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SCOTUS and sales taxes

This ruling will be good for Texas.

Texas stands to gain hundreds of millions of dollars in tax revenue after the U.S. Supreme Court on Thursday ruled that states may force online retailers to collect sales tax even when they have no physical presence in the state.

Every year, Texas loses $1.1 billion in uncollected sales tax, according to the Texas comptroller’s office — well over the $800 million the state will spend securing its southern border this year and next. That’s the result of the high court’s 1992 decision, now reversed, that retailers are responsible for collecting sales tax only in states where they had “nexus.” That decision — which predated the astronomical rise of the internet and the subsequent boom in online shopping — was outdated, argued lawyers for the state of South Dakota, who won the case this week.

That lost tax revenue is particularly meaningful in Texas, one of just a handful of states without a personal income tax. This May, for example, the state’s sales tax revenue totaled $2.76 billion.

[…]

Customers themselves owe sales tax on their purchases, but it’s sellers who are required to collect that money and send it to the government. States have little mechanism — and little incentive — to chase down sales tax on small-ticket purchases from average consumers when the retailers don’t do it themselves. Some of Texas’ largest online retailers — Amazon, for example — already remit sales tax to the state. Amazon has almost a dozen distribution centers in the state.

Texas is highly unlikely to gain back all of the $1.1 billion it’s currently losing, experts said, and any money the state gets back won’t come overnight. While the Texas comptroller has a great deal of taxing authority, some changes to the state’s tax structure might have to be carried out by the Legislature when it reconvenes in 2019, said Dale Craymer, the president of the Texas Taxpayers and Research Association. The Comptroller’s office is looking into that, a spokesman said.

“We welcome the court’s ruling in this case and are currently assessing any potential revenue impacts,” said Kevin Lyons, a spokesman for the agency.

I have long believed that the sales tax exemption for online purchases outlived its purpose years ago. This is not just for states like Texas but also for local governments that rely on sales tax revenue, and for traditional retailers who are no longer at an automatic disadvantage. Sales tax rates vary by locality, and not all items are subject to sales taxes, so this will be a challenge to set up, but that’s not our problem. Online retailers will figure it out, and life will go on. This was the right decision.

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.)

State of the County 2017: Ed Emmett versus state leadership

That sound you heard was a fight breaking out.

Judge Ed Emmett

Harris County Judge Ed Emmett on Tuesday used his annual State of the County speech to blast state leaders who he said attack local governments and seek to cut needed taxes but offer no real solutions to the myriad problems Texas’ large urban counties face.

Before a crowd of hundreds at NRG Center, Emmett called on state officials to invest roughly $500 million in a third reservoir and dam to boost area flood control efforts, fund a beleaguered indigent health care system, and revamp “broken” tax policies that force the county to rely on property taxes to serve an unincorporated area that, on its own, would be the fifth-largest city in the country.

In addition to helping with the county’s flood control efforts, Emmett called on the state to contribute more for mental health care and transportation improvements, citing the need for an Interstate 69 bypass on the east side of the county and renewed emphasis on railroads and technology to move freight from area ports.

He also reiterated his call for state leaders to accept increased Medicaid funding from Washington.

“The next time a state official makes a big deal about a fraction of a cent cut in the property tax rate, ask them why they won’t help Harris County property taxpayers fund indigent health care,” the judge said. “State leaders who are eager to seek for disaster relief should also be willing to accept federal dollars to provide health care for poor people. That would be real property tax relief.”

The state, he said, should treat the county more like a city, which by law can levy a sales tax and pass ordinances. The county is an arm of state government and relies on property taxes for most of its revenue.

“The whole point of today’s speech was to say ‘enough is enough,'” Emmett said afterward. “We need to be able to provide the services and the government that people expect in an unincorporated area.”

[…]

Emmett criticized the bills that would have forced the county to get voter approval on taxes and spending.

“Such a populist approach might sound reasonable, but the late British Prime Minister Margaret Thatcher, who nobody ever accused of being a liberal, described direct referenda as ‘a device for dictators and demagogues'” he said.

He also lit into lawmakers’ attempts to limit property tax collections during the last legislative session, saying leaders “attacked counties and cities and other local governments, all the while offering no real solutions.”

“County government relies almost completely on property tax revenue, but the property tax is widely hated, and wholly inadequate as a means of financing the unique urban government that we have. Unfortunately, narrow-minded politics has pushed unfunded mandates from the state onto county government,” Emmett said.

“It is just pure ugly politics. And, by the way, the portion of county taxes paid by business is, I don’t need to tell the business community in this room, growing. We are reaching the point where tax policies are a drag on economic development.”

You can read the whole speech here. Most of the criticisms Emmett made about state leadership and recent political actions are in the story, but the whole thing is worth a read. Oh, and he was introduced by outgoing House Speaker Joe Straus, which was a further provocation. Like the useless demagogues they are, Dan Patrick and Paul Bettencourt responded petulantly in the story. This is another skirmish in the culture wars of the Republican Party, and Republicans who are in the Ed Emmett/Joe Straus camp – including Emmett himself – are going to have to decide next year if they really want the likes of Greg Abbott and Dan Patrick dictating to them. A vote for the status quo is a vote for four more years of the things that Emmett was railing against in his speech.

Emmett calls for changes to county’s flood strategy

Good to see.

Judge Ed Emmett

Calling Tropical Storm Harvey’s devastation a “game-changer,” Harris County Judge Ed Emmett on Monday called for a sweeping reexamination of the region’s flood control strategy, a process that could include billions of dollars to upgrade aging dams, building a new storm water reservoir and ramping up regulations to tamp down booming development in flood-prone areas.

The set of options outlined by Emmett on Monday, if implemented, would be the biggest change in decades to how the Houston region protects against its perennial rains and floods. Emmett said everything would be on the table, including large-scale buyouts, banding with surrounding counties to create a regional flood control district and seeking authority from the state to levy a sales tax to pay for what likely would be a massive initiative.

Emmett, a Republican who has served as county judge since 2007 and largely is seen as a pragmatist, likened the changes to a post-flood push in the 1930s that led to the creation of the Harris County Flood Control District and the construction of the Addicks and Barker dams on the city’s west side, which today protect thousands of homes of homes, downtown Houston and the Texas Medical Center.

“We can’t continue to say these are anomalies,” Emmett said. “You’ve got to say, ‘We’re in a new normal, so how are we going to react to it?'”

Jim Blackburn, an environmental lawyer and frequent critic of Harris County’s flood control strategy, was encouraged after hearing Emmett’s comments Monday.

“This is the single best piece of news I have heard post-Harvey from any elected official,” said Blackburn, who has sued the county on several occasions and co-directs Rice University’s center on Severe Storm Prediction, Education and Evacuation from Disasters. “I would like to hear every one of them say that.”

[…]

Included in the options Emmett outlined Monday were buyouts, not just of individual homes, but whole tracts of land. He said a wish-list of homes that are not already being targeted by projects, such as the upgrades on Brays Bayou, could cost $2.5 billion.

A regional flood control district could be modeled after the Harris-Galveston Subsidence District, created in 1975 to oversee the conversion from well water to surface water after sinking ground alarmed residents and public officials.

Emmett said given the repetitive flooding, the 100-year standard the county uses to design projects and regulate development, would need to be reexamined.

“We basically had three 500-year events in two years,’ he said.

An additional reservoir and a levee in the northwest part of the county to back floodwaters from Cypress Creek – both part of the options Emmett outlined – had been part of an original U.S. Army Corps plan when it built the Addicks and Barker reservoirs. Those projects failed to materialize, however, and land costs became prohibitive as people moved in.

As we now know, this includes a bond issue of up to $1 billion. On top of that, Commissioners Court has filed an application with FEMA to buy out some houses in high risk areas. Emmett has also mentioned federal funds for some projects, which state officials are also seeking, reallocating the county budget to put more of an emphasis on flood mitigation, and maybe asking the Lege to provide another revenue stream such as a sales tax. Some of this may now be mooted by the bond issue, and some of it may be discarded for lack of support. The important thing is to get the conversation started, so kudos to the county for that.

The “border adjustment tax” is a sales tax increase by another name

That’s a feature, not a bug.

Retailers across Texas and the country are warning that a proposed border adjustment tax would increase the cost of imports and, by extension, the price of food, clothing and other consumer goods. Texas companies, including Stage Stores of Houston and Neiman Marcus of Dallas, have joined more than 150 other U.S. firms in a coalition fighting a possible border tax, part of a broader tax overhaul championed by Rep. Kevin Brady, The Woodlands Republican who chairs the tax-writing Ways and Means Committee, and House Speaker Paul Ryan, R-Wisconsin.

The plan essentially proposes a 20 percent tax on imports, which the National Retail Federation, a trade group, expects would raise the price of consumer products by 15 percent. Randi Sonenshein, senior vice president of strategy and finance for Stage Stores, which has more than 800 locations in 38 states, said her company worries that the higher prices related to the tax would particularly hurt customers who shop at stores located in small and mid-size towns, where it primarily operates.

