March 23, 2005
Strayhorn's letter hits the news

Comptroller Strayhorn's letter warning of fiscal imbalances in HB3 has provoked a strong reaction.

"Maybe she is playing politics or maybe she and her staff are inept," said House Speaker Tom Craddick, who added he was taken aback by the news.

"Either way, I assure you that we stand by this bill. The comptroller's office certified it, and we are going forward with HB3 as is," he said.

Harsh. I know that she's invited this kind of response by not being a pussyfooter herself, but still. Someone's nerves got touched by this.

Strayhorn said she could not begin analyzing HB3 until it was sent to the Senate last week because of the number of amendments that were added during floor debate.


Problems with HB3 began to emerge as soon as it was first voted out of committee on March 2. Strayhorn warned then that the bill would not raise enough revenue and on March 7, the committee reconsidered the bill and added the snack tax.

The committee version mandated all Texas businesses to pay a 1.15 percent tax on payroll. But as the bill headed toward floor debate, lobbyists for labor-intensive businesses such as grocery stores and airlines began complaining about the burden of the payroll tax.

A business-friendly alternative emerged that would allow companies to choose between the payroll tax and the franchise tax, which is 0.25 percent of assets or 4.5 percent of net income. Craddick delayed a scheduled floor debate for March 11 to work over the weekend on loopholes that might allow businesses to avoid paying.

Deputy Comptroller Billy Hamilton said he waited all that weekend to see new language to close the loopholes, but nothing was ever presented to him.

"If you give them the choice, chances are they're going to pay a lot less in tax," said Hamilton.

Hamilton said a loophole that would allow staff-leasing companies to avoid the payroll tax also was not addressed.

Strayhorn said Craddick told her on March 11 that "he did not need our help and would not need a fiscal note until the bill was sent to the Senate."

Sadly, it appears that the person responsible for the compromise which led to Strayhorn's letter was San Antonio Democrat Mike Villareal, the guy who was criticized for voting Aye on HB3 in committee. Let them solve the problems of their own making, Mike!

I think the most interesting tidbit in this story is right here:

Lt. Gov. David Dewhurst said he and senators knew months ago of the comptroller's concern about giving businesses tax options without setting a minimum requirement. He declined to discuss the House plan.

This may be a little self-promotion on Dewhurst's part, but assuming it's true, it leads to a question: Did Craddick and the House know this all along, too? If so, it's hard to feel any sympathy for them when Strayhorn attacks. (They're not required to accept her premise, of course, but they have no business whining about it when she finally goes public.) If not, then was Strayhorn sandbagging them or did they just not want to hear it at all? Enquiring minds want to know.

Posted by Charles Kuffner on March 23, 2005 to Budget ballyhoo | TrackBack

The saddest part of this whole saga -- aside from the victims of the largest tax increase in state histroy, that is: families and small businesses -- is the behavior of San Antonio's Mike Villareal.

Once a young man with a bright future -- not unlike Dan Morales from that same city -- Villareal now looks like just another political hack willing to put his personal ambition in front of what's actually good for his constituents.

Posted by: Oh, Sarah! on March 23, 2005 4:29 PM

Dewhurst knew because that option was explored early on and he has the best tax guy in the world. If Strayhorn didn't tell the House then common sense should have. How do you let businesses choose a lower rate while keeping the property tax piece constant and expect it to still balance? For Strayhorn to announce this in the press before informing them is grounds for whining if you ask me. There were lots of amendments added but that one mattered and the CPA signed off. Craddick should have seen this one coming though.

Posted by: snrub on March 23, 2005 5:49 PM

Snrub hits it right on the head, basically saying just what Royal Masset, QR's resident Republican, had to say. I mean, its simple math. Before the amendment, there was X dollars in property tax relief, which was paid for by Y dollars in payroll tax revenue. It was neutral- X=Y. But if you say that Y is now two taxes, and you can choose the lower, it means that you've lowered Y without lowering X. Now, X > Y, in other words- it doesn't balance.

Furthermore, if you add up the numbers in her budget for 2006-7, it says that there will be $2.8 billion in new taxes in 2006, $4 billion in 2007 and no property tax relief until there is $5.8 billion in 2007. 2.8 billion plus 4 billion minus 5.8 billion equals $1 billion tax hike. So Republicans a) passed a $1 billion tax hike b) introduced a back door income tax c) failed to balance the budget.

Thank God they hate gays, because who knows how they would ever win elections!

Posted by: Andrew Dobbs on March 24, 2005 2:49 PM