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business margins tax

TAB wants the Lege to quit it with bathroom bills

The talk is good. We’ll see about the action.

Texas lawmakers spent too much time this year debating bathrooms and immigration, and took their eyes off some matters vital to economic growth, such as phasing out the business-franchise tax and easing road congestion, the head of the state’s top business lobbying group said Tuesday.

Texas Association of Business chief executive Jeff Moseley, releasing a scorecard that rates each lawmaker based on selected votes, said his group was pleased to help block a bill that would require transgender Texans to use restrooms that match their gender at birth. It was sorry lawmakers went too far in adding a “show me your papers” provision to a new law banning sanctuary city policies that prohibit police and sheriff’s deputies from asking people about their immigration status.

But Moseley said the business group would have preferred lawmakers pay more attention to things that could spur the Texas economy, such as repealing the franchise or “margins tax” and continuing the use of agreements under which private firms build toll roads. “We were very successful in making sure that a lot of bad ideas didn’t make it to the House floor,” he said. “A lot of those issues that we thought were unnecessary, that were a distraction, those didn’t make it forward to the floor.”

[…]

To prevent future legislation it views as discriminatory and bad for business, the association is upping its game, Moseley said. The group has state and federal political action committees, but they’ve been largely symbolic, handing out endorsements and sometimes $1,000 checks.

In September, the organization started actively fundraising to support business-minded candidates in the March primaries. In a matter of weeks, it raised $200,000, he said.

“The board feels like there’s more opportunity to be a voice for our members and to speak out on business issues in the primary election,” Moseley said.

The TAB scorecard for the 2017 sessions is here. Note that only the Senate was graded on the bathroom bill, because that bill never came to the floor in the House. One has to approach this sort of thing with a good deal of caution, as beyond the broad strokes like opposition to bathroom bills and “show me your papers” laws there are plenty of things that progressives will not care for in TAB’s priorities, and the devil is in the details of others. I could see fit to eliminating the margins tax, for example, as it is an ungodly and underperforming mess, but only if it is replaced by something worthwhile. In the meantime, I’m willing to join hands with them if they put some resources into defeating the likes of Konni Burton and Jonathan Stickland, both of whom scored poorly on their card. You gonna walk the walk, TAB? For related testifying-before-House-committee action, see the Chron and the Trib.

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.

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.

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.

Trouble in tax cut paradise

What if you propose a tax cut but the beneficiaries of it say they’d rather the money went to something else?

BagOfMoney

Major business groups pushed back Friday against a multi­billion-dollar package of tax cuts advancing in the Texas Senate, calling it inequitable and saying state needs should be funded before lawmakers consider tax relief.

The criticism highlights how, despite support for tax cuts among Republican legislative leaders, details are far from settled and are prompting dissension among lawmakers and businesses.

It also echoes concerns from some leading lawmakers that the emphasis on tax cuts could imperil efforts to address such issues, as education, transportation, state debt and pension programs.

“If, after paying our state bills, there is money left over for tax relief, that relief should be fair to those who pay the most taxes in the first place – both individuals and businesses,” said the letter signed by seven big-business groups.

“That portion of tax relief to business should encourage growth and investment, enhancing our ability to expand our production and payrolls. Unfortunately, we believe the package of bills up for consideration in the Texas Senate falls short of these principles and creates new inequities in the tax system,” they wrote.

The letter to Lt. Gov. Dan Patrick and senators is signed by representatives of the Texas Association of Business, Texas Association of Manufacturers, Texas Taxpayers and Research Association, Association of Electric Companies of Texas, Texas Chemical Council, Texas Oil and Gas Association, and Texas Association of Realtors. It mirrors concerns expressed previously.

[…]

Senate leaders, including Patrick, pushed right back at the criticism.

“While traveling the state for the last 18 months, taxpayers made it clear they expect tax relief this session,” Patrick said. “Gov. Abbott and I have said that lasting franchise and property tax relief are a critical component of a successful session.”

Senate Finance Committee Chair Jane Nelson, a Flower Mound Republican who is a lead sponsor of the package, defended its aims but did not dismiss the concerns.

“We are striking a good balance between tax reductions for businesses and homeowners, and we will continue to work deliberatively through the process on that issue. As a businessperson myself, I am grateful for the input from these important stakeholders and look forward to working with them moving forward,” Nelson said.

In other words, Patrick told them they’ll take what they’re given and they’ll like it and the hell with whatever the state needs. No wonder all these interests united to oppose his election last…oh, wait. Never mind. Maybe after Patrick and his crew finish wrecking the state’s finances these guys will get a clue. Hope it’s not too late by then.

Bill filing deadline has passed

Believe it or not, we are almost halfway through the legislative session, and we have now passed the point where new bills can be filed.

130114152903-abc-schoolhouse-rock-just-a-bill-story-top

Racing to beat a deadline for filing bills, state lawmakers on Friday submitted hundreds of measures on everything from abolishing the death penalty to the licensing of auctioneers.

By the time the dust settled, 928 bills had been filed in the state House and Senate on Friday, setting the chambers up for a busy second half of the legislative session.

“Now, it’s game on,” longtime lobbyist Bill Miller said.

In all, some 8,000 measures are now before the 84th Legislature, including 4,114 House bills, 1,993 Senate bills and 1,771 resolutions.

[…]

The most high-profile bill filed Friday was an ethics reform package supported by Gov. Greg Abbott that long had been expected to be submitted by Sen. Van Taylor, R-Plano. Abbott had declared ethics reform a legislative emergency item during his State of the State address last month.

Taylor’s proposal, known as Senate Bill 19 and also backed by Lt. Gov. Dan Patrick, would require state officials to disclose contracts with governmental entities, prohibit lawmakers from serving as bond counsel for local and state governments and make departing legislators and statewide elected officials wait one legislative session before becoming lobbyists.

“There is no more valuable bond in democracy than the trust the people have with their government,” Taylor said in a statement. “The common-sense ethics reform outlined in Senate Bill 19 will strengthen that bond and send a clear message to the people of Texas that there is no place in government for those who betray the trust given to them by the voters.”

Tax policy also was a common theme, with [Rep. Dennis] Bonnen submitting his hotly anticipated proposal to cut business and sales taxes.

The Senate, which in some ways has been moving faster than the House, already has debated several tax proposals, and the issue is expected to be a priority focus of the session.

The Trib highlights a few bills of interest.

— House Ways and Means Chairman Dennis Bonnen, R-Angleton, filed his long-awaited proposals to cut the rates for both the margins tax paid by businesses and the broader state sales tax. The margins tax bill, House Bill 32, is identical to one filed by Senate Finance Chairwoman Jane Nelson, R-Flower Mound. The measures should draw the House more into the tax cut debate this session, which until now has been focused more on the Senate, where Nelson has already held hearings on some high-profile measures.

— Several measures filed Friday aimed at allowing Texas to change its approach to immigration, even as broader proposals stall in Washington.

House Bill 3735 by state Rep. Byron Cook, R-Corsicana, seeks to establish a partnership with the federal government to establish a guest-worker program to bring skilled and unskilled labor to Texas.

House Bill 3301 by state Rep. Eddie Rodriguez, D-Austin, would recognize undocumented Texans as “citizens” of the state. It would allow them to apply for driver’s licenses, occupational licenses and state IDs if they meet certain residency criteria and are can verify their identity.

“It also opens the door for future conversations about the very real fact that these Texans without status are here, they are not leaving, and we should be doing everything we can to help them find employment, housing and opportunity,” said Laura Stromberg Hoke, Rodriguez’s chief of staff.

— House Bill 3401 by state Rep. Matt Schaefer, R-Tyler, seeks to establish an interstate compact between interested states for the detection, apprehension and prosecution of undocumented immigrants.

— Looking to add restrictions on abortion, state Rep. Jodie Laubenberg, R-Parker, filed House Bill 3765 to beef up the state’s informed consent laws when it comes to minors. Texas law already requires patients seeking an abortion to go through the informed consent process, but Laubenberg’s bill would require notarized consent from a minor and a minor’s parent before an abortion is performed.

— House Bill 3785 from Rep. Marisa Marquez, D-El Paso, would permit patients with cancer, seizure disorders, PTSD and other conditions to medical marijuana. The measure is broader than other bills filed this session that would only allow low-level THC oils to be used on intractable seizure patients.

— The National Security Agency might have some trouble in Texas if Rep. Jonathan Stickland, R-Bedford, gets his way. House Bill 3916 would make it illegal for any public entities to provide water or electric utility services to NSA data collection centers in the state.

— State Rep. Joe Deshotel, D-Port Arthur, filed a pair of measures, House Bill 3839 and House Joint Resolution 142, which would ask voters to approve the creation of as many as nine casinos. Under Deshotel’s plan, most of the casinos would be built near the Texas coast, and a large portion of the tax revenue would go toward shoring up the troubled Texas Windstorm Insurance Association, the insurer of last resort for coastal Texans.

— In an effort to pave the way for a Medicaid expansion solution that would get the support of conservatives, state Rep. Garnet Coleman, D-Houston, filed House Bill 3845 to request a block grant from the federal government to reform the program and expand health care coverage for low-income Texans. Though GOP leaders have said they won’t expand Medicaid under the federal Affordable Care Act, they’ve asked the feds for more flexibility to administer the program. Coleman’s proposal, titled the “The Texas Way,” intends to give the state more wiggle room while still drawing some Republican support.

Here’s a Statesman story about the casino bills. There’s been a distinct lack of noise around gambling expansion this session, which is change from other recent sessions. I suspect Rep. Deshotel’s proposals will go the way of those previous ones, but at least there’s a new angle this time.

Here’s a press release from Republicans Against Marijuana Prohibition (RAMP) in favor of the medical marijuana bill from Rep. Marquez; there is a not-yet-numbered companion bill to HB3785 in the Senate, filed by Sen. Jose Menendez, as well. Two other, more limited, medical marijuana bills, the so-called “Texas Compassionate Use Act”, were filed in February. I don’t know which, if any, will have a chance of passage. I will note that RAMP has been admirably bipartisan in its praise of bills that loosen marijuana laws. Kudos to them for that.

If you’re annoyed at Jodie Laubenberg going after reproductive choice again, it might help a little to know that Rep. Jessica Farrar filed HB 3966 to require some accountability for so-called “crisis pregnancy centers’. Her press release is here.