“The plan will have a disproportionately negative impact on retailers,” she said. “It’s a tough thing to contemplate.”

Border adjustment is one component of a tax plan that aims to shift the U.S. tax code toward favoring production of goods over their consumption. Under the plan, companies would lose deductions for the costs of importing goods; at the same time, sales revenues from goods they export would be exempt from corporate income taxes.

[…]

Companies with significant sales in foreign countries, including aerospace manufacturer Boeing, the industrial conglomerate General Electric, chemical maker Dow Chemical and pharmaceutical maker Pfizer, support the plan. But critics of border taxes say U.S. consumers will ultimately pay more, with the costs borne disproportionately by low- and middle income households.

If a border tax was enacted, apparel, autos, furniture and electronics equipment – much of which is imported – would see some of the largest price increases, at least initially, according to a recent analysis by the Wall Street investment bank Goldman Sachs. The National Retail Federation expects the cost of clothing, for example, would rise at least $350 a year for an average consumer.

Walmart, the nation’s largest retailer, as well as trade groups such as the U.S. Fashion Industry Association and the Association of Global Automakers, have joined the coalition against the plan, called Americans for Affordable Products.

The Texas Retailers Association, which represents companies of all sizes in every retail sector except convenience stores, has followed suit. George Kelemen, the association’s president and CEO, said every retail business in the state would be affected by the proposal in some way. In addition to clothing and other manufactured goods, food grown outside the United States, including everyday groceries, such as avocados, bananas and coffee would become pricier, he said.

“We are opposed to this,” he said. “It’s a cost passed on to the consumer.”

The real point of this is that once this is implemented, you – and by “you” I mean “Republicans” – can cut taxes elsewhere, which is always the goal. In that sense, it’s like the Craddick-era proposals to hike the state sales tax in return for a property tax cut. Dan Patrick would do that today if he thought he had the votes for it. I’m sure you can guess who would pay more and who would pay less in such a scenario. The bottom line is those tax cuts for the rich aren’t going to pay for themselves, but this might.

Time once again to talk about the Super Bowl and its economic impact

We’re less than 100 days out from Super Bowl LI here in Houston. I don’t know how much people who are not directly involved in the planning and execution of it are thinking about that.

The economic benefits of hosting a Super Bowl and other major events have long been a matter of debate, however. Houston’s host committee has yet to release its impact analysis, but these reports typically estimate that Super Bowls generate economic activity in the hundreds of millions of dollars. Academics who study such events generally find the added activity, with all the costs taken into account, is much smaller.

“I can’t tell you whether there will be a zero net impact or a modest positive one,” says Andrew Zimbalist, an economist at Smith College who has long studied the sports industry, “but it’s not going to be large.”

Houston, though, may be better prepared to benefit from the Super Bowl than other cities, for several reasons. First, there isn’t much winter tourism in Houston to displace, as in other Super Bowl cities such as New Orleans and Miami, so the net gain here is much greater. Second, Houston’s hospitality industry needs the business, with new hotels built during the shale boom struggling with lower-than-expected occupancy rates as business travel declined.

Third – and perhaps most important – the city really could use a period of prolonged exposure to show business leaders and the millions watching at home that it’s not just a stodgy oil town like it was in the early 2000s.

[…]

The accounting firm PwC has estimated the economic impact of the Super Bowl since 2003, pegging the game’s value to Houston in 2004 at about $130 million in direct spending. It estimated that the last Super Bowl, number 50, was worth $220 million to the San Francisco Bay Area.

Cities have gotten better at making the most of Super Bowl week, said Adam Jones, a PwC analyst. By planning events within a relatively small radius so visitors spend more time on experiences than getting to them, cities can capture greater returns.

Houston has done that, with NFL Live at Discovery Green — a 10-day music and food-filled festival open to the public — only a few minutes from NRG Stadium via light rail or taxi. Additional bus and shuttle lines will be available should guests want to venture to the Galleria as well.

“What we’ve seen within the past five years is communities going out, learning what has worked, what hasn’t worked in cities that preceded them,” Jones said. “We continue to see year over year improvement in the model.”

University of Houston economist Bill Gilmer looked at additional tax revenues generated during the 2004 Super Bowl, about $5 million, and estimated the 2017 edition would bring in an extra $6.6 million in sales taxes for the city plus another $2.2 million in hotel occupancy taxes and $6.8 million for Metro.

Longer-term benefits are harder to measure. The city’s tourism promotion arm, HoustonFirst, said it was able to go after bigger conventions when the Hilton Americas was completed in 2004. That added 1,200 rooms directly connected to the convention center, and the Marriott Marquis will have a similar effect. The city booked a record number of room nights for future conventions in 2015 and expects to break the record again this year, according to HoustonFirst.

We’ve discussed this a few times before. I’m sure that the economic benefit of hosting a Super Bowl is generally overstated, but I do think there is a benefit, and I do think it’s possible that cities have learned from past experiences and academic study to maximize the benefit that is available to them. As the story notes, Houston doesn’t have much tourism trade to displace, but we do have an extensive food-and-drink sector of our economy that will surely enjoy having all these out-of-towners around. The spending that has been done on infrastructure is spending that needed to be done, and which will be a public good long after the Super Bowl people have gone home. In the end, someone will put out a number, and we can make of that what we will. Whatever that number is, I expect the city of Houston will look back on this experience and decide that it was worth it.

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.

Council unanimously passes Turner’s first budget

Good job.

Mayor Sylvester Turner

Mayor Sylvester Turner

Mayor Sylvester Turner achieved his goal of securing unanimous passage of his first general fund budget Wednesday morning, a month ahead of the typical schedule and after an unusually brief and uncontentious discussion of council members’ proposed changes.

The $2.3 billion general fund budget, which pays for most basic city services with revenues from taxes and fees, represents only the second budget cut for Houston in two decades. The first came after the 2008 nationwide financial crisis.

“It’s not my budget, it’s our budget,” Turner told City Council. “There are fewer than 20 amendments today, which I think speaks to the collaborative nature of the partnership we have. I want to thank you for the trust you’ve placed in me.”

[…]

Turner’s budget proposal in general , which spends $82 million less than was budgeted in the current fiscal year, despite an additional $27 million for employee raises and an increase of $29 million in pension payments, cuts 54 vacant positions and includes roughly 40 layoffs.

The document pulls $10 million from reserves, makes $56 million in permanent changes, mainly cuts within departments, and relies on $94 million in one-time fixes to bridge the $160 million gap the city had faced between its revenues and expenses.

The Mayor’s press release is here, and a longer version of the Chron story is here. This is the “easy” budget, in the sense that it doesn’t yet do anything related to pensions, and was able to use a number of one-time items to help boost revenue and mitigate the need for deeper cuts. Next year will be harder, especially if sales tax revenue continue to sag. The relative ease and widespread harmony with which this budget was passed gives Turner some momentum and a fair amount of political capital to deal with that budget as it comes. The Press has more.

Have I mentioned lately that the revenue cap is stupid public policy?

Because it is.

BagOfMoney

Sales taxes are Houston’s second-largest source of revenue for the general fund, which pays for most core services.

Just as concerning for city officials, however, was more news about the city’s largest general fund revenue source: property taxes.

Mayor Sylvester Turner, as he did in February, criticized what he said is an unjust and inequitable system that lets commercial property owners abuse legal loopholes to successfully challenge their property appraisals and pull millions out of local governments’ budgets.

As of February, the hole created by those tax lawsuits was to be a projected $16 million for the current fiscal year, which ends June 30. By Wednesday, Turner and his finance director, Kelly Dowe, said that projection had risen to more than $32 million.

Council cut the property tax rate last fall to ensure the city would not collect more property tax revenue than is allowed under the city’s decade-old, voter-approved revenue cap, which limits growth in property tax collections to 4.5 percent or the combined rates of population growth and inflation, whichever is lower.

Companies’ successful lawsuits are pushing tax collections below the cap, however, with no way to adjust the rate back up to fill that hole.

“It’s a double hit. Last year you all lowered the tax rate based on the revenue cap. Had we known then we were going to be down another $32 million, I don’t think you would have lowered it that low. You cannot budget that way,” Turner said. “I will again ask the Legislature to remedy this situation. Taxes from hard-working homeowners should not effectively subsidize wealthy commercial property owners.”

But hey, look on the bright side: The system is working exactly as designed.

Final Four weekend was pretty good for Houston

We’ll take it.

Beyond the basketball court, the Houston economy appears to be the big winner of the Final Four.

Across the city, several restaurants, bars and hotels reported big boosts in customers and cash flow, as an estimated 70,000 out-of-town basketball fans arrived for the NCAA men’s basketball championship. Organizers say those fans could spend $150 million in a city that could use a lift as a prolonged oil slump persists.

“I feel like it’s exceeded expectations,” said Rachel Quan, vice president of external operations for the Houston Final Four Local Organizing Committee.

