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Susan Combs

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.

Revisiting the Texas-Amazon sales tax deal

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

Amazon

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

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

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

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

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

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

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

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

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

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

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

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

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

Hegar’s first revenue estimate is in

We’ll see how it holds up.

BagOfMoney

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

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

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

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

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

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

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

[…]

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

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

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

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

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

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

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

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

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

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

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

Interview with Mike Collier

Mike Collier

Mike Collier

Given that we are guaranteed to have an entirely new set of statewide officeholders after this election no matter who wins, there are a lot of candidates with current or past experience as elected officials, or at least as candidates. Despite that, one of the most compelling candidates running this year is a first timer, Mike Collier, the Democratic candidate running for Comptroller. Collier is a career accountant, which you would think would be the norm for the state’s top financial officer, but it’s not. It was his experience as an accountant that led him to believe something was seriously wrong with how the Comptroller was estimating revenue for the 2011 legislative session, when incumbent Susan Combs projected a $28 billion deficit that turned out to be far off base but which led to devastating budget cuts for public education. His experience as an auditor led him to be critical of the Major Events Trust Fund and its unaccountable giveaway of millions of dollars to Formula One in Austin. His no-nonsense approach and sensible talk about ensuring the integrity of Texas’ finances have led him to be endorsed so far by the Statesman, the Caller, and now the Chronicle. Listen to him for a few minutes and you’ll see why he’s made such an impressive case for himself. Here’s the interview:

I will wrap up candidate interviews next week, and as noted before will continue to run judicial Q&As for as long as I receive responses.

UPDATE: The DMN endorsed Collier over the weekend.

Endorsement watch: Chron for Collier

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

Mike Collier

Mike Collier

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

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

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

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

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

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

Endorsement watch: Statesman for Collier

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

Mike Collier

Mike Collier

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

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

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

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

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

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

Collier keeps up the attack

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

Mike Collier

Mike Collier

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

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

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

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

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

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

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

Great moments in false equivalence

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

BagOfMoney

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

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

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

Public watchdog groups see a potential conflict of interest.

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

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

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

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

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

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

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

TM talks to Mike Collier

He’s a really impressive candidate.

Mike Collier

Mike Collier

What I’ve been surprised by in the past two years is how much farther right the state has gotten, even compared to someone like Rick Perry, who has, I think, been conservative by any normal standard. When Combs came back in 2013 reporting an $8.8 billion surplus—to me, that was a red flag that we cut the schools budget $5 billion by accident in 2011, or perhaps not by accident; perhaps in an abundance of caution that should raise some eyebrows.

Here’s my perspective on that. When the Eighty-second Legislature sat in January 2011, she showed up with a Biennial Revenue Estimate that showed a deficit that surprised everybody. It should have been a red flag to everybody: maybe this estimate isn’t right. If you look at the state’s economy, even in the document itself where she transmits the news, page 1 says we’re going to have less in revenues, which leads to the deficit. Page 2 says the good news is that we grew in 2010 and we’re going to grow in 2011 and we’re going to grow in 2012 and we’re going to grow in 2013. Anybody with any finance sense should have said, “There’s something really wrong here.” And my opponent didn’t say, “I think there’s something wrong here.” I’ve gone back and looked at the revenues coming into the treasury at the time. If you did a quarter on quarter analysis—this past quarter versus a year ago—you would have seen that revenues were roaring in. She should have at least stopped and said, “How do we manage our way through this uncertainty?” I think it was politics, and unacceptable.

I tend to agree with that, although within the Lege, I think there were people on both sides who were trying to maneuver their way through it, because they were logistically constrained by what the comptroller had projected, or maybe they were politically constrained. So they wrote a budget knowing they would backfill the budget. But there were also some who genuinely didn’t understand, and maybe some who felt genuinely cautious because it’s better to have a surplus than a shortfall.

You know, Erica, what I think this all boils down to is that if you’re a politician, you struggle with all the political implications of what you do. But if you’re a chief financial officer and you’re not a politician, it suddenly becomes very simple. You think of it the way a real executive would think of it and say, “These are the numbers; these are the uncertainties; these are the possibilities.” You don’t have to go through all of that political stuff. But you have to have a comptroller who’s not a politician to do that. And that’s, I think, what makes this so compelling to Texas voters. When I tell the story, the response I get—this whole notion of what party am I running for—just dissolves when I tell that story.

Go read the whole thing, it’s worth your time. I believe it’s a bit naive, albeit quite normal for an idealistic first-time candidate, to think that you can remove political considerations from inherently political processes. Revenue forecasts rely on assumptions, and assumptions are colored by one’s beliefs. Be that as it may, some forecasters are justifiably more trusted than others, and that’s a function of transparency and fidelity to verifiable facts. I feel quite confident that anyone who listens to Mike Collier will come away feeling good about his ability to make reliable forecasts. The key is whether he can get enough people to hear what he has to say. I actually got a genuine snail mail fundraising pitch from Collier the other day, and I plan to send him a check. If he can raise $5 million or so, who knows? What I do know is that the more voices like Mike Collier there are out there, the better off Democrats as a whole will be this fall.

It was a bad week for the strip clubs

Another adverse court ruling.

A state appeals court on Friday upheld the legality of the state’s so-called “pole tax” on nude entertainment clubs, the latest decision in a six-year battle by Texas officials to collect the $5-per-customer fee from more than 200 strip clubs.

In a 16-page decision, the 3rd Court of Appeals overruled a challenge by the Texas Entertainment Association contending the law violated the Texas Constitution because it is an occupation tax from which 25 percent of the collections must go to public schools. The appeals court ruled that it is an excise tax that could be spent however the Legislature wishes.

[…]

In its decision, written by Justice Scott Field, the appeals court rejected the clubs’ argument that the fee was an occupation tax and, as such, was unconstitutional because it did not allocate a quarter of the revenue collected to public schools as mandated in the Texas Constitution.

The court also dismissed arguments that the tax violated the state Constitution’s “equal and uniform” requirement by covering only nude-entertainment business where there is an audience of two or more, and not other adult businesses, such as lingerie modeling studios or adult movie arcades that cater to single customers.

“We conclude that the sexually oriented business tax’s classification is not unreasonable because limiting the tax’s applicability to businesses with audiences of two or more reasonably relates to adverse secondary effects that the tax is intended to address,” the ruling states. “Given that the (Texas) supreme court has already concluded that the sexually oriented business tax does not violate the First Amendment of the United States Constitution, we likewise conclude that it does not violate the free speech clause of the Texas Constitution.”

The decision notes that the Texas Supreme Court upheld the fee because it “was imposed to address the adverse secondary effects of combining nude entertainment with alcohol consumption, both by discouraging the activity through higher taxation and by generating revenue for programs designed to address the social harms that result.”

Businesses offering adult entertainment to one customer at a time do not have the same adverse effects, it states.

First the Comptroller’s demand for payment, now this. The original suit was filed on First Amendment grounds but lost at the Supreme Court. This was a different tack, but so far not any more successful. I’m sure this will be appealed to the Supreme Court, so maybe by 2016 we’ll have a final resolution, assuming the clubs don’t have some other argument in their back pocket in the event this one fails. The Trib has more.

Combs tells strip clubs to pay up

Interesting.

Susan Combs

Texas Comptroller Susan Combs is pressing the state’s strip clubs to cough up millions of dollars she says they owe under a new “pole tax” even though the $5-a-patron fee still faces a court challenge.

“Any claim that ongoing litigation is a basis for nonpayment of the Sexually Oriented Business Fee is not valid,” insists an April 11 letter from the comptroller’s tax division that was sent to roughly 200 clubs in Texas that offer nude entertainment.

The fee, which strip club attorneys have claimed is an unfair tax, has been the subject of legal fights virtually since it was passed in 2007 as a way to fund programs for sexual assault victims and health care. The strip clubs’ lobby organization, the Texas Entertainment Association, filed a lawsuit challenging the constitutionality of the fee, arguing that erotic dancing is a form of expression protected by the First Amendment. But in 2011, the Texas Supreme Court ruled the fee did not violate free speech.

