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Glenn Hegar

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

Same song, second verse.

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

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

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

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

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

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

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

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

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

From the “Nothin’ but good times ahead” department

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

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

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

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

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

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

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

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

[…]

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

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

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

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

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

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

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

Who loves budget gimmicks?

The Senate Budget Committee, that’s who.

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

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

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

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

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

[…]

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

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

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

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

Here’s your 2018-19 revenue estimate

It’s pretty mediocre.

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

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

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

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

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

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

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

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

MUDs and debt

Another story about the least-understood form of debt and taxation in Texas.

BagOfMoney

In Houston’s conservative suburbs, where local governments are loath to raise taxes, the thankless task of hiking revenues has fallen to hundreds of so-called municipal utility districts created for developers to finance water and sewage systems, roads and other amenities.

These MUDs, as they’re called, have virtually unlimited power in bright red, anti-tax Texas to sell bonds and levy property taxes.

The state’s leading tea party conservatives, Comptroller Glenn Hegar and Lt. Gov. Dan Patrick, have championed their creation in what ethics reformers say is a clear example of special interest influence in Austin.

All told, lawmakers who carry bills creating MUDs and other water districts have collected $3.5 million in campaign contributions since 2001 from law firms that specialize in creating those districts on behalf of developers or do bond work on their multimillion-dollar deals, a Houston Chronicle investigation has found. The Chronicle used a state database to pinpoint which law firms work for water districts. The data doesn’t include developers, who also contribute large sums to legislators.

Both Hegar and Patrick say MUDs and other water districts have played a critical role in developing infrastructure and creating jobs. They deny campaign contributions have anything to do with the bills they’ve carried. But both also say they are concerned about surging property tax burdens levied by school districts, towns, cities, counties – and MUDs, their less accountable, largely anonymous first cousins.

MUDs and other water districts have to date issued more than $60  billion in outstanding debt and face almost no government oversight of their spending. While most voters know the names of their mayors and city council members, many have no idea who runs their local MUD – or even what a MUD is.

James Quintero, director of the Center for Local Governance for the Texas Public Policy Foundation, a conservative think tank based in Austin, wants the legislature to protect taxpayers by preventing local officeholders from “off-loading” the delivery of public services to MUDs and other “special purpose districts” that contribute to the property tax burden and often lack transparency.

See here for past blogging on this topic, and be sure to read the whole story. Anyone who is surprised by the connection between MUD law firms and the politicians who push MUDs should probably go lie down in a quiet room for awhile. I know one should never read the comments, but I was struck by the number of commenters on that story who basically accused the Chronicle of being “anti-development” for having written this. I don’t doubt that MUDs are an effective mechanism for spurring development in currently undeveloped placed. The question I have is whether this is the best way to spur development in currently undeveloped places (*) or if perhaps a better mechanism may exist. To put it another way, if we could emulate Metro’s bus system redesign and start with a blank map of Harris County and its governmental entities and undertake the task of reimagining them all from the ground up, would we want to design something that looks like what we have now, or would we go a different direction? Call me crazy, but I think we’d gravitate towards the latter. That doesn’t mean that we can easily or pragmatically move in a different direction from where we are now, but it is worth reminding ourselves that what we have now, with its heavy reliance on this unhealthily symbiotic relationship of officeholders and niche law firms, not to mention millions of dollars in debt being ratified by elections in which literally two people vote, is not the only possible option. The Chron’s Chris Tomlinson has more.

(*) There is of course the completely separate question about whether it is a good idea to spur development in undeveloped places at all, or whether it would be better to spur it in already-developed places, with more investment in transit and other non-car modes of travel. That is a conversation that is very much worth having, but it would make Dan Patrick’s head explode, and so it is unfortunately beyond the scope of this blog post.

Our tax system isn’t quite as stupid as it could be

Good news!

BagOfMoney

A Texas Supreme Court ruling has spared the state from having to issue billions of dollars in tax refunds to oil and gas drillers — a prospect that had had threatened to shake up the next legislative session.

The justices on Friday sided with Texas Comptroller Glenn Hegar in an arcane tax dispute that the Republican feared could have far-reaching consequences for the state’s budget outlook.

Denying Midland-based driller Southwest Royalties’ request for a refund, the court ruled that state law did not exempt metal pipes, tubing and other equipment used in oil and gas extraction exempt from sales taxes.

“Southwest did not prove that the equipment for which it sought a tax exemption was used in “actual manufacturing, processing, or fabricating” of hydrocarbons within the meaning” of the tax code, Justice Phil Johnson wrote for the majority in an opinion that affirmed decisions in lower courts. “Thus, Southwest is not entitled to an exemption from paying sales taxes on purchases of the equipment.”

See here, here, and here for the background. As noted in the story, some $4 billion or more would have had to be refunded to various businesses if the Supremes had ruled for the plaintiffs. Needless to say, that would have been bad news for the state, as well as for cities and counties who get their share of sales tax revenue, too. Thankfully, there is a bottom to the stupidity in our tax code. Good to know.

Abbott orders state agencies to obey the law

Better late than never.

Droppin’ dimes, droppin’ dimes

Gov. Greg Abbott and Comptroller Glenn Hegar on Wednesday ordered state agencies to stop paying departing employees by placing them on “emergency leave.”

“Pursuant to this directive, the use of emergency leave, administrative leave or other mechanisms to continue paying state employees who have ceased to work will be prohibited,” the directive from Abbott and Hegar stated. The directive will remain in place until the Legislature takes up the issue during next year’s legislative session, Abbott’s office said.

The Dallas Morning News and other media outlets have recently reported on the growing practice by agencies to keep departing employees on the payroll by placing them on “emergency leave,” often as a form of severance.

The practice first came to light after reports that Texas Attorney General Ken Paxton paid his first assistant attorney and communications director for months after they left the agency. Subsequent stories revealed the General Land Office continued to pay departing employees without using the emergency leave designation.

Representatives of both agencies said they will follow the governor’s new order.

“We appreciate Governor Abbott’s leadership,” said Marc Rylander, spokesman for the attorney general’s office. “We do not disagree with the Governor’s new policy for all agencies subject to the direction of the governor, and we will concur with it moving forward.”

Brittany Eck, GLO spokeswoman, said the agency will suspend the use of separation agreements until lawmakers decide how to proceed.

“We look forward to continuing our work with the Governor, Comptroller, and members of the Texas Legislature to not only clarify the law on this issue but also discuss how state agencies should manage its workforce in an efficient and cost-effective manner,” Eck said.

See here and here for the background. The Lone Star Project requested an investigation into this a couple of days ago. I guess it had finally gotten to the point where Abbott could no longer ignore the issue. Trail Blazers and the Chron have more.

The state is starting to feel the squeeze

Things are tough all over.

BagOfMoney

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

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

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

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

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

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

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

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

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

[…]

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

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

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

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

Lawsuits and low oil prices

Both are threatening the next Texas budget.

BagOfMoney

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

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

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

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

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

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

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

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

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

The Supreme Court hears that case about how stupid our tax system is

There’s a lot of money riding on the outcome.

BagOfMoney

With billions of dollars at stake, the Texas Supreme Court heard arguments Tuesday in a tax showdown whose outcome could shake up the next legislative session while straining the historically friendly relationship between state lawmakers and the iconic oil and gas sector.

Throughout a spirited debate over arcane accounting rules and oil-tinged science, the justices offered few clues as to how they might rule.

“They’re all great poker faces,” said James LeBas, an economist with the Texas Oil & Gas Association and a former chief revenue estimator for Texas, following arguments.

The case ultimately focuses on a single question: Are metal pipes, tubing and other equipment used in oil and gas extraction exempt from sales taxes?

[…]

David Keltner, an attorney representing Southwest Royalties, argued that certain extraction equipment clearly fits the exemption’s definition.

The company’s equipment “processes” West Texas crude by separating it into marketable oil and gas, he argued, at times pointing to a chart that displayed the various stages of petroleum extraction. Once the crude is brought up from the ground, it is no longer part of a mineral owner’s estate, he said.

“It is tangible personal property. People own it,” Keltner said. “If you were to hold otherwise, there would be serious consequences.”