Many local officials and business leaders said they view the Final Four as something of a test-run for next year’s Super Bowl. The city is sprucing up to accommodate the thousands of expected visitors with a slew of development projects – from road improvements around NRG Stadium and Hobby Airport to building the Marriott Marquis that will connect with the George R. Brown Convention Center.

The benefits of hosting major sporting events -weighing costs and crowds versus the visitor spending and promotion – have long been debated. At times, the city struggled over the weekend to accommodate the swarms of Final Four visitors. Concerts at Discovery Green in downtown were so busy that police were forced to turn people away, leading some to complain of poor planning.

The Final Four alone might not create a wave of economic growth, but is the culmination of events like the Super Bowl and the annual Offshore Technology Conference next month that have the greatest potential impact, said Barton Smith, professor emeritus of economics at the University of Houston.

“Collectively, it can be a very important part of the Houston economy,” he said.

I’ve made plenty of fun of economic impact projections for sporting events, but this at least is talking about something that has already happened, and whatever you think about those projections, it’s a different matter when a business like Phoenicia reports a big increase in sales during the period in question. As always, you still have to be careful about accepting numbers like these on their face, as some folks might have stayed home instead of going out or otherwise not spent money that they would have if there hadn’t been a big event crowding the streets and clogging up traffic. We also don’t know how much the city had to spend on maintenance, overtime, cleanup, and what have you – that figure is never taken into account in these stories. But overall it seems that local businesses got a boost from the weekend’s activities, and that’s always a good thing. Let’s hope we get more of the same from next year’s Super Bowl.

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.

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 Prop 7 funds are already being claimed

Get ready for a lot more road construction in the near future.

Voters have a little more than a week to decide whether to give Texas highways a $2.75 billion annual funding boost, but Houston-area officials are already making plans to spend the money.

In the event Proposition 7 passes – the proposal has silent, token opposition – officials with the Houston-Galveston Area Council on Friday approved a revised 10-year spending plan that reflects when area road projects could begin, using the new money.

“Readiness will be the name of the game,” said David Wurdlow, program manager for short-range transportation planning at H-GAC. “We are going to be real aggressive to move projects forward.”

Without Proposition 7 the amount of money available for regional transportation projects is roughly $2.1 billion for the next decade, according to the current 10-year plan. Though not the only source of highway money, the funds directed by H-GAC’s Transportation Policy Council are among the most significant to build or rebuild highways.

Adding Proposition 7, officials estimate, increases that total to more than $4.6 billion, taking long-sought projects and moving them much closer to reality much sooner. In fiscal year 2018, for example, Proposition 7 would increase highway spending in the Houston area from $211 million to $696 million.

In 2018 alone, Proposition 7 means an earlier start to two segments of widening Interstate 45 near NASA Bypass 1 in Webster and earlier construction on FM 2100 east of Atascocita.

Another project accelerated by planners is a long-sought widening of Texas 36. Though the road isn’t a major commuting bottleneck, widening it is a major focus Freeport and Waller County officials who contend the highway is a natural truck bypass for the Houston area.

[…]

Like Proposition 1, the money comes with some conditions. Officials cannot pay off any of Texas’ highway debt, which is how many previous transportation programs were paid. All of the funds must be used on state highways – meaning no tollways, transit or alternative modes such as bicycling can benefit.

Some non-highway projects, however, could benefit, if regional officials approve. The transportation council is made up of local elected leaders and the heads of transportation agencies such as the Metropolitan Transit Authority and TxDOT’s Beaumont and Houston offices. Council members use a formula that divides the federal and state funds spent by the agency, which caps spending on non-highway projects, called alternative modes, to between 18 percent and 25 percent of total funds.

If the Proposition 7 windfall gives officials hundreds of millions of dollars more for highways, they could restructure.

“We might be able to move those (highway projects) to the proposition side and move some of those funds to alternative modes,” Wurdlow said.

Prop 7 isn’t raising any new money to spend on transportation, because we don’t do that sort of thing in Texas. It simply mandates that $2.5 billion of sales and use tax revenues in Texas specifically to transportation – in other words, it takes money from one pocket of the budget and puts it in the other. If you’re wondering why legislators who have been writing the state’s budget over the pasty few years were unable to allocate extra funds for transportation on their own, or thinking that this is just another band-aid that doesn’t actually solve anything, you would not be alone. Streetsblog and the Rivard Report present a more comprehensive case against Prop 7, but I doubt it will have much effect. Like it or not, we’re going to see a lot more highway construction in the near future. Better get used to it.

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.

BP settlement cash

Nice.

BagOfMoney

The city of Houston, Harris County and Metro netted $23 million in compensation from BP for revenue they could not collect in the wake of the company’s 2010 Gulf oil spill, officials announced Thursday.

Houston will pocket about $12.2 million from the costliest environmental lawsuit in U.S. history to cover hotel and sales tax shortfalls. The Metropolitan Transit Authority will receive more than $9.2 million for lost sales tax revenue, and Harris County will get $2.1 million for lost hotel occupancy tax revenues, officials announced in a joint statement.

However, expenses for the case and fees for two outside lawyers who represented the city, county and Metro will carve off nearly 40 percent of those totals.

Nearby communities and government entities, including the city of Galveston, Jefferson County, the city of Beaumont, and Orange Port Authority also are among the 511 entities that said the spill caused an economic shortfall.

The payouts are part of the $18.7 billion that BP agreed to pay earlier this month for damages and penalties resulting from the Deepwater Horizon spill – the worst environmental disaster in U.S. history.

[…]

Houston Mayor Annise Parker and Harris County Commissioners Steve Radack and Jack Morman said they were satisfied with the settlement. Commissioners Court has not yet determined how the county will split the money.

“Frankly, I wish we would have gotten more, but certainly it was a worthwhile lawsuit,” Radack said.

Several commissioners received a total of 1,700 identical emails from BP employees, via a server in United Arab Emirates, urging them not to pursue legal action against the company, according to Soard at the County Attorney’s office.

County Judge Ed Emmett, who voted in Commissioners Court against seeking damages, said, “I thought it was a stretch to say that we lost so much revenue because people didn’t rent hotel rooms here because of the BP spill.”

“Am I glad the county won? Sure. Would we have been part of the lawsuit if it had been just up to me? Probably not.”

He said he was disappointed the county would only to realize $1.3 million after the lawyers took their cut. Commissioner R. Jack Cagle had also voted against entering the lawsuit, in his case because he thought the county attorney could handle the case.

As to whether it was appropriate to seek damages, Janice Evans, spokeswoman for the mayor, said, “We raised the same exact issues as more than 500 other governmental entities and all parties have agreed to this, as has the court, so we would not characterize it as opportunist.”

Whether the amount that these three entities will receive is “enough” is not one I can answer, nor can I answer it for the 500 others involved in the litigation, not to mention BP itself. It’s something, and I’m quite sure it will be put to good use.

Circling back to city finances

I have three things to say about this.

BagOfMoney

This time, [City Finance Director Kelly] Dowe insists, the $126 million deficit he projects for the budget year that starts next summer is not going to disappear, as past projected shortfalls have. There are no more payments to defer, he says, no more valuable city-owned land to sell.

As a result, the city could be facing layoffs and cuts to services within a year – perhaps pool closures, restricted library hours and parks going to seed, and perhaps worse.

“We have an unsustainable financial model,” Councilman Dave Martin said. “We cannot continue to do this. If we continue down this path, we’ll be belly up.”

Dowe and his boss, Mayor Annise Parker, know Houstonians are confused as to why their government would face layoffs and service cuts while the region’s economy booms.

There are several reasons for this, all a decade or more in the making.

The city has been spending more than it brings in for years, a structural gap driven chiefly by soaring pension costs and, in recent years, a spike in debt payments. Houston typically bridges this gap by budgeting conservatively, being happily surprised when tax revenues exceed projections during the year, then using those “extra” dollars to balance the next year’s budget.

To balance the current budget for the fiscal year that started last week, council approved taking $86 million from last year’s leftover savings, the largest such transfer in a decade.

“Obviously we carry the reserves over from year to year. That’s money that’s not generated or not expected to be generated in the next budget cycle,” said Controller Ronald Green, the city’s elected financial watchdog. “Clearly, if you want to be technical, it is not a structurally balanced budget.”

This history of disappearing deficits has made some council members skeptical of just how dire current projections are. Dowe acknowledged that he originally projected an enormous shortfall for the current budget, which wound up being balanced without layoffs or service cuts.

But he also ticked off a litany of reasons that he says will make another easy fix harder in the future.

First, the city has run into a cap on property tax revenues that voters imposed a decade ago. Houston can collect more property taxes each year than the year prior, but is limited to the combined rates of inflation and population growth.

The city now knows exactly what it will collect each year from its largest source of revenue, and no number of new skyscrapers or townhomes will change that. The typical way the city has wound up with “extra” money at the end of each year is thus gone. Without the cap, the city would have had another $53 million to spend this year.

