March 09, 2004
It's the School Finance Reform Tango

The ongoing will-they-or-won't-they tango on school finance reform took another step closer towards that dreaded special session.

Talk at the Capitol finally turns to taxes this week, the remaining piece in a school finance puzzle that could lead to a special session as early as March 29.

Lawmakers studiously avoided discussion of taxes during the primary election season. There are 45 contested primary races for House seats and five for the Senate.

On Wednesday the Joint Select Committee on Public School Finance will discuss tax options for replacing a portion of local school property taxes. One member of that committee, House Appropriations Chairman Talmadge Heflin, said last week that behind-the-scenes talks among lawmakers are showing progress.

"I think we're beginning to see some strong consensus statements, probably surfacing shortly after the primary. I'm a little reluctant to say a whole lot until then. This is a political group, you know," said Heflin, a Houston Republican who doesn't have a primary opponent.

Gov. Rick Perry also may begin publicly talking about tax issues this week. Several weeks ago, Perry promised to soon lay out proposals to lower and cap property taxes.


Despite the perils of opening a discussion on the complex issues of education finance and taxes, many Capitol observers now believe a session is inevitable because of the months-long buildup. Political pollsters also say that Perry needs a victory on school finance to improve his declining job approval ratings.

Another driver for a special session is the July trial of a lawsuit filed by dozens of school districts, alleging that the current finance system is constitutionally inadequate.

Achieving success in a school finance special session will not be easy. Lawmakers want to overhaul the $27 billion school finance system and end the more onerous provisions that require high property-wealthy districts to share $1.1 billion with lower-wealth districts. But they must replace that money to retain equity among districts.

The Legislature also will have to come up with revenue to offset lower property taxes. Legislation passed by the Senate during the 2003 regular session would have cut school property taxes in half and replaced the $8 billion in lost revenue by raising the sales tax and adding it to many services.

Lawmakers now are looking at a smaller cut, perhaps one-third, and replacing the money with a mix of sales, cigarette and business taxes.

Points to remember as we go forward:

- The Lege failed to close the franchise tax loophole during the regular session, despite Governor Perry's claim that it was a "major priority". It will very likely be on the agenda this time around. Note that the Lege had all but given up on closing this loophole before the Ardmore walkout occurred, by the way.

- If some sort of cigarette tax is enacted, the credit for it (or blame, depending on your perspective) goes to Comptroller Carole Keeton Strayhorn, who floated the idea during the regular session only to have Governor Perry reject it out of hand. To be fair, Perry rejected this as a means of balancing the budget, not as a vehicle for funding schools, so a change in position on his part is not exactly a flipflop.

- Property tax reductions, a subject that nearly caused a riot last year, will probably be the really hot potato. Property taxes can't be reduced or capped enough for the truly zealous, but reductions there will have to be made up elsewhere, mostly in the form of higher and/or expanded sales taxes. I predict that if there's going to be a major roadblock, this will be it.

- I believe the odds are at least as good that the end result of this as-yet-still-uncalled session will be no increase in Governor Perry's approval ratings as they are for a significant increase.

We'll know where we stand when Perry returns from Italy. Stay tuned.

Posted by Charles Kuffner on March 09, 2004 to Budget ballyhoo | TrackBack