A new challenge, still under consideration by the 3rd Court of Appeals, argues that the “pole tax” is unconstitutional because the fees are not used appropriately. In the April 11 letter, Combs’ office said the continuing legal battle doesn’t mean the clubs can avoid paying all the fees they owe since the law took effect six years ago.

[…]

“They don’t like to be seen or heard,” state Rep. Harold Dutton, D-Houston, said of the club owners. “And I think that is what caused them to get in the ditch on this thing.”

So far, Dutton is the only lawmaker defending the clubs. In an April 23 letter to Combs, he asked the comptroller why her office decided last month to send out letters while the clubs’ latest court challenge is awaiting a decision from the 3rd Court of Appeals.

“I did send her a letter, asking her what has changed,” said Dutton, who opposes the fee. He said that if sexual assault programs need money, “the Legislature ought to step up to the plate and do that.”

Instead, what often happens, he said, is that lawmakers create fees against things they don’t like, like strip clubs.

“Where does it end once you start down that road?” he said.

A spokesman for the comptroller’s office, R.J. DeSilva, indicated in an emailed response that there was nothing remarkable about the timing of the collection notice.

“Our agency regularly sends notices or updates to taxpayers on various taxes and fees,” he wrote. “This particular notice was to remind business owners that the Sexually Oriented Business Fee is still in effect while litigation continues.”

In 2012, the U.S. Supreme Court declined to hear the strip clubs’ challenge after the Texas Supreme Court determined that the fee does not violate the First Amendment.

Now, the clubs are arguing that the state “fee” is really an occupation tax that should be directed to public schools under the Texas Constitution. They contend that the fee violates the state Constitution, which requires that one-fourth of occupation taxes go to public schools, because none of the money goes to schools.

The clubs’ attorneys are also asking the court to consider free speech provisions in the Texas Constitution, which they claim are broader than that of the First Amendment.

The state maintains that the fee is not an occupation tax, though, and it rejects arguments that it encroaches on free speech.

I must have missed the news about the second lawsuit, because I didn’t find anything in my archives about it. As noted, the original lawsuit was decided in favor of the state in 2011 by the Supreme Court, so it’s fair to wonder why now, almost three years later, the state is finally demanding payment from the clubs and rejecting the argument that ongoing litigation is no excuse. That said, while I may sympathize with Rep. Dutton about how the Lege should appropriate money for various things, the fact remains that the strip club fee was passed by the Lege and has been upheld by the Supreme Court, and wishing that the Lege did its business differently doesn’t change that. Not clear what effect, if any, this may have on the city of Houston’s strip club fee, which is also still being litigated.

First day of early voting

Here are the Day One primary early voting totals, which was reasonably heavy and which went according to prediction, with most of the votes on the Republican side. The Chron preview story lays it out.

EarlyVoting

Early voting for the March 4 primaries begins Tuesday with Harris County Republican Party Chairman Jared Woodfill predicting a turnout he said could rival that of the last presidential primary.

Voters can cast ballots at one of 39 early voting locations throughout the county between Tuesday and Feb. 28. The deadline to request a mail-in ballot is Friday.

Woodfill said interest in this year’s primary is more energized than any non-presidential election he has seen in a decade.

“For the first time in a long time, you have seats where multiple candidates are running,” Woodfill said. “Because Gov. (Rick) Perry isn’t running, the dominoes fell and there’s a lot of seats that are open.”

Attorney General Greg Abbott’s decision to run for governor and Comptroller Susan Combs’ decision to retire left those posts wide open for Republican Texas lawmakers and other state leaders looking to change jobs. In addition to almost all Texas House and Senate seats, a long list of local judicial posts has further lengthened the Republican ballot.

Also drawing voters into what normally would be a low-turnout primary is Woodfill’s attempts to fend off challengers Paul Simpson and Wendy McPherson Berry for the job of running the largest county Republican Party in the nation.

Harris County Clerk Stan Stanart said the number of mail-in ballots requested so far could back up Woodfill’s turnout boast. Stanart said his office, so far, has received nearly 23,000 requests for mail-in ballots from Republicans – a number he said nears that of the last presidential election – compared to about 11,000 requested by Democrats.

“We have so many more contestants on our primary ballot,” he said.

Two points to make here: One, there were nearly as many votes cast in the 2010 non-Presidential Republican primary in Harris County than there were in the 2012 Presidential primary – 163,930 votes in 2012, 159,821 in 2010. I’ll be surprised, and if I were Jared Woodfill I’d be a little disappointed, if 2014 totals don’t easily outpace those two years. Two, I’m not sure how much mail ballots tell us about primary turnout. There were 19,164 GOP mail ballots in 2012, and 13,914 mail ballots in 2010, but as noted barely a change in overall turnout between the two. Democrats, by comparison, had 7,193 mail ballots in 2010, with 101,263 total turnout, and 8,775 mail ballots in 2012, with 76,486 total turnout. My guess is there’s just more people requesting mail ballots these days, a reflection of a somewhat older electorate and a desire to avoid having to produce photo ID at the polls. But we’ll see.

For comparison’s sake, here’s the final EV tally from 2010. Republicans are ahead of that pace, mostly due to a larger volume of mail ballots returned, while Democrats are a bit behind theirs. Democrats had a reasonably high profile Governor’s primary in 2010 to drive turnout, whereas this year it’s mostly local races doing the heavy lifting. In the end I expect Republicans to get about twice as many votes – they had a bit more than half again the Dem total in 2010 – possibly a bit more than that. I have no idea if any of their candidates are rooting for a particular level of turnout.

I’ll check in on EV turnout periodically as we go. Feel free to add your own impressions and guesses, and let us know if you’ve already voted. Greg and Campos have more.

Here are the Texas Monthly Ten Best and Ten Worst lists for 2013

This came out Wednesday, but the full story will not be published till next week.

BEST:
Rep. Jimmie Don Aycock (R-Killeen)

Sen. Wendy Davis (D-Fort Worth)

Sen. Robert Duncan (R-Lubbock)

Rep. Charlie Geren (R-Fort Worth)

Sen. Juan “Chuy” Hinojosa (D-McAllen)

Rep. Trey Martinez Fischer (D- San Antonio)

Rep. Jim Pitts (R-Waxahachie)

Speaker Joe Straus (R-San Antonio)

Sen. Leticia Van de Putte (D-San Antonio)

Sen. Tommy Wiliams (R-The Woodlands)

WORST:
Rep. Lon Burnam (D-Fort Worth)

Sen. John Carona (R-Dallas)

Comptroller Susan Combs (R-Austin)

Rep. Naomi Gonzalez (D-El Paso)

Sen. Kelly Hancock (R-North Richland Hills)

Rep. Harvey Hilderbran (R-Kerrville)

Sen. Joan Huffman (R-Houston)

Sen. Dan Patrick (R-Houston)

Rep. Ron Reynolds (D-Missouri City)

Rep. Van Taylor (R-Plano)

BULL OF THE BRAZOS:
Rep. Sylvester Turner (D-Houston)

As Burka’s former running mate Patricia Kilday Hart noted, the “Bull of the Brazos” goes to “a lawmaker who demonstrates brilliance, tenacity and unpredictable temper in equal parts”. That’s close enough to a Best in my book. I must say, I did a pretty decent job guessing who would be included. I should have called Reynolds, he was a layup and I blew it. I’m a little surprised by Dan Patrick’s inclusion – for all his preening and posturing, he did get stuff done, and I can think of several worse offenders than him. I’m more than a little surprised that Sarah Davis didn’t make the cut for Ten Best; perhaps she’ll be an Honorable Mention. Susan Combs richly deserves her inclusion as a Worst – frankly, Burka should go back and edit the 2011 list to include her there retroactively. Joe Straus’ inclusion as a Best, which I did contemplate, is an illustration of how things can turn on a dime in the dying days of a session. I mean, just before Memorial Day Burka was calling Straus a choker because the budget deal was perennially close to falling apart. For them and all the others, I look forward to seeing the full writeup. In the meantime, the Trib has a video of a panel discussion with the Best & Worst authors that explore all of these and others in some detail – the discussion of Patrick was especially interesting – and it’s worth the 40 minutes of your time to watch it.

Combs not running for re-election

And a domino falls.

Susan Combs

Susan Combs

Comptroller Susan Combs opened up the logjam that has been statewide office in Texas by announcing Wednesday that she will not seek election in 2014.