Among the consequences he named: Texas regulators would struggle to hold drillers accountable for the oil they extract.

Arguing for the state, Texas assistant solicitor general Michael Murphy disagreed, arguing that minerals are not “tangible personal property,” and that Southwest’s equipment was not necessarily responsible for transforming the crude.

“Southwest’s mineral extraction is really like gathering raw materials,” he said, dubbing the mechanics “pre-production or pre-processing.”

“Until that oil and gas bubbles out of the ground, it’s part of the [real estate].”

Justice Phil Johnson, questioned that interpretation.

“It’s not personal property in the tubing, when it’s coming up, it’s still realty?” he asked. “Even though it’s outside the ground, outside the natural environment?”

Justice Eva Guzman wondered how Texans could determine the precise moment the crude changes phases. “But how would we know when?” she asked.

Keltner, the driller’s attorney, said that instrumentation on the surface would reveal that information. Murphy disagreed.

Murphy also pointed to a separate tax exemption on the books for purchases of some of the same equipment in question — if it’s used for offshore drilling outside of Texas. Texas lawmakers, he said, would not likely intend to consruct overlapping exemptions.

He also argued that the court must revert to a narrow interpretation of the tax code — siding with the state — if a rule is deemed ambiguous.

But Keltner argued that the wording clearly supported the driller’s side, and that denying the exemption was unfair. He listed several other purchases that Hegar’s office has allowed companies to write-off under the policy — including equipment that speeds the ripening of bananas.

“Our concern here is, that we have a new stance applied to the oil and gas industry differently,” he said. “A banana is going to ripen anyway. That is inevitable.”

See here and here for the background. As I said, it’s all angels-dancing-on-the-head-of-a-pin stuff, just with billions of dollars on the line. There’s a part of me that’s rooting for the court to rule for the plaintiffs on the grounds that this would force the Legislature to take action and try to make our tax system better. It quickly gets overwhelmed by the much larger part of me that recognizes the huge potential for mischief and malfeasance by the Lege if this door ever gets opened. So for better or worse I do want to see the state win.

Supreme Court to decide just how stupid our tax system is

Oh, goody.

BagOfMoney

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

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

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

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

[…]

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

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

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

[…]

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

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

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

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

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

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

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

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

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

We have a messed up tax system in this state, part deux

Sooner or later, it’s going to collapse under its own weight.

BagOfMoney

The state’s highest civil court last week agreed to hear a case hinging on whether metal pipes, tubing and other equipment used in oil and gas production should be exempt from sales taxes. While the issue is arcane, the impact to the state could be significant.

Texas Comptroller Glenn Hegar is sounding the alarm that a ruling favoring the industry could force the state to issue tax refunds of as much as $4.4 billion — enough to wipe out the state’s projected budget surplus.

“This is very serious, real money,” said Hegar, the state’s chief financial officer, this week in an interview.

Midland-based Southwest Royalties, a subsidiary of Clayton Williams Energy, sued the state in 2009 — just before a drilling boom transformed the U.S. energy landscape — after Susan Combs, Hegar’s predecessor, rejected a claim for refunds on purchases dating back to 1997. Over the years, the case has wound its way through the court system.

Now, the state’s Supreme Court justices are set to weigh the company’s appeal of a lower court’s ruling amid concerns that a prolonged drilling slowdown might hurt Texas’ bottom line.

It is one of two ongoing tax cases — the other filed by the parent company of AMC movie theaters — that budget watchers fear will cost Texas millions in past and future tax revenue if the final outcomes don’t go their way. Hegar called the pair of cases “two of the biggest potentially that could impact what appropriators do in the next legislative session,” though he expressed confidence that the state would prevail in both.

The oral arguments in the drilling case, set for March 8, are likely to enthrall accountants and chemistry teachers alike. The justices will need to parse the language of a sales tax exemption for goods and services used in the “actual manufacturing, processing, or fabrication of tangible personal property,” and debate how that description relates to the mechanics of petroleum extraction.

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

See here for the background on the other case. Honestly, it’s all angels-dancing-on-the-head-of-a-pin stuff, and no one who isn’t a specialist will understand the ruling when it gets handed down. Which frees me up to think about the political angle, and what I think is this: With the state economy potentially in a multi-year slump, a budget that may fall into deficit again regardless of this case or the school finance case, and a property tax system that privileges the wealthy and powerful at everyone else’s expense, the time may be ripe for a candidate to grab the Mary Beth Rogers playbook and make a case for giving our state government a complete overhaul. The case for change, if things don’t get better, will be compelling. The counter, as always, will be to blame the federal government, and to be sure that will exert a strong allure on many. But after 15 years of all-Republican control, and multiple cycles of Republican candidates promising to fix the budget and build the economy, maybe there will be room for people to consider an alternative. Just something to think about.

AG’s office upholds Abbott’s line item vetos

Of course it does.

NO

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

[…]

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

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

Abbott’s office praised the opinion Monday evening.

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

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

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

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

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

We have a messed up tax system in this state

The latest exhibit:

BagOfMoney

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

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

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

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

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

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

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

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

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

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

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

The economy takes its toll on state revenue

Nothin’ but good times ahead, though, right?

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

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

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

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

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

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

[…]

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

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

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

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

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

Revisiting the Texas-Amazon sales tax deal

The Statesman looks back and concludes it was a pretty good deal all around.

Amazon

In 2012, the state rolled the dice on a controversial deal with e-commerce giant Amazon.com.

To end a two-year battle, Texas said it would drop a $269 million sales tax bill due from the Seattle-based company in exchange for an incentive deal, among other agreements.

Amazon said it would begin collecting sales taxes within 60 days and create 2,500 jobs in Texas and invest $200 million in the state by 2014.

Now, as the company says it’s exceeded those benchmarks, state officials and economists say the agreement was the right call for Texas.

“I believe Texas benefited from the deal with Amazon. The agreement meant Amazon began collecting and remitting taxes to the state, which the comptroller’s office felt were legally due,” Texas Comptroller Glenn Hegar told the American-Statesman. “The agreement also allowed Amazon to start building warehouses and to greatly expand their physical presence in the state, which was largely beneficial to the economy.”

This summer, the Internet retailer told state officials it reached more than 3,500 employees in Texas and made more than $300 million in capital investment in Texas by the end of 2014, according to documents filed with the comptroller’s office.

Amazon also paid an undisclosed amount to settle the matter in 2012.

With the deal, Texas ended a two-year fight seeking the company’s uncollected sales taxes, and Amazon began collecting on July 1, 2012 — potentially adding millions of dollars in new revenue to state coffers in coming years. Now, current figures seem to prove that out.

An American-Statesman analysis of data from the comptroller’s office shows the state’s sales tax collections have risen by hundreds of millions of dollars since Amazon.com began issuing the levy on Texas residents.

Since July 2012, sales tax revenue in Amazon’s sector has gone up more than $325 million, comptroller data shows. While state law prohibits the comptroller’s office from releasing sales tax collections by individual companies, it’s clear a significant portion of that increase is a result of Amazon’s Texas sales.

Although Hegar wasn’t the comptroller at the time of the 2012 deal, he says the state has benefited from Amazon’s presence.

“We welcome and appreciate Amazon like we do all the retailers in our state,” Hegar said in weighing the company’s role in Texas today. “We encourage and benefit from the economic activity generated by both their physical activities in the state through capital investment and job creation, and also greatly appreciate their following the law by collecting and remitting taxes from our citizens when selling taxable items.”

See here, here, and here for some background. I supported this deal back then, and I’m glad to see it has basically worked as intended. The rationale from two decades ago for making online sales tax-free has long since been rendered irrelevant, and the effect of that policy has become increasingly expensive for state and local governments. It just made sense for Amazon and other online retailers to start charging sales taxes. A few years later, this isn’t even controversial any more. Like I said, a good outcome and I’m glad to see it.

Hegar punts LBB veto issue to Paxton

Duck!

NO

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

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

[…]

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

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

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

[…]

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

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

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

Still reviewing the video on the line item vetoes

Any day now.

NO

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

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

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

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

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

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

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

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

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

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

Vetoes: You’re doing it wrong

Oops.

NO

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

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

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

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

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

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

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

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

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

Whither the monarch butterfly

We should try to keep them from going extinct. That would be bad.

