment lacked a key provision that would require voter approval for some tax rate increases, something Patrick stated repeatedly he wanted included.

[…]

An amendment by state Rep. Four Price, R-Amarillo, would extend the lives of several state agencies that were scheduled to “sunset” – or expire. A separate measure that dealt with that specific issue didn’t survive last week’s deadline for the House to pass bills on second reading.

But Price added his language to Senate Bill 80, a measure that seeks to streamline reporting requirements for state agencies. The Senate must now concur with the changes to SB 80 in order for Price’s amendment to survive.

“The goal of the amendment originally as contemplated would not have had to extend these agencies, but for the fact they were caught up in that last night on the calendar,” he said. “It goes hand in hand [so] yes, it had the effect of extending the agencies to 2021.”

SB2 was one item on Dan Patrick’s hostage list, while the sunset bill was his leverage for it. Late last night there was a limited bathroom amendment attached to a Senate bill (I’ll have more on this tomorrow), and SB2 isn’t as Patrick wanted it, so we can’t say as yet whether his tantrum has been mollified. I’m sure he will let us know soon enough.

House approves bill to kill margins tax

Dumb.

The Texas House on Thursday approved a proposal that would phase out an unpopular business tax that provides funding for public schools.

The proposal by state Rep. Dennis Bonnen, R-Angleton, would not reduce the state’s franchise tax during the current penny-pinching legislative session, but it would do so in future years. Under Bonnen’s bill, economic growth would trigger reductions in the tax, which currently brings in about $8 billion every two-year budget cycle, until it ultimately disappears.

About $1.8 billion in franchise tax revenue in the current two-year budget cycle goes to the Property Tax Relief Fund, which pays for public schools. Democrats, arguing that the tax cut would cause lawmakers in later years to underfund crucial public programs, railed against the proposal for nearly two hours. They offered a series of amendments that would have lessened the extent of the tax cut or redirected funds for college tuition, pre-kindergarten and other priorities, but all were defeated.

The final vote took place late Thursday evening at the end of a long day on the House floor, which followed a marathon debate Wednesday over “sanctuary” jurisdictions that lasted until roughly 3 a.m. When Bonnen’s proposal finally hit the floor, few Republicans offered any remarks in response to Democrats’ outrage; most lawmakers in the chamber appeared to be paying little attention.

[…]

Businesses dislike the franchise tax, often called a “margin tax,” because they say it’s overly complicated and can punish them in less-prosperous years. Because it’s based on a business’s gross receipts, a business can still be required to pay the tax even in years it takes a loss. Many call the tax, which was passed as a way to reform the state’s school finance system, an unnecessary burden, and high-profile Republicans including Gov. Greg Abbott have sought its demise.

Lawmakers in 2015 cut the tax rate by 25 percent, which gave them $2.6 billion less revenue to help craft a budget this year. Proponents of the tax’s elimination argue it would stimulate the state’s economy and create jobs.

In the short term, it’s difficult to say just how much revenue is at stake in Bonnen’s proposal because the tax is highly dependent on economic conditions. A fiscal note written by the state’s Legislative Budget Board estimated it could cut public school funds by up to $3.5 billion in the 2020-2021 biennium.

I mean, look, I know the margins tax was a poorly conceived kludge that everyone hates (or at least claims to) and which has been a top GOP whipping boy for a couple of sessions, but please do keep two things in mind. One, this tax, which replaced the also-hated and seldom-paid franchise tax, was created in 2006 to help fill the revenue void left by the Supreme Court school finance decision in 2005 that led to a mandated across-the-board property tax cut. It was never going to fully fill that void, and indeed its poor design and regular underperformance has been a problem, but it at least made up for some of the funding for schools that disappeared when the previous system was declared to have been an unconstitutional statewide property tax. Something is going to need to replace the revenue lost to this tax being (eventually) eliminated, and all we have right now is wishful thinking about economic growth, a continued reliance on local property taxes, and a handful of magic beans. And two, it’s probably not a coincidence that the amount of revenue lost in this biennium to the previous one’s margins tax cut is almost precisely the amount the House and Senate are arguing about in order to make this session’s budget “balance”. Cause and effect, y’all. You should have one of your interns Google it.

One more thing about vouchers

I’m going to enjoy this just a little bit more.

The Texas House of Representatives all but killed Lt. Gov. Dan Patrick’s prized school choice bill Thursday, dealing the powerful Republican a major loss as he struggles to push his agenda through this year’s legislative session.

House members considering the state’s budget plan for the next two years voted overwhelmingly against diverting public education funds to private schools in the next biennium, registering their resistance to a so-called school voucher program and sending a message to Patrick that the bill has no chance this year of passage.

“The House stands strongly in support of our neighborhood schools and our public school teachers and that any scheme, such as a voucher or otherwise that attempts to siphon funds away from our public schools, is not something that would be acceptable in the House,” said Rep. Abel Herrero, a Robstown Democrat. He sponsored an amendment expressly blocking any school voucher program.

Lawmakers, in the midst of a day-long marathon session debating the state’s $218 billion spending plan for the next two years, voted 103-44 in favor of the amendment. The revision declared state money “may not be used to pay for or support a school voucher, education savings account, or tax credit scholarship program or a similar program through which a child may use state money for non-public education.”

The Republican-led House also rejected a follow-up amendment allowing the state to fund a smaller so-called school voucher program limited to children from poor families. The chamber voted that idea down 117-27, signalling that paring down Patrick’s prized Senate Bill 3 will not win it more votes.

“Good-bye SB 3,” Rep. Gene Wu, D-Houston, said from his desk after the vote.

Assigned a low bill number to reflect its importance among Patrick’s priorities, SB 3 would create education savings accounts that parents can tap to pay for private school tuition, home school costs, tutoring or other expenses. The bill would also create a tax credit scholarship program that rewards businesses with a tax break for cutting checks to the state to fund scholarships that could send children to private school. The Senate passed that plan last week on a 18-13 vote.

[…]

With the bill unlikely to pass this year, advocates for vouchers and school choice will use the vote to drive their political activities in the 2018 elections by singling out lawmakers who voted against vouchers, said Randan Steinhauser, co-founder of Texans for Education Opportunity, which advocates for broader school choice.

“This isn’t surprising. The House has always been an obstacle, and there are many Republicans who are not representing their constituents and their school children,” said Steinhauser, who has already gone door-knocking in several Republican lawmakers’ districts to pressure them into voting for vouchers. “This is an opportunity for parents in the state of Texas to see who is standing in the way of educational opportunity.”

See here for the background. I’ll get back to this in a second, but in the meantime, as Depeche Mode advises, enjoy the silence.

A day after Texas House members pointedly approved an amendment to prohibit the use of public money for private schools, Lt. Gov. Dan Patrick, the Legislature’s most vocal proponent of so-called “school choice,” has yet to issue a public reaction.

[…]

Repeated calls and emails to Patrick’s office for comment went unanswered Thursday and Friday, although his staff has posted videos of him on Facebook talking about child abuse prevention initiatives and tuition set-asides since the House vote Thursday morning.

Patrick, who has rallied for years to pass a school choice program, assigned the proposal a low bill number to indicate its importance among his legislative priorities. Last week, he and Taylor, the Senate education chairman, pared down the bill to appease senators on the fence about the proposal, agreeing to exempt counties of less than 285,000 unless voters there petition for a voucher program.

Taylor, a Friendswood Republican and sponsor of the bill, did not respond to requests for comment Friday about whether he had been in contact with Patrick about how they would proceed on the measure.

House lawmakers long have said they have little interest in passing SB 3 and Public Education Chairman Dan Huberty, R-Houston, said he did not want to force his committee to vote on the bill. The measure, which passed the Senate 18-13, is now awaiting action in the House.

A defeat on school vouchers likely would not hurt the lieutenant governor, said Jason Sabo, a longtime political observer and education lobbyist. Instead, he said, the House vote shows how politics are evolving away from party loyalty and toward regional and issue-based factions.

“It’s not about party. It’s about place,” he said. “If the largest employer in half the counties in your giant legislative district are public schools, you hate vouchers, it doesn’t matter if you’re a Democrat or a Republican. You’re anti-voucher. ”

Who knew it was even possible to get Dan Patrick to shut up? And with all due respect to Jason Sabo, whose remarks may be a bit out of context here, this alignment on vouchers is nothing new. As this DMN article from January notes, people have been pushing for vouchers, thankfully without success, for going on thirty years. The Legislature came fairly close to fulfilling the wishes of people like GOP megadonor James Leininger, who was then the main force behind vouchers, during the 2005 session. Among other things, this led to the rise of the Texas Parent PAC and its shocking primary win over then-House Education Committee Chair Kent Gruesendorf. Patrick has taken up the banner in the two sessions since he became Lite Guv, but the fight long predates him.

And this is why Randan Steinhauser is wrong. At this point, there have been many elections, mostly Republican primaries, in which public education has been a big issue. Even with the likes of Leininger and then-Speaker Tom Craddick and now Dan Patrick behind them, voucher proponents have basically gained no ground, and aren’t anywhere close to a majority in the House. Hell, we’re at a point where they had to rebrand themselves, because “vouchers” has become a toxic label, and resort to a third-rate astroturfing campaign for their lobbying. Voucher supporters are the definition of a narrow interest group seeking to carve out an advantage for themselves. I’m not going to say they’ll never succeed, because politics doesn’t work like that, but I see no evidence that they are gaining public acceptance. They got the fate that they, and Dan Patrick, deserved.

House passes its budget

Mostly shenanigan-free, with a nice little side order of shade for a few people who deserve it.

After 15 and a half hours of debate on hundreds of amendments to the Texas House budget, lawmakers in the lower chamber passed the two-year, $218 billion document, with 131 votes in favor and 16 votes against.