Announcements were immediately flying with state Rep. Harvey Hildebran, R-Kerrville, throwing his green eye-shades into the race.

Combs, 68, was first won the comptroller’s post in 2007, after having become the first female Agriculture Commissioner. She also served in the state House as a Republican from Austin.

In her announcement, Combs said she wanted to return to ranching and continue her work on private property rights.

“In the summer of 1994, I marched up Congress Avenue with hundreds of Texans in support of private property rights—and I’m not done marching,” Combs said.

Combs has almost $8 million in the bank and was looking at a run for lieutenant governor, which was dampened when David Dewhurst said he would run for re-election.

This will be the first open seat in the big six statewide offices in more than a decade and the scramble is already on to fill the post.

Besides Hildebran, other potential candidates include tea party activist Debra Medina and Sen. Glenn Hegar, R- Katy.

You can see her full statement here. The Trib also lists one-term former State Rep. Raul Torres as a potential candidate, and Sen. Tommy Williams is also considering it. Williams, Hegar, and Hilderbran would probably be OK, Medina is a nut, and Torres is unlikely to be able to compete with any of them. I’m sure others will jump in as well. Combs was at one time reported to be running for Lite Guv, but that never went anywhere. She wasn’t nearly as feisty as Carole Keeton Strayhorn when it came to pushing back on Rick Perry – speaking of the Comptroller Of Many Names, has anyone asked what she’s up to these days? – and her tenure was marred by her role in promising public funds for F1 racing in Austin as well as her gross mis-estimation of the state’s revenue in 2011, the result of which was far more drastic cuts to spending than was needed. I give her credit for (mostly) not being overly ideological, but some more competence and independence would have been nice. Texas Politics, PDiddie, Texpatriate, and Juanita have more.

Senate officially taps the Rainy Day Fund

Well done.

BagOfMoney

Texas senators hammered out a sweeping deal to increase state funding for water and transportation projects and schools on Tuesday, tackling some of the thorniest issues of the legislative session all at once.

The senators voted 31-0 for Senate Joint Resolution 1, which would ask Texas voters to approve taking $5.7 billion out of the state’s Rainy Day Fund. Of that amount, $2.9 billion would go to transportation, $2 billion to water infrastructure projects and $800 million to public education.

“I woke up at 2:30 this morning worried about how I was going to get this bill out of the ditch,” Senate Finance Chair Tommy Williams, R-The Woodlands and the bill’s author, said. “It’s a miracle.”

Senators also annonunced plans to allocate an extra $1.4 billion for schools that came about after the Comptroller’s office informed the senators that property valuations have come in higher than previously estimated. Put together, the Senate’s actions would restore $3.7 billion of the $5.4 billion in cuts to public education made in 2011, Williams said.

[…]

The measure passed Tuesday is significantly different than what Williams originally proposed. His original plan had no money for education. The $800 million in the package approved Tuesday includes $500 million in formula funding and $300 million in merit pay for teachers.

On transportation, Williams had wanted to spend $3.5 billion on a State Infrastructure Fund that would either loan out money to local communities for road projects or help them borrow money more cheaply to fund the projects. Williams said late Tuesday that a majority of Senators made clear to him they were not interested in a plan that increased public borrowing.

The measure approved Tuesday will put $2.9 billion directly into the state highway fund, which the Texas Department of Transportation will use instead of issuing that much in bond debt. That will save the agency about $6 billion over the next 30 years in avoided debt service costs, Williams said.

All things considered, not too bad. I prefer this way of using the RDF for transportation, and if the Senate water plan emphasized conservation in the same way as the House plan, it’s all to the good. There will still be plenty of money left in the RDF after these expenditures, and the way the energy business is going these days, it’ll fill back up soon enough. Comptroller Susan Combs has endorsed the idea. The best part of all this is that as a joint resolution, it doesn’t need Rick Perry’s signature, just 100 votes in the House. Of course, that could be a heavy lift, but if the likes of Patrick, Birdwell, Campbell, Paxton, et al can vote for this, there’s no reason why the House teabaggers can’t as well. A statement from Sen. Jose Rodriguez on the passage of SJR1 is here, and the Observer has more.

More details on the House budget

Consider this to be written in pencil, because it’s going to change.

More than $1.6 billion and disagreements on how much Texas should spend on public education and Medicaid separate the budgets proposed by the House and Senate.

The Senate budget proposal, passed 29-2 by the upper chamber last week, spends $195.5 billion, a 2.9 percent increase from the current two-year budget. The House budget, which is scheduled for a vote on the House floor on April 4, spends $193.8 billion, a 2.1 percent increase.

While the House budget is smaller, it spends nearly $1 billion more on public education. The Senate plan spends $604 million more on higher education.

The Senate also invests $2.1 billion more in health and human services. A large portion of that extra spending, $974.5 million, covers projected growth in costs associated with Medicaid such as more Texans enrolling in the program and general medical cost inflation. The House budget does not address those costs.

“Our bill does not include cost growth, does not include rate increases, and we need to address those things,” state Rep. Jim Pitts, R-Waxahachie and the chamber’s chief budget writer, said last week.

Assuming the House proposal passes that chamber, members from both the House and Senate will meet in conference committee to resolve differences between the two plans.

The final product is likely to be larger than what either side has proposed. Neither budget addresses large shortfalls in transportation or water funding, two issues many lawmakers have discussed tackling this session. Legislators have also said they are considering additional spending on tax reform and further reversing last session’s public education cuts.

Lawmakers are also waiting on an updated revenue projection from Comptroller Susan Combs. If she tells them there is more revenue available than what she estimated in January, lawmakers may feel more comfortable spending more.

As the story notes, don’t be fooled by the graphic for higher education. There was an accounting change that makes it look like there was a cut, but in actuality there’s more money being appropriated, so that’s good. The budget still isn’t where it needs to be to account for growth and need, and we suffered needlessly for two years thanks to Comptroller Combs’ lousy revenue forecast, but things are better and that’s no doubt why this session has been less contentious so far. I do believe the House will account for Medicaid and the Senate will bump up its public education spending, with both being abetted by a higher revenue projection for the biennium. Beyond that, watch for the usual shenanigans in the amendment and rider process.

Supplement this!

Time for the Lege to pay a few past-due bills from 2011.

That’s where a supplemental budget comes in. It is literally a second budget added to the original one lawmakers approved in 2011. It’s not an unusual course for lawmakers to take to address lingering IOUs, but this year’s efforts are becoming more complicated and politically fraught than in the past.

For starters, lawmakers are planning at least three bills to address the state’s supplemental needs instead of the usual one. The first measure needs to be signed by Gov. Rick Perry in March so the state can pay billions in upcoming health care bills on time. A second supplemental bill will address the state’s costs from fighting wildfires and providing prisoner health care, but it won’t need to pass so quickly. A third measure, also not a rush item, will reverse $1.75 billion in delayed funds to school districts.

State Rep. Jim Pitts, R-Waxahachie, chairman of the House Appropriations Committee, said separate bills were needed to ensure that the emergency item makes it to Perry’s desk quickly.

Texas has $6.8 billion of unmet costs in the current budget, nearly all of it related to Medicaid and public education, according to the Legislative Budget Board. Lawmakers plan to use most of the extra $8.8 billion the Texas comptroller reported collecting from this biennium to pay those costs.

One way of thinking about this is that if Comptroller Combs had given us an accurate revenue estimate in the first place, we we could have dealt with all this in 2011 instead of pretending it didn’t exist for the purposes of “balancing” the budget. This is also a reminder, once again, that the concept of “balancing” the budget as we do in Texas is a fiction imposed by an artificial deadline.

The House Appropriations Committee passed its first supplemental bill on Monday, and Pitts plans to bring it to the House floor for a vote early next week. The bill, House Bill 10, has “emergency” status, a parliamentary designation that allows legislators to vote on the measure during the first 60 days of the session if Pitts can get the support of 120 of the 150 House members.

“It’s the first time I’ve ever had an emergency supplemental,” Pitts said.

The emergency stems from the last Legislature’s decision to fund Medicaid and the Children’s Health Insurance Program for only 18 out of 24 months in the budget cycle, a move that allowed lawmakers to delay $4.5 billion in spending from state coffers. HB 10 will fund those programs for the full two years with $4.5 billion in state money, which will automatically trigger an extra $6.6 billion in federal funding.