The state’s chief financial officer has approved a $300,000 grant to investigate why the number of monarch butterflies is declining in Texas, and what can be done about it.

The bottom line for Comptroller Glenn Hegar, however, is less about butterflies than it is about commerce.

The state’s interest in the study by the University of Texas at San Antonio includes the potential economic impact on Texas should the federal government decide to list the official state insect as a threatened species.

Kevin Lyons, Hegar’s press secretary, said that if the iconic butterfly is listed, “many industries important to our state’s economy could be affected, from agriculture to land development to energy production.” Texas, he said, is trying to take the lead nationally on monarch conservation efforts.

“This crucial research will help us develop voluntary best management practices to conserve the monarch butterfly while minimizing the impact on economic activity,” Hegar said in a statement announcing the grant.

The monarch study is the latest funded by the state in an effort to “gather data on species under review so it can respond appropriately to proposed listings … and find the right balance of protecting our natural resources and our state’s economy,” according to the website for the Interagency Task Force on Economic Growth and Endangered Species, which Hegar chairs.

[…]

In Texas and other states, studies weighing economic development against the cost of saving endangered species have become the latest battleground between environmental groups and big business.

“We’ve seen this with the sage grouse, wolves, freshwater mussels and other species,” said Andrew Rosenberg, director of the Center for Science and Democracy at the Union of Concerned Scientists in Cambridge, Mass. “The argument is that if we have to protect anything, the world will end, when actually it won’t. There is a public benefit to protecting butterflies and other species, but it’s hard to monetize. … Studying the economics of a listing is a very clever way of saying the cost will be high – something most people can understand – when that doesn’t measure the cost of losing a species.”

In Texas, officials said the monarch study will evaluate the abundance and distribution of the otherwise unremarkable nuisance plant known as milkweed, the butterfly’s primary food source.

If the butterfly is listed by the U.S. Fish and Wildlife Service as threatened, officials fear much of the state could be affected because Texas is a major flyway for the annual migration of the monarch between Mexico and Canada each year.

Environmental groups seeking to have the monarch listed note that the butterfly’s population fell from about 1 billion in the mid-1990s to just 35 million last winter, the lowest number ever logged.

“There’s been an 80 percent decline in the population, a precipitous decline,” said Lori Ann Burd, the environmental health director for the Arizona-based Center for Biological Diversity, one of three groups that filed to have the monarch listed. “They can’t survive in smaller numbers. We’re really at the precipice with the monarch.”

That’s actually a 96.5% decline, which sounds pretty bad to me. Butterflies have an important role to play in pollinization, so to say the least there would be a significant cost if they were to become endangered or worse. Let’s for once please not be penny-wise and pound-foolish here.

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.

Precinct analysis: Abbott versus Perry in Latino districts

District level election data for 2014 has been available for a few weeks now. Seems like as good a time as any to return to a favorite topic, namely how Greg Abbott did in heavily Latino areas. An exit poll from November claimed Abbott drew 44% of the Latino vote, which would be a very impressive accomplishment. My complaint whenever I read a story like that is that no one ever bothers to go back and check the actual election results later to see if that kind of number makes sense. No one but me, of course, because I’m a crank about that sort of thing. Now that we have this data, how does it look? Here’s a comparison to Rick Perry in 2010 in the most heavily Latino districts:

Dist SSVR% Perry Abbott ============================= 031 76.46% 42.01% 44.80% 035 76.58% 37.19% 39.11% 036 87.34% 29.55% 31.21% 037 81.21% 36.96% 38.13% 038 80.92% 39.11% 40.39% 039 85.14% 27.03% 32.12% 040 88.14% 25.37% 28.59% 041 71.98% 46.69% 47.84% 042 88.70% 22.58% 29.69% 075 83.70% 29.04% 30.84% 076 84.73% 23.57% 24.32% 079 72.70% 38.89% 39.26% 080 80.84% 34.79% 37.78%

SSVR data is from here. I’d like to think that this would put those 44% assertions to rest, but I know better by now. Abbott clearly did better than Perry, though by only a point or two in most districts. Some of that may simply be due to Perry doing worse overall than Abbott. Still, his actual number among Latino voters is nothing to sneeze at. But as I’ve said before, while the actual results provide a reality check on exit polls and from-the-ether assertions, they’re more suggestive than conclusive. We don’t know what percentage of actual voters in these districts was Latino. To see what I mean, consider a district with 10,000 voters and an SSVR of 80%. Imagine also that Abbott gets 70% of the Anglo vote, which is likely to be at least what Abbott would need to get to almost 60% overall. How does the vote break down if Abbott scored 40% (i.e., 4,000 votes) in that district?

If the actual mix of voters is 80% Latino and 20% Anglo, then Abbott got 1,400 Anglo votes, which means he needs 2,600 Latino votes to get to 40% overall. 2,600 votes out of 8,000 is 32.5%.

If the actual mix of voters is 70% Latino and 30% Anglo, then Abbott got 2,100 Anglo votes, which means he needs 1,900 Latino votes to get to 40% overall. 1,900 votes out of 8,000 is 23.75%.

Basically, the share of the Anglo vote, even though it is relatively small in a district like this, has a large effect on the share of the Latino vote. Changing the assumption that Abbott got 60% of the Anglo vote in this district instead of 70% doesn’t make that much difference. In scenario 1, Abbott needs 2,800 Latino votes instead of 2,600, or 35%. In scenario 2, it’s 2,200 instead of 1,900, or 31.4%. Even in a scenario where you assume the Latino vote exceeds the SSVR%, you get the same kind of result. In a 90/10 situation with a 70% Anglo vote, the corresponding Latino percentage is 36.7%; with a 60% Anglo vote, it’s 37.8%. The only way for the Latino vote percentage to be higher than the overall percentage is if the Anglo vote is less than the overall. I suppose it’s possible Abbott could fail to break 40% of the vote in these districts, but I’ve yet to see anyone offer objective evidence of it. Therefore, the numbers I present above represent the upper bound for Abbott among Latinos in these districts. Anyone who wants to claim otherwise needs to show me the numbers.

(To be completely fair, one scenario under which the Latino vote could be higher than the overall would be if some other segment of the electorate was voting disproportionately against Abbott. A significant portion of African-American voters in these districts could do that. Take the first scenario above and change the voter demography to 80% Latino, 10% African-American, and 10% Anglo. Now assume a 70% Anglo vote for Abbott and 10% A-A vote for him. With those assumptions, 3,200 Latino votes are needed to get to 40% overall, and as it happens that’s a 40% share of the Latino vote. However, in the districts above, the largest African-American population is four percent; it’s less than one percent in most of them. As such, this variation pretty much can’t exist.)

Another way we can look at this is to see if other Republicans did better in these districts as well, or if the effect was limited to Abbott. For that, we turn to a comparison of David Dewhurst in 2010 to Dan Patrick.

Dist SSVR% Dew Patrick ============================= 031 76.46% 45.47% 40.46% 035 76.58% 37.99% 34.86% 036 87.34% 29.04% 26.67% 037 81.21% 35.77% 33.85% 038 80.92% 38.91% 35.40% 039 85.14% 26.44% 27.50% 040 88.14% 25.11% 23.00% 041 71.98% 48.27% 42.16% 042 88.70% 24.68% 23.67% 075 83.70% 30.16% 29.72% 076 84.73% 24.67% 23.37% 079 72.70% 41.50% 37.98% 080 80.84% 35.40% 34.59%

With the exception of HD39, Dewhurst did better than Patrick. Obviously, Dewhurst did better overall than Perry, while Patrick was roughly equivalent to Abbott. That suggests that while Abbott may have improved on Perry’s performance, he wasn’t necessarily a rising tide. To be sure of that, we should compare him directly to his comrades on the ballot. I’ve thrown in Perry as well for some perspective.