The House vote included using $2.5 billion from the state’s savings account, colloquially known as the Rainy Day Fund. State Rep. John Zerwas, R-Richmond, thanked lawmakers for exhibiting “true leadership” with their willingness to tap the fund, “instead of electing to use an unconstitutional transfer from the transportation funding.”

That was a jab at the Senate, which last week approved its version of the two-year budget using a $2.5 billion accounting trick to free up funds dedicated to highway spending. The House must now work with the Senate, which is under the leadership of Lt. Gov. Dan Patrick, who vehemently opposes using the Rainy Day Fund, to reconcile their budget differences.

House lawmakers, debating the budget late into Thursday night, took several jabs at Patrick and other statewide elected officials throughout the evening.

Included in the fray were Gov. Greg Abbott, who saw one of his prized economic development programs defunded; Patrick, who heard a resounding “no” when his favored proposal to subsidize private school tuition with public funds was put to a vote; and Attorney General Ken Paxton, who lost more than $20 million from his agency’s budget for lawsuits.

On the winning side of the House budget debate were child welfare advocates, who saw funding for foster care and Child Protective Services tentatively boosted; social conservatives, who scored $20 million for the Alternatives to Abortion program; and the lieutenants of House Speaker Joe Straus’ leadership team who, in a display of unity, easily brushed aside most challenges from far-right Republicans.

Statewide GOP leaders took some of the heftiest blows in the House chamber. Lawmakers there voted to strip $43 million from the governor’s Texas Enterprise Fund, the “deal-closing” fund the state uses to lure businesses from elsewhere, and divide it into two equal pots: one for Child Protective Services and foster care funding, the other for a program that pays for disabled children’s physical, occupational and speech therapy services. Both are hot-button issues that have dominated the House’s budget negotiations during this legislative session.

[…]

Private school subsidies, a pet issue of Patrick and his Senate, also suffered a perhaps fatal wound on Thursday. House lawmakers voted 103-44 to prevent state money from being spent to subsidize private school tuition in the form of vouchers, education savings accounts or tuition scholarships. The proposal’s author, state Rep. Abel Herrero, D-Robstown, said it was “in support of our public schools and our neighborhood schools.”

[…]

Paxton’s attorney general’s office also saw funding gutted by House lawmakers who opted to instead fund programs that serve vulnerable children. Foster care funding would receive $21.5 million that was previously intended to pay for Paxton’s legal services budget under a proposal by state Rep. Ina Minjarez, D-San Antonio, that passed 82 to 61.

See here for more on the Enterprise Fund de-funding, which made me smile. Despite promises of shenanigans and roughly a gazillion amendments filed, there was more good done to the budget than bad. Which is not to say it’s a good budget, but it’s far from the worst we’ve ever seen. Take your positives where you can.

Especially when they involve Dan Patrick getting pwned.

In late March, lobbying group Texans for Education Opportunity used an online campaign to generate thousands of letters to 29 state representatives lobbying them to back education savings accounts, one of the subsidy programs in SB 3. Though the group claimed the letters were credible, the letters stirred up suspicion after no representative could find a constituent who remembered adding their name to that correspondence.

Of the 29 representatives targeted in the campaign, 26 voted Thursday to block money from funding “private school choice” programs.

RG Ratcliffe called it a “mugging”. As former Houston Rockets radio announcer Gene Peterson used to say, how sweet it is. Also, too, going back to the first story, there’s this:

Stickland had filed an amendment defund a state program for the abatement of feral hogs, which he’s become known for championing at the Legislature each session. Stickland railed predictably against the program, calling it “ridiculous” and a waste of money.

“It has not worked, and it never will work,” Stickland said, his voice rising.

That apparently offended rural lawmakers, notably state Rep. Drew Springer, R-Muenster. In response, Springer attached an amendment to Stickland’s proposal that would cut the same amount of funding for the Texas Department of Transportation, but only for roads and highways in Stickland’s hometown of Bedford.

Stickland took to the back microphone to cry foul.

“Someone else has chosen to make a mockery of this system and play gotcha politics,” he said before being interrupted. Laughter had erupted in the gallery.

“It’s funny until it happens to you,” he continued.

Springer and Stickland then confronted each other on the middle of the House floor and had to be separated by colleagues. Springer’s amendment ultimately passed, 99 to 26, forcing Stickland to withdraw his own proposal to which it had been attached.

What is best in life is to crush your enemies, see them driven before you, and hear the lamentations of Jonathan Stickland. And Briscoe Cain, too, the Chester to Stickland’s Spike, except without the victorious denouement for Chester. Look, just because the House passed a budget doesn’t mean this is the budget we’ll get. The Senate passed a budget, too, and there are lots of differences to be worked out between the two. The final version will be different, and some of the things we are cheering now may be undone in that. But that’s no reason not to cheer for the things that deserve it now. The Observer and the Press have more.

Senate passes its budget

It’s the one bill that has to pass.

The Texas Senate unanimously approved a two-year budget on Tuesday that would shift nearly $2 billion in public education costs from the state to local taxpayers.

The Senate’s $218 billion document now goes to budget writers in the House for debate.

“This is a lean budget, but it’s also a smart budget,” said state Sen. Jane Nelson, R-Flower Mound, the 2018-19 Senate budget’s lead author. “It responsibly meets the needs of our state.”

The Senate’s proposal would spend $106.3 billion in state revenue, which is a significant bump from the $103.6 billion budget Nelson originally rolled out in January. That puts the Senate’s total spending level much closer to the House’s than they were when the proposals were originally published.

Still, there are major differences in funding priorities and methods of finance that the two chambers will need to reconcile before the Legislature adjourns in May, setting the stage for some of the biggest points of contention this year.

Nelson touted her budget’s focus on education. The Senate proposal actually strips about $1.8 billion in state funds for education but uses local property taxes and other revenue to make up the difference. In total, Nelson said, her proposal would boost public school funding by $4.6 billion compared to the prior budget, including a $2.6 billion provision to cover student enrollment growth.

“Under our formula, the local share of education funding fills up the bucket first, as local property tax collections go up, the state share goes down,” Nelson said. “But in the aggregate, funding for education is going up every year.”

At the same time, the Senate is advancing controversial tax cut proposals that critics say would make it more difficult for the state and local governments to pay for schools. Last week, the upper chamber passed Senate Bill 2, which seeks to curb the growth in property taxes, and Senate Bill 17, which would cut the franchise tax paid by businesses in future years.

Emphasis mine. Note the on-the-nose Trib headline, “Texas Senate approves its budget, shifting school costs to local taxpayers”. Whatever else happens this session, I feel like at least the message that it’s the Legislature that is the main driver of property tax discontent has gotten out. Whether it’s gotten through is another matter, but at least it’s out there. I can’t recall that ever being the case before. The Chron has more on the Senate budget.

Meanwhile, over in the House:

The House Committee on Appropriations unanimously approved a two-year, $218.2 billion budget as a substitute for the Senate’s leaner proposal, putting the chambers on a collision course in the last two months of the session.

HB 1 now heads to the full House for a vote with contrasts to the $217.7 Senate proposal, which the upper chamber approved earlier this week.

House appropriators want to spend $2.5 billion from the Rainy Day Fund in their budget, leaving a $9.4 billion balance. That decision has touched off a public fight between House and Senate budget writers about whether they should dip into the state’s savings account.

On Wednesday, Chairman John Zerwas, a Republican from Katy, took a swipe at the Senate, which signed off on a maneuver that would delay until 2020 the transfer of $2.5 billion for transportation funding that voters approved in 2015.

“This budget does not rely on budget gimmickry that puts the state’s investment in transportation at risk,” he said. “The budget balances by cutting spending, prioritizing critical items and using a modest amount of (the Rainy Day Fund), for the exact purpose for which it is created.”

See here and here for some background on that. The conference committee for this one is going to be very interesting. The Trib has more.

Who loves budget gimmicks?

The Senate Budget Committee, that’s who.

Texas Senate budget writers on Wednesday unanimously approved their two-year budget, which avoided some steep cuts by using an accounting trick to free up $2.5 billion state dollars that were originally slated to go to the state highway fund.

By delaying a diversion of sales tax money from August 2019 to September 2019, and therefore moving the funding from the 2019 fiscal year’s budget to the first month of fiscal year 2020, Nelson said her two-year budget had an additional $2.5 billion to spend on needs such as health care and schools.

The accounting maneuver “solved a lot of our problems,” Nelson told reporters shortly after her Senate Finance Committee approved the budget unanimously. She said the move would not affect the Texas Department of Transportation’s ability to pay for highway projects in 2019.

But House Speaker Joe Straus called the move “gimmickry” and likened it to “cooking the books.”

“Counting money twice in order to balance a budget is not a good idea,” Straus told reporters Wednesday morning. “This is the Texas Legislature. We are not Enron.” He was referring to a Houston-based energy company that collapsed in spectacular fashion because of fraudulent accounting practices.

[…]

Nelson said her proposed budget “meets our responsibilities” and “keeps Texas on the path to success and prosperity.” The proposal now moves on to the full Senate, where a full chamber vote is expected on Tuesday.

Nelson told reporters the Senate had no appetite to use the state’s Rainy Day Fund, a $10.2 billion savings account lawmakers have available to address budget shortfalls or emergencies.

See here for some background. Let’s be clear about two things. One, this is far from the first time this particular accounting trick has been used. Indeed, accounting tricks of all kinds are baked in our legislative DNA. They are a natural and totally expected outgrowth of the many artificial budget constraints that our Legislature is subject to. I wouldn’t claim that there’s anything honorable about any of this, but given that the constraints aren’t going away, I’d greatly prefer a bit of financial prestidigitation to slashing critical services.