The bill needs to get to Perry’s desk by early March so that health care workers aren’t left in the lurch, Pitts said.

“If we do not pass House Bill 10 for Medicaid, the doctors, the hospitals, the nursing homes will not be paid after the middle of March. … That is the emergency,” Pitts told his colleagues on the House floor Monday. The bill also includes $630 million owed to schools districts.

The emergency is one part the result of Combs’ inaccurate revenue projection, and one part the Republicans’ fanatical refusal to find new revenue. Most likely, these bills (about which you can learn more here) will pass, but you never know what the bomb-throwers in the GOP caucus might try to do. You may be wondering about the issue of school finance, for which Democrats have tried to get the cuts from 2011 restored. That’s not going to happen, but some kind of partial restoration may be possible.

House Appropriations Chairman Jim Pitts, R-Waxahachie, said that lawmakers have just under $1 billion available to spend without hitting the constitutional spending limit on the current two-year budget. He and a group of lawmakers, which includes House Speaker Joe Straus, R-San Antonio, are in talks to add some of that money to a supplemental spending bill expected to reach the full House next month.

“We’re still working on it,” Pitts said Thursday.

State Rep. Donna Howard, D-Austin, said the discussions are looking at adding public education money both to the current budget and the next two-year budget cycle.

[…]

During debate over the rule, Pitts told lawmakers the second supplemental bill may include funding for public education. That bill is also expected to address unexpected costs related to recent wildfires and prisoner healthcare.

State Rep. Mark Strama, D-Austin, urged Pitts to make clear publicly as soon as he could how much more money school districts could expect so they could properly plan to use it before the end of the fiscal year. He said many districts might use some of the funding to hire tutors for students who need to retake the STAAR end-of-course exams.

“There is time for us to make a meaningful difference in the resources available to them,” Strama said.

The rule in question was one that forbade any amendment to HB10 that added to the total cost without any offsetting cut elsewhere. We’ll see what comes of this. EoW has more.

School districts are still a long way from getting relief

School districts may have gotten a favorable ruling in the latest school finance lawsuit, and if it survives appeal it could have far-reaching effects on the current system, but that doesn’t mean that things will get better for them now. If anything, they’re likely to get worse first.

“It’s pretty bleak for next year,” said Tracy Hoke, chief financial officer for the Fort Bend Independent School District, the lead plaintiff in one of six lawsuits filed against the state over funding. “Certainly, there won’t be a lot of new staffing, and employees are very, very tired. Our custodians are cleaning more. Our teachers have larger classes. Our counselors are stretched very thin.”

Hoke and other district leaders say they plan to craft their budgets for 2013-14 similar to current levels of spending, presuming lawmakers will not pour much new money into schools this legislative session, which ends in late May.

[…]

The House Democratic Caucus said its members plan to file a budget amendment this session to restore the $5.4 billion in cuts, while the chairman of the House Republican Caucus, Rep. Brandon Creighton, of Conroe, said acting so soon would be “irresponsible and unproductive.” The state is expected to appeal to the Texas Supreme Court, which could overrule Dietz’s decision.

“To me,” countered Brian Woods, superintendent of Northside ISD in San Antonio, “it’s shortsighted to wait for the Supreme Court, to kick the can down the road another 14 to 16 months when you know there is a problem.”

Woods said he regularly hears complaints that classes are too big and that custodians and technology assistants are too few. His district, like Fort Bend ISD and other fast-growing school systems, should get more money next year because enrollment is rising. Woods, however, said the enrollment growth funding would not cover the cost of opening three new campuses.

[…]

In Houston ISD, the state’s largest district, chief financial officer Ken Huewitt estimates having to fill a $50 million budget shortfall in the upcoming school year. The school board dipped into savings and used one-time federal funds to help balance the budget last year. Jobs may have to be cut, said HISD spokesman Jason Spencer, though it is too soon to know for sure.

“We’re hopeful they’re not going to take any more away from us, but we’re not expecting them to give us anything more,” Huewitt said of lawmakers. “But it’s early.”

I can only imagine what the effect of having to absorb North Forest ISD would have on HISD’s budget. Be that as it may, the Democrats in the House are going to try to force the issue of school finance in this session.

The House Democratic Caucus says it will introduce a measure to restore the $5.4 billion in cuts to this year’s budget by adding it to an emergency spending bill needed to pay for Medicaid. Rep. Trey Martinez-Fischer, D-San Antonio, will also try on Monday to convince the House to declare school finance an emergency item and begin work on the matter immediately.

These votes will be just the beginning of a long, drawn out effort to get Republicans to either vote for increased government spending — which will get them in trouble in the 2014 Republican primaries — or get them to vote against public education spending, which will give Democrats an issue in the 2014 general elections.

The Republican leadership recognizes the trap and will do its best to side-step it. The GOP will also use parliamentary procedure to block votes and argue that rewriting school finance laws while there is ongoing litigation is foolish.

Privately, Republicans say they want to delay any action on school finance for as long as possible and are considering stalling tactics. Abbott can do Republican lawmakers a favor and slow-peddle the appeals process to make sure the lawsuit lasts well into 2014. Then Gov. Rick Perry can call a special legislative session after the 2014 primaries and before the 2014 general election.

Such a special session would allow Republican lawmakers to vote for a school finance overhaul that boosts spending after they’ve made it past the notoriously conservative Republican primary voter. They would also solve the school finance problem before Democrats could attack them for not taking care of public schools, one of the most important issues for the general election voter.

As expected, Rep. Martinez-Fischer filed HR 408 yesterday to encourage the Lege to appropriate the money it had cut in 2011 without waiting for the Supreme Court to rule. You can read the press statement from MALC here. In his oddball iconoclastic way, Republican Rep. David Simpson is with the Dems on taking action now. More than half of that $8.8 billion in surplus funds from 2011 that resulted from Comptroller Combs’ gross underestimation of available revenue has now been marked to pay our outstanding Medicaid bills, so a full restoration of public ed money would need to involve the Rainy Day fund and/or current revenues, at least in part. That doesn’t make the debate any less worth having, of course. I don’t expect this to actually happen – the Lege will fund enrollment growth, and there may be some funds restored for things like pre-K – but the more we debate it, the better. We can help schools now, we don’t have to wait. It’s our choice.

Amazon fulfills its end of the deal with Texas

Good to see.

Nine months after it struck a deal with the state to bring thousands of jobs and invest millions of dollars in Texas, online retail giant Amazon.com on Wednesday unveiled the first steps toward keeping its end of the bargain.

Amazon said Wednesday it will build three fulfillment centers in Texas, creating about 1,000 jobs. The new facilities will include a 1.2 million square-foot site in Schertz, east of San Antonio; and two sites in the Dallas-Fort Worth area — a 1 million-square-foot center in Coppell and a 1.1 million-square-foot facility in Haslet.

The fulfillment centers in Schertz and Coppell will handle the shipment of “larger items—anything from televisions to bbqs, for example,” Amazon said. The Haslet center will ship smaller items like books, small electronics or DVDs, the company said.

“We look forward to putting more than 1,000 Texans to work at our new fulfillment centers in Schertz, Coppell and Haslet,” Mike Roth, Amazon’s vice president of North American fulfillment, said in a news release. “We appreciate the state and local elected officials who have helped us make this exciting investment in the state of Texas.”

In April of last year, Amazon struck a deal with Texas Comptroller Susan Combs, calling for the online retailer to bring 2,500 jobs and $200 million in capital investment to the state, and to start collecting tax on sales made to people in Texas. Amazon began collecting the sales tax on July 1.

See here, here, and here for the background. Amazon had announced the Schertz location in November. Barring anything unusual this ought to be the end of the story in Texas, but it remains the case that Amazon and other online retailers should be paying sales taxes on Internet transactions regardless of what deals have been worked out in what states. It also remains the case that the current Congress is never going to fix that, so this is the workaround for now.

The revenue estimate is in

And under normal circumstances it would be very good news.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Can Texas afford to eliminate its state business tax?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So how’s public education doing under the Republicans?

Well, for starters, there’s larger class sizes.