I am particularly interested in Rep. Coleman’s “Texas Way” Medicaid expansion bill. (A companion bill, SB 1039, was filed by Sen. Jose Rodriguez.) I have long considered “block grant” to be dirty words in connection with Medicaid, so to say the least I was a little surprised to receive Rep. Coleman’s press release. I have complete faith in Rep. Coleman, so I’m sure this bill will move things in the direction he’s been pushing all along, but at this point I don’t understand the details well enough to explain what makes this bill different from earlier block grant proposals. I’ve sent an email to his office asking for more information. In the meantime, you can read Sen. Rodriguez’s press release and this Legislative Study Group coverage expansion policy paper for more.

Finally, one more bill worth highlighting:

The proposal introduced by out lesbian Rep. Celia Israel (D-Austin) would prohibit mental health providers in Texas from attempting to change the sexual orientation or gender identity of people under 18. Those who violate the law would face disciplinary action from state licensing boards.

Israel acknowledged that House Bill 3495 has little chance of passing the Republican-dominated Legislature, and it wouldn’t apply to faith-based practitioners, but she said it’s an important response to the Texas GOP’s 2014 platform plank endorsing reparative therapy.

“I don’t think that they recognize how hurtful these kinds of things can be,” Israel told the Observer. “To suggest that some young kid that happens to be gay is less than normal is very hurtful and harmful and dangerous, and I think I put myself back in those years when I was first discovering who I was. … I felt strongly about introducing a bill that was a counter to that, to say, ‘We don’t need fixing. We just need your love.’”

Virtually all of the major medical and mental health organizations have come out against reparative therapy, from the American Psychological Association to the American Medical Association and the American Counseling Association.

I agree that this bill isn’t going anywhere, but as I’ve been saying, that doesn’t mean it shouldn’t have been filed. Good on Rep. Israel for doing what’s right. Equality Texas has more.

We can always pay for tax cuts later

Item One:

BagOfMoney

Texas House leaders said Monday they can cut taxes by more than the $4 billion initially proposed by their Senate counterparts, upping the ante for the high-profile issue despite other looming big-ticket state needs.

“We really believe that we ought to be able to do more than $4 billion in tax cuts here in the House,” Ways and Means Committee Chairman Dennis Bonnen, R-Angleton, said. “We don’t have a number at this point. We just know that we can do better than that.”

Asked about exceeding $4 billion in tax cuts for homeowners and businesses combined, House Speaker Joe Straus, R-San Antonio, said, “We’re on the same page.”

It is the closest House leaders have come to identifying a specific tax cut figure they are contemplating.

Straus, Gov. Greg Abbott and Lt. Gov. Dan Patrick previously had declared tax relief a priority for this legislative session, with Abbott saying he will not sign a budget that does not include tax cuts for business.

[…]

Some were surprised by the House leaders’ pronouncement.

“Any kind of tax relief needs to be sustainable,” said Rep. Lyle Larson, R-San Antonio. “I don’t think anybody wants to pass a tax cut and then retreat in the subsequent (legislative) session.”

Rep. Jessica Farrar, D-Houston, said a higher priority should be placed on public education, still struggling after massive cuts in 2011 that have been only partly restored.

“I think we have got to look at our priorities and make sure that we can take care of tomorrow’s workforce,” she said.

Item two.

Flanked by a dozen Republican senators, Lt. Gov. Dan Patrick on Tuesday announced a slate of legislation he said would provide lasting tax relief to businesses and homeowners in Texas.

“At the end of the day, the Texas economy stays strong if people have more money in their pocket, if businesses have more money to create jobs,” said Patrick, a Republican.

Patrick said three recently filed bills — Senate Bills 1, 7 and 8 — would deliver a combined $4.6 billion break from the state’s property and business taxes.

About $2.5 billion of that total would go toward increasing homestead exemptions from school property taxes. Currently set at $15,000, they would instead be 25 percent of the median home market value in the state. In 2016, when the median home market value is projected to be $134,500, that could mean as much as a $33,625 exemption.

Another $1.5 billion would stem from reducing the state’s franchise tax on businesses by 15 percent.

[…]

But there are signs that it may encounter opposition from within Patrick’s own party.

“We have got to deal with the major problems of this state before we commit to tax cuts,” state Sen. Kevin Eltife, R-Tyler, said in an interview after the announcement. “We have some big ticket items that we can actually resolve this session. I think those needs come first.”

Eltife said he wanted to see a long-range plan to fix the significant shortfalls in state-funded pensions and deferred maintenance on state facilities.

“I think it’s the cart before the horse. We need to go through the budget process and make sure we have those needs addressed in our budget before we commit to cutting $4 billion a year in revenue out of the state budget,” he said. “It might work down the road, but I want to see a plan of action for the needs of this state before I commit to cutting taxes.”

Silly Sen. Eltife, and Reps. Larson and Farrar. Tax cuts are the only real need we have. Weren’t you paying attention to the 2014 campaign?

Besides, we all know nothing like this could ever happen here.

Republican governors meeting in Washington last weekend said financial conditions in their states have deteriorated so much that they must raise taxes, even if it means crossing their own party.

In the face of a historical antipathy deepened by the tea party movement, chief executives in Alabama, Nevada and Michigan among other states are proposing increases this year to address shortfalls or to spend more on faltering schools and infrastructure. They advocate higher levies on businesses, tobacco, alcohol and gasoline, in some cases casting the increases as user fees.

The governors are at a crossroads. They are choosing between the path of Gov. Sam Brownback in Kansas, who has refused to change course even after tax cuts provoked furious opposition, and that of Alabama’s Robert Bentley, who has said the state’s perennially precarious budget has reached the breaking point.

“I don’t want to raise taxes, but I also know that we need to pay our debts,” Bentley said. “We don’t have any choice.”

Like I said, that could never happen here. Unless you’re talking about raising sales taxes to pay for property tax cuts, because that’s totally different. PDiddie and RG Ratcliffe have more.

Wrapping up the rest of the regular session

So as we now know, a special session on redistricting has been called, though we don’t yet know what if anything else may be added later. I covered that last night, so let’s cover what else got done at the end of the regular session, beyond what I noted below. First of all, the budget passed, though not without some late drama.

BagOfMoney

The Texas House approved the 2014-15 budget bill and sent it to Gov. Rick Perry on a vote of 118-29, a lopsided vote that belied the teeth-gnashing and nail-biting over the past few weeks as budget-writers crafted the final deal.

One of Perry’s top priorities — “significant tax relief” — faced the threat of a filibuster by state Sen. Rodney Ellis, D-Houston, Sunday night because his language mandating a periodic review of the $43 billion in tax credits had been stripped from House Bill 500.

When the bill came up around 10:30, Ellis could have killed it by talking until midnight. He did not, but voted against it and predicted that lawmakers were carving a hole in the budget that would have to be filled in future sessions.

Toppling HB 500 would not have undercut the entire budget, but could have prompted Perry to put tax relief on the agenda if he calls lawmakers back after the regular legislative session ends Monday. A special session is considered a near-certainty to deal with redistricting and perhaps other issues.

Senate Bill 1, the two-year budget bill, spends $94.6 billion in state general revenue — up $7 billion — over the next two years on public schools, prisons, parks and health care for low-income children and the disabled. Including federal dollars, the budget bill totals $197 billion, a 3.7 percent increase over the current budget.

[…]

Many Texans also would be getting a break on their electric utility bills after both chambers agreed to eliminate an $800 million fund that was created to help low-income Texans and senior citizens pay their bills in the summer months. House Bill 7 repeals the fee that fed that fund, which brings ratepayers about $150 million a year in relief. The remainder of the fund will be paid out over the next three years to provide a discount to people who are eligible.

“I believe this will be the only bill going through this legislative session where customers, mom and dad, individuals who are working, will receive a direct tax rebate that they can feel, they can see and that will be meaningful and tangible for them,” state Rep. Sylvester Turner, D-Houston, said.

Texans served by municipal or cooperative electric providers, including many in Austin and other Central Texas communities, were never subject to the fee.

Businesses could be in line to get about $1 billion in tax breaks.

HB 500 would cut the tax rate for the franchise tax, commonly called the margins tax, by 2.5 percent in 2014 and 5 percent in 2015. The second year tax cut is dependent on state funds being available.

The bill also makes permanent a $1 million exemption for small businesses that have less than $1 million in gross receipts.

Its biggest change, championed by state Rep. Harvey Hilderbran, R-Kerrville, allows businesses to deduct up to $1 million in expenses once they pass $1 million in gross receipts.

See here and here for more on the gyrations regarding the System Benefit Fund, which had been the biggest source of budget shenanigans in the past, as it collected millions that were never appropriated so its revenue could count towards “balancing” the budget. One way to look at all this is that it was an attempt to meet Perry’s demand for $1.8 billion in tax “relief”. Whether he accepts this or not will help determine the agenda of a special session, if one is called. The Observer has more on the budget details, and a statement from Sen. Ellis about HB500 is beneath the fold.

One item that largely went below the radar but that could have required attention in overtime was the fate of the Railroad Commission. Not the failed renaming and attempt to impose more stringent ethics requirements on it but the sunset bill reauthorizing its existence, which nearly ran aground in the session’s twilight.

If lawmakers do not act soon, the agency that regulates oil and gas in Texas could disappear.

A legislative review of that agency, the Texas Railroad Commission, failed this session, and a measure that might be used to keep the agency alive until 2015 or later doesn’t include any reference to the RRC.

“It means the Railroad Commission will go away,” said state Rep. Dennis Bonnen, R-Angleton.

Bonnen chairs the Sunset Advisory Commission, which is charged with periodically assessing and renewing the charters of state agencies. The RRC’s “sunset” legislation failed in 2011, and lawmakers extended the life of the agency until this year. It didn’t work; the legislation that would have renewed the agency’s charter and made additional changes has already failed again.

What’s more, House Bill 1675, this year’s version of the “safety net” that rescued the RRC and other agencies last year, doesn’t include the Railroad Commission this time. Unless lawmakers add it in the final days of the session, the agency will go out of business.

Despite Bonnen’s pessimism, others say that there is a way forward for the agency. Lawmakers who meet in conference committee to reconcile House and Senate versions of HB 1675 could take special measures to extend the life of the RRC for two more years.