That said, it seems crazy to me to resort to this sort of trickery when there’s more than enough money in the Rainy Day fund to actually pay for the things that need to be paid for. There was a time when the general consensus was that this is what the Rainy Day fund is there for. The diversion tactic doesn’t make that $2.5 billion in obligations go away, it just shoves them into the next budget cycle. Which is fine of the state’s finances wind up being better than the Comptroller projects them to be for the next two years, not so fine if not. Remember, the House wants to use the Rainy Day fund to plug a gap in the budget from the last session, which resulted in part because expenses were higher than we thought they would be. We have the wherewithal to take care of this problem now. Why wouldn’t we do that? The Chron has more.

House considers a bigger ask from the Rainy Day Fund

Needs must, as they say.

The proposal from state Rep. John Zerwas, a Richmond Republican and the House’s chief budget writer, would withdraw about $2.4 billion from the Rainy Day Fund as part of a supplemental budget to pay bills coming due for programs like Medicaid, the federal-state insurance program for the poor and disabled, and to pay for repairs to state-run institutions including mental hospitals and the School for the Deaf.

Previously, Zerwas advocated spending about $1.4 billion from the fund, which holds about $10 billion currently. He updated his proposal at Thursday’s meeting of the House Appropriations Committee, saying that without making a “modest withdrawal” from the savings fund, budget writers would be forced to make draconian cuts to public programs.

Entities that face budget cuts absent a cash infusion include the state’s public education system, pensions for retired teachers, and the Texas child welfare and foster care system charged with protecting vulnerable children from abuse and neglect, Zerwas said.

“Some members of our body have said publicly that our situation isn’t really that bad,” he said. “I can’t disagree more with that.”

Most legislative sessions, the Texas Legislature does not fully fund the cost of state programs, so lawmakers must typically pass a supplemental bill to cover the rest. Zerwas’ proposal would net some matching federal dollars, bringing the total value of the bill to $5.2 billion, officials said. About $3 billion would plug funding holes left by lawmakers in 2015, mostly in Medicaid and in a health care program for the state prison system.

The rest would go toward current needs, such as “deferred maintenance” costs at state-run institutions including mental hospitals, many of which are in disrepair.

See here for the background. I approve of Zerwas’ approach and appreciate what he is saying, but I would be remiss if I didn’t point out that a big part of the problem he is trying to solve is self-inflicted. As the story notes, tax cuts passed in the last session, at a time when oil and gas prices were low and the state’s economy wasn’t doing so well, cost $4 billion this biennium, while the referendum to dedicate a portion of sales tax revenue to the state highway fund has taken $5 billion out of the general fund. Zerwas had to file a separate bill to claw some of that money back. These were choices made by the leadership and the Legislature, the former because tax cuts are Republican crack, and the latter because we absolutely, positively refuse to consider raising the gas tax to meet our road needs. Budget gimmicks are just that, and whatever they purport to do, there’s always another gimmick to undo it. As a certain former President once said, reality has a way of asserting itself.

Bill to restore some budget flexibility filed

Call it the Law of Unintended Consequences Act of 2017.

The Texas House’s chief budget writer filed legislation Friday that would allow lawmakers to claw back billions of dollars that voters approved for state highways, freeing them up for other budget needs.

Texans overwhelmingly voted in 2015 to boost funding for the state’s public roadways and bridges, which have strained under a growing population. Proposition 7 amended the Texas Constitution to route some taxes collected on car sales to the State Highway Fund.

But House Appropriations Chairman John Zerwas, R-Richmond, filed a resolution Friday that would cut that initial cash infusion, aiming to free up money at a time when cash is tight.

House Concurrent Resolution 108 could cut the first transfer under Proposition 7 of nearly $5 billion in half, but only if two-thirds of lawmakers in both the House and Senate support such a move.

It’s a prospect made possible by what some lawmakers have called a “safety valve” in Senate Joint Resolution 5, the legislation that the Legislature approved in 2015 to send Proposition 7 to voters later that year.

See here for the background. I don’t expect this to pass – I really don’t think two thirds of the Senate will go for it – but I will be very amused if it does. Whether this is more or less likely to happen than tapping the Rainy Day Fund is now something we can test empirically. If nothing else, that’s a victory for science.

House releases school finance fix bill

A step in the right direction.

Rep. Dan Huberty

The top public education policymaker in the Texas House unveiled a $1.6 billion plan on Monday that he described as a first step to overhauling the state’s beleaguered school funding system.

At a Capitol press conference, state Rep. Dan Huberty said House Bill 21 would boost per-student funding for nearly every public and charter school in the state while reducing the amount of money wealthier school districts are required to give up to buoy poorer ones. The state’s so-called Robin Hood plan has become a hot-button political issue as large districts like Houston have recently had to begin making payments.

“House Bill 21 will not only improve our schools but it will also reduce the need for higher property taxes,” said Huberty, a Houston Republican who chairs of the House Public Education Committee.

[…]

He said HB 21 would increase the basic funding for almost all school districts from $5,140 to $5,350 per student per year. That would happen in part through an increase in transportation funding by $125 per student for all school districts, including property-wealthy districts that currently have limited access to that money.

It also would increase the amount of money the state gives to schools for students with dyslexia. And it would include additional funding for high schools and non-professional staff.

Huberty estimated it would lower payments that property-wealthy school districts pay to the state to subsidize property-poor school districts by $163 million in 2018 and $192 million in 2019. As the state’s share of school funding has decreased, more school districts with swelling enrollment are on the hook for such Robin Hood payments.

The bill is similar to an unsuccessful school finance initiative filed in 2015 that would’ve injected twice as much money into the system — $3 billion — and boosted per-student funding across the board. Still, $1.6 billion is a significant sum amid the current budget crunch.

This bill had a hearing yesterday as well, and despite being overshadowed by the sound and fury of the bathroom bill hearing, there was a report about it.

The bill would inject about $1.6 billion into the public education system, boosting funding for almost every school district in the state although a few would be left out. It also wouldn’t renew a soon-expiring program that awards supplemental state funds to more than 150 districts to offset a decade-old property tax cut — a major concern for education officials who depend on the funding. A provision in the bill that would award some grant money to make up for the loss isn’t enough, they told the committee Tuesday.

“My districts are going to lose,” said Mike Motheral, executive director of the Texas Small Rural School Finance Coalition. He said he represents 14 West Texas school districts that could lose up as much as 53 percent of their state revenue with the end of the state aid program.

“One of my districts will lose $4.5 million and they have a $10.5 million budget,” he said.

When the Legislature reduced property taxes by a third in 2006, it guaranteed school districts like the ones Motheral represents at least the same amount of funding they received in 2005-06 through a state aid initiative. The extra aid expires Sept. 1, so many districts have been asking for an extension to avoid falling off a funding cliff. About 156 school districts currently receive such aid.

As written, the bill proposes letting the initiative providing extra state aid expire and instituting a $100 million two-year grant program, prioritizing districts that would lose money through the new funding formulas. That’s not enough to cushion the blow, school officials told the committee Tuesday.

[…]

Numbers released Monday along with the bill show that about 35 of the state’s 1,200 school districts and charters would lose funding in 2018 and 58 would lose funding in 2019. The rest would see basic funding increase from $5,140 to $5,350 per student annually thanks to an increase in transportation funding and more money for students with dyslexia.

Many school officials and advocates who testified on the bill Tuesday said it leaves too many behind.

“We want a bill that has no losers,” said Christy Rome, executive director of Texas School Coalition, which represents mostly wealthier school districts.

Here’s HB21. I agree with Christy Rome and Mike Motheral. There shouldn’t be any losers in this. As much as HISD and the other districts affected by recapture should be made right, it should not come at the effect of these other districts. The right answer is the put enough money in to fix the formulas. Easy to say, and Lord only knows what kind of reception this gets in the Senate. But this is what it comes down to, and what needs to happen. The Chron has more.

Zerwas proposes using Rainy Day Fund

We’ll see if this goes anywhere.

Rep. John Zerwas

The chief budget writer in the Texas House on Friday proposed using $1.4 billion from the state’s savings account to pay bills coming due for a wide array of the state’s health and human services programs.

The proposal from state Rep. John Zerwas, R-Richmond, would continue pay raises for Child Protective Services workers that state leaders ordered last year. It would also pay for renovations at the state’s aging mental health hospitals and state-supported living centers for people with disabilities.

And it would partially reverse a sweeping $350 million budget cut to a therapy program for children with disabilities ordered by the Texas Legislature in 2015.

The funding would come from the state’s Economic Stabilization Fund, also known as the Rainy Day Fund, a savings account lawmakers may use in tight budget years. That fund currently has about $10 billion.

“Using a small portion of the Economic Stabilization Fund, combined with spending reductions, is the responsible way for us to close out the current budget cycle and respond to the slowdown in our economy,” Zerwas said in a prepared statement.

This is for the supplemental budget, which is to say the budget passed by the 2015 Legislature, not for the one this Lege is working on. It will free up some money for the current budget if Zerwas’ proposal is adopted, in the sense that current revenues would not have to be used to close out the previous budget. Given the emergency that everyone agrees CPS is and the outcry that followed the cuts to the therapy program for children with disabilities, you would think this would be a relative no-brainer, but don’t count on it. The Rainy Day Fund morphed from being a tool to use to smooth out economic bumps to a lump of gold buried in the backyard that is never to be touched unless there’s a natural disaster, with the 2011 session in which cutting $5 billion from public education was seen as the better choice as the turning point. A supermajority is needed to tap the Rainy Day Fund, and I have a hard time believing Dan Patrick and his Senate sycophants will go for that. But at least someone had the guts to bring it up, so kudos to Rep. Zerwas for that. Keep an eye on this, because it may be a precursor of the larger budget fight between the chambers. If Zerwas gets his way, that bodes well. If not, things could get ugly.