Dist Abbott Perry Patrick Paxton Hegar Bush ========================================================== 031 44.08% 42.01% 40.46% 41.36% 40.97% 45.24% 035 39.11% 37.19% 34.86% 35.93% 35.70% 39.45% 036 31.21% 29.55% 26.67% 27.89% 28.06% 32.42% 037 38.13% 36.96% 33.85% 34.16% 34.13% 39.77% 038 40.39% 39.11% 35.40% 36.30% 36.15% 41.98% 039 32.12% 27.03% 27.50% 28.58% 28.68% 33.18% 040 28.59% 25.37% 23.00% 23.92% 24.24% 29.45% 041 47.84% 46.69% 42.16% 44.51% 44.77% 49.92% 042 29.69% 22.58% 23.67% 22.48% 23.40% 33.23% 075 30.84% 29.04% 29.72% 29.33% 29.21% 28.75% 076 24.32% 23.57% 23.37% 23.52% 22.91% 24.76% 079 39.26% 38.89% 37.98% 37.94% 37.41% 37.76% 080 37.78% 34.79% 34.59% 34.14% 33.71% 39.13%

A few observations:

– Clearly, Abbott did better in these districts than anyone except Baby Bush. Playing up their own Latino connections – wife in Abbott’s case, mother in Bush’s – helped them, at least to some extent. We have seen this before, with several other candidates – Ted Cruz, Eva Guzman, Hector Uribe, and as you can see above, Leticia Van de Putte. The effect isn’t much – a couple of points – but it exists. It should be noted that since these candidates’ overall totals don’t differ much from their ballotmates’, there’s an equivalent but opposite effect elsewhere. Just something to keep in mind.

– Note that the effect for Abbott was greater in South Texas and the Valley, and lesser in El Paso (HDs 75, 76, and 79). Bush also did worse in El Paso, no doubt due at least in part to having former El Paso Mayor John Cook as his opponent. Consider this a reminder that the Latino electorate is not monolithic, even within the same nationality. What works well here may not be as effective there. This should be obvious, but I feel like we all sometimes act as if that’s not the case, and yes I include myself in that.

– Along those lines, I wish that the SSVRs were high enough in the urban Latino districts to include them here, but they’re not really comparable. Having written that, I’m now curious enough to do that comparison in another post, just to see what I get.

– At the end of the day, Greg Abbott in 2014 was a lesser known quantity than Rick Perry in 2010. He had a chance to introduce himself as a more or less clean slate. That won’t be the case in 2018, if Abbott is on the ballot for re-election. He’ll have a record to defend, for good or bad. We’ll see how much his wife and madrina can help him then.

Hegar’s first revenue estimate is in

We’ll see how it holds up.

BagOfMoney

Amid concerns that tumbling oil prices could push the Texas economy into a recession, Comptroller Glenn Hegar offered a cautiously optimistic tone on the future of the Texas economy Monday, announcing that lawmakers will have $113 billion to haggle over in crafting its next two-year budget.

“Our projections are based on expectations of a moderate expansion in the Texas economy and reflect uncertainties in oil prices and the possibilities of a slowing global economy,” Hegar said.

The biennial revenue estimate sets a limit on the state’s general fund, the portion of the budget that lawmakers have the most control over. The general fund typically makes up nearly half of the state’s total budget.

Hegar predicted that Texas will take in $110.4 billion in revenue from taxes, fees and other income during the 2015-16 biennium. Hegar’s $113 billion projection also includes money expected to come from leftover funds in the current biennium. With the addition of federal funds and other revenue sources, lawmakers should have a total of $220.9 billion for the 2016-17 budget.

The state’s Rainy Day Fund is also projected to grow to $11.1 billion by the end of the next biennium if lawmakers choose not to use any money in the fund.

The state will end the current biennium, which ends Aug. 31, with $7.5 billion in leftover funds, Hegar said. That surplus will be split three ways between general revenue, the Rainy Day Fund and the state highway fund.

Two years ago, Comptroller Susan Combs estimated that the Legislature would have $208 billion for its budget, including $101.4 billion in general revenue and $11.8 billion in the Rainy Day Fund. Lawmakers ultimately passed a $200 billion budget.

[…]

The liberal Center for Public Policy Priorities has estimated that lawmakers will need to increase general spending from the current $95 billion to $101 billion to maintain the state’s current level of services. More than half of that $6 billion spike comes from Health and Human Services, where an increase in medical costs and Medicaid cases in particular has grown.

Don’t expect that to happen. Indeed, if Dan Patrick has his way, it will never happen. The good news is that this is a reasonably sunny estimate, meaning The Lege will be able to do at least some of the things it wants to do without too much voodoo, assuming it doesn’t impose some ridiculously lowball artificial limits on itself, which it must be noted is always a possibility. But just because there’s revenue available doesn’t mean it isn’t spoken for, or at least in demand. The Observer explains.

On one hand, it’s not a crisis budget, and it’s not one that will require legislators to make cuts (though they might anyway.) The office of Lt. Gov.-elect Dan Patrick released a brief statement that characterized the comptroller’s estimate as a green light for his agenda, which has included the promise of significant tax cuts: It provided “adequate revenue to secure our border, provide property and business tax relief while focusing on education and infrastructure. I intend to accomplish these goals.”

On the other, the “surplus” is a lot less than it looks at first glance, in part because the amount of budget trickery the Legislature has employed over the years. Gov.-elect Greg Abbott and Patrick have called for ending road funding diversions and making the Texas Department of Transportation whole again. But about $3 billion in additional revenue is needed to end diversions, and TxDOT says it needs an additional $5 billion just to keep the system at the current level of congestion—that is, without making any forward progress.

In education, the state has not yet gotten back to the level of funding that preceded 2011’s gargantuan cuts to public ed—a portion was restored in 2013, but a significant amount of money is needed even beyond what was the case in 2011, thanks to population growth. And it’s unclear how proposed voucher programs would affect the system’s overall cost.

And then there’s tax cuts. The truly sweeping tax overhauls that were talked about during the election, like substituting property taxes for increased sales taxes, seem to have fallen off the radar for now. In the past, GOP lawmakers of all stripes have passed minor tax bills and sold them to the voters as massive ones. That may be Patrick’s play, but even modest tax reductions will shave the “surplus” down in a hurry.

The question as always is what gets prioritized, and what gets left out. I believe this is an accurate summary:

Budget expert Dale Craymer, president of the business-based Texas Taxpayers and Research Association, pointed out that lawmakers in writing the next budget will have the cushion of unspent cash and “a pretty solid non-oil-and-gas base to our economy.”

Still, he said, the “three great wants” of tax relief, transportation and public education are big-ticket items.

“The state is still in a good position to deal with maybe one of these,” Craymer said, “but certainly not all three.”

I’d say that’s the priority order for the Republicans. What happens if the Supreme Court forces them to deal with public education, especially if they don’t leave themselves any room to do so? Your guess is as good as mine.

Kolkhorst wins SD18

One special election begets another.

Rep. Lois Kolkhorst

State Rep. Lois Kolkhorst won a promotion to the Texas Senate on Saturday, leveraging her 14-year incumbency and high-profile endorsements to fend off a fellow Republican opponent who spent nearly $2 million of his own money portraying Kolkhorst as soft on the border.

Kolkhorst eclipsed the 50 percent mark needed to avoid a runoff with Fort Bend businessman Gary Gates in Senate District 18, which stretches from Katy and Rosenberg to near Corpus Christi and Austin. Kolkhorst won 55 percent of the vote, 20 percentage points higher than Gates earned.

“We have an opportunity to have the most conservative session in recent history, responding to the demand of the voters of Texas,” Kolkhorst said. “I’m truly humbled by the results.”

Though the three-week sprint only officially began when Glenn Hegar announced his intention to resign after winning statewide office last month, the leading candidates have treated the seat as vacant since Hegar won the GOP primary for comptroller in the spring. Hegar officially resigned Friday.

Kolkhorst and Gates have spent that time looking to outflank one another on perhaps the most resonant issue in this largely rural district along U.S. 59: border security. Gates has hammered the seven-term state representative for a vote granting in-state tuition to undocumented immigrants a decade ago, which Kolkhorst now says she regrets.

Strictly speaking, of course, this applied to people who were brought to this country as children. Because we once thought it was a good idea to encourage college-ready students to go to college. Now Republicans want to deport such children, which is as compassionate as it is sensible. I don’t even know what to say any more.

Kolkhorst’s elevation creates yet another vacancy in Austin: A special election will now be held for her old seat, House District 13. Just as Kolkhorst ran for Hegar’s seat, candidates are already running for hers.

