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Billy Hamilton

From the “Tax breaks for me but not for thee” department

There are two types of people in Texas: Those for whom the tax code is written to favor, and everybody else.

BagOfMoney

The Dallas Country Club, not a place usually thought of as needing a huge tax break, used a quirk in state law to reduce its taxable value by nearly half.

Valero, one of the largest oil companies around, also used this provision to twice to force the Texas City school district to repay millions in collected taxes.

At a time when budgets are tight and school districts are hurting, counties statewide are watching their tax bases shrink by hundreds of millions of dollars in some cases as big business takes advantage of a 1997 amendment to the tax code that was intended to make sure homeowners were treated fairly.

The tax clause allows companies to file lawsuits year after year to reduce taxable value on their properties without any regard for the true market value, slowly shifting the tax burden to homeowners, officials in several Texas counties say.

In Bexar County, the clause allowed a new $600 million J.W. Marriott resort, in 2010 the largest Marriott in the world, to reduce its taxable value by more than half.

To Michael Amezquita, Bexar County’s chief appraiser, “It’s the equivalent of backing up the Brink’s truck to the public trough and driving away.” In his opinion, “It’s a legal way to steal dollars.”

As of Jan. 1 this year, there were 4,222 lawsuits challenging property values in Harris County, about 98 percent of them using the tax clause. The lawsuits represent about $35 billion in taxable value.

[…]

Lawsuits using the tax clause flooded the courts after the Texas 14th Court of Appeals ruled in 2005 that tax consultants testifying for the property owner did not need to use approved methods for determining value. The judge only has to believe that the testimony is reasonable.

“It’s like the Legislature just gave them a big red ‘easy’ button to reduce property taxes on the basis of equity,” said Sands Stiefer, attorney and deputy chief appraiser for the Harris County Appraisal District.

The lawsuits are nearly always successful, and most are settled out of court.

“It’s going to shift the tax base back to residential property,” said Ken Nolan, chief appraiser for the Dallas County Appraisal District.

Amezquita, the Bexar County appraiser, said that after Marriott lowered its tax value, he was sued by nearly every hotel in the county for tax rate reductions.

In El Paso County, a refinery used the law to slash its $781 million taxable value by 60 percent.

In Harris County, Houston 8th Wonder Properties purchased 104 acres of unimproved land for $77 million and a judge reduced the taxable value to $38 million. The appraisal district is appealing to the Texas Supreme Court. Houston 8th Wonder Properties officials did not respond to a request for comment.

The key element of the 1997 law allows companies to reduce their taxable value to the median value of similar properties. But because there is no definition for a comparable property, businesses are able to pick properties that in reality are dissimilar, appraisal district officials say.

In Harris County, HCA Gulf Coast compared 62.5 acres of prime, undeveloped property with a strip of property 90 feet wide, so narrow that it cannot be easily developed, according to an example of unfair property comparison given to legislators by the Harris County Appraisal District. The court reduced the value of the prime property by half.

Isn’t that nice? The effect of this ridiculous largesse is in the tens of billions statewide; it cost HISD $11 million just last year. There was a bill by Sen. Wendy Davis to try to limit the damage of this by restricting these lawsuits to properties valued at under $1 million, but it never had a chance in the Senate. Way too much money at stake to for that.

Hand in hand with this kind of generosity towards the wealthiest taxpayers is the notion of tax “reform” that lowers their taxes even more but does nothing for anyone else.

When the Texas House began debating HB 500 last Tuesday, the proposal would have reduced the collective tax bills of Texas businesses by $400 million. After several hours of debate, that figure had ballooned to $627 million as lawmakers eagerly tacked on amendments for various industries who said they had been treated unfairly under the state’s “margins” tax.

After all, Gov. Rick Perry has promised the Legislature will approve $1.8 billion in tax relief. Why say no to any exemption?

“HB 500 takes a stupid tax policy and makes it stupider,” a frustrated Rep. Mark Strama, D-Austin, told the House at the end of the lengthy debate. The bill, especially with all the amendments just approved, he said, would make the margins tax “more inequitable and more arbitrary.”

What the Legislature should be doing, he said, is a complete overhaul of the tax.

As Tuesday’s debate showed, that is easier said than done.

Texas’ tax system is “unbalanced, inefficient and inequitable,” said Bernard Weinstein, an adjunct professor of Business Economics at SMU’s Cox School of Business. And yet, elected officials view tax studies as opening a Pandora’s box, said Weinstein, a member of the 1987 Select Committee on Tax Equity,

“It’s great to sit down and talk about the big picture, but I don’t know too many politicians who are willing,” he said.

“Tax reform to many people equals tax increase.”

For those who are already winning, maybe. For the rest of us, it might mean we’d be screwed a little bit less. Again, we can’t let that happen.

“When the state cuts, local governments have to pick up the pieces,” said Scott McCown, executive director of the Center for Public Policy Priorities. “You can’t just cut taxes. We need tax reform.”

[Former Deputy Comptroller Billy] Hamilton agreed that it made sense to view “state and local tax structure as a unit.”

“High property taxes are the price we pay for the tax system we’ve got,” he said.

When the governor promises tax relief, added SMU’s Weinstein, an important question is: “For whom?”

