February 20, 2007
HB2: Property tax cuts uber alles

Yesterday, the House picked up where the Senate left off on the issue of busting the spending cap to fund the excessive property tax cuts. After a mostly harmonious debate concerning extending the tax cut from the last special session to seniors and disabled folks, they turned to HB2, which allocates the full $14.2 billion to school districts to pay for the tax cuts.

The arguments over House Bill 2, which would send $14.2 billion to school districts to make up for the revenue they would have garnered from local property taxes over the next two years, centered on budget priorities.

Despite the debate, the measure was given preliminary approval by a 138-6 margin.

Democrats voiced concern -- as they have repeatedly since the session began -- that handling property tax relief separately from the rest of the budget elevates its priority over other pressing state needs, including funding for education and health care for the needy.

They unsuccessfully attempted to amend the bill to prioritize spending on items including textbooks, a teacher pay raise, pre-kindergarten programs, dropout prevention and an increase in the homestead exemption, which would deliver more tax relief to owners of low-valued homes.

"The issue is how we prioritize dollars," said Rep. Garnet Coleman, D-Houston, who offered the amendment to ensure the same level of funding for pre-kindergarten and dropout programs in the next two-year budget period as this one.

Coleman was among the six who voted against HB2.

GOP leaders, who decided to handle spending for tax relief separately from the rest of the budget, said they need to keep their promise to cut tax rates and to pay for those cuts.

"We're just fulfilling the agreement we already made with the people," said House Speaker Tom Craddick, R-Midland.

Lawmakers must break a state spending cap just to subsidize the full amount of promised tax relief, even without putting additional money into state programs. Spending to subsidize tax relief counts against the spending cap -- which is tied to economic growth -- just as other spending does.

A resolution to break the cap for tax relief is scheduled for a House vote today. GOP backers note the effect of the resolution is also to free up money for other programs, because it removes spending on tax relief from counting against the cap.

If they don't break the cap, lawmakers would have to provide less tax relief or carve billions from planned spending.

Unfortunately, the former was never an option. If you're going to insist on this massive tax swap, it would make all kinds of sense to do it on a pay-as-you-go basis, where the actual revenue collected by the business and cigarette taxes are the determining factor for how much property tax reduction is then given. If that means we only make it down to $1.20, as it would stand right now, then so be it. And if the business tax takes in more money than projected - which, by the way, is the basic plan to fund future tax cuts when the general revenue surplus runs out - then we get to lower the rate more. Simple, right?

Nah. Tax cuts come first, everything else gets in line after it. Craddick and company want this money off the table before they discuss the rest of the budget, which is why this was done as two separate bills and not as a part of HB1, the main appropriations bill. If the tax cut had to compete with other priorities, who knows what might happen. This way, the GOP leadership gets to blow the extra cash on something it can't really afford, and figure out how to make everything else balance later. Pretty sweet deal, if you're into that sort of thing.

Vince has more on this, and Paul Burka has two posts about the debate itself that gives you all the details about how this particular sausage was made. I'd like to quote Burka's summation of the process:

I wrote earlier, in opposing Governor Perry's efforts to expand his power through executive orders, that I trust the legislative branch more than I trust the executive, because the procedures of the Legislature offer protection to all interested parties, and full opportunity for debate, whereas the executive branch has no such safeguards. I see no reason to change my position about the executive branch, but the process employed by the Senate to bust the spending cap and by the House to appropriate the money was designed to minimize public input and debate. House Democrats were left with little choice but to use the flawed vehicle of contingency riders to make their points, and Senate Democrats couldn't even do that; they were reduced to making ineffective parliamentary inquiries. This reminded me of congressional debates, in which the most important decision by the majority is not the substance of the legislation but the procedural contraints imposed upon the minority to prevent them from presenting effective alternatives.

This was what the Republicans wanted, and they did what they had to in order to make it happen. We never had an actual debate about the spending cap, and we won't have a real debate about what our spending priorities should be, but we're gonna get a big property tax cut, which will make a few people very happy, some people a little happy, and a lot of people not so happy.

Finally, I couldn't quite fit this in earlier, but here's the Legislative Study Group's analysis of HB2:

HB 2 is bad public policy because it uses money for other state priorities to pay for an under funded tax cut. An inadequate amount of revenue has been raised by the tax package that was passed during the 3rd Called Special Session of the 79th Legislature. Only $8.1 billion is available in the property tax fund to pay for the $14.2 billion needed to buy down local school maintenance-and-operations (M&O) tax rates from $1.50 per $100 of property valuation to $1.00.

HB 2 spends $6.1 billion in current General Revenue to make up the amount lacking on tax cuts before the Legislature has the opportunity to review and debate the state budget. According to estimates from the Center for Public Policy Priorities, the $8.1 billion in the Property Tax Relief Fund would only buy down property taxes to $1.20 for the coming biennium instead of $1.00.

To fund the property tax cuts for 2008, HB 2 spends $4,231,466,000 from the Property Tax Relief Fund and an additional $2,724,934,000 from General Revenue. For 2009, HB 2 spends $3,846,492,000 from the Property Tax Relief Fund and $3,846,492,000 from General Revenue.

Budget decisions, including property tax cuts, for the 2008-2009 biennium should be made in the General Appropriations Act, HB 1, where all spending priorities can be debated side by side so that members can make a more informed decision.

Next up is the House vote on the Senate's cap-busting measure SCR20. Yes, this means they allocated the tax cut money before they actually voted to bust the cap. It was always about funding the tax cut by any means necessary. The rest was just details. More later.

Posted by Charles Kuffner on February 20, 2007 to Budget ballyhoo