How the Legislature is raising your property taxes

RG Ratcliffe explains it all to you:

Just how much money does the increased appraisal on property in your school district and elsewhere save the state budget writers? The projection is $1.5 billion for the next two-year budget. And where does this money go? In its initial budget, the Senate plans to use the savings on other state expenditures. The Straus starting-point budget includes giving the money to the public schools, but only if a school finance reform passes. But even if the $1.5 billion is put back into the school system, the state’s share of funding the public schools will decline to 39 percent by 2019 without a major boost in state spending.

That figure does not include the $3.8 billion that the state will recapture from property-wealthy school districts over the next two years to redistribute to low-wealth school districts. (That amount is about equal to what the state collected in oil-and-gas severance taxes in the current two-year state budget, or to the taxes collected on alcohol and tobacco combined, or about twice the tax motorists paid to fill the tanks of their cars and trucks.)

In the meantime, a program that was meant to keep school districts from losing money because of 2006 property tax cuts is set to expire. A decade ago, state legislators wanted to make certain that no school district had its budget cut because of state-mandated tax cuts, so they set up a program called Additional State Aid for Tax Reduction. Originally, they intended the program to phase out as property values rose. But faced with a budget crunch in 2011, the Legislature put an expiration date on the program: September 1, 2017. When the program expires, it will leave 175 school districts faced with having to raise taxes or cut budgets to make up for $225 million in lost state funding. For the 55,000-student Frisco school district near Dallas, that means a $30 million budget cut, while the 100-student Webb Consolidated on the border will lose $4.3 million in state funding – 66 percent of its total operating budget. Losing the state tax-relief funding is a hardship for the districts; for the state’s budget writers, it’s just another $225 million they won’t have to finance.

“Even though the state is working to say, ‘We want to provide property tax relief,’ they benefit from higher tax rates and higher tax efforts made by the locals,” Christy Rome, executive director of the Texas School Coalition, told me.

[…]

Plano ISD last year sent Governor Greg Abbott a letter explaining, how as a property-wealthy district, rising values did not increase funding for local schools even though local property owners were paying higher taxes. In the 2015-16 school year, the PISD collected $470 million from local taxpayers, sent $52.6 million to the state for redistribution, and kept $417.6 million to pay for local education. If the district did not change its tax rate, rising values would push tax collections up by almost $40 million, but the state would now take an additional $43.6 million in recapture and leave the district with $5 million less to pay for schools.

The district could cut the tax rate so that total tax collections stayed the same, but the formulas would still take an additional $25.6 million because of rising property values and leave Plano with $392 million to run its schools—a $25.6 million cut from the previous year.

The other idea was to give taxpayers some relief by adopting a $10,000 local option homestead exemption while leaving the tax rate unchanged. But even this proved problematic for PISD: the district would raise another $30.2 million in total property tax collections and boost the transfer of funds to the state by $43.6 million, all while leaving the district with $13.4 million less to pay for schools.

No matter how it was calculated, Plano taxpayers paid more, the state reaped cash that lawmakers could use to reduce how much they had to spend on public education, and the schoolchildren of Plano were left with less money to pay for their education.

Read the whole thing. And as RG says, when you hear Greg Abbott say that he wants to cut the business franchise tax even more, understand that he’s really saying he wants to put a bigger share of the burden of paying for schools on you.

Turns out a little budget flexibility is a good thing

Some lessons have to be learned the hard way.

More than a year after Texas voters approved routing billions in state sales taxes to roads and bridges, some lawmakers are questioning whether the first payment of $5 billion should move forward as planned.

Texans voted in 2015 to boost funding for state’s public roadways and bridges, which have strained under the state’s growing population. Proposition 7 — loudly cheered by top Texas leaders and supported by 83 percent of voters — changed the constitution to route some taxes collected on car sales to the State Highway Fund.

But in an unusually tightfisted legislative session, some Texas lawmakers are raising the prospect of reducing that initial cash infusion to the State Highway Fund scheduled for this year to free up money for other state programs.

No one has publicly backed such a move, but key budget writers have privately discussed the option. And at a Senate Finance Committee hearing Monday, Sens. Kirk Watson of Austin and Charles Schwertner of Georgetown asked Legislative Budget Board staffers about how it might work.

It turns out that the enabling legislation for that referendum included an escape hatch, in which a two-thirds vote can be used to divert some of that $5 billion for other purposes. That probably won’t happen, though I presume it’s no less likely than a vote to tap the Rainy Day Fund to get through this session and hope that things will be better in 2019. We can certainly debate whether it should happen or not, but my reason for highlighting this is that it’s yet another example of why artificial budget constraints are so often a bad idea, whose main effect is to force budget writers to come up with creative ways around said constraints. I say it’s more honest to just let them have the flexibility to figure it out rather than be forced into certain choices, but that’s not how we do things.

Senate to begin studying school finance changes

We’ll see what this looks like.

Leaders in the Texas Senate are vowing to find ways to overhaul the state’s school finance system, saying a recent Texas Supreme Court decision granted them a prime opportunity to shake up the heavily criticized status quo.

On Monday, they announced the creation of a Senate budget working group — led by Friendswood Republican Larry Taylor — to tackle the issue. That group will work with the Senate Education Committee, which Taylor chairs, to propose replacements for the current school finance system.

“The opportunity is huge for us to get it right,” said Jane Nelson, chairwoman of the Senate’s powerful Finance Committee. “We need a whole new method of school finance.”

They’ll face an uphill climb in a session where legislators face several obstacles to major reform, not the least of which is money. The announcement comes a week after the Senate unveiled its preliminary budget, which did not include additional funding for public education.

During the Finance Committee’s first hearing of the 2017 legislative session on Monday, Nelson, R-Flower Mound, advised the newly formed working group to “start with a clean slate” in recommending a new school finance scheme. “It should be less complicated, innovative and should meet the needs of our students,” she added.

[…]

“We’re left with a question mark as to what this effort will mean by the Senate,” said Lynn Moak, a school finance expert at the Austin-based consulting firm Moak, Casey & Associates. The main question is “whether they’re trying to reform school finance within existing dollars or looking for possible additional dollars to fund the system.”

Nelson last week unveiled the Senate’s $213.4 billion two-year budget proposal, calling it a bare-bones starting point for financial discussions in what promises to be a particularly tight-fisted year. That proposal did not touch funding formulas for public education.

The House’s base budget — also released last week — included an additional $1.5 billion that could be spent on public education only if the Legislature reforms the school finance system.

Here’s the Chron story, which has the local angle.

In Houston, where voters last November overwhelmingly rejected having local taxpayers pay the state for $162 million in so-called “recapture” of school funds, HISD Trustee Jolanda Jones said the creation of the Senate group signaled that the message from the ballot initiative had been heard in Austin.

“They’ve done more with HISD pushing back than they have in 24 years of hearing school districts complain about it,” Jones, a vocal opponent of “recapture,” said Monday. “Recapture is based on the premise of Robin Hood, taking from the rich and giving to the poor, but that’s never what it did. It took from the poor and reallocated to the poor. Help me understand why 75 percent of our kids are poor, really poor, receiving free and reduced-priced meals, and you’re taking money from us? It makes no sense; we need more money, not less.”

Because the district will refuse to pay the recapture fee, the Texas Education Agency has threatened to remove commercial buildings from HISD’s taxing district this July so it can give the money to other “property poor” districts.

HISD Trustee Anna Eastman said she hopes lawmakers will act before the TEA takes the property tax revenue from local commercial properties, though she is not sure overhauling the school finance system can be done in one session. But she was heartened to see the Senate look at the funding system.

“School finance can’t be based on some kind of cryptic formula that makes it so kids in a certain pocket are getting lots of money and others are getting little,” Eastman said. “Areas such as ours shouldn’t be picking up all the slack for areas that can’t generate revenue off property growth. It shouldn’t be that big of a gap.”

In Pearland, where local schools receive $9,358 per student, the lowest share in the Houston area, Superintendent John Kelly said that if the state does not increase its share, his district may have to dip into reserve funds to provide any kind of an increase to employees or to meet rising costs. He said lawmakers have been disingenuous in saying they want to lower taxes while requiring districts to raise more local taxes.

“They talk out of one side of their mouth ‘tax cuts’ for people, but on the other side they’re confiscating the increase in tax values across the state,” Kelly said of the Legislature.

That would need to be a part of any overhaul for it to be worth the name. I’m more wary than optimistic. I fear what we will get will be another shuffling of existing funds that will mostly change who’s getting screwed less. I don’t have any faith that Dan Patrick’s Senate will put more money into the system, or that they will alter it in a way that allows for, let alone mandates, covering the costs of growth in a sensible fashion. Let’s not forget that at the same time this is going on, there will be a renewed push for private school vouchers, which will only drain more money from public education. They could surprise me in a good way, and I will reserve judgment until I see what they come up with, but I do not start out feeling very hopeful about this. The track record of the players involved argues otherwise. RG Ratcliffe, who also sees vouchers in this, has more.

Where we begin with school finance

A nice overview from the Trib on school finance, where the problems are many and the budget situation is non-optimal.

The current system is held together by a number of short-term fixes that have not been updated or reformed in decades. The Texas Supreme Court upheld the funding system as constitutional in May, and at the same time put the onus on state lawmakers to reform it — but few believe a major overhaul will come without a court order.