“I’m confident that we will get it solved,” said state Sen. Troy Fraser, R-Horseshoe Bay, who noted the importance of the agency. “There are a couple of vehicles to resolve it.” One is the conference committee on House Bill 1675, he said.

“Obviously [we’d] like to get it resolved in the regular session,” Fraser said.

In the end, the RRC was added back into HB1675 via the committee report. I sometimes think cats are envious of how many lives some pieces of legislation get every other year.

The things that did not get done in regulation time are redistricting, about which we know what happened; transportation funding, which just sort of quietly slipped off the radar once Perry stuck a shiv into a bill that would have raised vehicle registration fees; and all of the wingnut wish list items like abortion and gun rights and what have you. This as I’ve said before is simply a matter of what Rick Perry wants to do. There’s plenty of speculation about what Perry may do and what may or may not be good politics for him to do. All I know is we’ll know when he tells us. Rick Perry does what he thinks is best for Rick Perry, and that’s all there is to it.

(more…)

We appear to have a budget

Took them long enough.

BagOfMoney

After days of jockeying and one-upsmanship, the Texas House and Senate each approved measures Wednesday evening critical to passing their next two-year budget.

“The results of these two bills together is a good conservative budget, and it’s something we can all be proud of,” said Senate Finance Chairman Tommy Williams, R-The Woodlands.

With just five days left in the legislative session, both chambers needed to at least tentatively pass separate measures by midnight as part of a larger budget deal agreed to by leaders from both chambers last week.

The Senate voted 29-3 for House Bill 1025. Sens. Dan Patrick, R-Houston; Ken Paxton, R-McKinney; and Donna Campbell, R-New Braunfels, voted against the measure.

Senate Joint Resolution 1 passed the House 130-16, meaning it crossed the 100-vote threshold to avoid coming up for a second vote on Thursday.

The measure approved by the House would ask Texas voters to amend the state Constitution to create a new fund for water infrastructure projects. The Senate passed a $5.4 billion supplemental budget bill that would, among other things, put $2 billion in that new fund.

The negotiations over how exactly to approve the two measures exposed deep tensions between the House and Senate as lawmakers on both sides pushed for the other chamber to move first out of concerns that the other side might not keep its word.

I didn’t follow the ins and outs of this little soap opera because it was low comedy even by legislative standards, and in the end either it was going to get done or it wasn’t. Rick Perry could still blow it all up if he wants to, but that has always been the case. The bill to provide “relief” from the margins tax was substantially altered in the Senate and is in conference committee, and it’s not clear that either that or whatever crumbs have been thrown to TxDOT will meet Perry’s goals for avoiding a special session, at least for something other than redistricting. But at least the Lege hasn’t deliberately sabotaged things. Take your victories where you can. The Observer, Burka, and EoW have more.

Abbott is gearing up for Governor

I have two things to say about this.

Still not Greg Abbott

Gov. Rick Perry hasn’t yet said whether he’s running for re-election — but Attorney General Greg Abbott doesn’t appear to be waiting for him to make up his mind.

Abbott is collecting résumés and assembling a gubernatorial campaign team. He’s shaking hands, giving speeches and edging his way onto the covers of small-town newspapers across the state. He also just opened a new campaign headquarters — an entire floor of the Texas Association of Broadcasters building in downtown Austin, according to a Republican consultant familiar with Abbott’s campaign.

And he’s building up his grassroots infrastructure online, collecting supporters via email blasts, web petitions and increasingly partisan and vociferous social media messaging.

[…]

While Abbott is waiting for Perry’s decision, expected to come in June after the gubernatorial veto period ends, he isn’t biding his time.

He’s sitting on an $18 million war chest — trumping Perry’s at last count.

He has used Twitter to brandish campaign mailers depicting handguns in holsters — aimed at staunch Second Amendment advocates — and to document his gubernatorial-style visits to the scenes of the West fertilizer depot explosion (he was the first statewide elected official there, surprising even his own staff) and the Granbury tornado.

On his Facebook page, Abbott implores supporters to sign a petition to “save religious liberty from the IRS’ wrath” and another to demand answers from the Obama administration on the “truth surrounding Benghazi.” Those were just two of many he has posted in recent weeks to collect email addresses and build a viral grassroots network.

He’s pressing the flesh in person, too, hopping from Tea Party meetings to ladies’ luncheons, from Fort Bend County to Beeville.

Of late, every pronouncement and ruling from the attorney general seems to be a campaign battle cry.

Last month, Abbott issued an opinion arguing that the Texas Constitution prohibits government entities from recognizing domestic partner insurance benefits. He told a crowd in Waco that he would sue the Obama administration to protect Texans’ gun rights if the U.S. joins a global United Nations arms treaty.

This month, he called for the appointment of a special prosecutor to investigate the IRS’s scrutiny of Tea Party groups applying for tax-exempt status. He also threw the weight of his office behind grassroots activists concerned with an alleged “anti-American” slant in the lesson plans of CSCOPE, the state-developed curriculum management system used by many Texas public schools.

1. I’m still not convinced that Rick Perry will go quietly. If he’s still deluded enough to think he can run for President in 2016, I don’t see how making himself a lame duck in 2013 and a private citizen in January of 2015 helps him with that. Of course, losing in next March’s primary wouldn’t help either, but if he thinks he can win in 2016 then surely he thinks he can win in 2014, or he thinks Abbott will abide by their “agreement” to not run against each other. Basically, I just don’t see it in Perry’s character to stand down. I freely admit I could be wrong about this, but Perry strikes me as being like an aging formerly-elite athlete who maybe doesn’t have the most objective view of his own skill level but still shouldn’t be underestimated. I just wonder what kind of campaign he’d run against Abbott, who is nothing like KBH was in 2010. What case could Perry make to Republican primary voters to turn them away from Abbott? He must have some dirt somewhere, but would that be enough?

2. Unless you’re one of the 1.5 million people who voted in the 2012 or 2010 GOP primaries, Greg Abbott isn’t interested in talking to you. He doesn’t need your vote and doesn’t particularly care about your vote. He’s not making any pretense about being Governor of all of Texas. Rick Perry isn’t exactly a model of consensus and bipartisan outreach, but even he has had a few feints in that direction during the thousand or so years he’s been in the Governor’s mansion, most notably when he called on his fellow Aggie John Sharp to design and sell the margins tax back in 2006. As bad as Perry is, and Lord knows he’s terrible, I believe Abbott would be even more alienating and divisive as Governor. If that thought doesn’t scare you, it should.

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.

Margins tax breaks passed

Someone’s getting a tax break. Probably not you, though.

Rep. Harvey Hilderbran

The Texas House on Tuesday tentatively cut hundreds of millions of dollars from the state’s primary business tax — cuts that proponents say will keep the Texas economy humming and opponents argue cost too much.

House Bill 500 is the primary legislative vehicle to address the state franchise tax, commonly called the margins tax, but it is just one in a series of bills this session that either cut taxes broadly or target specific industries.

The price tag for House Bill 500 has yo-yoed through the session, as Gov. Rick Perry last month called for $1.6 billion in franchise tax cuts, only to see a House committee shrink it to $396 million three days later.

The bill permanently exempts small firms from paying the tax if they have less than $1 million in gross annual receipts. It also attempts to fix inequities between certain classes of taxpayers.

On Tuesday, the House added amendments that swelled the bottom line to $667 million.

[…]

[Rep. Harvey] Hilderbran, chairman of the House tax writing committee, said the Legislature must reconcile the appropriations bill and several bills that cut taxes during the final days of the session. The Legislature adjourns May 27.

In 2006, the margins tax was part of a deal to cut property taxes for homeowners and businesses. Critics argue that it never raised as much as was projected, but it accounted for $4.5 billion in revenue in fiscal 2012 — or about 10 percent of the state’s tax revenue.

It remains unpopular among many small businesses, in part because it taxes companies whether they are profitable or not.

State Rep. Mark Strama, D-Austin, echoed that complaint, saying HB 500 makes an inequitable system more inequitable.

“House Bill 500 takes a stupid tax policy and makes it stupider,” Strama said. “We should have a profit-based tax on revenue.”

Hilderbran said the tax bill returns money to taxpayers to grow the economy, but [Rep. Sylvester] Turner said it did nothing for working families.

“Did you give anything to anybody who’s not a business owner?” Turner asked.

“If they work for these businesses, they’ll be better off,” Hilderbran said.

Here’s HB500. It should be noted that Rick Perry is still threatening to call a special session if taxes aren’t cut further. Remember that both the House and the Senate have passed budgets that didn’t take into account hundreds of millions less in revenue (some of these cuts won’t kick in till the next biennium), so that’s something the conference committee will have to deal with once they resume speaking to each other. And of course if the Supreme Court upholds the school finance ruling, that’s that much more money the Lege will have to scrounge from somewhere else to fill in the now-larger hole. But hey, all in a day’s work. The good news is that this still has to pass the Senate, and there’s no guarantee of that. The Trib and the Observer have more.

That’ll just about do it for gambling this session

Sen. Carona calls the chances “slim”, but it sounds like slim just left town to me.

[Sen. John] Carona, chairman of the Senate’s Business and Commerce Committee, said last week he expected to vote his sweeping gambling bill out of his committee Tuesday. But the morning committee hearing came and went, and Carona declined to bring the bill up for a vote.

Carona’s fellow senators told him they didn’t want to take a vote on the controversial topic if it doesn’t have much of a chance, especially in the Texas House, Carona said.

State Rep. John Kuempel, R-Seguin, agreed that there is not much of an appetite for gambling in the House this year.

“I don’t think it has a great chance over here,” said Kuempel, who supports expanded gambling to bring additional revenue to Texas. “It’s challenged in the 83rd legislative session in the Texas House.”

[…]

Even if his legislation fails this session, Carona said a lot has been accomplished in the past several weeks. Notably, two often clashing pro-gambling interests — those seeking slot machines at racetracks and those advocating casinos — have worked well together on a broad gambling bill.

“Time is always your enemy in a legislative session,” Carona said, adding that he is not ready to pronounce gambling dead just yet.