[…]

Each of the next two years also will bring a $50 million payment to the police pension, triggered under the pension board’s contract with the city because sluggish investment returns have eroded its funding level.

Without an increase in revenue, Dowe said, the only option is to cut services.

“Debt is what it is, pensions are what they are,” he said. “We will continue to get more efficient, we will continue to cut costs where we can, but in the long term it would be hard to say you wouldn’t affect services with the outlook we have.”

Debt payments for past public projects have risen by more than half over the last five years, to $346 million this year, and are projected to reach $411 million by 2020. Pensions are devouring $308 million of the city’s main operating fund this year, nearly three times what is spent on parks and libraries combined.

1. There’s no serious solution to this problem that doesn’t include repealing the revenue cap. Every candidate running for office runs on a promise of promoting economic growth and prosperity. Houston has had that these past few years, but thanks to the cap we’re being penalized for it. Fifty-three million dollars is a lot of money and would do a lot to reduce the scope of the problem we’re facing, and that’s just for this year. You want to argue that we don’t have a revenue problem in Houston I’ll be sympathetic, but that doesn’t mean that throwing away extra revenue like this makes any sense. There is no good reason not to use all available resources.

You may argue that the people won’t go for it, and you may be right. What evidence we have from limited polling certainly suggests that’s a strong possibility. To that I say, how about a little leadership from those who want to be Mayor? Politicians love to talk about “making the tough choices”, yet somehow choices like this never seem to be on the table. To be fair, at least some Mayoral candidates have mentioned this – I know Chris Bell has, I’ll have to check on some others – and Mayor Parker has brought it up as well. Any candidate who says they want to make “tough choices” but doesn’t consider this is to my mind not to be taken seriously.

2. Similarly, I don’t know how anyone can look at the debt figures and not support ReBuild Houston. One of the defining purposes of ReBuild Houston was to pay down existing debt and reduce the amount of future debt needed to pay for infrastructure. Put aside the extra revenue stream that ReBuild Houston represents, why would you want to add to the debt burden at this time? I’m not against using debt to invest in the city’s infrastructure, but now is not a very good time for it. What exactly is the case for going back to a bond-based system of paying for street and drainage improvements?

3. Finally, the pension issue. The choices are the same as they’ve always been – try to convince the Legislature to grant the city the authority to make changes to the pension plan; try to negotiate a different agreement with the firefighters; suck it up and figure out how to pay what we owe. I’m not sure why anyone thinks they’d be more successful at #1 than Mayor Parker has been, and I can’t imagine anyone advocating for #3. Maybe I’m missing something, I don’t know. I don’t know what else there is to say on this.

Sales tax revenues take a dip

Don’t freak out just yet, but do be a little worried.

Houston’s 53-month consecutive span of year-over-year sales tax revenue gains has come to an end, five months into an energy slump analysts said could dent the city’s economic numbers for the rest of the year.

The city’s $50.1 million sales tax revenues for April, received this month as its allocation from the state, represented a 2.3 percent decline from a year ago, according to the Texas Comptroller’s Office.

One month’s spending activity doesn’t represent a trend, and revenues from various sectors of Houston’s economy were all over the map. Among the top-grossing sub-sectors providing tax revenue in Houston, reported collections were down roughly 2 percent at discount department stores and family clothing stores that month compared with 2014, and off 2.6 percent at supermarkets and grocery stores. Full- and limited-service restaurant collections, on the other hand, rose 4.7 percent and 10.1 percent, respectively, figures show.

But as Houston’s sales tax revenues declined 2.3 percent, the state’s $2.6 billion in sales tax revenue represented a 5.2 percent increased over April 2014, suggesting that a sharp downturn in the oil and gas industry so crucial to Texas has affected Houston more significantly than the rest of the state.

[…]

In Houston, sales taxes account for 30 percent of the city budget’s general fund revenue. As the city prepares its next budget, whether the monthly dip is a blip or a more sustained rattle is being monitored, city Controller Ronald Green said.

“I think now’s the time not to panic but for us to kind of determine if there’s going to be a trend in this,” Green said, adding he needs two more months of data to determine whether’s April’s revenues were a trend or an anomaly.

Compared to the doom-and-gloom predictions of late last year, steadying crude prices for the last several weeks are a sign industry is making adjustments, said Ed Wulfe, chairman and CEO of Wulfe and Co., a commercial retail real estate brokerage firm. “I think it has corrected itself already,” he said of the energy downturn. “By and large, we’re starting to get back on the normal speed and level already.”

Crude oil prices began dipping last summer after reaching a peak above $100 per barrel and have hovered around $60 since April.

The effects of that sharp price decline began arriving at the beginning of April, said Jesse Thompson, business economist with the Houston branch of the Federal Reserve Bank of Dallas.

“At this point, the only thing that’s hitting us is what’s happening in the energy market,” Thompson said.

I basically agree with Ronald Green. A one month dip like this can be brushed off as an aberration. Three months of it is a serious problem. If it’s about what’s happening in the energy industry, there’s not much to be done about it except adjust behavior and expectations accordingly. Check back in August and we’ll see where we are.

Meet your Constitutional amendments

A pretty uninspiring bunch, if you ask me.

vote-button

Now that the dust has settled on the 84th Texas Legislature, voters are getting the first official look at which constitutional amendments they will be voting on come November.

Texas Secretary of State Carlos Cascos on Wednesday took the last step to place seven propositions on this fall’s general election ballot, all of which were approved by two-thirds of all state lawmakers during the just-ended session. Per state law, they are chosen randomly in a drawing to assign the order in which each proposition will appear on the Nov. 3 ballot.

All told, they run the gamut of state issues, from the serious to the mundane, and they create a narrative of the session that is not at all inconsistent with what really happened under the Pink Dome.

Here are the amendments, in the order they will appear on your ballot.

Proposition 1 (SJR 1)

“The constitutional amendment increasing the amount of the residence homestead exemption from ad valorem taxation for public school purposes from $15,000 to $25,000, providing for a reduction of the limitation on the total amount of ad valorem taxes that may be imposed for those purposes on the homestead of an elderly or disabled person to reflect the increased exemption amount, authorizing the legislature to prohibit a political subdivision that has adopted an optional residence homestead exemption from ad valorem taxation from reducing the amount of or repealing the exemption, and prohibiting the enactment of a law that imposes a transfer tax on a transaction that conveys fee simple title to real property.”

Proposition 2 (HJR 75)

“The constitutional amendment authorizing the legislature to provide for an exemption from ad valorem taxation of all or part of the market value of the residence homestead of the surviving spouse of a 100 percent or totally disabled veteran who died before the law authorizing a residence homestead exemption for such a veteran took effect.”

Proposition 3 (SJR 52)

“The constitutional amendment repealing the requirement that state officers elected by voters statewide reside in the state capital.”

Proposition 4 (HJR 73)

“The constitutional amendment authorizing the legislature to permit professional sports team charitable foundations to conduct charitable raffles.”

Proposition 5 (SJR 17)

“The constitutional amendment to authorize counties with a population of 7,500 or less to perform private road construction and maintenance.”

Proposition 6 (SJR 22)

“The constitutional amendment recognizing the right of the people to hunt, fish, and harvest wildlife subject to laws that promote wildlife conservation.”

Proposition 7 (SJR 5)

“The constitutional amendment dedicating certain sales and use tax revenue and motor vehicle sales, use, and rental tax revenue to the state highway fund to provide funding for nontolled roads and the reduction of certain transportation-related debt.”

I will be voting No on #s 3 and 7 and probably on 1, Yes on #2, and I have no idea yet on the others. What about you?

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.

House passes sales tax cut

Over to you, Danno.

BagOfMoney

The Texas House tentatively approved a $4.9 billion tax relief plan Tuesday that includes a cut to the state’s sales tax, marking a clear line in the sand against the Senate, which favors property tax cuts.

The House voted 141-0 for House Bill 31 by Ways and Means Chairman Dennis Bonnen, R-Angleton, which would cut the state sales tax rate from 6.25 percent to 5.95 percent. If the bill reaches the governor’s desk, it would be the first cut in the state’s sales tax in Texas history.

Bonnen presented his sales tax cut as more impactful than the Senate’s proposal, which would increase homestead exemptions to lower local school property taxes. The Legislature passed an even larger property tax cut in 2006 that was widely viewed as underwhelming by homeowners due to increases in property values and local tax rates.

“A sales tax cannot be eroded by a local tax hike or rising appraisals,” Bonnen told the House. “We would be using our tax dollars for a tax that we control.”

My personal choice would be to invest this money in education, infrastructure, shoring up the pension system, that sort of thing, but you know what they say about elections and consequences. If we have to cut taxes, I’ll take the sales tax cut, as it’s more progressive and doesn’t require advanced shenanigans with the spending cap. But let’s keep things in perspective here. What this cut means is that if you spend $100, you will save a grand total of thirty cents on your sales tax – instead of paying $108.25, you’ll owe $107.95. The claim is that this cut will save the average family something like $170 per year, well to get that amount of savings that family would have had to spend some $57,000 on taxable goods and services during the year. That’s more than most families of four in Texas make in a year. I guarantee you, nobody is going to notice this. That’s the real problem here – any tax cut will cost the state billions, but will accrue only modest benefits to the people. I can only wonder what if any effect this will have on the next campaign, assuming this goes through the Senate as well. BOR has more.