Unless you have a lobbyist there in Austin schmoozing for you, the answer is not you. You don’t get the breaks, you get the tab. It’s not by accident, it’s the system we’ve put in place.

Finally, on a related note, Mayor Parker’s office put out this statement on property tax fairness yesterday.

Property tax fairness is an issue important to the city’s bottom line and that of every residential property owner because they are bearing an unequal tax burden. Clearly, all properties need to be valued appropriately. The current system is obviously inequitable and rewards a lack of transparency by the owners of many commercial properties. All too often, sound valuations made by Harris County Appraisal District (HCAD) are unfairly attacked by these owners, and HCAD, bound by a system that favors the owners, is forced to defend its actions with one hand tied behind its back. It is time for a change, and the state legislature is the primary place to make that change. The City of Houston will work with HCAD, the Houston Organization of Public Employees and other groups to achieve that change.

See here for more. It’s a little late to address this in the current legislative session, but the sentiment is correct, and I hope the fight for more tax fairness is a highlight of the next session.

Businesses say they want Medicaid expansion, too

This really comes down to two things.

It’s constitutional – deal with it

Chambers of commerce representing companies such as Exxon Mobil Corp. (XOM) and Kimberly-Clark Corp. (KMB) are challenging Texas Governor Rick Perry and lawmakers to expand health care for the poor in the state with the highest percentage of uninsured people.

The chambers of five cities are sending lobbyists to press Republican leaders to increase Medicaid coverage under President Barack Obama’s health-care law.

Businesses are often allied with Perry, a failed contender for last year’s Republican presidential nomination. The chambers, however, argue Texas shouldn’t pass up $100 billion over the next decade to cover 1.5 million adults. Obama’s plan would pay all costs until 2016, then the state’s share would gradually increase to 10 percent in 2020. Perry says that’s too expensive.

“This may be the only time that we have taken an actual formal position that is opposite that of the governor,” said Richard Dayoub, chief executive officer of the El Paso Chamber of Commerce. “I don’t know of any issue that has created so much concern across the state and has amassed so much support across party lines and throughout the business sector.”

Chambers supporting expansion in Dallas, San Antonio, Fort Worth and Arlington include members ranging from publicly traded companies to small shoe stores and family restaurants, many of them strained by health costs.

[…]

About 29 percent of Texas citizens lack insurance, according to a March 8 poll by Gallup Inc. The state ranked 40th in health last year because 30 percent of residents are obese and one of every four children lives in poverty, according to United Health Foundation, affiliated with UnitedHealth Group Inc. (UNH)

Hospitals have urged expansion because it will reduce expensive and ineffective emergency-room visits, said Stephen Mansfield, chief executive of Methodist Health System in Dallas and next year’s chairman of the 2,100-member Dallas Regional Chamber.

“The eight other Republican governors were just as opposed to this initially as Rick Perry,” said Mansfield, who met with him in February. “They came to understand the economics.”

Chamber lobbyists from Dallas, Fort Worth and San Antonio have discussed Medicaid with legislators during the current session in Austin, officials said. Dayoub of the El Paso chamber spoke with Lieutenant Governor David Dewhurst and House Speaker Joe Straus, both Republicans, and about 35 legislators of both parties.

As a reminder, Progress Texas‘ list of all the groups that have endorsed Medicaid expansion is here. I keep harping on this theme, but it all comes down to whether any elected official feels like they might lose support for their position, and I just don’t see the evidence for that. Chambers of commerce don’t necessarily speak for their member businesses, as anyone who has followed the exploits of the increasingly hard-right US Chamber of Commerce can attest, so it’s not clear how much pressure they could apply to the likes of Rick Perry or Greg Abbott if the wanted to. Maybe they can put some heat on certain individual legislators, but I’m not holding my breath for that, either. People are going to have to lose elections over this, and that’s much easier said than done right now.

Business groups “are looking short term,” said Republican Senator David Duell (sic), a Greenville physician who met with chamber representatives. He said he doubted the Obama administration’s commitment “with the long-term viability of the federal government in question.”

Such opposition is “idiocy,” said Margaret Jordan, a former Federal Reserve Bank of Dallas director who is president of Dallas Medical Resources, a consortium of hospital executives and businesspeople headed by billionaire oilman Ray Hunt. “Medicaid expansion is a win-win for everybody.”

[…]

The tension is evident 330 miles (531 kilometers) west of Dallas in Lubbock, a wind-swept city of 230,000 that is the hometown of 1950s rock ’n’ roll pioneer Buddy Holly and Texas Tech University. Medicaid divides the chamber of commerce, which favors expansion, and Republican Senator Robert Duncan, a lawyer who has served in the legislature since 1989.

After officials at the city’s UMC Health System explained how Medicaid expansion could cushion cost increases, chamber directors unanimously approved a resolution, said Chairman Carlos Morales.

“It’s a lot of money we’d be missing out on,” said Morales, who is executive vice president of Caprock Home Health Services Inc., a company that employs 2,200 in 12 Texas offices.

Duncan, however, says Texas can’t afford the deal because Medicaid crowds out spending for education, parks and other priorities.