Even if legislators decided to tackle an overhaul of the whole system, experts say there is not enough money in state coffers to increase state spending, lower local spending and relieve Texans upset about rising property taxes. For now, some lawmakers are backing a simple plan to increase money to all school districts through the general appropriations bill, instead of taking apart the complex school finance system. Others have filed bills to tweak individual weights in the system, which provide additional money for disadvantaged student populations.

[…]

Legislators will also have to decide this year whether to re-up a program that provides extra funding for fewer than 200 districts that would otherwise have lost money in previous school finance rewrites. When the Legislature reduced property taxes by a third in 2006, it guaranteed school districts at least the same state funding they received for the 2005-06 school year by creating the Additional State Aid for Tax Reduction initiative.

That aid expires Sept. 1, but the districts still receiving the money are clamoring for an extension. “At some point, it does need to go away for the sake of more equity. But it can’t fall off a cliff at this point in time,” said Guy Sconzo, executive director of the Fast Growth School Coalition, which represents the fastest-growing districts in the state. “It does the entire system no good if any part of the system effectively goes bankrupt.”

So far, five legislators have filed bills to extend the funding program. State Rep. Ken King, R-Canadian, filed House Bill 811, which would extend funding through 2020-21. Sen. Lois Kolkhorst, R-Brenham, proposed an extension through 2022-23. Both lawmakers were members of their chambers’ public education committees last session.

King, who is on the short list to chair the House Public Education Committee this session, said some districts are still getting a large chunk of their overall funding through this program and that they cannot be cut off immediately. “I’m going to put a mechanism in place for school districts to roll off of the aid in 2021 and hopefully replace the dollars with another school funding system,” he said.

Other school finance advocates oppose the extension, calling it a “Band-Aid” that exacerbates the inequity among districts.

“It maintains an already inefficient portion of the system,” said Ray Freeman, deputy executive director of the Equity Center, which represents property-poor districts. Instead, he said, legislators should reform the base formulas so districts have access to a stable source of funds.

The Houston Independent School District will be a major focus this session because its voters in November rejected sending $165 million in local property taxes to poorer school districts. In the Texas finance system, districts with a wealthier tax base spend local money to help educate students in districts with less property tax money, as part of the “Robin Hood” or “recapture” system.

Texas Education Commissioner Mike Morath has warned that the state will probably move commercial properties from Houston ISD tax rolls to those of a nearby district. Houston legislators will be under pressure to find a way to ease the burden, as those property owners could face higher tax rates in their newly assigned districts.

David Thompson, an attorney representing Houston ISD, said a legislative win for Houston on school finance could also mean a win for other districts. “There are particular issues that would address some of the concerns in Houston and at the same time be helpful for schools across the state,” he said.

The state should update its formulas for determining which districts get transportation funding, and the state should also provide full-day pre-K funding for all districts, Thompson said.

“Everybody starts by saying, ‘There’s no money.’ There is,” he said. The state should allow the local dollars people are already paying to stay in education, instead of “siphoning local property taxes” for non-education purposes, he said.

But some legislators are saying Houston ISD voters dug themselves deeper into a school funding hole and should live with the repercussions. “I don’t think the Legislature has a lot of appetite to let Harris County out of recapture when everybody else is paying it,” King said.

[…]

School finance experts agree that increasing the basic allotment, the base funding each district receives per student, is likely to be the most popular way of changing the system. The House Public Education Committee recommended this approach in its interim report.

“The amount we set for the basic allotment drives the entire school finance system and, given our current system, increasing that amount would be a prudent move to help all districts,” said State Rep. Trent Ashby, R-Lufkin. “It’s important to note, this method can also be achieved through the General Appropriations Act alone, so it may also be the most realistic thing the Legislature can do this session without having to pass a stand-alone bill.”

It’s likely to be a favored proposal in the House, Ashby said. But like many other plans, it requires more dollars to public education, a difficult challenge this session, given that lawmakers have less money to spend than they did when they last met in 2015.

There’s also vouchers, the A-F grading system for accountability ratings, continued discontent with STAAR, curriculum and graduation requirements, etc etc etc. It’s important to remember that the local property tax boom that helped lead HISD and other districts into recapture is also a huge boon for the state budget, and not something legislators will give up easily. I think the best case scenario is some more money from general revenue, adjustments to the funding formula for transportation and pre-K as David Thompson noted, and a temporary extension of the Additional State Aid for Tax Reduction initiative with a plan to fix it next session. HISD will still owe recapture money even if all that is done, but I for one would feel a lot less aggrieved by recapture if these things happened, and would support a recapture re-vote to take place before detachment could begin. We’ll see how it goes.

Here’s your 2018-19 revenue estimate

It’s pretty mediocre.

Facing sluggish economic forecasts amid low oil prices along with billions in tax revenue already dedicated to the state highway fund, Comptroller Glenn Hegarannounced Monday that lawmakers will have $104.87 billion in state funds at their disposal in crafting the next two-year budget, a 2.7 percent decrease from his estimate ahead of the legislative session two years ago.

Hegar told state lawmakers he expected a “slow to moderate” expansion of the Texas economy. Still, he said, the amount of revenue they will be able to negotiate over has fallen. That’s largely because lawmakers in 2015 moved to dedicate up to $5 billion in sales tax revenue every two years to the state’s highway fund, rather than being spent on other priorities such as schools, health care or reforms to the embattled Texas foster care system.

“We are projecting overall revenue growth,” Hegar said. “Such growth, however, is more than offset” by the demands of the state highway fund and other dedicated funds.

The revenue estimate does not determine the scope of the entire Texas budget. Rather, it sets a limit on the state’s general fund, the portion of the budget that lawmakers have the most control over. The general fund typically makes up about half of the state’s total budget.

Two years ago, Hegar estimated that the Legislature would have $113 billion in state funds, also known as general revenue. Adding in federal funds and other revenue sources, lawmakers would have $221 billion in total for its budget, as well as $11.1 billion in the state’s Rainy Day Fund, he said at the time. Lawmakers ultimately passed a $209.4 billion budget, which included billions in tax cuts.

On Monday, Hegar estimated lawmakers would have $104.87 billion in general revenue, and $224.8 billion in total revenue to write a budget for the 2018-19 biennium which begins in September.

See here for more on Hegar’s 2015 estimate, which would up being a tad bit optimistic, but not too far off. It won’t be surprising if this one is off a bit one way or the other – this is why 2014 Comptroller candidate Mike Collier called for more frequent revenue estimates during his campaign, so the course can be corrected as needed more often – but again I expect this to at least be in the ballpark. Assuming the economy doesn’t crash and burn and/or we don’t have ten percent annual growth under Dear Leader Trump, of course.

There are a lot of ingredients that go into making the budget sausage, and there are various things that can and will be done to avoid doing anything too painful. We could of course just assume this was a temporary dip and take a few bucks out of the Rainy Day Fund to smooth out the curve – that was its original purpose, after all; now it serves as a hole in the back yard into which we bury sacks of cash for no clear reason – but that isn’t going to happen. We do have your local property taxes bolstering the state’s bottom line, so be sure to send a thank you note to the State Supreme Court for that. And as always, remember that the biggest boost to spending in 2015 was tax cuts, but that’s never what the leadership has in mind when it says we need to “cut back” on expenses. We do things one way in this state, and will continue to do them that way until there are different people running the state. The Chron and BurkaBlog have more.

We’re still lousy at funding schools

In case you were wondering.

BagOfMoney

Texas still ranks in the bottom third of states in spending per pupil in the U.S., with essentially no change in either amount or standing, a new study shows.

The finding doesn’t help, and could undercut, the state’s position in a long-running school finance case.

Figures compiled by the National Education Association and released Friday show that Texas schools are spending an average $9,561 per student in the current school year. That is well under the national average of $12,251 and ranks Texas 38th among the 50 states and District of Columbia.

Of neighboring states, only Oklahoma spends less, said Clay Robison, spokesman for the Texas State Teachers Association, the state NEA affiliate.

Last year, Texas also was 38th in the comparisons, based on numbers furnished to the NEA by state education agencies. In the 2014-15 school year, Texas spent $9,559 per student in grades K-12, based on average daily attendance. The national average was $12,061.

In recent years, Texas has fallen about $1,000 per child further below the national average, said Noel Candelaria, president of the state NEA affiliate. This school year, Texas is $2,690 below the national average. Five years earlier, in 2010-11, it was $1,685 behind, he noted. Back then, Texas spent $9,462 per child. The 2010-11 academic year was the last one before the Legislature whacked $5.3 billion from public schools.

“At a time when the Texas Supreme Court is considering a lower court ruling that found the state’s school finance system unconstitutional, these figures tell a shameful story,” Candelaria said in a statement.

[…]

Combining budget writers’ decisions in the past two legislative sessions, the Legislature put an additional $6 billion into public schools, Solicitor General Scott Keller noted.

But former Chief Justice Wallace Jefferson, who appeared as a private lawyer for Dallas, Fort Worth and dozens of other districts suing the state, said lawmakers have put the districts in a straitjacket by raising expectations of student performance while lowering the state’s share of the total tab.

Meanwhile, the Legislature effectively has imposed an unconstitutional statewide property tax because “once again local districts are without meaningful discretion over their rates,” he said.

Even if one accepts Keller at his word, that barely takes Texas back to where it was before the 2011 cuts, and that’s without accounting for enrollment growth or stricter accountability standards. I don’t expect Texas to be at the top of a list like this, but we do have an awful lot of students who live in poverty, and an awful lot of students who come from homes where English is not the primary language spoken. We also don’t do much in terms of pre-kindergarten, meaning that not only do we have a lot of high-need students to educate, we let them fall farther behind by not preparing them for school ahead of time. Yet we demand more of our districts and our students. It makes no sense.