Bill filing deadline has passed

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

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

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

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

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

[…]

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

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

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

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

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

The Trib highlights a few bills of interest.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Finally, one more bill worth highlighting:

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

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

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

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

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

Voodoo economics

Also known as Dan Patrick’s budgetary contortions.

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Lt. Gov. Dan Patrick, joined by the Texas Senate’s lead budget writers, announced “a new bold proposal” Wednesday morning to allow lawmakers to cut property taxes and pay down the state’s debt without busting the state’s politically charged spending cap.

“Gosh darn, we know our businesses and taxpayers need tax relief,” Patrick said at a press conference. “But because of the cap, we are limited in what we can do.”

Lawmakers entered the session with an estimated $113 billion to haggle over, but are expected to hit the state’s spending cap at $107 billion. Spending beyond the cap would require a simple majority vote in the House and Senate, a move that Republican leaders have repeatedly insisted will not happen this session.

The measures filed Wednesday are an attempt to provide political cover for Texas lawmakers to tap more of the billions of dollars sitting in state coffers without being viewed by voters as freewheeling spenders. Republicans in particular are wary of a vote for breaking the state’s spending cap being used against them in future primaries to paint them as fiscally irresponsible.

“We have more money on hand than we believe any Legislature has ever had at one moment in time dealing with budget issues,” Patrick said. “There is no support for exceeding the spending cap, but that also means that when we leave, we will have approximately $4.5 to $5 billion in the state’s checking account.”

While a simple idea in theory, the spending cap in practice is a complicated measure that even some members of the Legislature have trouble grasping. The Texas Constitution says the government can’t grow faster than the state’s economy. State leaders set a growth rate of 11.68 percent for this session in December, based on the estimated rate of growth in Texans’ personal income over the next two years.

“For 36 years our state spending cap has helped enforce fiscal discipline, and we should be very cautious about any attempt to weaken it,” House Speaker Joe Straus said in a statement responding to Patrick’s proposals.

Well, gosh darn, Dan Patrick categorically refused to consider exceeding the spending cap in 2013 when some people wanted to more fully restore the cuts to public education spending, so right there is your first clue that this is little more than a gimmick and an attempt to hardcode Republican priorities into the state constitution. I’m a bit pressed for time, so I’ll point you to a couple of good analyses of this. First, from Ross Ramsey:

Lots of things would be possible right now without that spending cap in place; this year, it leaves as much as $6 billion in the state treasury that is out of budget writers’ reach. That has lawmakers dreaming of how to get around the cap, and there are ways to do that.

The first one is simple: Vote to spend more. If a majority of senators and representatives agree, they can spend more than the cap allows. This requires some intestinal fortitude from legislators, especially in primaries where voters will want to know how the state budget ballooned so quickly. Price-sensitive voters won’t like the answer unless they can be convinced that the extra money was well-spent.

A second, proposed Wednesday by Lt. Gov. Dan Patrick and Sens. Jane Nelson, Juan “Chuy” Hinojosa and Kevin Eltife, is complicated. They want to change the constitution to exempt spending on tax cuts and debt payments from the calculation of a spending cap. They would be able to take care of other items on their wish lists and keep spending past the cap on taxes and debt. Voters would have to approve, and it would take approval from two-thirds of the House and two-thirds of the Senate to get the measure to voters.

That’s more complicated, but it fits the recent pattern established by the state’s officeholders. They are scared to death of voters — so much so that they rely on a “Mother, may I?” approach to tough votes.

For two Novembers in a row, the state of Texas has gone to voters asking for more money, first for water and more recently for transportation.

Those didn’t involve taxes — lawmakers are allergic to that. But they were nervous about spending money, even on popular things — water projects during a drought and highway money for the state’s perpetual traffic jam — and asked voters for permission instead of just writing the checks themselves.

The state had the money it needed, sitting in the so-called Rainy Day Fund, but lawmakers didn’t want to just write a check themselves, for fear they would be labeled spendthrifts in the next round of primary elections.

Those would be Republican primary voters, of course, since those have always been the only voters Dan Patrick cares about or listens to. I’m old enough to remember back in 2011, during the (now known to have been mostly phony) budget crunch, when everyone compared that situation to households that cut back and tighten their belts and all those other virtuous things during hard times. Well, I don’t know how it is at your house, but at mine if the roof starts to leak or if the water heater breaks, I spend what I must to get it fixed. Somehow, that part of the household-as-budget-analogy never gets brought up.

And from Christopher Hooks:

The proposal makes a certain sense from the Democrats’ point of view—busting the spending cap probably means more money will go to state needs like education, even if Patrick wins his tax cuts. And it makes a certain sense for somebody like Eltife, who won’t have to stand in the way of tax cuts while other fiscal needs get attention, too.

But from Patrick’s POV, it’s a weirdly craven move. For one, he’s proposing to bust the spending cap—a sacred cow among conservatives—while saying loudly that he’s proposing to preserve it. And it contains a certain measure of political cowardice; if legislators wanted to, they could vote to bust the spending cap this session with a simple majority vote. Instead, they’re asking voters to make the hard choice for them, a move that seems eerily reminiscent of the dreaded Sacramento style of governance.

Furthermore, the amendment, if it passed, would privilege tax cuts over other kinds of spending. If the Lege ends up with $6 billion in additional revenue over the spending cap next session, it would virtually assure that that money would produce more tax cuts rather than, say, go back to schools or health care or roads.

Finally, it’s a move that’s emblematic of Patrick’s emerging leadership style—impulsive, seemingly thought-up on the fly and done with little consultation with his legislative partners. House Speaker Joe Straus gave an exceptionally cool statement in response: “For 36 years our state spending cap has helped enforce fiscal discipline, and we should be very cautious about any attempt to weaken it.”

But Patrick’s proposal points to a reality about the new era in the Lege: Patrick and the generally suburban-oriented senators who represent the new vanguard are not amenable to government spending and value tax cuts above almost all else.

Yes, that’s what this is about. It’s what basically all of the budgetary tricks and sleights-of-hand are about, including the spending cap itself. It’s a convenient excuse for not doing what you didn’t want to do anyway, like restoring cuts to public education, and it’s an opportunity to restrict the terms of debate further by forcing certain priorities ahead of others. I feel the same way about things like proposals to dedicate certain taxes that have otherwise been for general use to specific purposes. I get why Sen. Hinojosa is playing along, but I fear he’s being suckered. This is a bad deal, and we should hope the House rejects it.

The games our tax system plays

I find this just fascinating.

BagOfMoney

It’s been described as bribery, taxation without representation and a shady political maneuver. Others have called it an innovative way to deal with budgetary problems and get things done.

Ever since Texas lawmakers made it more difficult for cities to absorb suburbs into their boundaries 15 years ago, Houston has been quietly cutting deals with municipal utility districts to levy a 1 percent sales tax on purchases in neighboring communities.

The agreements for “limited purpose annexations” now generate tens of millions for Houston and for the utility districts, which split the revenue. But some question the appropriateness of the deals.

Houston seems to play off suburban fears of annexation to demand taxes in exchange for promises to leave them alone, said Paul Lewis, a professor of local politics and urban development at Arizona State University.

“It’s a kind of bribery,” he added.

Some local officials wonder whether the agreements lead to wasteful spending that lacks transparency. The revenue is not subject to the voter-approved revenue cap that has forced the city to lower its property tax rate and slash budgets. Critics also note that Houston provides no services to most of these suburban areas, whose residents can’t vote in city elections.

“It’s unconstitutional,” Fort Bend County Judge Bob Hebert said. “I thought we fought a war back in the 1700s on ‘taxation without representation.’ ”

Utility district leaders defend the agreements, noting that they take half the money collected and receive a contractual promise they will not be fully annexed for 30 years.

City officials agree that the agreements are fair. Census figures show that nearly two-thirds of those who work in Houston live outside of the city limits. City officials note that suburban residents attend plays in the Theater District, watch free concerts at Memorial Hermann Park and put wear and tear on city property.

“It is the primary tool we have to deal with the growth that goes on outside the city and the burden put on infrastructure by suburban citizens without our property tax,” Houston Finance Director Kelly Dowe said.

You can read the story and decide its morality and/or constitutionality for yourself. Personally, as a resident of Houston, I have no problems with it. What occurs to me in reading this is that it’s a natural outcome of our overall system of taxation in Texas, which is heavily dependent on sales and property taxes, and also on legal ways to minimize one’s sales and property taxes. There’s one way we could avoid all the problems associated with a tax system designed around political boundaries, and that’s to switch to one that is primarily dependent on income taxes instead. Of course, there are plenty of ways to game an income tax system, too, so it would most likely substitute one set of shenanigans for another. But at least it would be something different for us to argue about.