“It’s not a free lunch,” Duncan said. He said he was unconvinced by studies by former deputy State Comptroller Billy Hamilton and Waco economist Ray Perryman suggesting expansion would boost the state’s economy by increasing business activity and productivity.

So on the one hand, you have people like Sen. Bob Deuell, who thinks we’re going bankrupt despite trillions having already been cut from the deficit, Medicare costs trending downward, and the entire basis of our medium-term debt-to-GDP ratio being a function of a temporary glut of old people. On the other hand, you have Sen. Robert Duncan, who doesn’t care what a bunch of high-falutin’ economists think when he just knows in his gut that spending money can only be a zero-sum game. Yeah, good luck changing that dynamic. In the meantime, the fanatics at TPPF present their never-gonna-happen case for Medicaid block grants so they can more efficiently deny access to health care to all those shiftless poor people, and the Democratic Congressional delegation chides Rick Perry for his continued mulishness on this topic. EoW and BOR have more.

Nine hundred million reasons why expanding Medicaid is a good idea

It’s all about the money.

It’s constitutional – deal with it

Expanding Medicaid could make available at least $900 million in state money that otherwise would be slated for health care as lawmakers work to pay for Texas’ priorities, according to an analysis released Tuesday.

“More efficient health spending means there’s more money available for other needs like water and education,” said Bee Moorhead of Texas Impact, a faith-based advocacy group that commissioned the analysis with Methodist Healthcare Ministries of South Texas Inc. Both groups support Medicaid expansion.

[…]

Moorhead said in a statement that moving people out of programs that are funded piecemeal with general revenue and into “prevention-focused managed care” would “give lawmakers more resources to tackle the other big issues on their plate this session.

The analysis was prepared by Billy Hamilton Consulting. Hamilton is a former longtime state deputy comptroller.

His analysis says that under starting-point legislative budget proposals, at least $1.2 billion in general revenue funds would be spent over the next two years on state programs serving people who would potentially be eligible for Medicaid. Additional federal funds under Medicaid expansion would take the place of that state money, according to the analysis.

Hamilton estimated that Medicaid expansion would require about $300 million in general revenue for state-paid administrative costs in Texas for the next two-year budget period. The Legislative Budget Board previously has cited a $50 million estimate for administrative costs over two years.

Using the higher figure for administrative costs, the groups said that would mean $900 million could be spent on as lawmakers would like – whether on health care or other programs – and it would not count against the state spending cap because it is considered current spending.

The Trib has a breakdown of the numbers. I’m not sure if this is a new report, a previously unpublicized section of the original report from January, or a summation of Hamilton’s testimony – there’s no obvious link on the Texas Impact webpage, and there’s no link or download in the Trib story. It’s also not clear how these numbers might change under an “Arkansas solution” scenario. Private insurance costs more than Medicaid, but the feds are picking up the full tab through 2015, which is the time period covered by this report, so it may not vary for the first two years. The point is that every way you look at it, this is the right thing to do, and the only rationale for opposition is ideology and a deep indifference to the suffering of others. Burka has more.

Vouchers continue to be a tough sell

I won’t be happy till they’re dead and buried, but it’s something.

Sen. Judith Zaffirini, D-Laredo, doesn’t think the Senate has a taste for vouchers. Noting that a two-thirds vote of the 31-member chamber is needed to bring up a bill for discussion, she said, “I believe there are 11 votes to block.”

House Public Education Committee Chairman Jimmie Don Aycock, R-Killeen, said he and Patrick have discussed the issue. “It would be very difficult to find the votes in committee or on the (full House) floor for any significant voucher program,” Aycock said.

Besides objecting to diverting state support to private schools, some critics suggest it could be problematic to give franchise tax credits for one type of donation and not others. Some raise concerns about how scholarship recipients would be chosen.

Tax consultant Billy Hamilton, whose clients include Raise Your Hand Texas, an education advocacy group that opposes vouchers, said the proposal isn’t good tax policy.

“It’s just another thing that says you can get a special tax break if you do this. If you don’t feel like doing this, you can’t get a tax break, and ultimately your taxes will be higher because other businesses do it,” Hamilton said.

Another complicated tax break that arbitrarily favors some over others is just what our tax code needs, isn’t it? What’s really weird is how at the end of the story Sen. Patrick and his lackey Bill Hammond talk alternately about vouchers being “dramatic change” that will help “transform education”, but also just a small part of a much larger package of reforms that will really only affect a few students, so why is everyone getting all uptight about it already?!? It’s unlikely to be that big a deal on the grounds that private schools don’t serve that many students, won’t be able to accommodate that many more students, and the best of them likely won’t be terribly interested in the kind of students Sen. Patrick claims to be trying to help. It is likely to be a boondoggle for the businesses that take advantage of whatever cookie the legislation would offer, and for some number of parents who were always going to send their kids to private school and now have a way of getting the taxpayers to help pick up the tab for it. The best thing to do here is recognize this for the waste of time that it is and focus on things that might actually have a chance of improving student outcomes.

As if you needed another reason to support Medicaid expansion

Even more data on why Medicaid expansion makes sense from Texas Impact.

It’s constitutional – deal with it

The study, by former Texas deputy comptroller Billy Hamilton, says Texas shouldn’t pass up the chance to insure up to 2 million of its more than 6 million uninsured people.

