January 13, 2005
First school finance ideas floated

In the 78th Lege, the Senate and Lt. Gov. David Dewhurst took the problem of school finance seriously (unlike Governor Perry and Speaker Craddick), and proposed a real overhaul to both the state tax structure which would allow for a more solid foundation of the school finance structure. They're first out of the gate on this issue again, but I fear they've got some fuzzy math going.

The plan outlined by Dewhurst would eliminate the school tax for maintenance and operations — now capped at $1.50 per $100 assessed valuation — and replace it with a $1 statewide property tax. Such a statewide tax would require a change in the Texas Constitution that would have to be approved by voters.

Local districts would be allowed to raise an extra enrichment tax of up to 15 cents. Some property-wealthy districts would still have to share some of the local enrichment with less wealthy districts so that school funding would remain equal.


The new business tax would apply to corporations and partnerships, but not sole proprietorships. Dewhurst said by expanding the base, the 4.5 percent franchise tax rate could be cut in half.

The plan also relies on increases in sales, tobacco and alcohol taxes, and closing a loophole on sales taxes for used cars. The Senate did not specify how much the sales tax would be increased.

Dewhurst said most Texans would not end up paying more taxes because of the offset of lower property taxes.

"This plan, thank God, doesn't raise the net overall tax burden on Texas," Dewhurst said.

Senate Finance Chairman Steve Ogden, R-Bryan, said extra money could come from existing state revenues, which have been growing as the economy improves.

The existing corporate franchise tax, which raises about $1.7 billion a year, would be replaced with an expanded tax that partnerships also would pay. It would raise about $3.5 billion in fiscal 2006 and $3.7 billion the second year of the biennium.


Dewhurst said it would cost $1.1 billion to give the state's 276,000 teachers a $4,000 pay raise.

Let's tot things up. The property tax cut will cost up to $5 billion, since every ten cents in property tax is a billion in revenue (I don't know how many districts are maxed out at the $1.50 cap, so I can't say for sure how much this cut will cost), and the teacher pay increase another $1.1 billion. Let's say $6 billion total in costs. The franchise tax change will generate an extra $1.8 to $2 billion in revenue.

That leaves a $4 billion gap. A better economy will probably generate more revenue from existing sources, though I hope by now we've learned that we can't rely on good economic times forever That leaves a bunch of as-yet unspecified increases in sales, tobacco and alcohol taxes.

First things first: How can we cover a billion dollars in new spending without an increase in the "net overall tax burden on Texas"? Well, you can't. I'm sure Dewhurst meant that statement to reinforce what he said about most individuals not paying more in taxes, but that's still a misleading statement. Apartment dwellers won't do much better, and until we know how the sales tax will be changed, we can't say how big a variation there will be from one person's burden to another. Last time, the Express News tried to quantify all this for different state rep districts. We'll need that same sort of analysis this time around, too.

One thing we apparently won't get this session is more gambling. Governor Perry has thrown in the towel.

"I don't think video lottery terminals or any form of gambling is as attractive to this Legislature as it was six months ago. I'm not sure it was very attractive then," Perry said in an interview with the Houston Chronicle.

His plan to legalize slot machines at racetracks and on Indian reservations, which contradicted the official anti-gambling position of his own Republican Party, died during a special session last spring.

But track owners — who are seeking an economic boost for their industry — and other gambling interests are expected to try again this year. The issue poses a tough fight because additional gambling would require a constitutional amendment, which must be approved by two-thirds votes in the House and Senate.


Perry said Wednesday that he backed video slot machines last year because the state had limited revenue options. Now, lawmakers are beginning work with a $400 million surplus projected by Comptroller Carole Keeton Strayhorn.

"Gambling was always a function of not having enough resources," Perry said.

We're really hanging our hats on that "surplus", aren't we? I wonder how many times it's been spent already.

Lastly, on a tangential but related matter, the Attorney General has given up seeking reimbursement for fees paid to a lobbying firm for drafting gambling legislation.

The move, made formal in a letter dated Monday from Assistant Attorney General Barry McBee, came after the regional head of a national watchdog organization filed a lawsuit claiming that the state overstepped its authority when it agreed to pay the firm as much as $250,000 for legal advice.

"They blinked," said Russ Verney, who heads the Dallas office of Judicial Watch. "It looks like there won't be any lottery money going to those lawyers in Las Vegas."

The firm of Lionel, Sawyer and Collins, which represents some of Nevada's best-known casinos, drafted legislation that would have legalized video slot machines at Texas racetracks and Indian reservations. The proceeds were to have been used to help reduce local property taxes and fund public schools in Texas under a new education-finance plan.

The measure was defeated during a special legislative session last year, but many observers say they expect the matter to resurface during the 140-day regular session that started Tuesday. Gov. Rick Perry says overhauling the school-finance system, declared unconstitutional last year by a state district judge, a legislative emergency.


The firm's hiring in December 2003 has evolved into a political football, with some lawmakers questioning its propriety and state Comptroller Carole Keeton Strayhorn refusing to reimburse the attorney general's office the $176,373 it paid to the firm in the spring. The attorney general's office had wanted the lottery commission to repay the legal fees.

Strayhorn has also said she will not pay the additional $185,293 that the firm has billed the state -- nearly $113,000 more than the state agreed to pay. Spokeswoman Angela Hale said the attorney general's office has no plans to ask Strayhorn to pay the firm any more money.

Good. More background on that can be found here.

Posted by Charles Kuffner on January 13, 2005 to Budget ballyhoo | TrackBack

One significant legal point in the Judicial Watch suit about the boodle sent off Vegas Way by the "Chief Law Enforcement Officer of Texas" who apparently doesnt know anything about state law or contracts (or may, in fact, know too much)

Mrs. Strayhorn, eventhough she is a defendant, did not file an answer, but only entered a "general appearence." This may mean that she accepts the allegations in the Plantiffs suit as true, and should cause interesting ramifications. All of the docs are at http://www.judicialwatchsouthwest.org

Posted by: Oh, My! on January 13, 2005 10:56 AM