April, 2006:

Not much drama in the Senate yesterday.

A Senate committee passed the House business tax bill without making any changes Friday, greatly increasing the likelihood that it will become law.

“This is an attempt to make sure that House Bill 3 doesn’t get killed and we have another failed session,” said Senate Finance Chairman Steve Ogden, R-Bryan.

Sounds awfully similar to the House’s reasoning. I think it’s pretty valid, but that’s because I don’t think the anti-taxers who are currently squawking about HB3 are going to follow through on their threats by taking action in November. I don’t believe they will sit it out or vote non-Republican, and as such, I don’t think the likes of Rick Perry have much to fear from them. Some state reps may have to sweat out a primary in 2008, but that’s a long way and a regular legislative session off. These guys have made their calculations, and I can’t say I disagree with them. There may well be vulnerabilities on other aspects of the legislation now being passed, in particular how much money actually winds up going to schools and teachers, but I think the Steven Hotze/Dan Patrick crowd is full of hot air, even if they are sending out attack mailers right now, and I think Perry and the Lege are confident enough in that to call them on it.

The business tax could be debated by the full Senate early next week. A Senate rule prevents amendments from being offered on the floor if they have not been discussed in committee. Unless that rule is suspended with a two-thirds vote, the Senate would vote up or down on the tax bill. If passed, HB 3 could be on Perry’s desk sometime next week.

The action by the Finance Committee took many lobbyists by surprise. Major legislation almost always is changed when it moves from one chamber to another, and then is finalized by a joint House and Senate conference committee.

[…]

Ogden said that keeping the business tax bill free of amendments would give opponents fewer opportunities to kill the bill. It also prevents the business tax from getting “hung up in negotiations over other issues” such as teacher pay or education reforms, he said.

But Ogden’s action ruffled Sen. Eliot Shapleigh, D-El Paso. Shapleigh, who is not a member of the Finance Committee, had several amendments he was hoping to have discussed.

Shapleigh said he had been told that he had until 5 p.m. Friday to file his amendments. But the committee took its vote at 3 p.m., passing the bill 9-4. Four of the five Democrats, including Whitmire of Houston, voted no.

As Eye on Williamson says, this is a lot of times Dems have been promised that the things they want can be discussed later. Color me skeptical on this.

The Finance Committee also passed HB 4, which applies stricter rules to sales taxes on used vehicles. Instead of paying a tax on the sale price, the buyer would pay a tax based on at least 80 percent of the vehicle’s “blue book” value.

The committee approved HB 2, which dedicates revenue from the business tax and other new taxes to property tax relief. The bill was different from the version passed Monday by the House, which dedicates all the tax revenue to lowering property taxes.

Sen. Tommy Williams, R-The Woodlands, said under his version all new tax revenue would go to lowering the basic school tax rate from $1.50 per $100 valuation to $1. After that, two-thirds would go to continued lowering of property taxes and one-third to new spending on public schools.

When the school tax rate drops to 75 cents, any revenue beyond what it takes to make up for lost property taxes would be dedicated to education.

That’s a change to the House version of HB2, one which I suspect is a result of the continued pounding on the idea that no new money is going to the schools. This isn’t much better, but it’s at least a step in the right direction.

Also, a late in the day amendment to HB4 was omitted in the Senate version. Dallas Blog has the scoop.

Elsewhere, the Quorum Report lists the criteria for getting four teachers’ groups to support what the Lege is doing:

1. $3,000 pay increase. Increase should be in state minimum salary schedule. It should include counselors, nurses and librarians and is flowed through the funding formulas

2. Retention of the salary escalator that is in current law

3. Deletion of language granting commissioner authority to use factors other than experience to determine minimum state salary schedule

4. Retention of $1,000 health insurance supplement (not converted to salary) for all employees incentive pay.

The rest of the story is beneath the QR paywall, so I’m not sure what the financials are of this, or what reaction it has garnered. But at least now we know what the teachers want.

Finally, RGV Politics looks at the politics of a property tax freeze in Edinburg.