Northside’s predicament mirrors that of several other local districts with expanding enrollments. It’s part of the argument hundreds of Texas districts are making in an ongoing school finance lawsuit against the state, blaming lawmakers for a funding scheme that doesn’t keep up with growth.

Administrators say larger classes are cheaper than hiring more teachers. There’s no state limit on class size for grades 5-12. In kindergarten through fourth grade, school districts must seek permission to go above 22 students per teacher — and the number of requests for such waivers from several local districts has skyrocketed in the past two years.

School boards, lawmakers and even presidential candidates this year debated whether larger classes hurt education.

“I would say that the majority of those people who say class size doesn’t matter haven’t been in a classroom in a long time,” Southwest ISD Superintendent Lloyd Verstuyft said. “To think we can take a college format with larger sizes and bring it down to lower grade levels, where students still are developing socially as well as academically, is a farce. These kids need attention and interventions.”

[…]

Southwest ISD has found a way around the waiver requirement by using a “multi-grade” setup, placing some students overflowing from a lower grade into a higher grade classroom and having the teacher instruct the appropriate curriculum. Verstuyft said the district might need to end that experiment and opt for waivers — enrollment is swelling with population attracted by nearby manufacturing plants and the Eagle Ford Shale energy drilling boom.

Now at 13,024 students, Southwest added about 600 in each of the past two years since the Legislature cut its funding by almost $12 million.

FYI, Southwest ISD’s revenue for 2011-12 was $105 million, so they experienced a ten percent growth in enrollment over the past two years while dealing with a ten percent cut in funding. Doesn’t sound like a recipe for continued success to me. But surely with all that extra revenue coming into the state things will be better in the next biennium, right?

Yeah, right.

Republican leaders heading into the new legislative session say they are in no hurry to undo billions of dollars in cuts to public schools made two years ago.

Despite pressure from teacher groups and others, top lawmakers cited holes they must patch in the current budget, a general caution about higher spending and a desire to see how courts rule in the latest suit over how the state funds education.

Many school districts, pointing to an improved Texas economy, are seeking relief. But key budget-writers say the initial two-year plan they’ll unveil soon won’t replace the $5.4 billion the last Legislature sliced from state maintenance and operation aid and discretionary grants.

That means no substantial help to handle bigger classes and no restored grants for half-day prekindergarten and remedial instruction, decisions that are expected to rekindle tensions with school advocates calling for more money.

“The introduced bill won’t have that,” though it may include an additional $1 billion or so to cover student enrollment growth, said Rep. Jim Pitts, the Waxahachie Republican who heads the budget-writing Appropriations Committee.

Pitts said he expects Comptroller Susan Combs’ two-year revenue estimate, which limits what lawmakers can spend, “to be pretty conservative, and so we’re being very conservative.”

[…]

Rep. Mark Strama, D-Austin, said GOP leaders probably are posturing, comparing it to the initial House proposal two years ago for $9 billion in school cuts.

“The story became the restoration of some of the cuts instead of focusing on how can we cut $5.4 billion from education in a school system that we’re holding to higher and higher standards,” said Strama, a member of the Public Education Committee.

“That was actually a smart political strategy to sell a dumb public policy.”

Strama said Republican leaders may ease up some when a final budget starts taking shape.

Don’t count on it, though, said Rep. Charles Perry, a Lubbock Republican who, with tea party support, upset an ally to Speaker Joe Straus two years ago — and then beat him again in a primary rematch this year.

“It’s not going to happen,” he said. “We’re not going to do any restoration.”

So there you have it. Frankly, I wouldn’t hold my breath waiting on them to add funding to cover enrollment growth. It’s not a priority for them. I’ll say it again, nothing will change until the government changes. It’s as simple as that. EoW has more.

What kind of debt is it?

Comptroller Susan Combs is real worried about city and county debt, y’all.

Local governments are loading down Texas taxpayers with debt without providing them enough information about the amount already owed for roads, schools and other public projects, State Comptroller Susan Combs contends in a report released Wednesday.

Titled “Your Money and Your Debt,” the report notes that the current level of government debt approved by Texas cities and counties soared from 2001 through 2011, with tax-supported debt of cities increasing 126 percent to $27 billion. Tax-supported county debt, the report said, grew by 131 percent to $10.3 billion.

“As taxpayers step into a voting booth to approve new debt, government should tell them how much debt they are already responsible for repaying and how much debt service is included,” Combs said in a statement. “Elected officials are responsible for telling the taxpayers they serve about the price tag associated with new and existing debt.”

[…]

Although Harris County has no bond proposals on the ballot this fall, County Judge Ed Emmett criticized the report’s use of population growth and inflation as a benchmark to compare spending and debt. The state built the University of Texas and Texas A&M University with proceeds from oil discoveries, Emmett said, and could not have done so if it had been constrained by that alone. “The Ship Channel, the highway system, all those things were built in anticipation of future growth, not waiting until you get the growth and then saying, ‘OK, now you can spend the money,’ ” he said.

Emmett stressed the difference between debt backed by property taxes and that backed by revenues, such as tolls paid to the Harris County Toll Road Authority.

The Comptroller’s press release is here, and the report can be found at www.TexasItsYourMoney.org. I agree with what Judge Emmett says, and while Comptroller Combs acknowledges in the story that there’s good debt and there’s bad debt, it would have been nice if her report had used methodology to make that distinction. I would also note that with interest rates being at all-time lows, and with the pledge from the Federal Reserve that they will continue to be low for the foreseeable future, there’s never been a better time to borrow than now.

Another point is that cities and counties are doing what the state refuses to do.

Kevin Wolff, the only Republican on the Bexar County Commissioners Court, pointed out that, legally, county governments are a subset of state government and that cities and counties across the state had been forced to deal with legislative budget cuts and unfunded mandates.

“A lot of the debt that counties have had to incur is really through the process of unfunded mandates that come through Austin,” Wolff added. “They’re notorious for passing responsibility onto us for (programs) but not giving us funding sources to do it.”

And sometimes they do this by doing nothing. I am of course speaking of the refusal to expand Medicaid, which will hit counties and hospital districts hard. There’s a reason some counties want to do Medicaid expansion on their own.

Dewhurst says he’s running for re-election in 2014

Peggy Fikac was first to report that David Dewhurst is not planning to fade away just yet.

Sad Dewhurst is sad

The last time we asked Lt. Gov. David Dewhurst what he plans to do in 2014, it was soon after he lost the U.S. Senate nomination to Ted Cruz. He asked if reporters minded giving him a couple of days.

It looks like he has thought about it long enough.

Someone shared with me an invitation to a “reception to re-elect Lt. Gov. David Dewhurst” that went out on letterhead that says, “David Dewhurst Lt. Governor 2014.”

The reception is scheduled for Sept. 19 at the Headliners Club.

Its top fund-raising requests are for people to give or raise $50,000 or $25,000 by Dec. 8.

They can also choose to give $10,000, $5,000, $2,500 or the always-popular “other.”

You can see the invitation at that link. The Trib confirms what this means.

Texas Lt. Gov. David Dewhurst, after getting a standing ovation by the Texas Republican delegation in Florida, announced Tuesday that he plans to run for re-election.

“I fully expect to be running for re-election in March of 2014,” Dewhurst said. “As long as the people of Texas want me to continue serving to help move this state forward, then I’m honored.”

He wouldn’t be alone. Three statewide elected Republicans — Comptroller Susan Combs, Land Commissioner Jerry Patterson and Agriculture Commissioner Todd Staples — have all expressed some interest in running for lieutenant governor. On the evening of the runoff elections last month, Patterson said he will run in 2014 whether Dewhurst is on the ticket or not.

Staples is also now saying that he’s in for Lite Guv; we’ll see about Combs. Dewhurst could of course just be doing this as a show of bravado to help keep the jackals at bay, but as with Rick Perry I think it’s best to assume he means it until proven otherwise. Since we’ve been discussing fantasy candidates for Governor, let me say here that my fantasy candidate for Lite Guv is State Sen. Wendy Davis. Ideally, she’ll win re-election this fall, then win the draw to not have to run for re-election again till 2016, thus allowing her to make a run for something else in 2014 without having to give up her seat. Regardless, she’s my first choice to go against Dewhurst or anyone else in 2014. We’ll see who that winds up being. BOR has more.