From the “Simple answers to simple questions” department

The Statesman asks “Would Dan Patrick’s tax plan lower your taxes?”

Efforts to shift toward sales tax in lieu of property and income taxes have in recent years gained momentum in Republican-led states — even as economists warn that this sort of tax reform is likely to harm the majority of taxpayers.

Economists point out that sales tax is highly regressive, meaning its net result is savings for wealthy people, who enjoy a lower tax rate overall; poor and middle class taxpayers, however, pay more tax as a proportion of their income and thus bear a heavier burden for funding government services.

Texas’ tax system is already considered regressive because it doesn’t levy a personal income tax and instead relies heavily on sales tax, the state’s single biggest source of nonfederal income, $27.4 billion in fiscal 2014.

Counting both sales and property taxes, Texans who earn less than $19,000 a year are taxed an average of 12.6 percent of their income, according to a 2013 study by the Institute on Taxation and Economic Policy, a nonpartisan think tank in Washington.

The institute found that a family earning $32,000 to $52,000 — the middle 20 percent — will be taxed an average of 8.8 percent of their income. The top 1 percent of earners, those earning $437,000 or more, are taxed a much lower average of 3.6 percent.

Matt Gardner, executive director of the nonprofit institute, says this disparity will likely worsen if sales tax is increased to buy down local property taxes, as Patrick has proposed.

“Unless you have some way to offset the increase in sales tax, it’s pretty clear that this is going to hurt low-income people,” Gardner said.

[…]

The Lone Star Card piece of Patrick’s plan appears similar to a failed 2005 proposal, which was nixed from tax reform legislation that cut property taxes paid to school districts and swapped that funding with state sales taxes. This is the measure that allowed the state to cut $5 billion to public schools in later years and spurred a protracted court battle between school districts and the state (a state district judge, citing several reasons, ruled for the second time in August that this financing scheme unconstitutional).

The nixed piece of that plan was a proviso to raise the sales tax rate from 6.25 percent to 6.75 percent, along with a package of other excise taxes and tweaks that would have replaced $4.3 billion in property taxes with $4.8 billion in other taxes.

In the same way that Patrick touts his tax plan would either result in a net neutral or net reduction in total taxes paid by Texans, the Legislative Budget Board in 2005 calculated the fiscal impact of that swap would result in a “net reduction to individuals.”

But beneath that neutrality — the total amount of taxes paid wouldn’t increase — is a stark disparity in distribution. Those with annual incomes in the low $10,000s, the board calculated, would have paid $8.1 million more in taxes by 2007. Middle-income taxpayers, those earning from the $40,000s to low $50,000s, would have paid $151 million more.

Those at the highest income level, $140,000 a year and up? They would have seen a $212 million decrease in their tax liability.

Remember the Legislative Budget Board analysis of that 2005 tax swap plan? It has the answer to the question posed above: Unless you’re in the top five percent, your taxes will be going up. There’s nothing complicated about this. In any “revenue neutral” tax plan, some people win and some people lose. Is anyone surprised at who the winners and losers are in Dan Patrick’s world? I guarantee, this will still be the case when he inevitably comes up with a plan that gets scored as a net tax cut. It will be a big cut for a small number of people, and at best a wash if not an outright increase for everyone else. It doesn’t matter that he hasn’t specified any details yet. They don’t really matter to him anyway – it’s the big picture that counts. This is who he is, and this is what he wants. It’s right there in plain sight.

The Lite Guv debate

It was lively, and it was a good reminder of who Dan Patrick really is.

Sen. Leticia Van de Putte

Sen. Leticia Van de Putte

In the only scheduled debate in their race for lieutenant governor, state Sens. Dan Patrick and Leticia Van de Putte faced off on Monday night in a lively exchange that displayed their divergent positions on everything from health care and immigration to school finance and taxes.

Both candidates played offense: Patrick, Republican of Houston, attempted to portray Van de Putte, Democrat of San Antonio, as “out of step” with Texas voters. Van de Putte used the back-and-forth to try to pin Patrick down on votes he’d taken on cuts to public education. But one of the biggest points of contention in the hourlong showdown in Austin was over the state’s tax structure.

Patrick recently called for reducing the state’s dependence on the property tax to fund public schools and relying on the state’s sales tax instead. On Monday, Van de Putte used Patrick’s position to argue that he would raise the sales tax, which she said would negatively affect businesses and consumers. Patrick sought to clarify his proposal, saying he would only support increasing the sales tax “by a penny or two” to compensate for reduced revenue from property taxes.

“There are two candidates on this stage, and I’m the only one that doesn’t want to raise your sales taxes,” Van de Putte said. “To burden Texas businesses and families with a sales tax increase … well, that’s not being pro-business.”

There’s video of the debate here if you missed it or want to share it with someone else that didn’t see it but needs to. The Observer liveblogged it. Writer Forrest Wilder expressed amazement at Patrick’s admission that he’d raise the sales tax to finance a property tax cut, but he’s been saying this all along. I’ve been saying all along that someone needs to point out just how much Dan Patrick himself would benefit from the kind of tax swap he’s proposing. It’s not like we haven’t seen this before, after all.

Burka summed it up as follows:

The most interesting thing about the debate was Patrick’s persona. He felt no need to soften his message or appeal to more mainstream voters. This is exactly who he is, and who he wants to be: a true conservative radical.

Good to know his phony claims of being compassionate didn’t last long. I still don’t know why anyone would have believed him in the first place. The Chron story is here, and PDiddie, EoW, Juanita, Newsdesk, the TSTA Blog, and the Current has more.

Dan Patrick sightings

I doubt that the Chron’s calling out of Dan Patrick had anything to do with him appearing in public, in the daylight, where there might be people that don’t vote Republican, but it was good timing anyway.

“Oozing charm from every pore I oiled my way around the floor”

Now that Patrick is a heavy favorite in his first statewide race, for the powerful position of lieutenant governor, his handlers have hit upon a new strategy for the typically outspoken candidate: Keep the man corraled until after the election.

“At this time the senator does not plan to meet with editorial boards,” his communications director wrote the Chronicle last week. And in a news story, (“Where’s Patrick? Hiding in plain sight on the trail? Page A1, Sept. 12), the Chronicle’s Austin bureau detailed how the 64-year-old Republican candidate has gone MIA. He does not release a schedule of his appearances and limits meetings to sympathetic audiences.

Patrick’s strategy, as his handlers see it, is akin to the mighty Texas Aggies running out the clock against the boys from North Louisiana Barber College (go Clippers!) They refuse to acknowledge two distinct differences: Politics ain’t beanbag (as the saying goes) or football, and the Democratic candidate, state Sen. Leticia Van de Putte of San Antonio, is a worthy opponent.

Even though Texas hasn’t elected a Democrat to statewide office since 1994, Van de Putte has something to say, and that makes Patrick and his handlers skittish.

“Democrats are not a dying breed in Texas,” a candidate told us a few weeks ago. “But Democratic voters are.” That means that if you’re a Republican, the strategy is: Keep your head down (and your mouth shut, in Patrick’s case) and you’ll win. The Texas GOP views the general election as a road bump, knowing that the bulk of voters continue to be older, whiter suburbanites who lean red.

Patrick’s refusal to meet with editorial boards around the state isn’t an insult to newspapers. It’s an insult to the people of Texas. They deserve to know where both candidates stand on the issues. They deserve to see both candidates in action, in whatever forum available. That’s what a campaign is all about.

Some 27 million people are proud to call themselves Texans. Patrick and every person who pays a filing fee owes them the dignity of talking about their capacity to lead – in campaign appearances before general audiences, in editorial boards, debates, town-hall meetings.

So lo and behold, he shows up for a fifteen minute press conference – not clear if any questions were allowed to be asked of him, but whatever – surrounded by his buddies in the business lobby.

The 15-minute event in a downtown Austin office building was Patrick’s first news conference since winning the runoff primary against Lt. Gov. David Dewhurst in late May, and the general-election frontrunner clearly was sensitive to the recent criticism over his low-profile campaign.

Patrick boasted of 1,300 individual meetings with Texans during the campaign. “Over the last several months, I’ve been the hardest working guy on the campaign trail,” he said.

The focus on business in the rare public appearance is unsurprising as it is an important constituency for Republicans that Van de Putte has made a point to court.

The Democrat released a jobs and economic development proposal early in the campaign and repeatedly has highlighted support from business owners in news releases.

Earlier this week, San Antonio construction magnate Henry Bartell Zachry Jr. and Ed Whitacre, a former CEO at AT&T and GM, hosted a fundraiser for her at a downtown San Antonio business club.

On Friday, Van de Putte was headed to an Austin fundraiser hosted by the co-founder of an advertising agency.

Patrick also has found himself disagreeing with the business community on some key issues.