There are currently vacancies in HDs 13 and 17, with one to come in HD123 and later on in SD26; the special election in SD26 will likely create another vacancy in either HD116 or HD124. And you thought the 2014 election season was over.

Full election results are here. Turnout was 39,200 votes, or maybe less than percent overall. The dollars per vote total was pretty high in this race. The Trib has more.

Early voting begins today for SD18

From the inbox:

The early voting period for the December 6, 2014 Special Election to Fill a Vacancy for State Senate District 18 will take place Wednesday, November 26 from 8:00 a.m. to 4:30 p.m. and Monday and Tuesday, December 1 and December 2, from 7:00 a.m. to 7:00 p.m.

“An estimated 20,000 registered voters who reside in Harris County voting precincts 49, 119, 121, 149, 639, 901, 919 and 920 are eligible to participate in the Special Election in State Senate District 18,” informed Harris County Clerk Stan Stanart. “The SSD18 precincts are situated in west Harris County.”

Harris county registered voters can vote early at any of the three following locations:

1. Main Office: Harris County Administration Bldg., 1001 Preston, 4th Floor, Houston, TX 77002

2. Far West/Katy: Katy City Park Building #3, 2046 Katy City Park Road, Katy, Texas 77493
(NW of Katy Police Department, 5456 Franz Road and South of Mary Jo Peckham Park, 5597 Gardenia Lane)

3. Hockley: Harris County Community Center Hockley, 28515 Old Washington Road, Hockley, Texas 77447
(between Premium Drive and Kermier Road).

There are five candidates vying to replace Glen Hegar who submitted his resignation from the Texas Senate after being elected Comptroller of Public Accounts for the State during the November Election. Senate District 18 spreads through 21 counties in Southeast Texas.

For information about voting by mail, list of acceptable Photo IDs to vote, or other election information, please visit www.HarrisVotes.com or call 713.755.6965.

Yes, that’s three whole days of early voting, before and after Thanksgiving. Good luck being the field director for one of those candidates. Fort Bend voters, your information for this election is here. My understanding is that there will be Saturday early voting hours in Fort Bend as well. Lucky you.

Not that it’s likely to matter much since there’s a clear frontrunner who has a decent campaign treasury and establishment support, and has been effectively running for this seat for months.

Rep. Lois Kolkhorst

State Rep. Lois Kolkhorst, R-Brenham, is seen as the front-runner. She was first elected to House District 13 in 2000, and hasn’t faced a serious challenger since. Kolkhorst pegs border security as a top priority

“Our border surges seemingly work when we do them, so we’re going to have to look at how we secure it — and do something right and good for Texas,” Kolkhorst said. “I don’t think the federal government is going to step up and do that for us.”

The race is Kolkhorst’s to lose, said Renée Cross, associate director at the University of Houston’s Hobby Center for Public Policy and a political science lecturer. Kolkhorst has pulled in endorsements from Gov.-elect Greg Abbott, Hegar and several PACs, including the Conservative Republicans of Texas PAC.

“She’s shown a very conservative record in the house,” Cross said. “She’s a farmer, she’s got somewhat of a suburban link being in Brenham, she’s an athlete, she’s a hunter, she’s a fisher. I mean she’s got all the stereotypical Texas attributes that I think are going to play well, particularly in a very short election period.”

She’s also running a typical scare the old white people campaign, which has always worked well in this kind of election.

Her Republican challengers include Gary Gates, a real estate agent and cattle rancher from Richmond, and Charles Gregory, a businessman and the former mayor pro tem of Simonton.

Should Kolkhorst win, Abbott will have to call a special election for her House district. Kolkhorst has not resigned from her seat, so will stay in the legislature if she loses.

[…]

Democrat Christian E. Hawking, a lawyer from Rosenberg said she found out about the election just days before she filed to run. She previously ran unsuccessfully for a city council seat.

“I am optimistic, you have to be,” Hawking said. “I think this is exciting. It is a clean slate; we get to pick someone new. And I think that I’d be good at it.”

Democrat Cynthia Drabek, who recently ran unsuccessfully for Texas House District 85, also filed to run. Both Drabek and Hawking said public education funding is a top priority for them.

I wasn’t sure there would be a Democratic candidate in this race, given the lightning-speed turnaround on it. Bill White scored 35.7% in 2010, so the odds of a Dem even making a runoff are pretty low. Drabek received 9,628 votes for 33.4% in HD85, which was 1,130 fewer votes and 0.2 percentage points less than Linda Chavez-Thompson in 2010. As for Kolkhort’s HD13, in case it opens up, White got 32.1% in 2010, and Michelle Petty was the high scorer in 2012 with 26.0%. Not a whole lot to work with there, but as I said for HD17 it’s not like there’s anything to lose by trying.

Van de Putte to run for Mayor of San Antonio

Wow.

Sen. Leticia Van de Putte

Sen. Leticia Van de Putte

Ending weeks of speculation, state Sen. Leticia Van de Putte said Wednesday she is running for mayor of San Antonio.

Just two weeks after a crushing defeat in the lieutenant governor ‘s race, Van de Putte — who is credited with running a spirited statewide campaign — is expected to electrify the municipal election.

For months, there had been growing speculation that she would enter the fray, and more recently, she had said she was “praying for guidance” about whether to tackle a mayoral race.

Van de Putte, a third-generation San Antonian and West Side Democrat, told the San Antonio Express-News on Wednesday that since entering elected office in 1990, she has fought for the people of San Antonio.

“I think any leader has to have a basis of a character and of that makeup that makes them strong — and not strong physically and maybe not strong emotionally, but strong in the sense of commitment — and for me, that strength comes from a faith and family,” she said in an interview at the newspaper. “And so the decision that our family has made and that I want is to be the next mayor of San Antonio.”

State Rep. Mike Villarreal, D-San Antonio, rolled out his campaign in the wake of then-Mayor Julián Castro’s announcement this summer that he’d be leaving to join President Barack Obama’s Cabinet as secretary of Housing and Urban development.

Van de Putte’s entry into the May 9 mayoral race certainly kills Villarreal’s chances of sailing easily into the office.

[…]

Van de Putte said she intends to send Gov. Rick Perry a letter Thursday asking him to call a special election for her seat, which she will hold until a successor is elected.

Her decision shakes up the Democratic landscape, setting off a scramble for the District 26 Texas Senate seat she’s held since 1999 and possibly affecting other offices that might be vacated.

Two Democrats in the Texas House have expressed interest in the Senate seat — state Reps. Trey Martinez Fischer and José Menéndez, and other candidacies are likely in the sprawling district.

Martinez Fischer, a longtime ally of Van de Putte, has represented District 116 since 2001. The outspoken chairman of the Mexican America Legislative Caucus would be a leading contender to replace Van de Putte but hasn’t formally declared his intentions.

Here’s the Trib story, which also mentions Van de Putte’s resignation strategy. I don’t think the two-thirds is likely to be much of a factor, but having a full contingent of Democrats is needed as a bulwark against any attempts to put noxious constitutional amendments on next year’s ballot. Rick Perry still hasn’t called a special election to fill Villarreal’s seat, though he broke records calling one for Glenn Hegar. My best guess is that there won’t be one for SD26 until next November, which may trigger the need for at least one more depending on who wins the election to succeed Van de Putte.

I will admit to being surprised by this. I have no insider knowledge, I just figured Sen. Van de Putte wouldn’t want to jump from one bruising campaign to another so quickly, though at least this one won’t have her on the road all the time. I can understand why she might be ready to leave the Senate, which I expect will be a whole lot of no fun for her this spring. Maybe once you’ve accepted the possibility of one big change, the possibility of another is easier to handle. I wish her well, as I also wish Mike Villarreal well; both would make fine Mayors. For at least the next two to four years, the best prospect for progress in this state is at the local level, where Mayors can push for a lot of things that our state government won’t. I hope both Leticia Van de Putte and Mike Villarreal (and anyone else who joins them in that race) embrace that potential and run a spirited, issues-oriented, forward-looking campaign, and may the best candidate win.