Sure sounds dead to me, but as always, you never know. There will almost certainly be a special session to deal with school finance next year, however, and barring anything unexpected from the Supreme Court the Lege will need to find more revenue for the schools, so expect the subject to be on the front burner. Having the cover of a court order sufficed to get the business margins tax created, and it could well do the same for some kind of gambling measure. If nothing else, we’re going to have to pay for Rick Perry’s irresponsible tax cuts somehow. So don’t bury expanded gambling too deeply just yet.

It’s always time for a tax cut

I have three things to say about this:

A corndog in every pot

A corndog in every pot

With less than two months remaining in the 83rd legislative session, Gov. Rick Perry on Monday called on state lawmakers to find $1.6 billion to give Texas businesses relief from the state’s franchise tax.

Perry’s proposal consists of four parts: reducing the overall franchise tax rates by 5 percent, making permanent a $1 million deduction for businesses with up to $20 million in gross receipts, lowering the rate for businesses that file their taxes using the state’s simplified “EZ form” and allowing out-of-state companies that relocate to Texas to deduct their moving expenses.

Perry said Texas needs to invest in more tax relief because other states are considering cutting their taxes to match Texas.

“The idea that we can just sit here and think we can stay at the top of the heap is just not correct,” Perry said Monday at a news conference at the Austin Chamber of Commerce.

1. All through the session, as Democrats have called for restoring the brutal cuts that were made to public education in 2011, one of the main arguments made by Republicans for not doing so is that we ought to wait and see how the Supreme Court rules on the school finance lawsuit, since it won’t be until that point that the Legislature will know what (if anything) it needs to do to comply. One would think that the same logic would apply here. In particular, if the Court upholds the ruling on adequacy, the Lege will have to find several billions of dollars in new revenue for the schools. Seems like a bad idea to be cutting one of the primary sources of that revenue before you even know what will be needed. Not that Rick Perry cares about such trivia, of course.

2. Speaking of the schools, as we know the margins tax has consistently fallen well short of replacing the revenue lost to the schools when the property tax rate was cut in 2006 in response to the previous school finance lawsuit. I don’t see that fact being mentioned in any of the stories I’ve seen so far.

3. As with the other form of tax relief being offered so far this session, the benefits are going (exclusively in this case, primarily in the other) not to individuals but to businesses. If you think tax relief is what is needed this session – I don’t, but it takes all kinds – wouldn’t you at least like to actually see some of that relief? Unless you happen to be a business owner affected by the margins tax, you won’t. Too bad for you.

On encouraging jury service

District Clerk Chris Daniel notes that many people do not get paid when they take off work to serve on jury duty, and that therefore they generally choose to ignore their summonses.

District Clerk Chris Daniel

During the upcoming session, the state Legislature can address this issue and ensure that jury pools include a true cross-section of county residents by passing a law allowing businesses that pay workers during jury service to receive a discount on the state business margins tax.

State law prohibits companies from firing workers who are absent due to jury service. But it does not require employers to pay workers – only five states impose such a requirement.

But there are ways for government, without being intrusive, to provide businesses with incentives to pay workers absent because of jury service. Lawmakers will consider passing House Bill 433, which would allow employers to claim a 15 percent discount when calculating their state margins taxes if they pay workers who are out for jury service.

This law would have far-reaching benefits:

  • More people, including low-wage employees, would appear for jury service.
  • The public likely would have increased confidence in the judicial system knowing that a more representative cross-section of society was serving on juries.
  • Taxpayers would save money because the District Clerk’s Office would mail tens of thousands fewer jury notices.
  • With more people appearing for jury service, residents would be called to serve less often.

Here’s HB433, authored by Daniel’s co-writer, Rep. Debbie Riddle. If I’m reading the text of the bill correctly, a company can apply for the credit for each day on which an employee served jury duty if the employee was paid for that day. The bill directs the Comptroller to come up with rules for how this will be implemented, so it’s a little hard to fully evaluate this. My first thought is that there ought to be some limitation on what kind of company can apply for this credit, lest big businesses that have routinely paid their salaried employees when they do jury service apply for the credits. It’ll be interesting to see what the fiscal note is for this as well. Beyond that, it seems like a reasonable idea to solve a legitimate problem, but more details are needed before I can say with any confidence whether this is a good and workable solution or not.

Here come the tax cut proposals

When the sunny revenue forecast came in, we immediately got one crappy tax cut idea, to eliminate the margins tax at a cost of $4.5 billion. The Texas Association of Business didn’t care for the idea, at least at first, but are now warming up to it, because this is what they do.

For Bill Hammond, president of the Texas Association of Business, it’s a simple formula: Keep taxes low and the Texas economic engine keeps on chugging. Hammond says making permanent the business tax exemption for companies that bring in less than $1 million in gross receipts would fuel the economy, as would allowing those making more than that to exempt their first $1 million.

“Currently if you do $900,000 in receipts, you pay no tax,” Hammond said. “If you have $1.1 million in receipts you pay tax on the entire amount.”

With a million-dollar exemption, the latter company would pay taxes on just $100,000.

Hammond also wants to lower the franchise tax rate by a quarter of a percent. And lest consumers feel left out, the proposal includes a sales tax exemption for college textbooks.

[…]

Hammond’s proposals would cost the state more than $4 billion, money he says should be off limits to lawmakers, because spending it would put the state over a constitutional cap on state budget growth.

“Unless there’s a vote of two-thirds of both bodies to bust the constitutional cap, that money will either be sitting in the treasury forever maybe, or, as we believe, it should be returned to the taxpayers,” he said.

But Hammond’s numbers don’t exactly add up. The $4 billion would be off limits based on the current size of the 2012-13 budget. But lawmakers are expected to add about $7 billion to that budget in a supplemental appropriation early this spring. That would increase the cap for the new budget and erase that $4 billion overage.

Hammond calls his proposal a starting point and expects more tax cut ideas in coming weeks.

Well, the margins tax was born on fuzzy math, so it would be somehow poetic if its demise began with more fuzzy math. The Statesman has more:

Hammond said the rate cut proposed by TAB could be the the first step in phasing out the franchise tax.

Until the latest revenue forecasts, Hammond had said he doubted the state would have the revenue to phase out a franchise tax that has accounted for about 10 percent of all state tax revenue. But he said Texas Comptroller Susan Combs’ forecast for the next two years changed his mind.

“We needed to see how much money was available,” Hammond said. “There’s money to fund some or all of it.”

Dick Lavine with the Center for Public Policy Priorities, which advocates for low- and middle-income families, disagrees.

Lavine said state funding for education is $500 per student less than before the 2011 cuts. He also noted Texas’ needs for water and transportation infrastructure.

Although the Legislature is expected to be even more conservative this year than in 2011, Lavine said he’s begun talking to GOP lawmakers and they aren’t in lock step for tax cuts.

“Not all of them are enthusiastic about tax cuts because they realize the state has higher priorities,” Lavine said.

Priorities, remember those? You know, like water and transportation and Medicaid and weaning the budget off of accounting tricks and paying off all those bills the Lege deferred from 2011. Those things. Oh, yeah, and public education, which the Lege won’t address this session beyond maybe funding enrollment growth but which Lt. Gov. Dewhurst wants to set some money aside in anticipation of a court ruling that more must be spent. This is why if you think in terms of what Texas actually needs, we’re falling well short of what we should be spending. Even without that, it’s hard to see where the room for a multi-billion dollar extravagance like this comes from. You can pay for the things Texas needs, or you can throw a bunch of money down the tax cut drain. You can’t do both.

And as a reminder, it’s not just the big ticket items that are clamoring for their fair share of the pie, it’s the smaller line items, too.

The Texas Parks and Wildlife Department would close seven state parks during the 2014-2015 biennium under preliminary budget proposals from the House and Senate, and at least one group is ready to fight to keep them open.

In discussions before the legislative session began, the parks and wildlife department requested that the Legislative Budget Board allocate an additional $18.9 million from the sporting goods sales tax to keep all parks operational. The preliminary House and Senate budgets, released Tuesday, call for only an additional $6.9 million over the next biennium from that tax.

Ian Davis, the directof of Keep Texas Parks Open, said parks improve Texans’ quality of life and stimulate local economies, especially in smaller counties. His organization will hold town hall meetings around the state and organize Texans online to advocate for additional funds so the department can keep all its parks open.

“We are trying to mobilize people across the state so they understand that it could be their park that closes,” Davis said.

Here’s their Facebook page if the idea of not spending less than 0.1% of the revenue we have to keep Texas’ parks open offends you. We have a choice to make. We really ought to try to make a good one.

The revenue estimate is in

And under normal circumstances it would be very good news.

Texas Comptroller Susan Combs, laying out the parameters for state spending on the eve of the legislative session, said Monday that the rebounding Texas economy gives lawmakers $8.8 billion unallocated in state coffers for this budget period and an improving picture for the next two years.

The extra money has been eagerly anticipated by state lawmakers who two years ago slashed spending in the face of a budget shortfall.

In the 2014-2015 budget period, the state’s general revenue from taxes, fees and other income is estimated to reach $96.2 billion, with $3.6 billion earmarked for future transfers to the rainy day fund, Combs said.

The total $101.4 billion available for general-purpose spending through 2015 – taking into account the predicted $8.8 billion balance and future revenues – is 12.4 percent greater than the corresponding amount of funds available for the current budget period, according to the comptroller’s office.

To clarify what this means, Comptroller Combs is forecasting that the state will generate $96.2 billion in revenue for the next biennium. Of that, $3.6 billion is earmarked for the Rainy Day Fund, which leaves $92.6 billion. However, Combs is also saying that her forecast from two years ago was too low by $8.8 billion. You may recall that two years ago she predicted there would be $76.5 billion in revenue for 2012-2013, with $4.3 billion needed to close a shortfall from the 2009 budget; the Rainy Day Fund was used to cover most of that shortfall. In actuality, there turned out to be $85.3 billion. Oops!

You may wonder why Combs was so far off in her estimate. The DMN tries to be sympathetic.

Nobody is blaming Combs, but all recognize a two-year revenue forecast is not, by any means, an exact science.

“You’re always wrong,” said Billy Hamilton, revenue estimator when Bob Bullock was comptroller. “It’s just a matter of by how much.”