Hamilton cited other benefits. Expansion of the Medicaid rolls would “provide relief to local taxpayers and increase the financial stability of the health care infrastructure on which all Texans depend,” he wrote.

Texas Impact, a statewide interfaith group with a progressive bent, and San Antonio-based Methodist Healthcare Ministries, which owns half of the largest hospital and health care system in South Texas, commissioned Hamilton’s study. It was released last month but on Monday, the sponsoring groups issued this update, which breaks out the financial effects and numbers of newly covered persons by county and by legislative district.

Gov. Rick Perry and other state GOP leaders oppose the Medicaid expansion, saying the state-federal program is a mess and a budget-buster.

Hamilton’s study, though, says if Texas agrees to the expansion, the state would reap $27.5 billion in new federal health care spending from 2014-2017. That would generate an estimated 231,000 jobs by 2016, and just under $68 billion of new economic activity in the state over the four-year period, he found. Hamilton said the additional economic jolt would throw off $2.5 billion in new local tax collections statewide in 2014-2017.

Under his “moderate enrollment growth” scenario, in which about 1 million adults statewide would gain Medicaid coverage, Dallas County would attract $612 million annually in federal Medicaid match by 2016 and Collin County, $132 million. Those figures compare with combined county, hospital district and/or private hospital charity care costs of $691 million in Dallas County, and $9 million in Collin County, for the most recent year for which data were available.

“As if saving local taxpayers millions on low-income care isn’t enough, lawmakers can actually bring new revenues to their districts without raising taxes — and make their constituents healthier in the process,” said Bee Moorhead, an ordained Presbyterian clergy woman who is Texas Impact’s executive director.

See here for the initial Texas Impact report, and click on the “this update” link in the story to see what’s new. Basically, they broke out the numbers by House and Senate district, so if you want to contact your legislators and let them know why they should be behind this effort (hint, hint) you can have some facts at your fingertips. You might also contact your County Commissioner about it, since the numbers are based on county figures. Speaking of counties and Commissioners Courts, Travis County has passed a resolution calling on the Lege to take action on expanding Medicaid, following the lead of Dallas County. Bexar County will vote on this on February 26. What is your county doing? Whatever it is, keep up the pressure. You can’t be heard if you’re not making noise. And the more Rick Perry feels the need to defend himself, the better.

Here’s more from the Chron:

Hospital districts, county health care services, jails and charities in Harris County spent $920 million providing services to the uninsured for which they were not reimbursed, according to 2011 figures. If the Texas Legislature approves Medicaid expansion, at least $645 million and as much as $1.4 billion in federal funding would reach Harris County in 2016 to provide services for many of the currently uninsured, depending on how state leaders would structure the expanded coverage, according to estimates.

Using data from hospitals, the census and current legislative proposals, the report also estimated increases to local tax revenue from expanding services to an additional one million adults, which in Harris County could be as high as $411.5 million over four years starting in 2014.

[…]

Elena Marks, a health policy expert at Rice University’s Baker Institute for Public Policy, said federally funded Medicaid expansion is too good to pass up, citing a 2012 study by The Perryman Group titled, “Only One Rational Choice.”

Rather than looking at the flow of federal, state and local tax dollars in health care, that study looked at the overall economic impact of reducing uncompensated care, enhanced productivity from healthier Texans and other multiplier effects. It concluded that every dollar spent by the state on Medicaid would return $1.29 in revenue over the first 10 years of the expansion.

Marks warns, however, that expanding Medicaid would not be enough, hoping that local funds freed by federal and state dollars could go toward improving care.

She points to a federal grant program operated through Regional Healthcare Partnerships that funds innovative improvements to providing primary care, serving at-risk populations and targeting particular diseases.

El Paso and Dallas counties have passed resolutions urging legislative approval, and a network of state non-profits, including Houston’s The Metropolitan Organization, are encouraging others to follow suit.

“American taxpayers already have funded the increased health insurance coverage, but it’s the governor’s decision whether eligible Texans will be allowed access to it,” said Kevin Collins, TMO co-chairman and a Catholic pastor, in a press release about a rally at the state capitol Wednesday. “Access to affordable, quality health care is a fundamental right for all.”

Yes, let’s not forget the Perryman report or the Legislative Budget Board recommendation, either. The usual nattering nabobs are quoted in both stories fretting about the Medicaid match maybe someday being reduced by the Feds (at which point Texas could choose to back out if it wanted to) or Medicaid not being perfect but not addressing any of the points about the economic boon that Medicaid expansion would be or the lives that it would save, and surely not having any viable alternatives because they don’t care about that sort of thing. Oh, they also express concern about there not being enough doctors to handle the influx of new Medicaid recipients, which while valid on its face is deeply ironic coming from the kind of people that crammed tort “reform” down our throats partly on the premise that drastically limiting liability on doctors would lead to a flood of new MDs in our state. So yeah, I don’t really take any of their whining seriously. Even Florida Governor Rick Scott, who was one of the lead plaintiffs in the suit against Obamacare, has agreed to expand Medicaid for at least the first three years, when the feds are picking up 100% of the cost. Dallas County Judge Clay Jenkins, writing in the Trib, has more.