One more thing: It will be a sad day when Sen. Van de Putte leaves the Senate, but change is always inevitable and new blood is a good and necessary thing. It’s a great opportunity for some other talented politicians as well, and Democrats can emerge from all these changes just fine. There’s no point in looking back. What comes next is what matters.

Hegar officially resigns his Senate seat

As expected.

Glenn Hegar

State Sen. Glenn Hegar, the Katy Republican who will become state comptroller in January, notified Gov. Rick Perry on Friday that he will resign his Senate Seat as of Dec. 5, paving the way for the governor to call a special election.

Hegar won 58.4 percent of the vote on Election Day to succeed Comptroller Susan Combs. He was widely expected to resign from his seat early to allow for a special election to take place sooner, allowing his replacement to join the Legislature during next year’s legislative session. If not for his move to comptroller, Hegar’s Senate term would have lasted until 2016.

“I am extremely honored, humbled, and grateful to the citizens of Texas who have elected me as their next comptroller, and I look forward to serving the taxpayers of this great state,” Hegar wrote. “I extend my deep and profound gratitude to the constituents of Senate District 18 for allowing me to be their voice in the Texas Senate for the last 8 years.”

The possibility of a special election to replace Hegar has been the subject of speculation for more than a year, when it became clear Hegar planned to run for comptroller. That strategizing among those interested in replacing him intensified in March, when he won the Republican primary and became the immediate front-runner in the general election.

See here for the background. To no one’s surprise, Rick Perry has already called a special election to fill Hegar’s seat for December 6, since it just won’t do to leave a Republican seat open any longer than necessary. Did Perry also schedule a special election to replace Mike Villarreal in HD123? Don’t be silly. He’ll get to that when he’s good and ready.

Replacing Hegar

Election season isn’t over yet.

Glenn Hegar

At least three Republican candidates – who hit the campaign trail for the then-hypothetical opening months ago – will duke it out to represent a rural 21-county Senate district that stretches from Fort Bend County to the outer edges of the Corpus Christi, San Antonio and Austin metropolitan areas.

Sen. Glenn Hegar, who has represented the heavily Republican district since 2007, won his race for comptroller on Tuesday. His resignation, which some sources say could come as early as Friday, will trigger a special election for the two years remaining on his term. If he resigns after Thursday, the vacancy would come within 60 days of a legislative session, forcing an expedited election timeline to give Hegar’s successor a chance to be seated near the beginning of the session, even if a runoff is needed.

Because of the quick turnaround, potential candidates started campaigning months ago to position themselves for a vacancy that did not technically exist until ballots were counted Tuesday night, causing some confusion among voters.

“Most of them were struggling with why there’s a race if myself or my opponents were not on the ballot,” said Lois Kolkhorst, a Brenham state representative who spent Thursday raising money in the district. “People were calling me with: ‘Why are you having a fundraiser after the election?’ ”

Kolkhorst and two Fort Bend businessmen, Gary Gates and Charles Gregory, are competing to succeed Hegar in a race that will likely carry a high price tag. Gates has lent his campaign $1 million to begin airing ads in July and candidates may have to invest heavily to turn out fatigued voters in a special election that takes place not only after Election Day but over the holidays. Turnout could be less than 10 percent.

That’s two special elections that will be needed, since Rep. Mike Villarreal resigned from HD123 to run for Mayor of San Antonio. He was hoping for a quick turnaround, perhaps an election in December, to get his successor in before too much happens in the Lege. Maybe he should have waited a week to resign, I don’t know. I wouldn’t put anything past Rick Perry to prioritize the needs of a Republican district and the Republican Party over Democrats, but I’d hope he’d at least take pity on the Secretary of State’s staff and schedule both special elections at the same time. We’ll see. Oh, and if Lois Kolkhorst winds up winning Hegar’s seat, there will then need to be another special election to replace her. The fun never ends. Texas Politics has more.

Comptroller candidates will debate

It’s a trend!

Mike Collier

Mike Collier

Candidates in the race for state comptroller have agreed to one televised debate, though watching the debate requires a Time Warner Cable subscription fo North Texas viewers.

Mike Collier, a Democrat from Houston, and Sen. Glenn Hegar, a Katy Republican, will face off 7 p.m., Oct. 29 in Austin. The 30-minute debate is sponsored by Time Warner Cable News. It will be broadcast to the Austin, San Antonio and Hill Country media markets.

The debate will be viewable statewide through the TWC’s On Demand service, as well as online here: http://sanantonio.twcnews.com/content/politics/.

As chief financial officer, the comptroller’s office collects all taxes owed to the state and estimates the state’s tax revenue for the biennium, among other duties. Lawmakers use the revenue estimate to set the two-year budget.

“Senator Hegar looks forward to discussing the important issues facing our state,” said David White, a spokesman for the campaign.

“Texans deserve to hear from the person who will be accountable for their tax dollars. I’m honored to receive this opportunity to show Texans how I will be their financial watchdog in the Comptroller’s office, not just another career politician,” Collier said.

If you can get past the fact that it happens with two days left in early voting and it’s easily available to only a fraction of the state, this is a good thing. The fact that there’s a debate at all, and that the Dems have a candidate that’s worth having in a debate, makes it worthwhile. Yes, it would be better to have something more widely visible, but given that the baseline for comparison is “nothing”, it’s an improvement. The Trib has more.

By the way, Collier continues to dominate the newspaper endorsements, picking up nods from the Express News and Star-Telegram this week. I thought Collier would do well in the editorial board interviews, but as a first-time candidate going against an experienced legislator who wasn’t weighed down by sixteen tons of ethical baggage, it was hardly a slam dunk that he’d get a string of endorsements. That he’s one paper away from a Sam Houston-style clean sweep says a lot about his qualities as a candidate and as a person. He’s also been sharp in how he has presented himself, as his latest campaign ad attests. I’m hard pressed to think of any way in which Collier could have run a better campaign. I hope the actual viewership of that debate far exceeds my meager expectations.

On a related note, there’s also this.

The only debate scheduled between Republican U.S. Sen. John Cornyn and his Democratic opponent, David Alameel, could end up only being broadcast in Spanish.

Cornyn and Alameel are scheduled to participate in a one-hour debate in Dallas hosted by Univision on Oct. 24. The debate will be conducted in English. Univision will broadcast the debate the next day with the candidates’ remarks dubbed in Spanish at 10 p.m. in eight markets around the state, according to Felicitas Cadena, community affairs manager for Univision Communications.

“The debate will not air in English in any market,” Cadena said in an email.

[…]

Cadena said the channel is open to talking with other media outlets about broadcasting the debate in English on television or online.

“We’re just looking at technical possibilities,” Cadena said. “We’d be more than glad to have that discussion.”

Putting the video online somewhere, pre-dubbed and post-dubbed, should not be too much to ask. I guess we’ll see.

Endorsement watch: Chron for Collier

Add the Houston Chronicle to the list of papers endorsing Mike Collier for Comptroller.

Mike Collier

Mike Collier

[Sen. Glenn] Hegar knows politics; Collier knows the numbers. In our view the choice is clear: Texas needs the numbers man, not a politician who wants to use the office as a stepping stone to higher office.

Texans know what can happen when a comptroller gets the numbers wrong. In January 2013, the outgoing comptroller, Susan Combs, produced a Biennial Revenue Estimate that showed she had grossly underestimated what the state’s revenue would be in the 2012-13 biennium. That mistake, which prompted Collier to run for the office, played havoc with budget choices during the 2011 legislative session, including a $5.4 billion cut in education funding that didn’t have to be made.

Hegar, who has said he was proud of the education cut, seemed to suggest during the GOP primary that his chief qualifications for serving as comptroller were his opposition to abortion and his enthusiasm for the 2nd Amendment.

Since then, he has offered suggestions about how to run the office more effectively – more transparency, more training, a top-down review of the office’s basic functions – but it’s our impression he’d be learning on the job, and probably biding his time for the next office to open up.

Collier, one of the more engaging and articulate candidates we interviewed during the campaign season, clearly has the experience to run the comptroller’s office. He also has ideas for making it function more effectively – among them, producing quarterly revenue estimates so that lawmakers would have a better understanding of the state’s fiscal health.