The Texas Constitution requires a balanced budget, so lawmakers can plan to spend only as much as they’re projected to bring in. A large portion of revenue comes from state taxes, which until recently had been on a relatively stable 40-year pattern, said fellow number cruncher and retired fiscal analyst Stuart Greenfield.

But in the last four years, the state’s economy has been especially volatile. Greenfield said tax collections have declined four times since the new millennium, most recently in 2010, but has been higher than average the last couple of years.

Hamilton, now the interim chief financial officer for Capital Metro, Austin’s public transportation provider, estimates Combs was off by $6 billion to $8 billion in the tax revenue estimate for the current biennium. Greenfield says it’s worse, predicting tax revenue will be closer to $11.5 billion more than what Combs suggested.

Officials from the comptroller’s office declined to weigh in on Greenfield or Hamilton’s forecast, but spokesman R.J. DeSilva said that with growth in the oil and gas industry and car buying, the revenue for fiscal 2012 is up $3.7 billion from her forecast, and lawmakers will have the most up-to-date projections when they convene.

Greenfield said tax collections have held at 10 percent since the beginning of fiscal 2011, peaking in October 2011 at close to 16 percent. Hamilton says the result is “we’ll be swimming in money.”

“It’s going to be a big number because the sales taxes are going like gangbusters and performing at a rate that nobody in their right mind would predict,” Hamilton said.

This is all well and good, but the bottom line of Combs’ misfire is that the Lege cut billions of dollars from the budget that ultimately didn’t need to be cut. We may be able to do something good with this extra money now, but we can’t go back two years and un-fire all those people who lost their jobs as a result of the Republicans’ budgetary chainsaw massacre. We can’t go back and un-shortchange all the school districts and students that took those cuts right where it hurts. It’s all so much bloodstained water beneath the bridge.

Given that we can’t un-screw the past, the best thing we can do is work to make things better going forward. This is what many people, such as State Rep. Mike Villarreal, State Sen. Jose Rodriguez, and the Texas AFT, both of whom are calling for the restoration of the $5.4 billion that was cut from public education last session, are doing. The problem, and the danger, is that some people are saying that what this means is that we have too much money.

Can Texas afford to eliminate its state business tax?

As the federal tax bite grows, there is a nascent movement at the Texas Legislature to phase out the tax, commonly called the margins tax, without replacing it.

Business leaders and some conservative lawmakers say the tax, which taxes gross receipts as opposed to profits, is complicated and not applied evenly. Other critics of the tax say dropping it would make the state’s business climate even more attractive.

At first blush, eliminating the tax without a replacement might seem improbable. The tax raised $4.5 billion in 2012 and accounted for 10.3 percent of the state’s total taxes, according to the comptroller’s office.

Budget writers are already warning that any “surplus” from the rebounding economy must be used to restore $11 billion in cuts to public education and other programs from the 2011 legislative session and to pay for the accounting gimmicks lawmakers used to sidestep more cuts and tax increases. And the courts are hearing another constitutional challenge to the school finance system — similar to the one that prompted the 2006 creation of the margins tax — that could make more demands on the state pocketbook.

State leaders are also talking about weaning themselves from $5 billion of dedicated taxes and fees diverted from their intended purposes over the years to help balance the state budget.

Finally, more business leaders are expressing concerns about the need to invest in education, workers’ training, water, transportation and other long-term needs essential for a good business climate.

Despite those hurdles, Will Newton, executive director of the Texas chapter of the National Federation of Independent Business, or NFIB, argued that public services can’t expand without a growing economy.

“We’re starting the debate in the wrong way,” Newton said. “We need to ‘invest’ in the private sector to grow (state) revenue.”

Let’s be clear here and state that the NFIB, which was and continues to be a rabid opponent of the Affordable Care Act – they were, in fact the named plaintiff in the lawsuit that sought to declare the ACA unconstitutional – is acting solely in its own interest. They’re seeking a tax cut, as we all do, and hoping that we’ll forget that the margins tax, however flawed and kludgey it may be – was designed to help pay for a one-third cut in property taxes. How do they expect us to fund that massive expenditure now? By assuming, in the words of Molly Ivins, that it’s nothin’ but good times ahead. I mean, sure, we’ve had two ginormous revenue shortfalls in the last decade, but seriously, who expects that to ever happen again? No amount of empty blather about “investing” should distract from this point.

One more point: As the Trib notes, even with this healthy revenue forecast, we’re still behind where we ought to be.

“$108 billion is what it takes to actually undo the last session and get us back to where we used to be,” said Eva DeLuna Castro, senior budget analyst for the Center for Public Policy Priorities, a left-leaning Austin-based think tank.

Early in the session, lawmakers are expected to commit several billion dollars to paying off bills that were purposely left unpaid at the conclusion of the 2011 session, including nearly $5 billion for Medicaid. That leaves the actual size of the surplus unclear.

“A lot of that gets sucked up right away just paying for the last session,” Castro said.

One hopes that the nearly-as-fat-as-it’s-allowed-to-be Rainy Day Fund would be tapped for that, since that’s what it’s there for, but the odds that the votes are there for that are basically nil. But this is the way we need to drive the discussion. We’re on more favorable turf now, let’s take advantage of it. Trail Blazers, the CPPP, and TM Daily Post have more, and you can see the official estimate here.

A look ahead to the 2013 Lege

The Trib previews the biennial hijinks of the 2013 Texas Legislature.

The last time Texas lawmakers convened in Austin, they were absorbed with numbers and boundaries: how to make ends meet with a deflated state budget and draw new district maps the courts would approve.

But with improving fiscal conditions and redistricting mostly in the rearview mirror, they are approaching the 2013 legislative session with some pressing policy questions, from whether to introduce private school vouchers into the state’s public education system to whether they should put in effect — and accept financing for — major provisions of the federal health care overhaul.

Meanwhile, lawmakers will face the consequences of the sweeping cuts and budget-balancing tricks of the 2011 session, including a multibillion-dollar Medicaid shortfall and a lawsuit — expected to be appealed to the Texas Supreme Court early this year and decided in the summer — over how the state finances public education.

The Legislature is also staring down the barrel of some other major investments, from ensuring that Texas has the water to meet its soaring population growth to finding consistent revenue streams for long-delayed transportation projects.

Do not expect a full respite from hot-button issues; lawmakers have already offered legislation to ban abortion after 20 weeks, and to allow teachers to carry concealed handguns in school classrooms. But the Legislature’s Republican majority may take a softer tack toward immigration bills this session, after a national election in which the growing Hispanic population moved even further into the Democratic camp.

Click over and read their list of things to watch for, it’s pretty comprehensive. About the only things I can think of that they didn’t mention were the regularly scheduled push for expanded gambling, a nascent and insane push to eliminate the business margins tax, about which I’ll say more later, and the possibility of further redistricting after the courts have had their say. Check it out.

Margins tax survives another challenge

Mighty quick ruling from the Supreme Court.

The Supreme Court of Texas on Friday struck down a challenge by Nestle Inc. and two other businesses targeting the state’s franchise tax.

Lawyers for Nestle and two Texas-based companies, Switchplace LLC and NSMBA, sued the state this year and argued that the tax violated the Texas Constitution’s statement that taxes must be “equal and uniform.”

The franchise tax was revised during a 2006 special session, part of a plan to create more funding for public schools. The revision expanded the kinds of businesses subject to the tax, and made eligible companies like Nestle who manufactured outside of Texas. Retail and wholesale businesses now pay one-half of a percent of their taxable margins, while manufacturers pay 1 percent.

But the Legislature designated companies like Nestle “unitary entities,” meaning that even if they did not manufacture in Texas, they should pay the higher rate.

According to a statement by Supreme Court of Texas staff attorney Osler McCarthy, Nestle argued that it was forced to pay double what it owes. It said the differentiation between manufacturing businesses and retailers violates both the U.S. Constitution’s commerce clause, because it discriminates against “interstate commerce,” and the Texas Constitution’s call for “uniformity.”

Six justices of the state’s Supreme Court, agreeing with lawyers for the comptroller and the attorney general, wrote that where the manufacturing happens does not matter in the context of the franchise tax. Because it is applied equally to manufacturers who do business in Texas, there is nothing wrong with Nestle’s being charged the higher rate. “Location is not the basis for different treatment because in-state companies that manufacture will pay the same rate as Nestle,” wrote Justice Nathan Hecht in the court’s opinion, “and out-of-state companies that do only wholesaling and retailing will qualify for the lower rate.

Justices Don Willett and Debra Lehrmann dissented from the opinion, explaining that the Supreme Court did not have jurisdiction to hear the case. “The Tax Code disallows taxpayer suits like this,” Willett wrote, “and as a prudential matter, deciding whether a statute is constitutional is simply not the stuff of mandamus,” or in other words, not the kind of thing the court should address.

See here, here, here, and here for the history. I suppose there was one Justice who either was recused or sided with the plaintiffs; the story doesn’t say. The deadline for the court’s decision was November 9, so clearly they weren’t letting any moss grow. This apparently brings to an end the aspects of the law that can be challenged in state court, but an appeal to the Fifth Circuit and ultimately SCOTUS is possible, since the Texas Supreme Court relied on the Commerce Clause in its ruling. So no new lawsuits, but the final chapter of this story has not yet been written. SCOTX Blog

It’s usually a bad idea to bet on any kind of overhaul in the Lege

I agree that it’s a sucker’s bet to think that the Lege will try to fix Texas’ tax code in any meaningful way. Nobody likes having to take votes that may later be used as clubs against them in a campaign, and the lobbyists swarm like no other time when someone’s tax break is on the line. But such an overhaul has to happen eventually.

For Rep. Mike Villarreal, a San Antonio Democrat who serves on the House Ways and Means and Appropriations committees, it amounts to financial mismanagement by GOP Gov. Rick Perry and the Republican-dominated Legislature.

“Frankly, when you have a governor who says he will veto anything that even looks like a tax bill – even if it’s a reform of an existing, broken tax – it gives little reason for legislators to devote resources to proposing tax legislation,” Villarreal added.

Not that Villarreal and others haven’t tried.

Former Senate Finance Committee Chairman Steve Ogden, a Bryan Republican who is retiring from the Legislature, last year sought a revamp of the chronically underperforming business tax, warning that local school property taxes would otherwise rise. The business tax was expanded in 2006 to help pay for lower local school property tax rates, but it has fallen short of projections. Ogden also has called the exemption-riddled sales tax system a “rickety” thing.