Sunsetting tax expenditures

Sens. John Carona and Rodney Ellis have the right idea.

Sen. John Carona

Over the past 18 months, many of our constituents told us they have trouble finding a reliable, accurate and up-to-date source of information on these tax breaks, exemptions and special treatments — often called tax preferences or loopholes.

Unfortunately, so do we.

The Legislature makes extensive efforts to determine the efficacy of every state dollar spent in our public education, health and human services, and criminal justice systems. With that data, elected officials can weigh the costs and benefits of different policy options in an attempt to make the most well-informed decisions. Yet we still have an astounding deficit of knowledge when it comes to tax expenditures.

Sen. Rodney Ellis

This session, we aim to change that. We have filed Senate Bill 140 — bipartisan legislation to scrub, sunset and possibly repeal scores of preferential tax breaks in Texas law. State agencies are subject to a sunset review every 12 years to determine if their functions need to be continued or reformed. The tax code would benefit from a similar periodic review of all its tax preferences to answer a simple question — are they working?

The Texas Tax Code contains numerous tax loopholes, many of which were inserted into the code in the distant past but live on long past the time the rationale for their existence has ended. Recent press reports estimate that, at a minimum, Texas spends $19 billion annually on these incentives. Yet despite this price tag, state agencies responsible for Texas’ finances are unable to provide a comprehensive list of tax preferences, much less detailed analyses. The sad fact is that the state agencies responsible for Texas’ finances are unable to determine exactly how many of your tax dollars are spent on tax loopholes, because no one even knows how many are in the tax code, how much they cost, or if they are even working.

Our ongoing budget challenges demand that we be as prudent as possible with all of our tax dollars, yet the state lacks a basic method to review and determine the effectiveness of a host of tax preferences and incentive programs. Texas needs a consistent, thorough review process to provide the public and policymakers alike with information on tax preferences’ successes and shortcomings.

Here’s SB140, which is enabling legislation for SJR12. There was some talk about taking a closer look at tax expenditures in 2011, but it never went anywhere because spending cuts were the be-all and end-all of everyone’s existence. I’m hoping for a bit more sanity this session, but if this has to be done as a Constitutional amendment that will make it a much heavier lift. Still, this is clearly an idea whose time has come – as they note, several other states do this already – so I wish them the best of luck with it. Link via Better Texas.

On a related note, Sens. Carona and Ellis’ timing on this is propitious given the push by their colleague Dan Patrick for a brand new tax expenditure gimmick, his proposal to fund private school tuition vouchers via a business tax writeoff. Former Deputy Comptroller Billy Hamilton makes short work of that.

Setting aside the effects on public education, the tuition credit idea should be rejected as a matter of tax policy alone. Education is important, but what makes this particular program worthier of tax breaks than donations to a thousand other good causes? What makes this cause more worthwhile than donations to public schools? Why this tax break and not others? There are no good answers.

We don’t know what a Texas version of this corporate tax credit program would look like or who will benefit, but whatever shape it takes, we need to keep in mind the experience in other states. States such as Florida, Pennsylvania, and Georgia have all had problems with the programs at various times because they’re designed with little or no public accountability. Companies should be free to donate money to private nonprofits if they want, but if the donations effectively come out of the state treasury, my 30 years around government tells me someone better be following the money because scandal will happen eventually.

Hamilton sure is a busy bee these days, isn’t he? Anyone who thinks Patrick’s proposed scheme would not be leveraged by people who already do send their kids to private schools or who always were going to send their kids to private schools – something that’s already happening in Louisiana – I’ve got some beachfront property in Lubbock for you.

Yet another report saying we should expand Medicaid in Texas

It’s the fiscally responsible thing to do, in addition to being the morally correct thing to do.

It’s constitutional – deal with it

Expanding Medicaid is a “smart, affordable and fair” decision for Texas, according to a report issued by Billy Hamilton, a non-partisan consultant commissioned by Methodist Healthcare Ministries of South Texas and Texas Impact, a statewide interfaith network.

“If politics are set aside, the right decision is obvious,” wrote Hamilton, a former deputy comptroller of public accounts who was once the state’s chief revenue estimator. He argued that for an investment of $15 billion, Texas could draw down $100 billion in federal funds and expand health care coverage to 2 million low-income Texans over 10 years.

One of the most important decisions facing Texas lawmakers in the 83rd legislative session is whether to expand Medicaid to low-income adults, as directed by the federal Affordable Care Act. Despite proclamations from Texas’ Republican leadership — namely Gov. Rick Perry and Lt. Gov. David Dewhurst — that Texas will not expand Medicaid, local government officials and health care providers across the state are pushing lawmakers to realize the benefits of it.

Hamilton’s report, the most thorough fiscal analysis yet on the impact of the Medicaid expansion on Texas, argues that state spending on the expanded Medicaid program would be offset by dramatic savings and that thousands of jobs would be created to boost the economy. Hamilton also says Texas’ uninsured rate — the highest in the nation — would drop by a quarter. He argues the expansion could save the lives of 5,700 adults and 2,900 children annually.