Matt has a copy of a letter, now circulating the Senate, signed by about a dozen citizens’ and teachers’ groups, that call on the Senate to reject the House’s approach and take positive action on school reform. In particular:

Together, we represent the interests of millions of Texans, hard-working families. On their behalf, we urge you to:

• Eliminate the provisions contained in HB 2, an anti-education measure which prohibits future revenue growth in business taxes from being spent on education, or anything else but property tax reduction. This effectively slams the door on future education funding.
• Maintain full equity by flowing any new funds for education improvement through current equity-based funding formulas. Equity funding protects the great majority of our middle class students, especially those in rural areas, as well as those living in property-poor districts.
• Raise annual teacher pay at least $3,000 and reverse the deep cut in the teacher health-care stipend.
• Keep the promise to invest $1.8 billion in education that is contained in the current budget. That money disappears under the provisions of HB 1. Now that the state has an unprecedented budget surplus, that promise must not be forgotten. Restore the $1.8 billion.

The one group that didn’t sign this that might have is the Texas Parent PAC. I wonder if there’s anything to that. I don’t expect Dewhurst to adopt these recommendations, though by his public statements he’s already inclined to do some of it. We’ll see.

One of the five bills relating to the tax overhaul failed to make it through the House on Monday. That was HB5, which was responsible for raising the cigarette tax. All I knew was that it had been killed by a point of order by Rep. Garnet Coleman. As the issue that initial sent HB5 back to committee was fixed, and the bill was approved by the House today, I asked Rep. Coleman to give me a statement about it. Here’s what his chief of staff sent me:

The tobacco tax bill, HB5, passed out of the House today. It was pulled down on a point of order by Rep. Coleman on Monday because the committee substitute contained provisions relating to bonding and a fee to pay for debt service that were not germane to the original bill. Those provisions were subsequently removed from the bill. There was another valid point of order on the bill today, but the House voted to suspend the procedural rule that was violated so the point was never raised.

The bill passed out of the House raises the cigarette tax by a dollar immediately upon effect. An amendment by Rep. Warren Chisum to raise the tax by 65 cents instead of $1 was soundly defeated both by members voting to maximize the shock value of moving immediately to $1 for public health reasons and by members who wanted to maximize the revenue generated by the tax increase because it is all dedicated to buying down property taxes.

Rep. Coleman had an amendment to the bill that would have instead dedicated the revenue to the general fund for the purpose of improving public health. That amendment, and numerous other Democratic amendments that would have dedicated the funds to state needs like a teacher pay raise, tobacco cessation programs, etc., were ruled non-germane to the bill and were not permitted to be offered.

Rep. Coleman voted against the bill because, as with all of these Republican tax bills, HB5 would increase taxes without providing one new dime for public education or any other priority of his constituents. Any revenue generated from an increase in the cigarette tax in particular should be dedicated to dealing with the public health effects of smoking as is done in so many other states.

At this point, barring an addition to the session’s call, I believe the House is more or less finished with its work until the Senate does its thing, at which point a joint committee will be named to hammer out the differences. The fun resumes tomorrow, so stay tuned.

While we wait for the Senate Finance Committee to start work tomorrow, here’s a roundup of what’s being said about the current state of things.

Chron: Perry sure, Dewhurst not so much

Gov. Rick Perry said Wednesday he is confident the Legislature will reduce local school operating taxes by about one-third, despite Lt. Gov. David Dewhurst’s reservations about digging too deeply into the state budgetary surplus to help pay for the cuts.

“I’m very comfortable that the Senate and the House will get to that appropriate level,” Perry said, challenging the Senate to approve a new, expanded business tax and related legislation approved by the House.

“I’m quite comfortable that these projections (for continued revenue growth) will hold up,” he added.

[…]

Most of the lost revenue would be covered by the new business tax, which the House approved on Monday, and a $1-per-pack increase in the cigarette tax, which the House will debate today. The governor also would use as much as $2 billion of an $8.2 billion budgetary surplus to meet his property tax-cut goal.

But Dewhurst said much of the surplus is needed for other things, including hurricane relief, health care, a teacher pay raise of at least $2,000 a year and other school improvements. He said Perry’s tax proposal would raise about $4.3 billion a year, enough to cut school property taxes by only 33 cents to 35 cents per $100 valuation, not the 50 cents the governor is seeking.

He said the Senate will have to decide whether to cut school taxes less, take longer to phase in the tax reductions or raise additional revenue.