[…]

Villarreal has pushed to create a special commission to recommend exemptions ripe for elimination. It’s an uphill battle, he said, since tax code reform is “the right thing to do in the long term” but presents little short-term political gain.

“We do not scrub our tax code the way we scrub our budget. Every legislative session we open up the budget. We go line by line down the expenses that we approved in the entire session asking ourselves, ‘Is this working?’ ” he said. “In the tax code you can put an exemption in place and have it never be seen again.”

As I’ve said many times before, nothing will change until the state’s leadership changes. It makes no sense that tax expenditures never get the kind of scrutiny that every other kind of expenditure gets. To use the overworked analogy, it’s like going over your household expenses line by line every month, but never reviewing your investment portfolio to see what’s performing well and what isn’t. Of course, every exemption, exclusion, and loophole in the tax code was put there to benefit some interest group with the power to fiercely defend it, and that makes it a much harder fight. But we can see the consequences of avoiding that fight. Those chickens are going to roost whether we’re ready for them or not.

Once more with the margins tax and the Supreme Court

Here we go again.

The Texas Supreme Court could blow a hole in the state’s budget if it finds the business tax unconstitutional, as pressed Tuesday in a lawsuit led by food giant Nestlé USA.

“The Legislature can’t violate the constitution to promote even a legitimate interest,” said attorney Peter A. Nolan, arguing on Nestlé’s behalf that the tax violates a state constitutional requirement that taxes be equal and uniform.

If the Supreme Court throws out the law, the scope of the court’s decision will determine whether the state needs to quickly find another way to come up with some $4.5 billion annually or more.

“Should they rule for the plaintiff, they could throw out the tax in its entirety. They could require the state to provide four years of refunds, which is the statute of limitations period,” said Dale Craymer, president of the business-based Texas Taxpayers and Research Association. The business tax “is about 10 percent of all the taxes the state collects. It’s a sizable part of the budget,” Craymer said.

The court could, however, give the state some leeway to come up with a remedy, he said. It must rule in the case by Oct. 23, according to court staff.

See here, here, and here for some background. The Statesman gives November 9 as a rule-by date. Regardless, there will be a decision this year. The Lege was likely to tweak the margins tax anyway; they may wind up having to do a lot more than that. The Trib explains the legalities involved.

Dale Craymer, president of Texas Taxpayers and Research Association, says the suit boils down to questions over equal treatment.

Craymer explains the franchise tax charges one-half of 1 percent to wholesalers but a full 1 percent to businesses engaged in manufacturing. Nestle, a national manufacturer and wholesaler, does not manufacture anything in Texas, but is still subject to the 1 percent rate.

The company claims the distinction violates equal protection provision in the Texas and U.S. constitutions.

Texas designates Nestle and the other companies in the suit as “unitary entities,” or companies that have various components but operate as one organization. Unitary entities are subject to the 1 percent tax rate under current franchise tax rules that were revised in 2006.

Texas has had a version of the franchise tax since the 19th century. Sometimes called the margins tax, it’s a tax on doing business in Texas. Craymer says the dollars it brings in “generally pale in comparison to property and sales tax” on businesses.

Lawyers for the Texas Attorney General’s Office wrote in a brief to the court that Nestle’s equal-protection challenges hinge on an erroneous premise that the franchise tax was solely meant to cover the value of doing business in Texas and that the value should be assessed as if it were property. But, they wrote, the Legislature has wide latitude to create tax classifications.

My first impression when I read that was that Nestle’s argument sounds a lot like the one Amazon had made to argue that they weren’t subject to the sales tax in Texas because they didn’t have a “physical presence” in the state, just a distribution center. They eventually lost that fight as we know, but I couldn’t say what might happen here. Between this and the school finance lawsuits, the Supreme Court will have a big say over what Texas’ budget looks like in the coming years.

Margins tax back before Supreme Court

Yet another challenge to that unloved tax.

The Texas Supreme Court [Friday] accepted a case that will decide whether the state improperly administers its business tax.

Nestle USA argues that the tax violates the Texas Constitution’s requirement that taxes be levied in an “equal and uniform” manner, as well as the U.S. Constitution’s equal protection and due process protections.

The court dismissed a similar claim earlier this year, ruling that Nestle lacked standing because it had not yet paid its taxes. Nestle recently renewed its challenge after paying its taxes under protest.

With the legislative session set to begin in January, the Supreme Court set an accelerated schedule for the case, with oral arguments to be heard Sept. 18 – a day previously set aside for a court conference, or private meeting with the nine justices.

Last year the court upheld the margins tax as constitutional in a separate case filed by Allcat Claims Service LP. Assuming this is on the same mandated 120-day schedule as that case was, we ought to have a ruling by the opening weeks of the 2013 legislative session. That will be right around the same time as we get an initial decision in the school finance lawsuits, though those will still have to be appealed to the Supreme Court afterward. My head hurts already thinking about what next year is going to be like.

Revenues rise, but reality recognition doesn’t

Good news and bad news, because we can’t have one without the other.

The latest bit of positive fiscal news came Tuesday when the state comptroller released numbers showing that business tax collections in Texas had exceeded projections.

Comptroller Susan Combs had estimated that the franchise tax paid by businesses would bring in about $4 billion in the first year of the 2012-13 budget. The $4.3 billion collected in May has already beaten that mark, and more payments will trickle in come August.

Sales tax collections, the most important source of state revenue, have also been coming in well above projections for the budget year, which began in September, and could produce billions in unanticipated revenue.

But state agencies, in the first step toward writing the 2014-15 state budget, were instructed Monday to submit budget proposals that do not exceed what they are getting in the current two-year budget.

They must also provide plans for how to implement a 10 percent reduction during 2014-15, if necessary.

[…]

“We are getting so far and far from reality that it really endangers our future economic growth,” said Eva DeLuna Castro, a senior fiscal analyst for the Center for Public Policy Priorities, an advocacy group for low- and middle-income Texans.

State leaders have created a “new normal” as a starting point, particularly in education, and “that is a terrible place to start off on, especially when they have the money to undo the cuts,” DeLuna Castro said.

That presumes they want to, which they don’t. They will have to be made to do so, or they will have to be gotten out of the way in favor of others who want to do so. Easier said than done, of course, but there it is. And while Rick Perry, David Dewhurst, and Joe Straus are busy crowing about how their draconian policies led to these revenue increases, Burka provides a dash of reality.

Overall, tax collections have been robust, up 12.56%, year to date, over 2011 levels. Sales taxes are up 11.71%. Oil severance taxes are up 42.6%. Natural gas severance taxes are up 44.3%.

Perry, Dewhurst, and Straus can claim credit for whatever they want, but I’m pretty sure they didn’t have anything to do with putting oil and gas in the ground. EoW has more, and a statement from Rep. Garnet Coleman is here.

Let’s party like it’s 2007!

Good news: The improving economy and steadily increasing sales tax receipts may mean that we won’t have another budget apocalypse in 2013. Bad news: The Republicans in the Lege will use this as an excuse to avoid fixing the state’s underlying revenue problems.

What, me worry?

The state’s rebounding economy should help Texas avoid another draconian budget session and could help state lawmakers to begin investing in education, transportation and a water plan, state officials told a group of manufacturers on Wednesday.

While it might not be easy to meet the state’s needs, given some of the stopgaps the 2011 Legislature used to pass its budget, new taxes don’t appear to be on the table.

Texas Speaker Joe Straus and state Rep. Harvey Hilderbran, R-Kerrville, struck an optimistic tone during a meeting of the Texas Association of Manufacturers without committing to new revenues beyond what an expanding economy provides.

Hilderbran, chairman of the House tax-writing committee, said he is “leaning against” a complete overhaul of the state’s primary business tax.

“I’d prefer to grow the economy rather than grow government,” Straus said in his prepared remarks. He said the Legislature must address a few key issues: improving public and higher education, financing water and transportation projects, and growing the economy.

There are two ways to deal with the structural deficit caused by the imbalance between the property tax cut and the underperforming business margins tax. You can actually fix the problem by adjusting either or both taxes and/or finding other revenue sources to make up the difference, or you can hope that the economy improves to the point where overall revenue is enough to patch it over. That’s what the Lege did in the 2006, 2007, and 2009 sessions, with the latter being possible thanks to federal stimulus funds. No one would like to see the economy back on that kind of track than I, but if we keep having to divert several billion dollars from general revenue to plug this hole, it makes it harder to meet needs elsewhere. You know, like those water and transportation projects you say you want to fund. Where’s that money going to come from?

Another speaker at the convention, state Rep. John Otto, R-Dayton, offered a more somber look at state budget issues.

Otto, who serves on both the appropriations and the tax-writing committees, agreed with Straus about water and transportation projects. “They have to be funded somehow. I don’t know how yet,” he said.

Otto noted the large turnover in the Legislature and the election of many tea party-backed lawmakers who campaigned against more state spending.

“You better count your votes before you go down that road,” he said.

Good luck with that, in other words. Ignoring problems doesn’t make them go away. And remember, while you guys are fiddling, the Supreme Court will eventually hand down yet another directive to Do Something about public education funding. Sooner or later, those bills come due.

At last, school finance lawsuit number 4

The fourth and presumably final school finance lawsuit was filed just before the holiday weekend.

The state’s largest school districts, including Houston and Cypress-Fairbanks, have filed a lawsuit claiming the public education system is inadequate and inequitable, the fourth such suit filed since the Legislature ended its session in September.

The latest suit involves more than 60 school districts and nearly 1.6 million students. More than 500 Texas school districts representing about 3.3 million children now are involved in school funding litigation against the state.

“We wish litigation weren’t necessary, but the nature of school finance just seems to be that you have this back-and-forth dialogue going on between the legislative branch and the judicial branch,” said Houston-based attorney David Thompson, lead lawyer in the large school-districts lawsuit. “It seems like a judicial decision seems to be a necessary spur to legislative action.”

[…]

Each of the four school finance lawsuits claims the state is not adequately funding education, particularly when the student enrollment grows by about 85,000 children per year. Most of the enrollment growth is made up of low income children, who cost more to educate.

“The big concern across the state is the massive cuts to public education at the very same time we’re facing the highest standards in the history of the state of Texas,” said Thompson, a former general counsel for the Texas Education Agency.