Hamilton was the chief number-cruncher for former Comptroller Carole Keeton Strayhorn. He joins economist Ray Perryman in pointing out the obvious, for whatever good it will do. Here’s more on his report from Texas Impact, who co-commissioned it.

The report provides funding estimates and Medicaid enrollment scenarios that rely on population and caseload projections by former Texas State Demographer Steve Murdock, and cost estimates from the Texas Health and Human Services Commission. The report provides three scenarios-“limited” (based on minimal enrollment), “moderate,” and “enhanced” (based on extremely high enrollment levels). All major findings are based on the “moderate” scenario.

The report compares these funding estimates with spending data from local jurisdictions and charity cost data from mandated, uniform hospital reports. The report explains the interactions between existing low-income health spending at the local level, and state and local fiscal impacts of extending Medicaid under the ACA. Impacts include anticipated increased enrollment by children who are currently eligible for Medicaid or CHIP but not enrolled, and who likely would enroll along with their newly eligible parents. The report also uses econometric modeling to estimate employment and economic impacts of adding low-income adults to Medicaid.

The report includes regional breakouts of caseload, spending and fiscal impacts for each of the state’s 20 Regional Health Partnerships (RHPs). The RHPs are multi-county regions coordinating health care spending and delivery under Texas’ new federal Medicaid Transformation waiver.

Key Findings:

  • The state match required for the Medicaid expansion could be met many times over with funds the state, local jurisdictions and hospitals already spend on health care for low-income adults.
  • The $1.8 billion in new state revenue generated by the expansion could offset about half of the state match required from 2014 through 2017.
  • The economic activity from the infusion of federal funds would boost Texas economic output by $67.9 billion, and add $2.5 billion to local revenues during fiscal 2014-17.
  • The economic activity would generate an estimated 231,000 jobs by 2016.
  • Every region and every county in the state would benefit from the additional federal funds.
  • The new coverage would reduce Texas’ uninsured rate by about 25 percent, insuring up to 2 million people.
  • The new coverage would increase efficiency in state and local health programs by moving currently uninsured adults to managed care.
  • The new coverage would save the lives of an estimated 5,700 adults and 2,700 children every year.
  • Other states are also finding that current spending and new revenue would cover their state match requirements and provide savings.
  • Failing to extend Medicaid would not improve the state’s likelihood of getting a block grant and would likely decrease the amount of funding the state would receive if a block grant were ever to occur.
  • Due to provisions in the ACA, failing to extend Medicaid would leave low-income Texas adults with no access to subsidized insurance and no alternative but to use expensive emergency room treatment for routine care.
  • (Key Findings also available in PDF format)

Overall State Fiscal Impact

For the 2014-15 biennium, Texas would receive $7.7 billion in federal funds for adults and $1.4 billion for children for a state match of $297 million for adults and $889 million for children–a total of $9.1 billion in federal funds for $1.2 billion in state match. For the 2016-17 biennium, Texas would receive $15.2 billion in federal funds for adults and $3.1 billion for children for a state match of $989 million for adults and $1.6 billion for children–a total of $18.3 billion in federal funds for $2.6 billion in state match.

The full report is here, and the executive summary is here. Expanding Medicaid is fiscally smart and will save thousands of lives. Millions of people lack access to health care in Texas. Medicaid expansion, especially in conjunction with comprehensive immigration reform, could do a lot to solve that problem. There’s no good argument against it – it’s all political. If there really is a deal to make it happen, we need to do it. But as long as Rick Perry, or someone like him, is Governor, I don’t see how it does happen. Nothing will change in this state until the government changes.

No, we can’t eliminate the property tax

The latest wingnut economic fantasy is that we can completely eliminate the property tax and replace it with an increased sales tax. Debra Medina was a champion of this during the 2010 GOP gubernatorial primary, which should give you some idea of where this lies on the spectrum of mainstream policies. Former Deputy Comptroller Billy Hamilton pens an op-ed explaining just how dumb this concept is.

The property tax produces more than $40 billion a year. All of that revenue goes to fund the state’s 4,000 local governments, including cities, counties and school districts. Because Texas doesn’t provide local governments with many other tax options, the property tax is their most important tax source, providing 80 percent of all of local taxes.

It would take a whale of a sales tax to replace that much revenue. Based on state estimates, a sales tax on the current tax base of 25 percent would be needed to replace the property tax and still provide revenue for the state, which relies on the tax for more than half of its total tax revenue.

That means a $100 purchase would cost an extra $25 in tax, rather than the $8.25 charged now in most places. It also means that the Texas sales tax rate would be more than double the current highest sales tax nationally and far higher than states like New York, which typically are viewed as high-tax states. You can see the problem.

Supporters of this idea suggest that this problem could be overcome by expanding the sales tax base. The question is to what? Many of the big-ticket items that aren’t taxed now aren’t taxed because they don’t make sense in a sales tax – items like raw materials used in manufacturing. Or they would put a heavy burden on families – like taxing groceries, water, medicine or home sales. There’s certainly room to expand the sales tax base, but what we are talking about here is replacing twice as much revenue as the state sales tax brings in now.

Even if it could be pulled off, this tax swap would have other undesirable effects. It likely would undermine local control of funding for cities, counties and schools. The decisions about who gets how much of the tax would likely have to be made in Austin, and there would be losers – particularly rural Texas, which doesn’t have the population to generate much sales tax.

