September 17, 2004
Business tax revisited

Now that a judge has forced the issue, Tom Craddick is stating the obvious: We need a real tax to replace the useless corporate franchise tax.

"I really believe we've got to find a broad-based business tax in this state, across-the-board that everybody pays," Craddick said during a speech to the Texas Farm Bureau.


Craddick said the state might have to raise as much as $9 billion to lower property taxes and provide more education funding. He said that amount of revenue couldn't be raised solely through higher sales taxes.

The state now is paying for 38 percent of the $30 billion school system, with local property taxes making up the rest. Craddick said when the current school finance system was set up, the state was going to pay for 80 percent and 20 percent would be "local enrichment."

But now, with many districts at or near the $1.50 cap on local school maintenance and operations taxes, and unable to tax higher, the system is "totally broken," said Craddick, R-Midland.

"I also believe that we need to look at where we're spending our dollars in education and making sure we're getting every dollar's worth out of it," he said. "I don't think we are, and I think we need to look at that."

Craddick assured the crowd that he would oppose any efforts to eliminate property tax exemption for land used in agriculture. Exemptions for agriculture, timber and wildlife management take $91 billion worth of property off the tax rolls statewide.

Craddick also said that the court ruling might make the House more likely to reconsider expanded gambling as a revenue source to replace property taxes. In an interview after his speech, Craddick said that although a measure to allow video lottery terminals at horse and dog tracks failed in the House during last spring's special session, it might be revived.

"You're kind of under the gun to get it done and if people see we've got a definite plan, it might be (an option now)," he said.

What I don't see mentioned in here is an expansion of the sales tax to cover more services. I think in the end that will have to be on the table, especially if property tax caps are a part of the package. There aren't many other viable options.

Houston consultant Paul Colbert, a former lawmaker and school finance expert, said the Legislature doesn't necessarily need the threat of court action to find new solutions.

He said lawmakers acted to improve education in 1975, even after the state Supreme Court refused to take a case challenging the Texas system. The Legislature attempted again in 1984 in response to a lawsuit that exposed the system's inadequacies.

"So in both of those instances, even though the Legislature didn't feel the direct pressure of being ordered to do something or the schools would close, the Legislature still responded positively," he said.

Still, he said, school finance is one of the most vexing issues a lawmaker can face. To improve schools often requires more money, which ultimately means raising taxes.

"Almost everyone campaigned on improving education or ending Robin Hood and on keeping taxes low," he said. "When you have two contradictory promises, one has to be broken."

Mr. Colbert said there are only three state services big enough to be cut to provide revenue for schools: health care, higher education and prisons. He said more reductions in those areas would be hard to justify.

I think Cal Jillson is right on here:

Dr. Jillson said Mr. Perry would be lucky if the Supreme Court upheld Judge Dietz's ruling.

"Right now, he's in the position of fighting against what many people consider inadequate funding for quality education. That's an unsustainable position going forward," Dr. Jillson said.

For 20 years, governors have made quality education the top issue in their campaigns so that voters expect to see progress in public schools, he said. And now most school districts many of them from Republican strongholds are complaining that they are inadequately funded and are cutting back on educational opportunities, Dr. Jillson said.

"It would almost be a godsend for the governor to be told, 'You've got to do this,' because in the end, he will have to do it anyway," Dr. Jillson said.

Elsewhere, there's no sense of urgency just yet.

"It's not like the first time around," a veteran observer said, recalling court battles over funding equity in the 1980s and 1990s.

"And it's not real until the (Texas) Supreme Court says it's real," the observer said, referring to Attorney General Greg Abbott's plans to appeal to the nine-member high court, a step expected to take at least three to four months.

"Everybody's yawning," a Republican leadership aide conceded, adding that the ruling from the Democratic state district judge in Travis County had been expected and his promised deadline for legislative action October 2005 seems distant.

Finally, for demography enthusiasts, some data that helped spur the decision:

[State demographer Steve] Murdock, now of the University of Texas at San Antonio after quite awhile at Texas A&M University, has been making presentations around the state to various groups about the population changes in Texas, which is growing at twice the rate of the country as a whole.

Of the 22.1 million Texas residents, about 6.7 million are Hispanic almost three times as many as a decade ago.

Over the same period, the number of Anglos grew from 10.3 million to 11 million about 7 percent.

Seventy percent of the deaths are Anglos, and 62 percent of the births are minorities.

By 2010, Hispanics will make up about 39.3 percent of Texans, and Anglos will have dropped to about 45.1 percent. By 2020, Hispanics are expected to outnumber Anglos, 46.5 percent to 37.3 percent.

Murdock makes it clear, and Dietz reiterated, that if Texans fail to adequately educate their have-not population, which currently lags 10 points behind the haves in academic achievement, Texas will be poorer, will have fewer taxpayers and will have more people in prison and on welfare.

On the other hand, Dietz said, if the state educates all its people, the median income will go up, not down; more will be paid in taxes; there will be fewer people in prison and on welfare.

The state demographer's website is here, if you're curious.

Posted by Charles Kuffner on September 17, 2004 to Budget ballyhoo | TrackBack