So now it’s up to the courts. The four suits are almost certain to be consolidated, and they’re likely to begin next fall, with a ruling possible before or during the 2013 legislative session. Matters won’t be settled till the Supreme Court rules, of course, but we ought to have a pretty good idea of what’s at stake by then. Let’s hope for the best.

State revenues inching up

A little bit of good news.

State coffers will be bit plumper than previously expected, Comptroller Susan Combs announced Monday, but her outlook for the Texas economy is less optimistic.

Texas is estimated to collect $1.6 billion more than was budgeted for 2012-13, the two-year budget that started Sept. 1. The comptroller’s report provides the first official state revenue update since January.

[…]

The driving force behind the additional state dollars is improved sales tax collections, particularly in the oil and gas industry, according to the report.

Sales tax revenue from the mining industry, which includes oil and gas, was up 72 percent in the previous fiscal year. The industry also created 17.3 percent more jobs, while the rest of Texas’ industries combined had job growth of 1.9 percent .

But Combs cautioned against expecting that kind of robust growth going forward. Industry job losses in 2013 are expected to wipe out any gains in 2012, she said.

“The Texas unemployment rate — as low as 4.3 percent in early 2007 — is now at 8.4 percent and giving no indication of receding rapidly,” Combs said.

You can see Combs’ letter to state leaders about her revenue update here. This is better than the alternative, but it’s not going to do much to mitigate the cuts we experienced this spring. Mainly, if things continue on this pace, it means that at least the next Lege won’t have to start out by closing a deficit left over from the prior biennium, as this one did. Make sure you understand that when you read stories like this.

After a long run of tough times brought on by a sour economy, Texas lawmakers got some good news Monday as the state’s chief fiscal officer projected a $1.6 billion surplus that could provide a much-needed financial cushion for the next session of the Legislature.

The windfall available for the fiscal biennium that started Sept. 1 was generated by better-than-expected state revenue. It could enable lawmakers to partly offset a $4.8 billion shortfall in Medicaid and soften some other cuts enacted during the 2011 Legislature, analysts said.

The new projections by Comptroller Susan Combs will make things easier for budget-writers at the outset of the next legislative session in 2013, although lawmakers will still face a host of financial challenges.

Combs projected available revenue of $82.7 billion by the time the biennium ends on Aug. 31, 2013, which would give the state a $1.6 billion balance over the $81.1 billion in the two-year budget approved by this year’s Legislature.

Lawmakers entered the 2011 session facing one of the biggest shortfalls in years.

They ultimately enacted an austere budget that cut spending by $15.2 billion over the previous biennium and reduced state aid to public education by $4 billion.

[…]

Dale Craymer, president of the business-supported Texas Taxpayers and Research Association, said Combs’ report offers good news for lawmakers. In passing the $172.3 billion budget, lawmakers left Medicaid underfunded by $4.8 billion and expected to tamp down the shortfall by drawing from the state rainy-day fund in 2013. Craymer said lawmakers can use the surplus to partly meet the Medicaid obligation.

Combs projected that the rainy-day fund will reach $7.3 billion by the end of 2013.

Eva DeLuna Castro, an analyst for the Center for Public Policy Priorities, which advocates for programs for low-income Texans, said the surplus means that lawmakers “will have a little left over” to deal with Medicaid and restore $250 million in general revenue cuts. But she said the amount is not big enough to deal with broader financial issues, including state policies that critics say have created a permanent “structural” deficit. She called Combs’ projection “mediocre at best.”

This report has to do with this biennium. Other than ensuring that there should be enough in the Rainy Day Fund to handle the massive Medicaid short-changing and not requiring a second dip into the RDF to close the books on this chapter, it doesn’t really tell us anything about what conditions to expect for the next biennium and the budget that legislators will have to write for it. I fully expect there will still be a large deficit, quite likely another eight-digit shotrfall, because the underlying structural deficit of the business margins tax not paying for the 2006 property tax cuts is still there. Some healthier sales tax numbers aren’t going to make a dent in that. We also have no idea what may result from the various school finance lawsuits, but since they will be arguing (among other things) that the state is not adequtely funding public education, you can expect that to put some pressure on lawmakers to find more revenue. And of course the kind of lawmakers we have in place for when that comes up will have a huge effect on the kind of solutions, or “solutions”, that are found. We’ve got a long way to go before things change.

Supreme Court upholds margins tax

The days of the much-unloved business margins tax may be numbered, but it won’t be the Supreme Court that is responsible for its demise.

The Texas Supreme Court turned back a challenge to the state’s primary business tax, saying it doesn’t violate a constitutional ban on personal income taxes.

The Constitution allows personal income taxes only when if voters approve. Lawmakers didn’t seek voter approval when they revised the franchise tax in 2006, and Allcat Claims Service LLP and a limited partner there, John Weakly, sued for a refund from the state, calling it an illegal personal income tax and saying that it wasn’t applied in an equal and uniform way. In the majority opinion, written by Justice Phil Johnson, the court answered one of those questions:

“We hold that: (1) the tax is not a tax imposed on the net incomes of the individual partners, thus it does not facially violate Article VIII, Section 24; and (2) we do not have jurisdiction to consider the equal and uniform challenge.”

More from the Statesman:

The case focused on whether the franchise tax constituted an income tax for certain business partnerships, including many medical practices and law firms.

Allcat Claims Service LP, a Boerne insurance adjustment firm that filed the case last summer, argued that the franchise tax levied against the partnership reduced the income of Allcat’s partners, making it an income tax.

But a majority of the court maintained that the tax applied to Allcat, not the business partners, so it did not run afoul of a state constitutional provision that prohibits a personal income tax unless voters give their approval.

“In effect, the court said a business is a business, and restrictions against taxing persons do not apply. That gives the Legislature a broader range of options in revising the tax,” said Dale Craymer , president of the Texas Taxpayers and Research Association, a business-backed think tank.

[…]

Monday’s decision will not, however, affect a separate challenge to the margins tax that was filed by food behemoth Nestle USA Inc. and two other companies this fall.

But Craymer said the court decision implies that that case will be sent to a trial court because it deals with specific rather than broad issues.

I was surprised we got a decision so quickly, but apparently the legislation that created the margins tax had a provision that said a challenge to it would go straight to the Supreme Court and that it must render a judgment within 120 days. I fully expect the 2013 Lege to address the margins tax in some fashion, but at least they won’t be under the gun of having to make it constitutional. We’ll see if they actually try to fix the budget’s structural deficit by making it bring in more revenue.

More schools join the lawsuits

Lubbock:

The Lubbock Independent School District announced Monday they will join the Texas Taxpayer and Student Fairness Coalition in an equity lawsuit against the state.

Simply put, LISD is receiving less money per student because they are one of the poorest districts, and LISD claims that is unfair.

LISD officials say the district currently receives $4,600 per student, where as Austin districts receive nearly $6,500 per student. Now they are joining 300 other Texas Schools and taking their case to the courtroom.

“We remain constant in the 2005-2006 school year in terms of revenue. This past legislative session we were cut well over $13, almost $14 million dollars,” said LISD Superintendent Dr. Karen Garza.

LISD says with those cuts from Austin, standards increased. For instance, The Texas Assessment of Knowledge and Skills Test will now be replaced with the State of Texas Assessments of Academic Readiness or STAAR test. LISD says that requires students to have more math and science with less money.

“It’s largely contingent upon the legislature that eventually needs to fix some of the challenges and the issue in the ways schools are funded in the state of Texas,” said Garza.

Abilene:

The Abilene Independent School District board of trustees voted unanimously Monday night to join more than 20 other school districts in a lawsuit challenging the constitutionality of Texas’ school funding system.

“No fundamental change in the education system has ever occurred without going to the courts for relief,” said Stan Lambert, board president.

[…]

The board voted to join a coalition of more than 20 school districts — including Fort Worth ISD, Austin ISD, Houston ISD and Katy ISD — being represented by Houston law firm Thompson & Horton LLP.

Lambert said the firm’s David Thompson argued a similar case before the Texas Supreme Court six years ago and won some small changes in the education funding system.

Lambert said the lawsuit was necessary because the state’s education funding system was fundamentally broken.

There are more than 1,000 school districts in Texas, and Lambert said he expected more than half of them to join the lawsuit by the time it is filed.

“We felt it was important for us to do our part,” Lambert said.

So that’s one more district for each of the known lawsuits; the Texas Taxpayer and Student Fairness Coalition has already filed its suit, while the Thompson suit is still in the works. At this point I’m more interested in the reasons why a given district would not be suing rather than why they are.

Tax reform on the menu

The Lege, which was too busy slashing public school funding to address the structural deficit caused by the underperforming business tax and the too-big property tax cut, will try to address the issue in 2013.

“I believe that next session there will be substantial tax reform and a broad review of tax policy,” House Ways and Means Chairman Harvey Hilderbran, R-Kerrville, said Wednesday after his committee kicked off the process by discussing tax abatements and exemptions.

The new business tax that lawmakers approved in 2006 during a school reform is not performing as advertised. And, it’s not uniform.

Auto repair shops at car dealerships pay a lower business tax than independent auto repair shops, Hilderbran said. What about on-line retailers who don’t have to collect sales taxes? That costs the state about $1 billion in lost revenue, he said.

House Speaker Joe Straus, R-San Antonio, has instructed Hilderbran’s tax-writing committee to determine whether the state’s business tax should be repealed and replaced with a different business tax. He also wants the committee to assess the impact of the state’s tax structure on the business climate. In other words, how do the sales and franchise taxes and tax exemptions impact capital investment, economic growth and job creation in Texas?

“Everything is before us next session,” Hilderbran said.

He would like to see reform that is revenue neutral – meaning tax rates that don’t increase revenue.

“If we have a more competitive tax code and it results in more economic investment and more economic growth that results in more revenue, I don’t view that as a tax increase,” Hilderbran said.

So, we’re going to seek the One True Tax Code that will spur economic growth and balance the budget by lifting all our boats on a rising tide of prosperity. Good luck with that.