The argument stated by former Justice Jefferson is basically what the Supreme Court found in the last school finance lawsuit, in 2005. That led to the 50-cent cut in local property tax rates, which was supposed to be made up by the state in the form of the business margins tax and other sources. We all know how that has gone. Having the state pay a higher share of the public education budget is the right idea – local districts have been shouldering an ever-increasing about of the burden in recent years – but it needs to be done in a way that doesn’t allow the state to shirk its responsibilities. I hope that’s what this Court has in mind, and if so I wish them luck in writing an opinion that will get the Lege to do what it needs to do.

The state is starting to feel the squeeze

Things are tough all over.

BagOfMoney

The state is facing big problems affecting vulnerable populations that will take significant money to fix at the same time that a slump in the energy industry is chipping into its revenues, House Speaker Joe Straus warned Tuesday.

“Writing a balanced and disciplined budget that appropriately funds our top priorities is going to be a significant challenge,” Straus said in a letter to House budget-writers, expressing confidence they are up to the challenge.

“This is not a theoretical exercise, but rather a task that affects children, taxpayers, and our state’s future,” he wrote.

Oil prices that stood at close to $60 a barrel when the Legislature adjourned last year are averaging “closer to $37 a barrel,” Straus wrote. And the state sales tax has marked five monthly declines.

Texas Comptroller Glenn Hegar last year reduced his estimate of anticipated tax revenue for the current budget period by billions of dollars, while still leaving more than enough money for the state to pay its obligations.

Even before this week’s costly flooding, lawmakers were facing budget challenges such as addressing a foster care system in crisis, Straus wrote. A federal judge has ruled that the system violates the rights of children who most often “leave state custody more damaged than when they entered.”

The public school funding system also is under court challenge. A state district judge already has ruled it unconstitutional, suggesting that a fix could cost up to $11 billion. The state has appealed the case to the Texas Supreme Court, which could rule this year.

In addition, Straus said, the program providing health-care benefits to retired teachers is in need of a long-term solution.

Those challenges will require “significant financial resources,” wrote Straus, R-San Antonio, and they alone would pose a challenge for lawmakers who return in regular session in January 2017.

[…]

In addition to looking at state program needs, leaders including [Lt. Gov. Dan] Patrick are setting the stage for additional tax relief in the next legislative session. Sen. Paul Bettencourt, a Houston Republican named by Patrick to head the Select Committee on Property Tax Reform and Relief, said there will be room for reducing taxes and that zero-based budgeting, in which all spending items must be justified, will help accomplish that goal.

Of course there’s room for property tax reductions. There’s always room for property tax reductions. We can do those other things with whatever’s left. Wafer-thin mint, anyone?

I don’t know what the Lege will do about this next year – who knows, the price of oil may go back up and we’ll all have forgotten any of this happened by then – but I do know how I’d be planning to run a campaign in 2018. The Republicans running this state are all crooks or crook-coddlers. They busted the budget giving tax breaks to big corporations, while the rest of us get standardized tests, jam-packed highways, a foster care system that kills kids, and no solutions from state leadership. They’ve been in complete control for 15 years. It’s time for a change.

Maybe that would work and maybe it wouldn’t. I doubt it could be any worse than what we’ve done before, and who knows? Maybe the business community will finally have had enough by then, especially if the Lege goes all North Carolina on gays and all Trump on immigration. Democrats would still need good candidates running on a whole lot of faith, the money to get that message out, and some clue how to boost turnout past the pathetic 1.7 million in off years level we’ve been stuck at. I can dream, can’t I? Trail Blazers has more.

Lawsuits and low oil prices

Both are threatening the next Texas budget.

BagOfMoney

Last week, lawyers for the state of Texas got the latest in a string of bad legal news.

A lawsuit challenging the state’s foster care system as inhumane appeared to gain steam when an appeals court rejected the state’s request to stop the appointment of two “special masters” to recommend reforms.

The overhauls that have been discussed so far would be pricey to implement — as much as $100 million per year, according to rough estimates from the state comptroller’s office. But they actually are on the lower end of all the extraordinary legal expenses the state is facing at a time when stubbornly low oil prices are simultaneously threatening to blunt its coffers.

Three other lawsuits against the state — two of them pending before the Texas Supreme Court, with rulings expected soon — could cost the state billions if it ends up on the losing side. Experts say the state may have the cash to cover one of them in a single budget cycle, but probably not any more than that — especially if low oil prices persist, dampening the state’s stream of tax revenue. That could mean budget cuts when lawmakers meet for the 2017 session, at least if the Republican-dominated Legislature remains steadfast in its refusal to tap the state’s nearly $10 billion Rainy Day Fund.

Two of those three lawsuits, both tax cases, could cost the state a combined $10.4 billion in tax refunds and up to $2 billion in collections per year beyond that, according to the comptroller’s office, which is closely monitoring them.

Potential cost estimates do not exist for the last case — a high-profile challenge to the state’s public education funding system — but past school finance rulings have cost the state billions.

Such sums would handily eclipse the state’s $4.2 billion projected surplus, which could itself dwindle if oil prices remain low and further blunt tax collections. (Comptroller Glenn Hegar has already lowered projections once.)

“Any of those by themselves are a huge hit,” said Dale Craymer, president of the business-backed Texas Taxpayers and Research Association. “But if you start losing two or three of those issues then, yeah, it’s much more questionable that the state’s general revenue reserves are sufficient to cover that.”

See here and here for some background. There’s not much that can be done about the price of oil, though after years of living it up, and of politicians claiming credit for all that robustness, I doubt there’s much sympathy out there for us. The rest are the result of policy and/or legislative decisions, some of which may well bite us in the bottom line. I’m rooting for the Supreme Court to stick it hard to the Lege on school finance, but the other cases I’d rather see the state win. As much political hay as there is to be made in a chaotic situation, there’s nothing good from a public policy perspective on those cases, and I have little faith the Lege would do a good job cleaning up the mess. But on school finance, all bets ought to be off. We’ll see how it goes.

We’re not so good at school funding

I know, I’m as shocked as you are.

BagOfMoney

Texas earned the worst marks in the country for its funding of public education, according to a research report released Wednesday.

Researchers with Rutgers Graduate School of Education and the New Jersey-based Education Law Center called out the Lone Star State for ranking poorly on all of its funding “fairness” measures. Texas received an “F” grade for investing a small share in public schools relative to the state’s overall economic capacity and a “D” for not devoting more money to districts that serve a high concentration of students living in poverty.

In addition, Texas ranked 39th based on its overall funding of districts. The measure, which adjusts for poverty and other regional differences, estimates that Texas spends $7,404 per student in a district with an average student poverty rate. The amount ranged from more than $17,300 in Alaska to nearly $5,750 in Idaho.

[…]

The report is based on U.S. Census data from 2013, which does not take into account additional funds Texas lawmakers allocated toward education after cutting $5.4 billion in 2011. Even before the funding cuts, however, Texas has scored poorly in the annual report, according to Danielle Farrie, research director for Education Law Center.

A copy of the report is here if you care to read it. As it would be more effective to print it out and then whack Dan Patrick over the head with it, I’ll demur. Either we get a favorable ruling from the Supreme Court in the school finance lawsuit, which forces the state to finally do more for education, or we don’t. In the latter case, nothing will change until our state leadership does. That’s really all there is to it.

Supreme Court to decide just how stupid our tax system is

Oh, goody.

BagOfMoney

The Texas Supreme Court on Tuesday will hear arguments in a case that could deliver a multi-billion windfall to struggling oil and gas producers by taking a major bite out of state tax revenue.

The issue before the justices may sound arcane: Are metal pipes, tubing and other equipment used in oil and gas extraction exempt from sales taxes? But a yes to that question, brought by a Midland-based driller, could trigger a flood of refunds that would wipe out the state’s projected $4 billion budget surplus, Texas Comptroller Glenn Hegar warns.

“This one’s as big as they come,” the Republican said in an interview. “The neon light lights up, because of the sticker shock.”

Southwest Royalties, a subsidiary of Clayton Williams Energy, filed its lawsuit in 2009, just before improved technology unleashed a surge of oil production that transformed the U.S. energy landscape. Susan Combs, Hegar’s predecessor, was named in the original lawsuit, which has wound through the court system for years.

[…]

Granting the exemption would affect more than the company’s tax bill, Hegar argues in court filings. It would “impose a severe financial penalty on Texas taxpayers” amounting to $4.4 billion in 2017, and $500 million each year after that as companies around the state seek to cash in, according to estimates compiled in 2012.

On Tuesday, the justices will parse the language of a sales tax exemption for goods and services used in the “actual manufacturing, processing, or fabrication of tangible personal property,” and consider how that description relates to the mechanics of petroleum extraction.

The case hinges on whether certain extraction equipment — like casing, pipes, tubing and pumps — fits the definition cited in the exemption.

[…]

Ideally, judges decide such cases only on their merits, experts say, but the budget impact can factor into their decision-making.

Warnings from the comptroller’s office already seem to have helped its cause in this case.

At a hearing in 2012, Travis County District Judge John Dietz said he would rule in favor of Southwest Royalties, only to later reverse his position in a written decision.

The driller suggests that a Wall Street Journal article quoting dire warnings from Combs swayed the judge.

An appeals court in Travis County upheld Dietz’s written decision, backing the comptroller’s interpretation due to “a lack of clarity” in the way lawmakers wrote the exemption.

Hegar cited those earlier rulings in expressing confidence that Texas would ultimately prevail.

“The state’s legal arguments are 100 percent valid,” he said in an interview. “The law is not on the side of those asking for the tax refund.”

But Dietz’s initial inclination may have telegraphed that Southwest’s arguments are “pretty strong,” Dale Craymer, president of the business-backed Texas Taxpayers and Research Association and a former chief revenue estimator for the state, told the Tribune earlier this year.