The Chron joins the Statesman and the Caller and recommending Collier. I feel confident they won’t be the last paper to do so. Again, does this mean much? No, certainly not in this day and age, and in a partisan election. But it’s not nothing, and every little bit of reinforcement for the message that Collier is easily the better choice helps. Look for my interview with him on Monday.

Endorsement watch: Statesman for Collier

The Statesman continues its early work on endorsements with a solid recommendation for Democratic Comptroller candidate Mike Collier.

Mike Collier

Mike Collier

The deplorable revenue forecast issued ahead of the 2011 legislative session by the current comptroller, Republican Susan Combs, who’s retiring from politics, contributed to an unnecessary $5.4 billion cut to public education. Combs’ estimate – she was off by $11.3 billion, one of the worst misses in state history – motivated Collier to run.

Collier, 53, is the former chief financial officer of a Houston-based energy company and a former partner with PriceWaterhouseCoopers. He has no previous political experience, though steering complicated projects through the huge bureaucracy of an international accounting firm with 180,000 employees requires its own set of political skills. He is a graduate of Georgetown High School in Williamson County and received his undergraduate and master of business administration degrees from the University of Texas.

Though he faces the usual long odds of any Democrat running for statewide office in Texas, Collier is a dynamic candidate. Engaging, enthusiastic and clearly knowledgeable of the duties of the office he seeks, he is a natural communicator with a winning sense of humor. The Texas Democratic Party could use more candidates like him.

Collier sees the comptroller’s office as “an exciting management challenge” that fits best with his focus on performance, not on, say, social issues that he says freeze too many voters in place. One of his main ideas for reforming the agency is to issue quarterly revenue estimates. Such estimates, he says, will improve the comptroller’s accuracy and timeliness, remove political agendas and make a huge difference in how the Legislature does its job.

The comptroller may not be as well-known a state official as the governor, or even lieutenant governor, but the comptroller still has a bully pulpit of sorts, Collier says, and he plans to use it to persuade counties to improve their property tax appraisals. He also wants to establish an ongoing dialogue with taxpayers about the state’s fiscal health and properly funding public education. And he says he’d lobby lawmakers to revive the comptroller’s ability to conduct performance reviews – accountability audits of state agencies to identify possible savings and improve the state’s finances.

As I noted with the Statesman’s endorsement of Sam Houston, I expect Collier to get the lion’s share of endorsements from the papers. Maybe not all of them, as he’s a first time candidate who speaks his mind directly, but any he does lose won’t be because he isn’t the better-qualified candidate. Having recently had the opportunity to interview him, I can confirm the Statesman’s assessment of him and his capabilities. I’ll say it again, on the merits and on their accomplishments and experience, the overall statewide Democratic ticket wipes the floor with the Republicans in a way that we haven’t seen since at least 1994, the last year we won something at the top. I’ll take all the good omens I can get. Look for my upcoming interview with Collier and be sure to give it a listen. If you don’t know much about the guy now, you’ll like what you hear.

Collier keeps up the attack

I really like the way he’s running his campaign.

Mike Collier

Mike Collier

Democratic comptroller nominee Mike Collier says his Republican opponent Glenn Hegar bragged to a Houston-area tea party interviewer last year that he was proud of the Legislature’s 2011 budget cuts to public schools. On Friday, Collier released a web video to prove it.

“It’s embarrassing and unacceptable that Glenn Hegar takes pride in cutting education despite our extraordinary prosperity,” Collier said in a statement.

“Hegar does not share our values, and he poses a profound threat to something Texans have held dear since our founding, … a great educational system,” said Collier, a Houston businessman.

Hegar spokesman David White called Collier’s 40-second video “a distortion.”

Though Hegar, a state senator from Katy, joined other Republican lawmakers in approving $5.4 billion in cuts to schools in the budget-cutting session of 2011, “Senator Hegar believes in adequately funding our education system,” White said.

Collier’s “entire campaign amounts to a distortion of truth and negative campaign commercials,” said White, Hegar’s senior adviser.

You can see the ad and the video from the Montgomery County Tea Party event from which the quote was taken at the link above. Note first that Hegar doesn’t actually deny saying what Collier accuses him of saying. He just says it’s not as bad as Collier makes it out to be. When he says he supports “adequately funding our school system”, he doesn’t say what he thinks “adequate” means. Remember, the state’s argument in the school finance lawsuit is that the current level of funding, which is still billions less than it was before 2011, is perfectly (and constitutionally) adequate. Glenn Hegar isn’t going to argue with that. Funny how these guys will proudly say something to one audience, then try to obfuscate what they actually said when it’s presented to a wider audience, isn’t it? The more Hegar complains, the more you know Collier is hitting the mark.

Great moments in false equivalence

The headline reads Money from disputed tax bills flowing to candidates for top tax chief, and then the story tells us that more than 99% of that money is going to one of those candidates.

BagOfMoney

Business entities and taxpayers are pumping thousands of dollars into the campaign coffers of candidates who, if elected state comptroller, would receive their tax-bill complaints.

The Texas Comptroller’s Office is charged with collecting state tax revenue and implementing state tax law. And even though the state auditor sought a ban on business contributions to comptroller candidates nine years ago, the Texas Legislature did not act and the practice prevails.

In this election cycle, businesses and lawyers with clients before the comptroller’s office have thrown more than $200,000 into the campaigns of two candidates seeking to replace Susan Combs: Republican state Sen. Glenn Hegar of Katy and Houston-area accountant Mike Collier, a Democrat.

Public watchdog groups see a potential conflict of interest.

“As long as we’re going to have comptrollers running on partisan political tickets, it’s almost impossible to filter out which contributions might not have an interest in the comptroller’s office,” said Craig McDonald, head of Texans for Public Justice.

Collier hasn’t received a lot of cash from entities with a stake in tax cases. Of the $200,000 he’s raised, only $1,500 comes from employees of ExxonMobil and BP, two energy firms with disputes before the Comptroller’s Office. He said he’d be open to legislative action barring contributions from donors with active cases with the office, but wouldn’t cut those donations out of his coffers.

“Because I’m the underdog and I’m trying to throw out the trench politicians, I’ll take money from anybody who’ll give it to me,” Collier said.

Hegar has snagged more than 10 percent of the more than $2 million he’s raised from businesses or firms with clients with active tax cases.

So in other words, of the “more than $200,000” that has been raised by the Comptroller candidates from people and firms that have business before the Comptroller’s office, at least $200,000 of it went to Glenn Hegar, while all of $1,500 went to Mike Collier. This is like saying that the Aaron brothers, Hank and Tommie, combined to hit 768 home runs in their career. One of the two contributed a lot more to the bottom line than the other. Oh, and well done on the “more than 10 percent of the more than $2 million” bit, which not only obscures the actual total (how much more than ten percent? how much more than $2 million?) it also surely confuses the more math-phobic readers about how much Hegar collected to the point where they have no idea that it’s way, way more than Collier. An impressive performance all around.

By the way, companies like BP and ExxonMobil have lots and lots of employees. Very few of those employees would have any role in or influence over the dispute process with the Comptroller’s office. Unless the BP and ExxonMobil employees cited above that donated to Mike Collier are among that small group, then the whole premise that “both candidates” are benefiting from contributions of entities and their representatives that have business before the Comptroller’s office is shot. Details, details.

The point of the story is that in 2005, a report by the Texas State Auditor showed that 750 taxpayers received $461 million in tax credits and refunds from the comptroller’s office less than a year after they or their representatives had made a contribution to then-Comptroller Carole Keeton Strayhorn. This was a key attack point by Rick Perry against Strayhorn in the 2006 campaign. That auditor’s report recommended that legislation be passed to the Comptroller or candidates for Comptroller from receiving campaign contributions from anyone that had a dispute pending with the office. Needless to say, nothing happened then, and nothing will happen in 2015. But at least now we’ve been reminded of the issue, and the Chronicle figured out a way to make numbers that are two orders of magnitude apart sound similar. So there’s that.

Another story on the huge inequities of our property tax system

The Houston Press returns to an old favorite.