He voted against final passage of the state budget last session and has been the most vocal hard-liner on the campaign trail when it comes to immigration and border security.

The Texas Association of Business supported the budget and has been pushing for a guest worker program, but still is endorsing Patrick.

Yes, and the Farm Bureau endorsed him, too. So the next time you hear either of them complain about anti-immigrant Republicans, you’ll know they don’t mean it. You cannot support comprehensive immigration reform and Dan Patrick at the same time. It’s like claiming to support peace while selling arms to all comers.

Patrick then put in an appearance at TribFest, and reminded us why he’d be so horrible if given a position of real power.

Patrick, who took the stage first with Tribune CEO and Editor-in-Chief Evan Smith, said the state should transition from depending solely on property taxes for funding public schools and instead rely more on a sales tax.

“It’s not increasing, it’s a swap,” Patrick said, when asked whether this would affect his standing within the business community.

While the Texas Legislature in 2013 restored some of the billions of dollars in public education spending it cut in 2011, Patrick said he would be apprehensive about allocating additional dollars to failed schools, adding that the state should rework the way it funds its schools.

Van de Putte said that if she were lieutenant governor, she would prioritize school funding during the budget battle that develops during the legislative session by tapping the surplus in the state’s coffers as it heads into the next session.

“I know that Texans value investment,” Van de Putte said.

Yes, the old property-taxes-for-sales-taxes swap. Patrick tried to peddle it as no big thing.

Patrick said property taxes have become excessive for too many Texans and he believes the public would support a tax swap that spreads out the burden of paying for schools and state programs.Texas schools are primarily funded with local property taxes and state revenue – including sales taxes.

“What I have always believed is we need to transition from depending (so much) on property taxes to more of a sales tax base that requires more people paying,” Patrick said at a political forum in Austin.

“This is something we need to have a serious discussion about. I am talking about bringing senators and hopefully House members together and being honest about tax policy,” he said, pointing out that many Texans cannot afford to keep paying higher and higher property taxes. School property taxes make up about 60 percent of the average property tax bill.

Texas Tribune Editor in Chief Evan Smith, who separately questioned both Sens. Patrick, R-Houston, and Van de Putte, D-San Antonio, asked Patrick about complaints that a higher sales tax would be regressive and increase the tax burden of lower income families.

“If you take an extra penny or two, would a person stop buying something because it costs $1.10 instead of $1.08?” he asked, referring to the current sales tax of 8.25 percent in most areas of the state. The tax swap should be set up so that people below the poverty level are exempted from sales taxes. “It would not be a tax on the poor. If you want to do something about a tax on the poor, let’s get rid of the lottery,” he said.

When Dan Patrick talks about this, you need to keep in mind two things:

1. Any property-tax-for-sales-tax swap will have winners and losers, and you can guess which one Patrick would be. I guarantee you, this would be a huge windfall for people like Dan Patrick.

2. If you believe that the kind of property tax cut Dan Patrick would want to propose could be fully funded by a two-cent increase in the sales tax, I’ve got a business margins tax I’d like to sell you.

So keep talking, Dan. Our best bet is that people pay attention to what you’re saying. In the meantime, the Corpus Christi Caller became the first, but surely not the last, newspaper to endorse Sen. Leticia Van de Putte.

Teacher health insurance costs

Another thing on the list of things the Legislature needs to deal with but won’t.

Health care insurance costs for hundreds of thousands of Texas teachers and other public school employees are scheduled to go up again this fall, prompting renewed calls from educator groups for the state to pick up more of the cost of employee premiums.

The biggest increase will be experienced by those seeking basic coverage for themselves and family members. Their monthly premiums will jump $85 to a high of $1,145 a month, nearly two and a half times the national average of $472 a month. Similar coverage in the private sector would cost around $407 a month, according to a recent Bush Institute study on teacher health care costs.

“The current policy of imposing ever-greater costs on employees is not sustainable,” said Ted Melina Raab, spokesman for the Texas chapter of the American Federation of Teachers. “It is putting decent, affordable coverage out of reach for growing numbers of school personnel.”

More than 280,000 public school employees – roughly three in four teachers, principals, administrators and other staff – receive health insurance through the Teacher Retirement System of Texas. The insurance program, called TRS-ActiveCare, was created to provide a health care option to working teachers whose districts did not offer their own plans.

Last Friday, the TRS board agreed to increase monthly premiums across most TRS-ActiveCare plans.

Since 2002, the state’s share of premiums has remained at $75 a month. During that same period, some educators seeking coverage for just themselves have seen their premiums increase 238 percent.

Even with the state’s monthly contribution of $75 and a $150 base contribution required from school districts, some employees still will pay upwards of $920 a month for basic family coverage.

“These increases amount to pay cuts,” Clay Robison of the Texas State Teachers Association said, noting the average teacher in the Lone Star State makes under $50,000 a year. “It really has become a burden for some of these teachers.”

This is a feature and a bug of the employer-subsidized insurance model. As we know, employers that provide health insurance plans for their employees pay a significant fraction of the cost of the premiums. This makes health insurance a lot more affordable for many people, but it means many of them have no idea how much their insurance really costs, and it means that an ever-increasing percentage of their total compensation is going to health insurance and not to, you know, salary. But that’s the world we live in, and Robison is exactly right – if the state is not upping its share of the payments, then it is like a pay cut for the teachers, since they’re bearing the full brunt of it. That’s just not right.

The solution, educator groups and districts agree, lies with the legislature. Teacher groups point to the fact that lawmakers and other state employees are covered by the Employees Retirement System of Texas health insurance plan, which pays 100 percent of monthly premiums for individuals and half of dependent coverage.

“School district employees are conveniently thought of as state employees for some things, not thought of as state employees for other things,” said Texas AFT President Linda Bridges, citing increasing performance benchmarks placed on public teachers by state officials. “We think school employees should have health care as good as the governor.”

[…]

State Rep. Mike Villarreal, D-San Antonio, said state lawmakers have a clear role to play in reducing health care costs for teachers.

“Here is an area where clearly the state has a role to play,” said Villarreal. “Clearly, the legislature can take actions to reduce the costs for our teachers in a way that doesn’t interfere with the authority of superintendents and principals.”

State Sen. Bob Deuell, the Greenville Republican ousted by tea party candidate Bob Hall, thinks this will be a hard sell in a legislature keen on budget cuts.

“If you increase the premiums, you have essentially cut the salaries of teachers at a time when they’re not being paid enough already,” said Deuell. “I doubt very seriously the teachers are successful in getting this issue – or any other issue – through next year.”

This is where I point out that Texas’ revenue collections are going gangbusters, meaning the Legislature will have plenty of money to work with. The combination we have of unmet needs, neglected infrastructure, and available cash is one you’d think would be amenable to actually finding solutions to the problems we face. Unfortunately, that requires a level of rationality in the Legislature that doesn’t exist. Can’t do much about the Legislature but we can change direction at the top of the state. It’s the best hope we have.

Collier’s sales tax criticism of Hegar makes the news

That’s how you do it.

Mike Collier

Mike Collier

Democrat Mike Collier, a certified public accountant from Houston, will start airing television ads criticizing opponent Glenn Hegar, a Republican state senator from Katy, for his support to phase out property taxes and increase state sales taxes.

Collier and Hegar are vying to replace outgoing Comptroller Susan Combs, a Republican.

The 30-second ad, which will air in Houston, uses video of Hegar touting his position at a January meeting of We The People-Longview Tea Party.

“I don’t like the property tax, never have,” Hegar says in the video. “I think we should replace it. The best thing to replace it with is a consumption-type tax, a sales tax per se.”

Later in the ad, a male announcer says, “Mike Collier has a better plan: Forecast revenues accurately. Invest in our schools. And, hold the line on taxes.”

[…]

Local property taxes account for roughly 47 percent of tax revenue in Texas, according to a 2012 report from the comptroller’s office. State and local sales taxes make up 32 percent of revenue.

Another 2012 study – written by former deputy comptroller Billy Hamilton and published by a Republican group called Texas Tax Truth – said consumers would have to pay up to 25 percent in state sales tax to make up for the approximate $45 billion in lost revenue caused by abolishing property taxes.

“There’s no way that Hegar can make a sensible convincing policy point that we should get rid of the property tax in favor of a broader, larger sales tax,” said Cal Jillson, a political scientistat Southern Methodist University.

And, the shift from property taxes would deprive local governments, school districts and other entities of their primary method of revenue collection, said John Kennedy, an analyst at Texas Taxpayers and Research Association. That would mean municipalities would have to rely primarily on the state to finance their operations.

See here for the background. Via TrailBlazers, here’s the ad in question:

Can I just say how excellent it is to have a competent Democratic candidate running for Comptroller? Here’s who we had in the past three elections:

2010: Nobody
2006: Fred Head
2002: Marty Akins

Arguably, that’s in descending order of effectiveness. I could be persuaded to swap Head and Akins. Basically, Collier is the first serious Comptroller candidate we’ve had since Paul Hobby. It’s a beautiful thing.