See here for the background. Just a reminder, it is well within the Lege’s power to clear this up. Now maybe the Supreme Court will bail them out, and maybe if they don’t some other case will jump up and bite the state’s bottom line in the bottom. And again, the Lege could fix it if they wanted to. I think we both know how that’s going to go.

AG’s office upholds Abbott’s line item vetos

Of course it does.

NO

Gov. Greg Abbott was well within his powers when he vetoed more than $200 million in funds approved by the Texas Legislature this year, Texas Attorney General Ken Paxton’s office wrote in an opinion issued Monday.

[…]

The nonbinding opinion, written by First Assistant Attorney General Chip Roy, has the potential to shore up the governor’s power over the budget-writing process if Roy’s interpretation ultimately held up in a court of law.

“The provisions vetoed by the Governor each designate a specific purpose and the amount to be used therefor, and they are items of appropriations subject to the Governor’s veto” Roy wrote.

Abbott’s office praised the opinion Monday evening.

“The Attorney General’s opinion upholds the governor’s constitutional authority to limit unnecessary spending and ensure fiscal solvency,” spokesman John Wittman said.

The Budget Board is co-chaired by Lt. Gov. Dan Patrick and House Speaker Joe Straus, and its members include the chairs of the House Appropriations and Senate Finance committees who write the budget. Like Abbott, Patrick also publicly criticized the board’s argument — so much so that he wanted a special committee to review the budget board and other legislative agencies. Email traffic between his office, the board and the House speaker’s office made it clear that a top Patrick aide had seen the board document in advance and approved sending it to Hegar.

The vetoes covered funding for projects at several state agencies and higher education institutions.

The largest funding item at issue was for $132 million from the Texas Facilities Commission’s budget to build a state office building in San Antonio to replace the G.J. Sutton State Complex. State Rep. Trey Martinez Fischer, D-San Antonio, has previously urged the city of San Antonio to consider legally challenging Abbott’s veto, noting that the new building is expected to play a key role in the revitalization of the city’s East Side area.

See here, here, and here for the background, and here for the AG opinion. I’m not qualified to address the legal points of this, but it’s hard to escape the feeling that the fix was in. I said before that this probably needs to be resolved by the Supreme Court, so I hope the city of San Antonio takes up TMF’s call to sue over this. Perhaps a better question to ask, especially of Republicans, is if it’s such a good idea to expand the Governor’s powers in this way. It’s certainly open to debate whether this is a good idea or not, but shouldn’t we at least have that debate? I’m just saying. The Chron and Trail Blazers have more.

We have a messed up tax system in this state

The latest exhibit:

BagOfMoney

The volatile oil and gas industry already has prompted Texas Comptroller Glenn Hegar to reduce his state revenue estimate, but that may not be the last of the bad budget news.

A court decision potentially could cost Texas around $1.1 billion a year in franchise tax revenue, plus require four years’ worth of refunds totaling another $6 billion, according to the comptroller’s office.

“It could be enormous. Enormous,” Hegar said in an interview about the possible effect of the lawsuit brought by American Multi-Cinema, which so far has won its court battle for a bigger deduction from its franchise tax payments.

If the 3rd Court of Appeals ruling in the case stands, the two-year refund due AMC is calculated at nearly $1.2 million.

But Hegar is predicting a potentially much bigger hit for the state based on the assumption that a wide range of businesses would be quick to take advantage of the deduction awarded Missouri-based AMC. The state is asking the court for a rehearing.

The AMC lawsuit centers on the franchise-tax deduction for “cost of goods sold,” which includes such things as the raw material used to make an item.

The 3rd Court of Appeals ruled in the lawsuit in April that exhibiting a movie amounts to a “good” because it’s “perceptible to the senses,” fitting the definition of tangible personal property. Therefore, the court said, AMC can include its auditorium expenses as production costs when figuring its franchise-tax deduction.

“As a practical matter, the court’s holding could potentially treat a business exhibiting a movie as producing TPP (tangible personal property) in much the same way that a carpenter produces a chair or desk” and allow many other service providers to claim deductions, Hegar wrote to state leaders in June.

“It could be lawyers, accountants, people that mow yards. It’s just unbelievable how broad it was,” he said. It opens the door to deductions for their computers or other equipment. “You can even argue that now when somebody comes and mows your yard, you sit in the back yard and you smell that grass, and it’s real pretty. It’s perception to your senses.

“The list just doesn’t stop,” Hegar said. “It would kind of be like the kids’ Christmas list in a Santa Claus movie. It’s a real long list. It just keeps on rolling out the door.”

In a similar fashion, this ruling could also affect the state sales tax, and that could wind up offsetting some of the franchise tax loss. Or maybe not – estimates of the possible total cost of this ruling are in the $6 billion per year range. That’s getting into some real money, at a time when the state could wind up also being on the hook for a lot more money to public education. Like the public ed issue, this will ultimately be decided by the Supreme Court, but the ultimate responsibility lies with the Lege, which could clarify what the franchise tax covers or – since abolishing the franchise tax is the current fetish – replace it with something else. I wouldn’t hold out much hope.

The economy takes its toll on state revenue

Nothin’ but good times ahead, though, right?

Transportation funding could take a hit under new revenue projections by State Comptroller Glenn Hegar, who on Tuesday lowered his forecast of state tax collections by $4.6 billion in the face of a volatile oil and gas industry.

Hegar’s new forecast still leaves more than enough money to pay for the overall spending plan approved by lawmakers for the two-year budget period that began Sept. 1. Legislators left funds on the table and ended up with a bigger-than-expected balance when the state closed out the last fiscal year.

The new projection, however, affects the funding expected to be available for the high priority of addressing Texas’ congested roads. It lowers the oil and gas revenues anticipated to be funneled into transportation by $685 million.

“The reality is oil prices have continued to stay lower than what they were projected back in January,” Hegar said in an interview, adding that volatility in the industry makes forecasting difficult.

“We’ve sat down with different major companies and we’ve said, ‘OK, what’s the oil price?’ And boy, they are like a bunch of crawfish,” Hegar said. “It’s impossible to truly predict what the future holds, especially in this volatile commodity.”

In January, Hegar had anticipated the price per barrel of oil would be $64.52 in the 2016 fiscal year that started Sept. 1 and $69.27 in 2017. His Tuesday estimate lowers that to $49.48 and $56.52, respectively.

[…]

The budget approved by lawmakers this year totals about $209.4 billion in state and federal funds, of which more than $106 billion is state general-purpose spending.

In January, Hegar predicted that lawmakers would have $113 billion in state revenue available for general-purpose spending for the 2016-2017 budget period that began Sept. 1, and that tax collections would total about $97.8 billion.

On Tuesday, Hegar lowered his forecast of the revenue available for general spending to $110.4 billion and projected that tax collections would total about $93.1 billion.

The reduced projection of tax collections is separate from lawmakers’ decision to slash the state business tax, Hegar said.

It should be noted that the Lege underspent its original two-year revenue projection by about $18 billion. One could say that was prudent fiscal management, and one could say that it was excessively penurious at a time when there are many unmet needs, and one would have a claim to being right in each case. All I know is that for all the bragging our state leaders like to do about what economic geniuses we are here, a lot of it still comes down to good geological luck and the whims of the world energy market. Keep your seatbelts fastened, it’s unlikely to get any smoother in the near term.

Hegar punts LBB veto issue to Paxton

Duck!

NO

Describing the debate as one that “goes to the heart of separation of powers within Texas government,” Comptroller Glenn Hegar announced Wednesday that he will not authorize more than $200 million in funds approved by the Texas Legislature but vetoed by Gov. Greg Abbott as the comptroller waits for the attorney general to settle the issue.

“There are complex questions related to the governor’s vetoes, so I am seeking clarity and requesting guidance from the attorney general’s Office,” Hegar said in a statement.

[…]

For several weeks, the issue was awaiting a decision by Hegar, the state’s chief financial officer. The governor’s office strongly disagreed with the budget board, sending a 29-page memo to Hegar decrying the Legislature’s attempt to use “magic words” to block the governor’s authority.

On Wednesday, Hegar said he would not dole out the funds at issue for the time being.

“I am lapsing the funds for all items objected to by the Governor and will treat the items in question as vetoed,” Hegar said. “However, if advised otherwise, those appropriations can be made available immediately.”

[…]

Hegar’s decision comes less than a week before the start of the fiscal year on Sept 1, when the budget approved by lawmakers this year goes into effect. His 15-page request to Paxton demonstrates the complexity of the dispute. Because Abbott’s vetoes targeted budget riders rather than appropriations, Hegar seeks clarity on not only the validity of the vetoes but also what to do about the impacted agencies’ budgets if the vetoes are upheld. Should Hegar reduce each agency’s budget by the vetoed amount? And if those agencies can still get the funding, can those agencies then choose to spend some of their budgets on the projects Abbott vetoed anyway?

“This is a constitutional issue that goes to the heart of separation of powers within Texas government,” Hegar said. “I have a fiduciary duty to Texas taxpayers to ensure their hard earned dollars are spent in a manner that is consistent with the constitution of the state of Texas.”

See here and here for the background, and here for the AG opinion request. Putting aside my lack of confidence in Ken Paxton, I kind of think this one needs to be settled by the Supreme Court. The Lege can then take a crack at clarifying what the Constitution says if it wants. We’ll see how it goes.

Still reviewing the video on the line item vetoes

Any day now.

NO

With varying degrees of concern, a smattering of government offices and higher education institutions around the state are waiting to learn the fate of more than $200 million in funds that the governor might — or might not — have excised from the state budget.