Maybe someone needs to explain what a “structural” deficit is to Rep. Hilderbran, because by definition a “revenue neutral” reform can’t fix it. You either need to make the margins tax bring in more money, or you need to raise revenue someplace else. Perhaps Hilderbran is merely trying to obfuscate that fact to throw off the professional tax-deniers in his party, an effort for which I have sympathy, but I still don’t quite understand what makes a “revenue neutral” tax reform alluring to anyone. I mean, we all realize that “revenue neutral” means “some people will pay more, and some other people will pay less”, right? Maybe in the case of the auto repair shops or something like it, that is suitable, but wouldn’t it make more sense to say “Let’s make sure everyone is paying their fair share”, and leave it at that?

As for making online retailers pay their fair share, you know I’m all over that. What are the odds that will happen while Rick Perry is Governor? For that matter, what are the odds it will happen if Greg Abbott or just about any other Republican prominent enough to win the GOP nomination in 2014 succeeds him? If Hilderbran is serious about this, I support his efforts, but I’m not holding out much hope.

Class size issues are everywhere

We know that waiver requests to exceed the 22 student class size limit are way up. But that mandated limit is only for grades K through 4. What about higher grade levels? Patricia Kilday Hart reports that those classrooms are more crowded, too.

Lamar High Principal James McSwain estimates his classes are on average 8 to 10 students larger. Susan Kellner, Spring Branch ISD board president, says her district’s middle school classes have jumped in size – with as many as 35 students in one class.

At Bellaire, [Principal Tim] Salem trimmed as few teachers as possible, but that meant he had to cut other staff positions, like a school counselor. Counselors manage class schedules and meet with kids in crisis; they are also the one adult constant in a student’s high school career. “That’s their graduation compass,” Salem told me. Each Bellaire counselor now has a caseload of 450 to 500 students.

Salem said Bellaire has some classes with 40 and 41 students; math teacher Kathy Gardner told me she had a pre-AP geometry class that started the year with 43 students (though the class dwindled to 35 as students reacted to the workload.)

What’s it like in a classroom with that many teenagers?

“I can’t even walk between the desks,” U.S. history teacher Lori Good told me. “I’ve tripped on backpacks twice.”

The mantra of those who defend the budget cuts and minimize concerns about class sizes is that teacher quality matters more than the number of students. The problem is that at some point, even the best teachers can’t operate effectively. And some of them will decide that rather than have to deal with all this extra work for no extra pay, there must be a better deal for them elsewhere. Which means that the super-sized classrooms may have negative effects that last well past the point of a hoped-for future budgetary fix.

But before we can realistically hope for a budgetary fix, we need to make sure everyone understands what the problem is that needs to be fixed. This is a good start:

[T]he Spring Branch board president said she is hearing complaints from parents who are “worried that their children are going to get less attention.”

Those concerns should be directed at state lawmakers, many of whom argued that reducing per-student funding wouldn’t really alter life in a Texas public school.

“I tell parents to tell their legislators what it looks like in reality and not just in theory,” says Kellner. “This was a state decision.”

For Spring Branch, that would be State Rep. Dwayne Bohac, and he voted to create the problem. If you want it fixed, you should vote accordingly in 2012. If you live somewhere else, find out who your State Rep and State Senators are, and if they were part of the problem as well, make yourself and your vote part of the solution next year. Nothing will change until that happens.

Margins tax lawsuit goes to Supreme Court

Oral arguments for the lawsuit that claims the business margins tax is an unconstitutional income tax are being heard by the State Supreme Court this week.

In a lawsuit filed in July, Allcat Claims Service LP , a Boerne insurance adjustment firm, said the margins tax runs afoul of a constitutional provision that requires the Legislature to get voter approval before imposing an income tax.

The case will turn on whether the margins tax — implemented in 2006 as part of the court-ordered school finance fix — is effectively an income tax when applied to certain business partnerships.

Late last week, another challenge to the margins tax was filed by food behemoth Nestle USA, Inc. and two other companies. Their arguments, which are different from Allcat’s claims, [were not] heard by the court [Monday].

If any of the challenges are successful, the implications could be significant for the state because the margins tax is a major source of funding for public education.

That’s why legislators wrote into the 2006 law that any legal challenge to the margins tax would go straight to the Supreme Court.

[…]

The total tax paid by partnerships such as Allcat is estimated to be pretty small, though exact figures weren’t immediately available from the Texas comptroller.

But the implications could be huge if the court sides with Allcat, the state says.

“If Plaintiffs are right and any tax imposed on a partnership is an indirect tax on the net income of the partners, the State of Texas cannot lawfully impose any tax on any business entity, including a corporation,” [Attorney General Greg] Abbott argues in court documents.

If the court finds the tax unconstitutional, the remedy could range from a targeted exemption for the partnerships, which is what Allcat is requesting, to tossing out the tax for all businesses.

“It’s sort of wide open what the court might do,” said John Kennedy of the Texas Taxpayers and Research Association, which supports the state’s position that the tax is constitutional.

See here and here for some background. The argument before the Court now is whether or not it has jurisdiction in the case, since it has not been heard by any lower court as yet. It’s entirely possible they could rule that despite the Lege’s intent that the case go straight to them, it needs to go through the system like any other lawsuit would. Add this to the school finance lawsuits, and you’ve got some litigation out there that could profoundly affect Texas’ budget and tax system. Isn’t that a happy thought?

One more thing:

The state estimated the margins tax would raise almost $12 billion in the 2008-09 budget. It actually brought in $8.7 billion in its first two years.

Earlier this year, legislative leaders highlighted the need to reform the tax, but there was little appetite for tackling another complicated issue while grappling with a massive budget shortfall.

Lawmakers have promised to discuss how to fix the margins tax leading up the 2013 legislative session.

No, there was little appetite for doing anything that might raise revenues and thus mitigate the worst of the cuts. The fact that the underperformance of the margins tax was a huge driver of that massive shortfall was blithely ignored by nearly every Republican in Austin. I guarantee you, the more Republicans that are in the Lege in 2013, the more they will continue to pretend that Texas doesn’t really have a revenue problem at all. The Trib has more.

Another school finance lawsuit update

The Trib brings some news about the impending school finance lawsuits. Yes, lawsuits – there are two in the works.

The Equity Center’s lawsuit will focus on fairness, attacking the target revenue system established in 2006 when lawmakers reduced the property tax rate and guaranteed that districts would get no less than the amount they received per student at that time. That stopgap has since become permanent, resulting in an arbitrary funding scheme in which neighboring school districts can have as much as a $7,000 difference in state spending per student — and, the Equity Center will argue, is wildly inefficient.

Many of the state’s 1,030 school districts, like its largest, Houston ISD, whose school board will take up the question at its meeting on Oct. 13, have yet to decide whether they will join a suit. But as of Tuesday, 139 districts — a mix of suburban, rural and inner-city schools of varying sizes, though they are primarily low- to middle-property wealth — have joined the Equity Center’s coalition of schools. In addition to schools, Executive Director Wayne Pierce said they also eventually plan to include taxpayers like business owners and parents in the suit as well.

See here, here, and here for some background. School Zone has a list of the districts that have signed on so far. I will be very interested to see if HISD joins in. I hope they do.

[Attorney David] Thompson’s group will focus primarily on adequacy and property tax issues, arguing that not only has the state failed to dedicate enough money to public education for schools to meet increasingly rigorous accountability standards, but that in doing so, it has not given local districts enough choice in how to spend or whether to raise property taxes — in effect, instituting an unconstitutional statewide property tax.

“Educational standards are continuing to go up, but the revenue is flat-lined — and in this session it’s gone down,” said Rickey Dailey, a spokesman for the Texas School Coalition, a group that represents “Chapter 41,” or property wealthy districts that send money back to the state through Robin Hood laws.

Seems to me both groups have strong cases. Ultimately, whatever the courts say – and nobody knows what they’ll do – it will be up to the Lege to fix it. They seem to like being ordered to take action rather than doing it themselves. They’re likely to get their chance soon.

More districts will join in school finance lawsuit

Coming soon to a courtroom near you.

School districts will throw everything short of the kitchen sink into their upcoming lawsuit against the state of Texas for shortchanging public education, a lead attorney in the case said Tuesday.

“We are going to try to cover the water front because the system is so out of whack,” school finance lawyer Randall “Buck” Wood said.

The suit, which he expects to file within the next two weeks, will claim that state leaders have created an “arbitrary, irrational and inequitable” funding system.

The suit also will claim that the state is responsible for the inequitable funding of school facilities, he said, while also alleging a violation of the state’s ban against a statewide property tax.

Nearly one-quarter of the state’s school districts are already levying the maximum $1.17 tax rate for maintenance and operations, resulting in a statewide property tax, Wood said, which the Texas Supreme Court ruled unconstitutional in a school finance case six years ago.

[…]

Per student funding in Texas now ranges from less than $5,000 per child in some school districts to more than $10,000 in others, according to the Equity Center, which represents 690 school districts.

“We believe litigation is the only way to ensure taxpayer equity and a quality education for Texas children,” said Wayne Pierce, executive director for the Equity Center.

See here and here for some background, and here (via EoW) for a press release on the matter from the Equity Center. You may recall that during the regular session, State Sen. Bob Deuell released an eye-opening list of disparities in per student revenue for school districts in each State Senate district; the exact range is from $3,732 to $12,979. I can’t wait to see the state try to argue that there’s nothing inequitable about that. The Statesman has more.

Inevitable school finance lawsuit update

Duly noted.

Superintendents from several low and medium-wealth school districts appear ready to sue the state over its school finance system as early as October. Wayne Pierce, executive director the Equity Center – a group representing 690 districts – said Wednesday that superintendents and other local leaders decided at a meeting in Austin they would seek approval to join a lawsuit challenging the finance system this fall. Legislative leaders have been expecting a suit, particularly after lawmakers slashed funding for schools by $2 billion a year in their regular session this year.

“A good number of those attending the meeting were ready to go back and present it to their school boards, to see if there is support for joining the lawsuit,” Pierce said. “We do believe a legal challenge is imminent and we’re beginning to put things together in preparation for a lawsuit.” Among the problems with the funding system that will be raised in the suit, he said, are the disparities that allow some districts to receive several thousand dollars more per student each year than other districts – a clear violation of the Texas Constitution.

It has always taken a court order for the Lege to do something about school finance. The only question is whether the next court order will get them to do something good. Electing some better legislators in the meantime would be a wise idea.