The swap might be revenue neutral, in the sense that the same amount of money would be raised, but it wouldn’t be tax neutral for taxpayers. Depending on whether you pay a lot of sales tax or own land, you could see a large swing in your tax bill. The plan also would give an immense tax break to out-of-state property owners who would get a massive property tax cut but wouldn’t necessarily pay anything in sales tax.

Supporters sometimes promise that the change would produce an economic boom in Texas, but it’s hard to see how that could be true. What business would locate here and face the prospect of a 25 percent tax on the goods and services it buys? Tax avoidance such as shopping on the Internet or in surrounding states would increase dramatically. The one economic boom that is likely from this swap is in the construction of large shopping malls just over the Texas border in Louisiana, Arkansas, Oklahoma and New Mexico.

One thing Hamilton fails to note is that the Lege has considered the idea of swapping property taxes for sales taxes before, in 2005. This was a much smaller swap, which would have raised the state sales tax rate from 6.25% to 7.25%, with some other bells and whistles in there. The Legislative Budget Board studied this proposal, and concluded that it would benefit the rich at the expense of everybody else. One can only imagine what a huge boon a complete swap would be for the one percent crowd.

There are other issues – Hamilton correctly notes the effect of border-crossing and online shopping, but doesn’t mention the black market that would quickly burgeon in this scenario – but this is a pretty long list already. But let’s be clear about something: The purported reason for wanting to find an alternative to the property tax is that one’s property taxes can rise faster than one’s ability to pay them, and through no fault of one’s own one can find oneself unable to afford one’s house. If only there were some other kind of tax that could be substituted for the property tax. You know, a tax that was proportionate to the amount of money one made in a given year, so that one’s annual tax bill rose or fell in direct relation to one’s ability to pay it. I don’t know what you’d call this kind of tax – maybe the “Annual Earnings Tax”, or the “Tax On How Much I Made This Year”; I’m sure there’s a snappier, pithier name for it if only I could think of it – but I’m sure if we thought about it we’d realize that it could well achieve the aim of substituting for most of the property tax without suffering from all the problems that a 25% or higher sales tax would have. Maybe that’s the tax we should talk about implementing instead.

Don’t plan that Sunday trip to Liquor Mart just yet

The debate over allowing Sunday liquor sales continues on.

A leader of the Texas Package Stores Association told the Senate Business and Commerce Committee on Tuesday there’s been no great demand from customers that liquor stores open on Sundays. Plus, opening on Sunday would likely spread the same sales over seven days instead of six, said association president Greg Wonsmos, who’s also president of Centennial Fine Wine and Spirits.

Some independent store owners and the Distilled Spirits Council of the United States back the bill by Sen. Rodney Ellis, D-Houston, saying it’s a matter of customer convenience and could provide extra tax revenue for the state.

Estimates range from $7.4 million to $12 million in increased state revenue per biennium. Former state chief revenue estimator Billy Hamilton said when blue laws preventing Sunday sales of certain items in stores were lifted in 1985, there was also much debate about the effects.

“I can tell you conclusively that is has both added to the convenience of shoppers and it has produced money for the state of Texas,” Hamilton said, adding that a ban on Sunday liquor store sales is one of the last remnants of the Texas blue laws.

Ellis’ bill is SB595; it did not get a vote in committee. Apparently, Comptroller Combs disagrees with Hamilton – she has announced that allowing Sunday liquor sales would not raise “no significant revenue”. I don’t know that I agree with that, but I also don’t think it really matters. I’ll say again, I see no reason to not allow liquor sales on Sunday. Whether it gets through the Lege, that’s a different story.

Amazon was just the beginning

I agree with this.

By telling retail giant Amazon.com that it owes $269 million in uncollected sales taxes, the State of Texas has waded into the national debate over taxing Internet sales. The state comptroller’s office said it has sent similar demands for payment to other online retailers.

Allen Spelce, a spokesman for the comptroller’s office, said he could not release the names of the others, but he said they are “high-profile” online retailers that have not been collecting sales taxes in Texas.

Traditional merchants and industry groups have praised Texas’ recent demand to Amazon, saying it’s about time that the world’s biggest online retailer is made to play by the same rules as everyone else.

“It’s really just a fairness issue,” said Steven Bercu, CEO of Austin bookstore BookPeople. “The state, for some reason I don’t understand, has been picking its favorite retailer, and for some reason it’s been an out-of-state retailer.”

“People walk in here, talk to our booksellers, get recommendations, learn about what would be a better choice for reading material — and then it’s not uncommon to hear them say, ‘I think I’ll buy it on Amazon and not have to pay any sales tax,'” Bercu said.

Texas handed Amazon a bill for $269 million the other day. We don’t know yet how much the other retailers have been dinged for, but I’ll bet it’s a nontrivial amount, and I’ll bet there’s still more where that came from. The main question is if, not when, these retailers remit, and whether the matter will ultimately be settled in the courts or the legislatures. Former Deputy Comptroller Billy Hamilton sums it up, and I couldn’t agree with him more:

In the early years of Internet commerce, Hamilton said, political theory seemed to be that promoting online commerce was more important than any lost sales tax revenue.