What will The Dew do next?

David Dewhurst

So Lt. Gov. David Dewhurst isn’t going anywhere next January. I’m going to put aside the questions of what happened for now and ask instead what happens in 2014? As we know, there are three people running for what they originally thought would be an open seat race for Lite Guv in 2014. What happens if Dewhurst decides, as Rick Perry may have also done, to run for re-election again? Do the dominoes stand or fall?

Whatever you may think about Dewhurst and his campaign, the fact that he got his butt handed to him on Tuesday doesn’t mean he’d be easy to beat in a 2014 primary. For one thing, it’s unlikely that there will be millions of dollars spent by outside agitators in the service of calling Dewhurst names. For another thing, three candidates who have each been elected statewide at least twice and have held office for a lot longer than that are hardly the insurgent fresh-faced outsider that Ted Cruz managed to portray himself as. I’m not saying that Dewhurst would be a lock – he might have to learn how to campaign, for one thing – but he’s hardly a dead man walking, either. The conditions that led to his defeat here will not be in play in two years’ time.

So as I said before, we could have a situation where there are no open non-judicial statewide offices in 2014. It’s too early to know what Combs, Staples, and Patterson might do, but here’s something that occurred to me in the waning days of the Senate primary: As far as I could tell, Greg Abbott stayed on the sidelines in that race. If he was supporting either Cruz or Dewhurst, he was mighty low key about it. I bring this up because it seems to me that Abbott had a low cost, low risk way of test driving opposition to Rick Perry by supporting Cruz. I mean, Cruz used to work for Abbott, so surely it wouldn’t have been too much of a surprise for Abbott to announce that as much as he liked Dewhurst he’s going to support his former employee. With a little savvy, he could have worked that into some conversations with media folks in the days leading up to the runoff, as Cruz’s chances looked better and better, perhaps appearing with Perry’s former BFF Sarah Palin at that Cruz rally in the Woodlands, all the while pooh-poohing the idea that this was somehow a proxy for a future gubernatorial primary. But hey, what do I know? For more thoughts on Tuesday’s runoffs, see Robert Miller, Harold Cook, and Forrest Wilder.

What will the excuse for austerity be now?

We’re in the money, as it were.

Comptroller Susan Combs on Wednesday released updated details of how much money Texas is expected to collect in taxes and fees in fiscal year 2013, which begins on Sept. 1.

The report, prepared as Texas seeks $9.8 billion in short-term loans, indicated that the state will bring in about $2 billion more than Combs had previously estimated for 2013.

In addition, sales tax collections for the current fiscal year are running about $1.5 billion ahead of projections, while the business franchise tax has exceeded estimates by at least $300 million.

Combs previously reported that the state was sitting on a $1.6 billion cash balance from the previous budget, which brings the ever-changing total well above $5 billion.

[…]

An additional $5 billion would help lawmakers cover a tab for Medicaid costs that they must pay next year. That obligation has fallen from $4.8 billion to an estimated $3.9 billion as fewer people have enrolled in the health care program and changes aimed at controlling costs take effect.

[…]

The rainy day fund might be near capacity.

Combs expects the account to reach $8.2 billion by the end of 2013, almost $1 billion more than she projected in December. That amount would appear to approach the limit set on the fund by the state constitution.

Production taxes from the oil and gas boom are filling up the reserve fund, said R.J. DeSilva, a spokesman for Combs.

So the Rainy Day Fund is full, and the revenue projection may well be undershooting the mark. If we’re not restoring the funds that were cut from public education and a host of things besides, what are we going to do? This is why I say that the 2013 legislative session will be a major factor in the 2014 elections, because there’s a fundamental question about budgets and government services that needs to be answered. Do people have the expectation that the cuts made in 2011 were simply in response to the finances of the day, with the equivalent expectation that better times means putting things back as they had been, or do people believe this is the new normal? It’s not too early to start planning how to get voters to arrive at the answer you want them to.

We better hope Amazon sticks to its deal with Texas

Remember that deal Amazon made with the state to start charging sales tax here and to commit to creating 2,500 jobs in return for having back taxes forgiven? Apparently, there’s not much in the deal to make them regret it if they don’t hold up their end of the bargain.

Amazon.com Inc. didn’t risk much when it agreed in April to create 2,500 jobs and invest $200 million in new distribution centers in Texas if the state forgave $269 million in back sales taxes.

If the online giant should fail to follow through on that promise, it has agreed to pay $1 million to the state — and Comptroller Susan Combs could not reopen her claims for back taxes before July 1, according to documents released Wednesday to the American-Statesman under the Texas Public Records Act.

Under the agreement, Amazon.com and its affiliates began collecting sales taxes from their Texas customers July 1.

[…]

Austin tax lawyer Buck Wood contends Combs is not legally authorized to make such a settlement and said she has created a double standard: a “too big to pay” class of taxpayers who get preferential treatment.

On Wednesday, after reading the agreement, Wood — a former deputy comptroller and also general counsel under the late Comptroller Bob Bullock — said Texas is not adequately protected if Amazon fails to keep up its end of the deal.

“I have a $269 million tax liability. I pay $1 million. That’s nothing,” Wood said. “If (Combs) can do this, she can do anything.”

Wood said Amazon got its tax bill forgiven just by agreeing to do what it wants to do anyway — build distribution centers in Texas. He dismissed the economic development aspects of the agreement as “window dressing.”

R.J. DeSilva, a spokesman for the comptroller’s office, defended the agreement.

“The company is collecting the sales taxes quicker than any other state,” he said. “That’s a huge part of it.”

As for the $1 million fee, DeSilva said, “The penalty is what it is, but there is a commitment by the company to invest in the state.”

Wood raised the issue of legality in May, but until/unless someone files suit it’s an academic concern. I share Wood’s concerns, and I have to shake my head at the level of deference being shown Amazon, but at the same time I appreciate that we got this done, without the courts or the Lege or Rick Perry getting involved and mucking it up. The goal was to get Amazon to pay sales tax, which is good for the state and good for the traditional retailers and given Amazon’s same-day delivery innovation may be god for them as well. At some level, the rest is gravy.

Waiting for Rick (and Greg, and David)

Ross Ramsey breaks out his crystal ball and looks ahead to the 2014 election.

Remember this: In his long history in state politics — closing in on three decades — [Rick] Perry has run for everything he said he was going to run for.

Given his history, the safest assumption is that Perry will be on the ballot again in 2014, running for governor. And if the Republicans lose the presidential election this year, he might really and truly be angling for the party’s nomination in 2016.

This makes a lot of Texans — and not just Democrats — slap their foreheads. They cannot believe anyone has been governor for this long, and some of them cannot believe Perry is the guy who is setting the record.

[…]

Perry is on the verge of serving as Texas governor longer than Franklin Delano Roosevelt served as president — a 12-year, 42-day run that the Texas governor will match at the beginning of February.

He attracts the same sort of grumbles that Roosevelt did, with opponents mumbling that he has been there for too long, that it is time for fresh ideas, that maybe the state should limit its chief executive’s time in office after all.

Others have lined up, gently. Attorney General Greg Abbott, by all accounts on good terms with Perry, has more than $12 million in his political account and has made it clear he would like to be the next governor. He does not want to repeat Hutchison’s mistake, but he is ambitious. Others are sniffing around, too, looking at jobs that might open up if Perry moves on. Like Abbott’s post.

None of those dreams come true unless the governor is bluffing about his plans.

Right now, as I look ahead to 2014, there are four things I think about that could dramatically affect what that election looks like.

1. Who’s running for what, GOP edition – A few months ago it was possible to imagine that every non-judicial state office up for election in 2014 would be open. Now, with Perry talking about another run for Governor and David Dewhurst potentially losing the Senate runoff, it’s possible to imagine that every non-judicial state office up for election in 2014 could once again have the incumbent running for it. Will any of the three Lite Guv wannabees that hold statewide office – Susan Combs, Todd Staples, Jerry Patterson – stay the course and take on Dewhurst if he loses in two weeks and decides he wants to stay where he is for another term? I think if Perry and Dewhurst stay put, then everyone else just might do the same. If nothing else, that ought to make the case for change in the 2014 election that much clearer.