HCAD

“I’ve been sued every year by [JW Marriott],” says Michael Amezquita, the fiery chief appraiser of the Bexar County Appraisal District, which is currently ­facing $10.3 billion in appraisal-reduction litigation compared to the annual $4 billion to $5 billion average. In the 2011 tax year, BCAD’s ten most expensive courtroom losses to class A commercial and industrial property owners resulted in an absence of $1.8 million in tax revenue for San Antonio-area school districts.

“Valero sues every year,” Amezquita adds. “H-E-B [based in San Antonio] is suing every year now. They never used to sue me before.” The Houston Press’s interview request with Bill Day of Valero’s media relations department in San Antonio fell on deaf ears.

Appraisal districts and property-tax experts say the uniform and equal (sometimes called “equity”) provision, cemented into the Texas Constitution in 1997 amid yawns from lawmakers, is the evil responsible for Texas’s defective property-tax system. Also known as the Taxpayer’s Bill of Rights, the statute created an annual circus in which big-money property owners and appraisal districts argue over how best to value the land, the sticks and the bricks, with the property owners almost always winning.

A 2011 study by Texas Comptroller of Public Accounts Susan Combs concluded that the state’s property-tax system generated more than $40 billion in revenue (or 47 percent of total tax revenue) in fiscal year 2011. There are billions of dollars on top of the $40 billion that should be there but aren’t, according to District 13 Senator Rodney Ellis. The Democratic lawmaker from Houston says that for every million dollars removed from the tax rolls, school districts, fire departments and emergency medical services are squeezed out of approximately $30,000.

The problem has been exacerbated by Texas’s absence of sales-price disclosure, which gives property owners a running start in property-tax disputes because appraisal districts must rely on private databases to procure sales numbers. Even then, it’s impossible to seize reliable data for every property — in 2013, HCAD was able to grab decent sales information on only 681 of Harris County’s 3,838 commercial transactions.

“Whoever heard of doing an appraisal without sales information?” says Amezquita. Idaho, Utah and Alaska — whose combined population is only 928,000 more than the total number of residents of Harris County — are the only other states that lock away all sales figures on taxable properties.

“It’s like boxing with one hand tied behind your back,” says former HCAD chief appraiser Jim Robinson, who retired from HCAD in May 2013 after serving 28 years at the agency. “What we see happening time and time again is tax consultants get everything that’s out there and they’ll pick a set of alleged comparables at the very bottom of the list and argue that they should be adjusted to that.”

What happens next, says Ellis, is that “as properties above the median are reduced to the target valuation, the median drops. The result is a constant and growing erosion of the tax base” on which Texas’s public-school finance channels are dependent.

[…]

The state tax code’s “remedy for unequal appraisal” section — the statute that has given central appraisal districts migraines for nearly 20 years — was added to the Texas Constitution in 1997, sans debate, after Representative Paul Hilbert offered the amendment in the waning moments of the 75th Texas Legislature.

“It was one of about 34 floor amendments offered that day…they said, ‘We’re just offering it for some technical cleanup,'” says Stewart, who has been working in appraisal litigation since 1985. “If I had been a member of the House and this had come up as a floor amendment with no fiscal notes or legislative comment, I would’ve voted for it. It was innocuous.”

Amezquita, in a phone interview with the Press, can rattle off the Section 42.26, Paragraph a3, provision from memory, nailing word after arbitrary word with heartfelt disgust: “The district court shall grant relief on the ground that a property is appraised unequally if the appraised value of the property exceeds the median appraised value of a reasonable number of comparable properties appropriately adjusted.”

Prior to 1997, property owners who took issue with an appraisal district’s value would protest based on Section 42.26, Paragraphs a1 and a2 — the part of the tax code that deals with appraisal ratio studies. Now “no one challenges on [paragraphs a1 and a2],” says Amezquita. “[Paragraph a3] is where the money is. Any blind monkey can win that deal. If I wanted to work for the other side, I could triple my money tomorrow.”

Since it was enacted, the law has been expanded in multiple sessions of the Texas Legislature, the most significant change coming in 2003, when “appropriately adjusted” was tacked onto the end of Paragraph a3. With the additional broad stroke of interpretation, ace lawyers have curried favor with the courts, leading an overwhelming majority of judges to side with property owners because there isn’t a definition of comparability in the tax code.

“Nobody has to use the yardstick of market value to keep you honest. They can just get an appraiser — and there are plenty of them out there who are hungry — to come in and pick properties,” says Stewart. “The way the courts are interpreting the statute, they say that’s permissible, and that’s what created the problem.”

Along with the state’s lack of sales-price disclosure, Stiefer says that Texas prohibits its appraisers from auditing any and all sales transactions. “This means the playing field isn’t level,” says Stiefer. “A homeowner can’t hide her house, but businesses can — and do — hide ­assets.”

West Virginia, Illinois, Mississippi, Louisiana and Arkansas also ensure equity among taxpayers in their respective state constitutions. However, none of those states boasts the complex mix of properties, population size or big-money dealings that Texas has.

“This isn’t a Democrat or Republican thing. This has been going on since 1997,” Amezquita says. “It’s not a tax policy. This is nothing more than a scam.”

I’ve blogged about this before; that first link is about the last time the Press covered this story, on the subject of how HCAD is much tougher on homeowners than on commercial properties. This is mostly a legislative problem – the lack of sales price disclosure plus the legal standard that’s allowable for the appraisal lawsuits (read the story for the details) make it ridiculously easy for corporations and other large property owners to get ludicrously undervalued appraisals, which greatly cuts their taxes and starves government at every level of revenue. The Legislature could fix this – as it happens, Wendy Davis filed a bill that would have addressed the latter issue, but it didn’t make it out of committee. We’ve spent a lot of time talking about school finance in this space, and this is an underappreciated part of the problem, as the system is rigged to ensure that school districts get less than they should. It’s yet another issue you should keep in mind when you go to vote this year. Actually, given the dynamic of this year’s election, it’s another issue you should use to remind off-year non-voters why we need them to show the heck up this fall. However you want to look at it, we’re getting screwed. The good news is that we do have the power to fix it, if we care to.

As always when talking HCAD and property taxes, George Scott is your go-to source for the bottom line. A couple of his posts to read on this:

HCAD’s Perverted ‘Golden Rule’ Of Uniform & Equal Value Practices: “Stick It Unto The Little Guys As The Big Guys Have Stuck It Unto Us”

Will Texas Democrats Adopt A Property Tax Political Strategy It Can Drive Into The ‘Republican Suburbs’ In November?’; They Are Fools If They Don’t

To that latter point, let me highlight this Dave McNeely column about Democratic candidate for Comptroller Mike Collier:

In researching Texas’ tax revenue situation and Hegar’s legislative record, Collier’s team found a linkage. A seemingly innocuous legislative tax law amendment in 1997 allowed property taxpayers to appeal to have their appraisals lowered to the “median” for “comparable” properties. Big businesses have more resources and financial incentive to appeal than do homeowners. But under the state’s school finance formula, that leaves it to homeowners and small businesses to make up the tax difference.

An analysis in 2006 showed a shift of $4 billion in tax responsibility — just for that year, Collier said. The lower appraisals also cut tax revenue for local governments like cities, counties and hospital districts.

“Texas is booming, yet our property tax bills keep going up while funding for roads, water and schools is falling way short,” Collier said. “Glenn Hegar is part of the problem.”

In 2013, SB 1342, by Sen. Wendy Davis — now the Democratic nominee for governor — would have required stricter standards for appealing appraisals, including preventing cherry-picking of “comparable” properties. The bill went to the Senate Finance Committee and was referred to the Fiscal Affairs Subcommittee — chaired by Sen. Hegar. There was a public hearing April 18, 2013.

Representatives of several school-associated groups and local governments testified for the bill. Representatives of several business and real estate associations opposed it. The Collier team found that those opponents had contributed $160,000 to Hegar’s campaign since 2006. The corrective bill never got a vote in Hegar’s subcommittee, and thus died.

Davis has been hitting multiple themes, mostly having to do with education and equal pay. I don’t know how much her campaign is interested in breadth versus depth, but however much her campaign talks about this, she can and should get some reinforcement from Collier on this. How much will depend in part on how much Collier can raise to get his message out and in part on how much coverage of actual policy matters Collier and others can get. The issue is there, and Democrats are aware of it. It’s a matter of how much traction they get.