“I can remember making a speech in 1995 where I said, this is going to be a big problem for states if this online retailing takes off,” he said. “And somebody stood up and said, ‘You’re trying to strangle the baby in the crib.'”

Hamilton, however, said he was bothered by online retailers who acted as if “they had invented manna from heaven and that it should exempt them from the rules of gravity.”

Amazon and other online retailers took the stance, Hamilton said, “that because this was on the Internet and was an incredible business model and this was the future, that somehow that exempted them from any social or any other kind of obligation. When you got right down to it, to me it was a kind of an arrogance.”

Hamilton said the state’s recent demand that Amazon pay up shouldn’t be seen as the endgame in the debate over the issue.

“The comptroller is taking a shot,” Hamilton said. “I wouldn’t hold my breath or imagine this is somehow going to help this budget problem that they’ve got right now — because it’s undoubtably going to be litigated.”

The original justifications for exempting Internet sales from taxation are at least a decade out of date, and are having a significant impact on state and local budgets. Last I checked, even online retailers benefit from things like roads and law enforcement and other things that state and local governments provide, too. The one thing I’ll add is that ideally this would be addressed by Congress, since as I recall the original prohibition on sales taxes for online purchases came from Congress. Unfortunately, I can’t see that happening any time soon, so off to the courts we will surely go. Dan Gillmor has more.

Texas 20/20 on the budget

Via First Reading, a group called Texas 20/20 has taken a look at what other states have done to deal with their budget shortfalls, and how that may apply to Texas in next year’s legislative session.

The author is former Deputy Comptroller Billy Hamilton, who was a high-ranking aide to Democratic and Republican comptrollers.

Here’s an excerpt: “The key lesson from this review of approaches in other states is that most have balanced their budget only by using a variety of approaches and making painful budget and revenue decisions. There is no simple solution to budget problems as large as those that Texas will face in 2011. When the size of the budget gap is large, lawmakers must approach the task of balancing the budget with creativity and innovation. They must also be willing to decide what the key state services are — what must be preserved and what can be pruned. That is the goal. Reality, as the examples in the other states demonstrates, is often different.”

The full report is here. I will simply note two things. One, this is a detailed illustration of what Ezra Klein has called the anti-stimulus, as all these cuts have acted as a drag of nearly equivalent force to the federal stimulus package of 2009. The scary thing is that there’s much more of this to come, with potentially hundreds of thousands of jobs – teachers, police officers, fire fighters, those kinds of jobs – at risk. That’s because state governments, by and large, are required by their constitutions to balance their budgets, all of which acts to magnify the effect of an economic downfall. The federal government can do something about this, and it did some of it last year, but between the utter intransigence and indifference to suffering of the Republican Party and the shameful fecklessness of too many Democrats, we’re unlikely to get any further action from the feds. I can’t even guess how much worse it would have to get for there to be a change in thinking, but at this point nothing is beyond imagining.

The second point is that as useful as this report is, it does not mention the multi-billion dollar structural deficit that Texas faces thanks to that ginormous unaffordable property tax cut from 2006. We may survive this legislative session more or less intact, and we may finally see better economic conditions by 2013, but we’re never going to truly solve our budget issues until we deal with that. BOR and Dave Mann have more.

Sometimes, government really is run like a business

And that’s not such a good thing, as former deputy state comptroller Billy Hamilton pointed out in testimony before the House Select Committee on Government Efficiency and Accountability.

Don’t expect savings anytime soon. Check out other states that tried the same. Chew the fat with experts and possible vendors. Make sure the private sector’s offering to do it for 30 to 40 percent less than your state agency can, because you have “lower wage costs and no profit requirements.” Write down everything you expect — down to the tiniest detail — before you solicit bids. Bring good lawyers and don’t walk away when the deal is inked: Watch the contractor like a hawk.

[…]

Rep. Pete Gallego, D-Alpine, the panel’s chairman, asked Hamilton why there are so many problems with Texas outsourcing efforts. Gallego mentioned the Accenture contract to run call centers for social services signups, and other committee members mentioned the fiasco with an IBM contract to consolidate state computer services.

Hamilton said there is a “weird dynamic between state and vendors where the state people sort of imagine in their heads what they want, but can’t articulate it on paper, and the vendors — who want these very large projects — say, ‘Yes, we can do whatever you want.’ And then once the contract is signed, … things go awry.” Bureaucrats ask for things they believe they requested, he said. Contractors respond that it will take a change order and cost the state more money. Things then go downhill rapidly, Hamilton said.

I’ve talked about this before when writing about the state’s outsourcing efforts, and I’ll say again that this is no different than how it usually goes in the private sector. The buyer and the seller have very different ideas about what is and isn’t covered in the contract, and in the end it always costs more and saves less than whatever both parties were saying at the time of the signing. In the case of the state of Texas and the religious fervor with which many of our officials believe that the private sector is always better than the public sector, it’s a recipe for disaster, as we saw with HHSC and Accenture. I don’t know what schemes might be cooked up by the next Legislature as part of its efforts to balance the budget, but if any are, we should keep Hamilton’s words and our own past experience in mind.