2. Who’s running for what, Democratic edition – Where the GOP has more candidates than available offices, the Democrats have a nearly non-existent bench, and also have to scrape up a candidate to take on Big John Cornyn. It starts with the Governor’s office, where if San Antonio Mayor Julian Castro isn’t ready to take the plunge yet perhaps one of his predecessors could be persuaded. For Lite Guv, I’d love to see Sen. Wendy Davis take a crack at it, if she’s not in a position of having to run for re-election for her Senate seat. Beyond that, I got nothing. We’re potentially electing some exiting young members of Congress this year, but they’ll want to serve more than one term before thinking about moving up. I hope someone besides me is thinking about this.

3. Lawsuitpalooza – Redistricting preclearance. Voter ID preclearance. School finance. Down the line, possibly a SCOTUS challenge to the Voting Rights Act. In the next few months, courts will have the opportunity to wield an inordinate amount of influence over the 2014 elections. Really, we can’t begin to talk about how the 2014 elections may go until we have resolutions for these items, and one other.

4. The 2013 Legislative session – Regardless of how the school finance lawsuits shake out – ultimately, that will be up to the Supreme Court, and it won’t rule till some time in 2014, with action needed in 2015 – the Lege will have some big tasks to tackle. At its most basic, the revenue crisis is over, so the Lege will have to decide whether to restore some of the spending it so savagely cut in 2011 or sock it all away for a future crisis and fritter the rest away on tax cuts. Needless to say, what they do will shape the 2014 campaigns.

So anyway. You can keep an eye on what Perry and Abbott are up to and try to guess their next moves, for whatever good it might do. There’s a lot more to 2014 than that, and we’re still a long way off from having a clearer picture than we do right now.

Amazon starts collecting sales tax today

We are in a new era.

Beginning Sunday, Texans will see state and local sales taxes show up on their taxable Amazon purchases — the result of a deal with the state comptroller’s office that resolved the e-commerce giant’s past tax liabilities with the state in exchange for the sales tax collections, the creation of 2,500 jobs and a pledge of $200 million in capital investment in the state.

For customers, little will change other than prices. Amazon’s order summary already includes a line that reads “Estimated tax to be collected.” Come Sunday, that line often will be followed by something other than $0.00. The company’s systems will automatically calculate and add the proper state and local levies.

“Amazon customers in Texas will see the appropriate sales taxes applied to their order when they proceed to check out,” a company spokesman wrote in an email.

With the change, customers will actually have to pay the taxes they owe on their purchases through Amazon.com. Technically, these online buys were always subject to state and local sales and use taxes, although few people actually remitted those levies and the state rarely pursued them.

Now Amazon will collect them and, like other retailers around the state, turn them over to the comptroller’s office by the 20th of the following month.

[…]

The company will begin collecting sales tax for most of the other states in 2013 or 2014.

“Certainly of the states that managed to pressure Amazon into collecting their taxes, Texas is really the second big state, after New York,” said Michael Mazerov, senior fellow of the State Fiscal Project at the Center on Budget and Policy Priorities in Washington.

“But it’s just another step in the process,” Mazerov said. “A number of states have managed to pressure the company into collecting their sales tax. Eventually, Amazon will be collecting in a very large number of states.”

In fact, the company has thrown its support behind a federal bill — called the Marketplace Fairness Act — that would open the door for sales and use tax collections in every state. Brick-and-mortar retailers and a host of retail associations have pushed for such a law to help “level the playing field” with online retailers, most of which don’t yet collect sales taxes on purchases.

“Our hope is that eventually all online retailers will be collecting” sales taxes, said Stephanie Gibson, vice president for government affairs at the Texas Retailers Association. “We want to keep that money in our state because it supports our children and grandchildren.”

See here for some background. This is how it should be. There’s no reason to make a distinction between online sales and in-store sales. States and cities need the revenue, which supports things that online retailers need, too – streets, schools, utilities, and so on. There’s still the chance of a legal challenge to the deal Amazon struck with the state, but so far so good. This is and will be a good thing for Texas, and ultimately for the other states as well.

Is the Amazon deal with the state legal?

The Statesman raises a great question about the settlement deal between Amazon and the state of Texas that will get the online retailer to start collecting sales taxes in Texas while forgiving back taxes the state says it owes.

But is it legal?

Austin lawyer Buck Wood, a tax attorney and a former deputy comptroller and general counsel under the late Comptroller Bob Bullock, says no.

“While this may seem to be a reasonable resolution in people’s minds,” Wood said, “it’s not worth the paper it’s written on. She just can’t do it.”

Wood argued that the state’s constitution bars “forgiving” tax debts and that the settlement raised the specter of creating a “too big to pay” class of taxpayers who get preferential treatment.

He said it sets a bad precedent in a growing Internet economy when Combs has estimated that Texas loses $600 million a year on untaxed online sales.

[…]

[Wood] cited two articles in the constitution that, in essence, say the Legislature cannot forgive tax debts or delegate that authority.

Wood said the language, dating to the state’s early history, attempted to prevent officials from forgiving the debts of taxpayers with political influence.

There is one exception.

Wood and the comptroller’s office cited the same law that allows the comptroller to settle tax disputes, but they disagree on how broadly it can be applied.

The law says the comptroller may settle a claim for a tax, penalty or interest if the “total costs of collection” would exceed the amount due.

Wood said that if the $269 million tax bill is accurate, there is no way the cost of litigation and collection would approach that figure.

[…]

[Skip] Smith, a retired tax lawyer who has represented clients in disputes with the state, said the comptroller’s authority to settle cases is not as broad or explicit as, say, the Internal Revenue Service’s.

“They don’t really have a provision that gives them the right to settle based on the hazards of litigation,” he said.

Still, Smith said, “The comptroller, day to day, is settling these cases.”

He said the Legislature “hit Amazon between the eyes” when it changed the law last year. But he said it also gave Amazon another legal argument: Did the Legislature add the new language just to clarify the law or because Amazon wasn’t covered by the existing statute?

“It’s arguable,” Smith said.

Smith said the fact that the Irving site was owned by an Amazon subsidiary clouds the issue.

“If it’s a subsidiary’s warehouse, it becomes grayer,” he said. “I think this issue is not totally settled.”

Steve Bickerstaff, an Austin lawyer with a background in constitutional law, takes a different tack.

“It is never in the interest of the state to pursue a claim if the State of Texas is going to lose and there is a good alternative,” Bickerstaff said.

He said the constitutional prohibition against forgiving tax debts is not absolute.

I suspect that if we got a dozen lawyers together to discuss this, we’d get at least a baker’s dozen opinions. There are only two opinions that will matter. One is that of Attorney General Greg Abbott, who will undoubtedly be asked to provide it. The other is that of the State Supreme Court, once the seemingly inevitable litigation is filed. I wouldn’t even begin to guess what they might say. There is no such litigation yet, and who knows when there may be. I suppose if no one files a lawsuit then the matter will have been decided by forfeit. I don’t see that happening, however. Bottom line, we won’t know for sure for several years whether this is a precedent-setter, a one-off, or a false start.

Amazon settles up with Texas

Good.

Amazon.com will start collecting sales taxes from Texas customers this summer and agreed to make capital investments of $200 million and create 2,500 jobs in the state over the next four years, Comptroller Susan Combs announced this morning. In return, the state will drop its efforts to collect back sales taxes from the company.

The online retailing giant hasn’t been collecting sales taxes from customers in Texas (and in many other states), citing a provision in the law that exempts companies without a physical presence in the state from taking part. The comptroller filed a $269 million tax lien against the company, pointing to a warehouse operation in Irving and saying it should have been collecting and remitting taxes from December 2005 to December 2009.

That’s been in dispute for more than a year.

And just like that it no longer is. Seems like a fair settlement, as long as Amazon holds true to its hiring promise. I agree with Comptroller Combs and Amazon that this issue needs to be dealt with by Congress, and have been saying so all along. We’ll need a better Congress first, of course, but be that as it may, this is theirs to fix. For now, kudos to both parties for getting this done. A statement from Combs’ office can be found here.

Fighting identity theft

The U of Texas is studying it.

