May 16, 2006
Sine Die and see ya

So the Lege wrapped up its business yesterday and went home, having sent all of the tax-related bills to Governor Perry for his signature. So now what? Well, to start off wit, Perry is denying that the massive cut in property taxes will cause future budget problems.

The problem is not with the plan, [Perry] said, but with questionable figures prepared by his political rival, Comptroller Carole Keeton Strayhorn.

The comptroller, an independent candidate trying to unseat Perry in November, challenged him to veto the legislation, which she called the "largest hot check in Texas history."

Perry said the five-bill package, which will cut school operating taxes in most districts by about one-third over the next two years, is "very, very good legislation that will make Texas, I think, one of the continual No. 1 places in the world to do business."

The lost property tax revenue will be recouped through a new, expanded business tax, a $1 per pack increase in the cigarette tax, tightened sales tax collections on used cars and part of an $8.2 billion budgetary surplus.


Legislative budget experts have predicted the school tax reductions, beginning next year, will continue to cost about $2.5 billion a year from state revenue, in addition to what is raised by the higher state taxes.

Strayhorn said the potential deficit was even higher, a cumulative $23 billion over the next five years that will erode funding for health care and other state services or require higher state taxes.

Those "Legislative budget experts" are the Legislative Budget Board, which is the official, nonpartisan expert in these matters. I don't know where Strayhorn is getting her more pessimistic numbers from, but I'd guess she's starting with some less optimistic assumptions about the state's economy over the next few years. Which is not Rick Perry's problem:

Perry predicted that revenue from the new business tax will grow and that overall state tax revenue will increase with economic growth spurred by the property tax cuts. He said several economic experts agree with that outlook, but that Strayhorn neglected to take those factors into account in making her revenue projections.

Ah, yes, the classic "These tax cuts will pay for themselves" gambit. That sure has worked well at the federal level, hasn't it? I'll stick with the LBB and its projection of a $13 billion revenue shortfall over the next five years, thanks.

Ross Ramsay of Texas Weekly has said that property tax cuts are now the state's biggest program. Money to pay for them has got to come from somewhere. Don't be shocked if an increase and/or expansion of the sales tax gets proposed in the next session. Let's not forget, that was the original idea for how to pay for property tax cuts. Many Republicans wanted to try that failed route again instead of the TTRC business tax. I doubt they've changed their minds.

The owner of a home valued at $150,000 in the Houston Independent School District will see a total property tax savings of $750 over the next two years, said Rep. Larry Taylor, R-Friendswood.

All this for $375 a year; less than that for many people, and diddly squat for renters. Hope it was worth it.

I'm still mulling over the political implications of all this. Eye on Williamson takes a preliminary stab at it. The conventional wisdom already seems to be that Perry has guaranteed himself re-election. I think he's definitely in better shape than he'd have been if another session had gone down in flames, but I think the jury's still out on the question of how much better off. Will people be happy with their modest tax cuts (for this year, anyway) and that the schools will open on time, or will they be unhappy that school funding is no more settled now than it was in April? Will Chris Bell, or anyone for that matter, be able to cut through the idea that just because the Lege didn't fail this time around doesn't mean they were successful? Will the disgruntled Steven Hotze wing of the GOP actually retaliate against Perry, or at least perhaps their state reps, in November, or is that just so much hot air?

I don't know yet. There's too many possibilities. I'll be interested to see the next SurveyUSA approval numbers for Perry, to see if he gets a bump or not, and to see how the crosstabs break down. And I'll still be thinking about it, and hopefully working through some of it here. For such a clear resolution to the session, it's all quite a muddle.

Posted by Charles Kuffner on May 16, 2006 to Budget ballyhoo | TrackBack

Good analysis. I agree that the jury's still out. Progressives can, and must, make a difference. Perry's narrative is "I lowered your taxes and increased teacher pay." What's the counter-narrative? "I did nothing substantive for schools. but did commit the State to enabling your cravings for low property taxes?" I hope someone says it better than I, but the time to start saying it is NOW.

Posted by: Boddhisattva on May 16, 2006 9:37 PM