But, Collier’s line of attack isn’t guaranteed to stick, Jillson said. The Nov. 4 election is seven months away and voters may not remember a fight over taxes from April, he said.

Jason Stanford, a consultant working on the Collier campaign, said the Democrat’s team plans to maintain this line of attack through the November election.

“We can’t play this race according to the old rule book,” Stanford said. “We have to make this race about actual ideas and competence.”

The thing is, Collier could keep up this line of attack all the way through November without ever repeating himself, because there’s so many ways Hegar’s tax swap is attackable. Consider:

– Local taxing entities – counties, cities, school districts – would essentially cede all taxing authority to the state. Do you want local control over your city and school district budgets, or do you want to hand all that to Austin?

– Do you want to start paying $25,000 for a $20,000 car? With Glenn Hegar’s tax plan, you will.

– Unless you own a million dollar home, your taxes are going up. Unless you live in a place with a lot of retail activity, your city and your schools are going to get screwed.

– Can you imagine the black market that will spring up with a 25% sales tax? The Comptroller’s office will have to become an arm of the IRS to ensure adequate collections.

And on and on. Collier will still have to raise the money to get that message out, but having that message will likely make it easier to raise the dough. There’s no downside here. Burka and EoW have more.

Collier hammers Hegar for property tax idiocy

Good.

Mike Collier

Mike Collier

During the recent Republican primary for state comptroller, state Sen. Glenn Hegar repeatedly endorsed eliminating local property taxes in Texas.

Borrowing from GOP opponent Debra Medina’s 2010 playbook, Hegar urged a shift to sales taxes to make up the more than $40 billion a year of revenue that cities, counties, school districts and other local governmental entities would lose.

Hegar, R-Katy, even suggested a very rapid transition to the new tax system. At a Longview tea party gathering in January, he told a man in the audience, “You just do it.”

This week, though, the governing implications of so massive a shift seem to have cooled Hegar’s jets.

Burying the property tax, after all, would require leaders to more than double the current rates of all state and local sales taxes.

See Exhibit 1 on page 1 (or page 5 of the PDF) of this comptroller’s report. You can readily see that state and local sales taxes, combined, yield about 32 percent of all state and local tax revenues in Texas. That compares with a whopping 47 percent raised by local property taxes. You get the picture.

On Thursday, Hegar campaign manager David White said Hegar “has been clear that we are many years away from being able to implement such” a shift from property tax to sales tax.

White repeated a response he gave The Dallas Morning News on Tuesday, saying “Glenn will review all options to reduce the burden on taxpayers.”

Democratic comptroller nominee Mike Collier, though, has blasted Hegar’s happy talk on property tax during the primary. Collier, a Houston businessman, called it an “unimpeachably bad” policy idea that would produce a monster increase in sales tax, shift power away from localities to the Legislature and “put our schools at unnecessary risk.”

He warned Hegar’s “promise” to eliminate the property tax would require sales tax “to be at least 20 percent — and possibly as high as 25 percent.” In most Texas cities today, the combined state-local sales tax rate is 8.25 percent. Collier even created an online petition drive so voters can protest “Senator Hegar’s sales tax.”

However, in a Thursday email blast that urged people to sign the petition, Collier incorrectly called Hegar’s proposal a “massive tax increase.” In recent years, Republicans have only advocated tax swaps, which presumably would be revenue neutral.

Still, Hegar seems to be switching gears on property tax abolition, pivoting from a “just do it” battle cry to a chin-stroking, “many years away” proposition. The rhetorical shift has given Collier an opening to start the general election battle — in March, not September.

Actually, Hegar’s idiotic idea would be a “massive tax increase” for a large majority of Texans. The whole idea of a tax swap is that some people wind up paying more, while others wind up paying less. The Republicans have floated various tax swaps in the past, and I’m sure you’ll be shocked to learn that a wealthy minority benefits greatly from them, while everyone else pays more. It’s true, as some people note in the comments to that story and on Collier’s Facebook page, that renters pay property taxes as part of their rent. Let me ask you a question: Which do you think is the more likely outcome of a Hegar-style tax swap – a massive, statewide reduction in rents, or a massive, statewide increase in profits for landlords? Take all the time you need before answering.

Anyway. Whether someone finally explained the math to Hegar or he realized that he might need to do more of a campaign than just pandering to fanatics, he has shifted from “we can do this right now!” to “this idea is many years away from implementation”. And in doing so, he earned a bit of media for Mike Collier. More like this, please. BOR and EoW have more.

Council approves Costco tax rebate

I still don’t think this is a good idea.

The Houston City Council on Wednesday approved a $1 million economic development deal to help Costco build a store outside the city limits.

In a rambling discussion ending in a 12-3 vote, supporters argued that the sales tax rebate would drive further development in the area around the site of the proposed store, at Interstate 10 and the Grand Parkway, generating revenue the city would not collect otherwise.

Opponents said they had heard no argument for why the rebates were needed for the store to be built, or, in Councilman Andrew Burks’ case, said the deal did not ask enough of Costco.

Corporations should take a more active role in funding after-school and summer jobs programs in the city, Burks said, and should give preference to veterans in hiring.

[…]

The store would sit on 14 acres Costco has under contract in the Cimarron Municipal Utility District. The city since 2003 has had an agreement with the district under which the parties split the revenues of a 1-cent sales tax collected within the district’s boundaries. The city provides only animal control services there, and property owners pay no city property taxes.

Economic development experts have said the area is likely to develop without incentives, given that a new segment of the Grand Parkway connecting I-10 with U.S. 290 will open in December. Councilman C.O. Bradford, who joined Burks and Councilman Larry Green in opposing the deal, took a similar approach.

“Is the incentive necessary?” Bradford asked. “I haven’t heard anybody articulate the real need for the incentive.”

Councilman Ed Gonzalez said the proposal was necessary because Costco was considering a nearby site that would generate no revenue for the city.

“While technically, yes, it’s a very lucrative site, very high-profile and likely Costco would still come there, I think to some extent, by us having skin in the game, we guarantee they do come into this area,” Gonzalez said. “I would rather us control some of our own destiny here, make sure this investment is here and leverage our $1 million to bring a much greater return to the citizens of the city.”

See here for the background. I get why Council agreed to this, but the question I haven’t seen asked – let alone answered – is what the return for the city would be compared to what was likely to be built on that property if no rebate was offered. We all agree that something would be built, possibly this very Costco, but even if you accept that Costco would have gone elsewhere, something else would have been put there eventually. As such, it makes no sense to compare the revenue the city will get from making the deal to zero. Compare it to some scenarios where something else gets built, and compare it to that. Is it still worth the money the city is giving up? If it is, then I can live with this. If not, then we need to do a better job of making economic projections.

A tax break where?

I don’t quite understand this.

The Houston City Council on Wednesday will consider giving up to $1 million in tax rebates to a Costco store that would be built outside city limits.

City officials say the proposed 151,600-square-foot warehouse and liquor store, in the 23600 block of Katy Freeway, will act as a catalyst for further development in the area around Interstate 10 and the Grand Parkway, and generate tax revenues the city otherwise would not collect.

[…]

The 14 acres Costco is under contract to buy is in Cimarron Municipal Utility District, with which the city cut a special-purpose annexation deal in 2003. Under the agreement, the city and utility district split the revenues of a 1-cent sales tax collected within the district’s boundaries. The city provides only animal control services there, and property owners pay no city property taxes.

[…]

Without the incentive, Chief Development Officer Andy Icken said, the company likely would have picked a tract it had under contract a mile west of the utility district, near Katy Mills Mall, where no revenue would have been generated for the city.

Icken said the city expects to collect $8 million in sales tax revenues from the store during the life of its annexation agreement, after rebates. The rebates will come from sales taxes generated by the store, and will be used to reimburse Costco for infrastructure work, mainly a road connecting it to the I-10 feeder road. The Cimarron district will pay for soil work to make the site suitable for construction.

Combined, Costco would be reimbursed about $2.5 million. Costco representatives declined to comment on the project or the rebates.

Councilwoman Melissa Noriega said she has concerns about the proposal, but has not decided how she will vote. “It seems like Costco is an awfully big, well-funded company to need that kind of infrastructure assistance,” she said. “Having said that, I know we want to incentivize the kind of retail they produce for the tax rolls.”

I get wanting to have the place built in an area that benefits the city. The usual arguments about this kind of subsidy relocating retail activity instead of increasing it is a bit less concerning when the location of the retail activity is the point. While it is unquestionably true that something is going to be built at this location, given the upcoming Grand Parkway expansion, I get wanting to make it happen sooner, since the city’s revenue sharing deal with the Cimarron MUD expires in 2033, and I get wanting to ensure that what does get built is of top quality. But yeah, I don’t really see why a large well-funded company like Costco needs the incentive. I’m sure they know which location is best for them, and I don’t know how much difference a relatively minor tax break will make to their bottom line. Council should be very skeptical of this.