Identity theft is a cradle-to-grave problem that costs U.S. businesses $50 billion and affects at least 10 million consumers each year.

At least 1 million children’s identities are stolen over the course of a year — often misused by their parents, said Stephen Coggeshall, chief technology officer at ID Analytics. Adults are victimized, online and offline. Companies are compromised when unwitting employees use their company log-ins and passwords surfing the Internet.

Even death offers no respite: One study by Coggeshall showed that the identities of 800,000 dead Americans are being used for illegal purposes.

The Center for Identity at the University of Texas on Monday convened a two-day conference to discuss the scope of the problem and what can be done.

Peter Tippett, who helped create the first anti-virus software, is now with Verizon, which compiles the annual Data Breach Investigative Report.

“We do more computer crime cases than all other companies combined,” Tippett said.

Criminal organizations in the United States, Russia and Brazil are targeting consumers and businesses, Tippett said. He cited a Federal Trade Commission study for the $50 billion a year cost to businesses and the 10 million affected consumers.

Tippett said that 82 percent “of all data stolen by anybody on the planet was stolen because of your password.”

In a world where 123456 remains the most popular password, Tippett said making passwords longer and changing them more often isn’t the answer, with so much hacking and malware.

“If bad guys see what you type, it doesn’t matter how strong your password is,” Tippett said.

He likened the problem with passwords to seat belts in cars. He said seat belts were only 50 percent effective in saving lives, but making them stronger was not the answer. Adding air bags made cars safer.

A second identifying factor needs to be added to the passwords, Tippett said.

Two-factor authentication has a lot going for it, but it’s also another point of failure. One common way of delivering this without having to provide some kind of gadget that contains a personal certificate is to arrange to send an authorization code via text or voice to your phone, which is a great idea as long as you’re never without your phone. I suppose it or something like it is inevitable, though, so there’s no point complaining about it.

One thing this story doesn’t touch on is that a significant factor in identity theft isn’t just careless people with easily-cracked passwords, it’s also the many corporate and government entities that have all your data and which have become lucrative targets for evildoers, or in some cases have screwed up and let supposedly secure data out into the public, as Texas Comptroller Susan Combs did last year. Seems to me there needs to be greater incentive for the keepers of these databases to prevent their theft. One model I often hear discussed is to put the financial onus for this data loss on the entity that loses it and not the individuals who are affected by it. It’s the model we use for credit cards and ATMs, where your liability is limited and the financial institution bears the risk. Those transactions are pretty darned safe nowadays because of that. That takes legislation, which is clearly a tougher row to hoe than convincing millions of people to use better passwords. As the man said, there’s only so much benefit to be gained by strengthening passwords. The back end needs to be shored up as well.

Our long Amazonian nightmare may finally be over

Negotiations are in progress to get Amazon to pay something like its fair share.

Amazon.com is negotiating with the state to start paying Texas sales taxes on online sales and to create some jobs in the state, reviving talks that fell apart at the end of last year’s legislative session, sources involved in the conversations said today.

A deal would apparently end the state’s attempts to force the company to collect sales taxes. Comptroller Susan Combs accused the company of ducking $269 million in sales taxes it should have paid from December 2005 to December 2009. The company threatened to close a warehouse operation in Irving that it said employed about 120 people.

The comptroller’s office had no immediate comment about the talks.

“There are meetings going on, but I can’t tell you much else about it,” said state Rep. John Otto, R-Dayton. He’s been involved in the online sales tax issue at the legislative level, but said he isn’t directly involved in current negotiations.

This week, the company reached agreement in a similar dispute in Nevada and is reportedly negotiating sales tax agreements with other states. No hard estimates are available on what such an agreement would bring into the Texas treasury. In its lawsuit, the state put the annual number at about $70 million. In Nevada, where the sales tax ranges up to 8.1 percent, officials expect the Amazon deal to bring $16 million annually into state coffers.

[…]

“As long as they’ll start collecting sales taxes this fiscal year or within the next four or five months, that’s really what’s important,” Otto said. “We’ve got to level this playing field.”

I presume this would also settle the ongoing litigation between Amazon and the state. This has been a long time coming, and I don’t really have anything to add other than I agree with what Rep. Otto says. See here for prior blogging on the subject.

All the “news” that fits, we print

I’ve heard of slow news days before, but this is ridiculous.

Survey says...

State Comptroller Susan Combs trumpeted a survey Tuesday showing – as she wrote in the forward to a 15-page report – that a mere 3.4 percent of employers surveyed believe the Affordable Care Act will be good for their business.

Nearly two-thirds said federal health care is bad for business, her office reported. A total of 12.5 percent of respondents have reduced staffing due to health care reform. More than half expect higher costs due to federal health care reform.

But don’t look for a margin of error or other scientific underpinnings.

It’s not a scientific survey, as Combs freely acknowledged at her news conference with the heads of the Texas Association of Business (Bill Hammond) and National Federal of Independent Business/Texas (Will Newton).

Her poll was conducted online by SurveyMonkey (for $300 a year, she said, her office gets unlimited surveys).

About 21,000 members of the Texas Association of Business and NFIB were emailed to see if they would like to participate.

A total of 919 did so during the time the survey was posted, from Dec. 6 to Jan. 10.

That’s out of about 448,000 businesses in Texas, Combs said.

I’m not sure which is more pathetic, that an elected state official thought a Survey Monkey survey was newsworthy, or that at least four mainstream news outlets agreed with that assessment. Kudos to the Chron at least for noting the origins of the survey, which mitigates the punking somewhat. You have to admire Bill Hammond’s ability to get all those partisan talking points in unrebutted. Anyone can fire off a press release, but only a master gets to speak from the podium. Perhaps next we’ll get an official report on how a totally scientific survey of business owners reveals they favor lower taxes, fewer regulations, and a return of the three-martini lunch. Just remember, you heard it here first.

What radicals?

I was reading this Patricia Kilday Hart column about how nobody outside Texas paid attention to the sonogram bill until the Virginia brouhaha and the Doonesbury series, which is a good albeit frustrating read, when I came across this bit that was frustrating for an entirely different reason:

In the Texas Legislature, votes like Davis’ – outside party lines – are increasingly rare, according to research conducted by Dr. Mark Jones of Rice University’s Baker Institute.

Jones has data to prove what most of us know by gut instinct: The Texas Legislature has become a more polarized institution in recent decades.

In the past, lawmakers of both parties would overlap on the conservative-liberal spectrum. Now, both parties are dominated by their extremist wings. Moderate Republicans oppose ideologically charged issues like the sonogram bill “at their peril,” Jones says.

Oh, for Pete’s sake. Please, Professor Jones, tell me who these people are that have radicalized the Democratic Party. I mean, I don’t know who you talk to, but I know an awful lot of folks who will laugh in your face if you suggest the Democratic Party has moved appreciably to the left in recent years. Tell me also what positions the Democratic Party has taken that are noticeably more extreme than they used to be, and what legislation they have been pushing to further those radical ends.

These questions are easy to answer for the Republican Party. For who the radicals are, start with Dan Patrick, Debbie Riddle, Wayne Christian, and most of the people that got elected in the 2010 wave. Oh, and Rick Perry, David Dewhurst, Greg Abbott, and now Susan Combs, too. Just compare the David Dewhurst who is running for US Senate to the one who presided over the Texas Senate in 2003, as a for-instance. The GOP as a whole has gone from a position of generally opposing abortion to a full-fledged attack on birth control and family planning, and from a position of generally supporting lower taxes and fewer regulations to opposing any tax increase on anything for any purpose, pushing huge tax cuts for the wealthy, cutting public education, and seeking to end Medicare. There’s quite a bit of polling data to suggest that they are sprinting towards a cliff by embracing these more radicalized stances, but even Republicans with a mostly moderate history are doing so because it’s what their base is demanding and they fear their primaries more than they fear their Novembers.

My point is there’s just no comparison. The Democratic Party has moved left on some things, most notably marriage equality, but it’s been a gradual shift that’s in line with previously held views on civil rights, and more to the point it’s consistent with national polling. The Republicans have moved way, way more to the right, and it’s happened almost entirely in the last two years, despite a plethora of polling evidence that should warn them against it. The “both sides do it” trope is ludicrous on its face. Why is this so hard to recognize?