The Legislative Budget Board is challenging several of Gov. Greg Abbott’s line-item vetoes, arguing in a July 21 letter to Comptroller Glenn Hegar the governor has no authority to veto some of the items because they were included in budget riders. The challenged vetoes include funds for public projects and money for research at colleges and universities.

“The Comptroller’s Office is reviewing the documents provided and working to determine next steps,” spokeswoman Lauren Willis said Thursday.

Abbott is pushing back against the challenge, even encouraging potential political donors to help.

“Unelected bureaucrats want to strip Governor Abbott of his line-item veto authority in order to grow government and increase spending and debt. Join our fight with a contribution!” his campaign wrote in an email Wednesday that linked to his donation page.

Abbott has repeatedly boasted he cut off $386,000 meant for the Southern Regional Education Board, a nonprofit that helps states develop education policies, that would have been used “to finance the promotion of Common Core,” a charge the Board has denied.

The largest item vetoed would have provided $132 million to build a new state office building in San Antonio to replace the G.J. Sutton State Complex.

“The renovation project was intended to play a major role in the revitalization of the East Side and would have been an enormous boon to the City of San Antonio,” state Rep. Trey Martinez Fischer, D-San Antonio, wrote in an email to the San Antonio mayor and city council last week. “I find Governor Abbott’s unprecedented and possibly unconstitutional actions deeply worrisome.”

Martinez Fischer encouraged the city to consider legally challenging Abbott’s veto if necessary.

See here for the background. It’s hilarious to see Abbott fight this by appealing to donors decrying his battle against “unelected” enemies – you know, like Joe Straus and Dan Patrick, who has been his typically weaselly self in all this – but that’s your modern Republican Party for you. In the end, the amount of money involved is a pittance, though the project in San Antonio sounds like a fairly big deal, but the spectacle is what it’s all about. It’s just a matter of posturing and trying to be the most macho, as that’s what they care about the most. See this Trib story and Burkablog for more.

Vetoes: You’re doing it wrong

Oops.

NO

Some of Gov. Greg Abbott’s line-item vetoes in the state budget might be invalid, the state’s Legislative Budget Board said in a 14-page letter sent Tuesday to Texas Comptroller Glenn Hegar.

The director of the LBB said the governor’s veto proclamation, listing line items he chose to excise from the new budget, doesn’t have the effect Abbott apparently intended.

“The Proclamation from June 20, 2015 seeks to veto the appropriation for a number of purposes and programs contained in House Bill 1,” LBB Director Ursula Parks wrote. “However, in nearly all instances the Proclamation does not veto the actual appropriation but rather seeks either to veto non-appropriating rider language or informational items. As it is the case that the Governor may only veto items of appropriation, for the reasons outlined below I believe that many of the items in HB 1 referenced in the Proclamation remain valid provisions.”

That letter amounts to a rebuke of sorts from the leaders of the Legislature to the new governor. The LBB is co-chaired by Lt. Gov. Dan Patrick and House Speaker Joe Straus, and its members include the chairs of the House Appropriations and Senate Finance committees who write the budget, along with six other legislative leaders from both chambers.

“In our analysis, most of the actions in the Proclamation have the effect neither of actually reducing agency or institution appropriations, nor indeed of eliminating legislative direction on the use of funds,” Parks wrote. “The Proclamation seeks to go beyond what is authorized in the Texas Constitution, is in many respects unprecedented, and is contrary to both practice and expectation since adoption of the Texas Constitution in 1876.”

Abbott’s office received the letter Tuesday afternoon and did not have an immediate comment, but argued in a memo last month that the governor’s vetoes were within the law. Lauren Willis, a spokeswoman for Hegar, said the comptroller’s office is still reviewing the LBB letter.

It says, in effect, that the governor vetoed items in the budget that he doesn’t have the power to veto, an assertion Parks sourced back to Abbott himself. In his proposed budget earlier this year, Abbott said that he wanted to expand the governor’s line-item veto authority and suggested amending the state constitution to take care of that. The Legislature made no such amendment.

“The implication in this statement supports the analysis that the Constitution currently provides limited and specific authority in this area; authority that the Proclamation seeks to extend,” Parks wrote.

The LBB letter is here, and the Abbott memo on which it was based is here. Nothing like having your own words used against you, is there? This isn’t a LePage level of failure, but it would be pretty embarrassing if it holds up. On the plus side for Abbott, his buddy Dan Patrick is there for him, even though he is also on the LBB. Intrigue! Ross Ramsay has more.

Tighter spending cap defeated

I consider this to be a victory.

BagOfMoney

The state’s constitutional spending cap will remain untouched this session, and House and Senate leaders are blaming each other for the lack of action on the arcane but politically important measure.

Senate Republicans had sought to tighten the rules that guide how much future state budgets can grow, but House and Senate negotiators said in interviews Sunday that talks between the chambers fell apart late Saturday on Senate Bill 9, the last bill standing on the matter.

“The Senate passed the people’s priorities, the Governor’s priorities and my priorities on the spending cap and ethics reform during this legislative session,” Lt. Gov. Dan Patrick said in a statement Sunday. “The House chose to ignore these very important bills.”

House Speaker Joe Straus argued it was the Senate that was intractable on an issue that defied simple answers.

“The House passed responsible, well-thought-out language that recognizes the spending limit is a complicated issue, not a sound byte,” Straus said in a statement Sunday. “The Senate rejected this approach.”

Under the Texas Constitution, state spending cannot grow faster than the state’s economy. Ahead of each legislative session, state leaders set a growth rate for state spending based on the estimated rate of growth in Texans’ personal income over the next two years. (The rate picked just before the current session: 11.68 percent.)

Gov. Greg Abbott joined Patrick in calling for basing the growth rate instead on the estimated combined growth in population and inflation, a figure that, more often than not in recent years, has been smaller in Texas than the growth in the economy. But the House, concerned about the impact on future Legislatures, preferred a non-binding measure that would have factored in how different areas of government spending grow at different rates.

In the end, the two chambers remained miles apart.

[…]

In the House, Appropriations Chairman John Otto, R-Dayton, viewed the Senate’s approach as unworkable. As the House’s lead budget writer, he also expressed concerns about how the bill would impact future Legislatures.

“All of you know we passed a very conservative budget out of the house,” Otto told House members last week. “It would have failed SB 9.”

Otto opted to replace Hancock’s population/inflation metric with limits for different areas of government spending, such as transportation and health care, with each one based on a combination of how spending in that category was expected to grow as well and how the population served by each category was expected to expand.

He also amended the bill so that those new spending limits were no longer mandatory, but would simply be reported to state leaders who then could choose to factor that information into setting the growth rate.

During negotiations with the Senate over coming up with a compromise version, Otto said his concerns about hamstringing future legislatures remained.

“I wanted it to be considered. I didn’t want it be the mandate,” Otto said. “I was happy to include what the Senate’s methodology was as well as the methodology that was in my substitute.”

Just a reminder, in addition to the existing cap, we also have a constitutional mandate for a balanced budget, which in its way serves as a spending cap, too. At a time when the state has a lot of short-term needs like its pension funds and all kinds of facilities that need maintenance, the Lege chose to hoard billions of dollars that may never get spent given how much harder it is to tap the Rainy Day fund. Restricting spending further, with a school finance ruling looming and an economy that has cooled considerably, is just plain nuts. I’m glad we managed to dodge this bullet for another biennium, but I don’t know how much longer that can happen in the absence of some fundamental changes in our politics.

Budget deal

What Christopher Hooks says.

BagOfMoney

Texans, you can put down your pitchforks and douse your torches: The edibles you’ve squirreled away in your emergency bunkers can be safely consumed. Life can begin anew. The tax cut war between House and Senate has been resolved, which means that barring a catastrophic screw-up—say, Comptroller Glenn Hegar realizing he misplaced a decimal point in the revenue estimate—we won’t need that special session on budget issues that legislative observers and hack journalists have worried you all about so much.

Is the package—a $3.8 billion dollar bundle of franchise and property tax cuts—any good? Well, that depends on your point of view. Most everyone, save some Democrats and probably a few right-wing senators, is about to tell you, loudly, that the budget deal is very, very good. There’s a great deal of face-saving to be done. This is the point of the session at which former enemies congratulate each other for the finest and most noble works of government since Periclean Athens: Patrick himself posited that this might have been the best legislative session in the state’s history.

The business lobby did pretty well in the tax deal, but the picture is a bit more complicated for most of the other players. The widespread perception outside the Capitol will be that Patrick “won” by getting some property tax cuts past the House. Meanwhile, Texans are getting a raw deal—with too small a tax break to make a real difference for most, and less money coming down the pike now and in the future for basic services like education.

[…]

Patrick wanted and needed a signature victory for this session, his first. After all this furor, Patrick is likely to win for his constituents a smaller-than-expected tax break that most Texas homeowners—the people whom Patrick is expecting to give him credit—won’t even notice, because they’ll be swallowed up by rising rates and home values. Average homeowners might pay about $120 less in property taxes than they might have otherwise, but how many will notice or care as their taxes continue to go up? The only thing that can bend the property tax curve downward is a substantive reorganization of the state’s overall tax structure. Anything else is a band-aid, and not a long-lasting one at that.

It’s not really the stuff that launches political careers skyward. Some of Patrick’s supporters have said the Legislature can rededicate itself to real property tax reform next session, but that seems doubtful. The economy will likely have cooled, and the state may face a budget hole thanks to the school finance lawsuit and other looming budget issues. This session may have been the last, best opportunity to do a big tax cut deal.

At least the teabaggers aren’t happy, though I suppose that’s the default state for them. The best thing I can say about this session is that it’s almost over, and at least a few of the awful bills that could have passed didn’t.