Looks like another chance for Dewhurst to go toe-to-toe with House Speaker Tom Craddick. We’ve all seen that movie before. Remember, kids: the reason one bangs one’s head against a wall is because it feels so good when you finally stop.

Statesman: Larry the Cable Guy and a bunch of bidness interest lobbyists. If that’s not Rick Perry in a nutshell, I don’t know what is. One side point to highlight:

Sen. Florence Shapiro, R-Plano, poised to insert a teacher pay raise into the House-approved package, said lawmakers could finish work well before the special session’s 30 days expire May 16.

The Texas Supreme Court has set a June 1 deadline for fixing a school finance system overly dependent on property taxes that districts have little discretion in setting.

“It’s a lovefest,” said Shapiro, crediting widespread business support for the tax plan and close communication between senators and House members as well as Lt. Gov. David Dewhurst, who presides over the Senate, and House Speaker Tom Craddick, R-Midland. “I hope what it is is good public policy.”

Hey, maybe this time really will be different than every single other time. All I know is, it’s always Dewhurst or a Senate proxy for him that gets quoted in this fashion whenever these stories are written. If Craddick gets asked, his spokeswoman replies with a non sequitur. There’s a reason I remain skeptical.

Express News: Risks and rewards for Perry

Houston radio show host Dan Patrick, a GOP state Senate nominee, said he tried to persuade Perry to abandon the plan.

“I shared with him I understood the dilemma he was in – that no matter what decision he made, his opponents would find a reason to criticize him – but that if he used the surplus and increased taxes on business, not only would they criticize him, but he would risk losing his base,” Patrick said.

“For him to win in November in a four-person race, he must keep the base,” said Patrick, who still plans to support Perry in November.

[…]

GOP consultant Royal Masset said Perry’s stand for the plan “helps him immensely. He’s being kind of his own man.

“The only way Perry can lose is if nothing comes out of this special session,” Masset said.

Political scientist Bruce Buchanan of the University of Texas at Austin said, “There will be some unhappy conservatives. But the fact that he could point to a resolution that he could justify in terms of tough choices and necessary compromise is likely to please more people than it irritates.

“A lot of people are going to conclude if this thing passes, Perry is going to be hard to stop,” Buchanan said.

But [Texas Eagle Forum President Cathie] Adams said if the Legislature doesn’t pass a plan that conservatives can embrace and that provides meaningful property-tax relief, she’s worried about the effect on GOP turnout.

“I think conservatives would be frustrated. They’re already frustrated with the president because of immigration and government growth. If we don’t get a meaningful property-tax reduction, then in November … what they’ll do is not something crazy, like go and vote for the other party,” she said. “I do see them sitting at home and folding their hands.”

I think Masset and Buchanan are right. Perry may lose some conservative base support if his plan passes, but honestly, where are they going to go? Both Strayhorn and Bell want to spend more on education, and while Friedman has talked about “returning” the surplus, he’s also on record supporting gay marriage (however jokingly). I can’t see the Cathie Adamses of the world embracing him, given that.

Adams herself, of course, will stand by her man regardless. They make a mighty tasty pitcher of Kool Aid in the Eagle Forum, you know. In the end, that’s what I expect to happen among most other base Republicans, so Perry ends up with a net gain. Like it or not, the TTRC plan is a tangible result that Perry can point to. The implementation is screwed up, thanks to HB2, but passing it means no more do-nothing special sessions. That’s what Rick Perry needs more than anything.

Star Telegram: Not as much property tax reduction as you might have thought. Okay, there are still some risks for Perry, depending on what your expectations were and what your standards are.

[L]egislation now winding its way through the Texas Legislature would reduce property taxes for school operations by less than 12 percent – and local school districts could still push them back up again. It provides for further cuts in later years, but provides neither the mechanism to do so nor the money to pay for the promised decrease.

“I think it’s troubling,” said Peggy Venable, director of the Americans for Prosperity, which advocates for smaller government. “We want significant tax relief, and we want it to be meaningful and substantial. … We’ve heard a lot of promises and we have a lot of numbers out there … but if there are no real taxpayer protections, it’ll end up being a tax increase.”

By “taxpayer protections”, I’m sure she means “appraisal caps”, which have been a (failed) Perry agenda item for some time. I’ll bet Perry starts talking them up again once the TTRC plan has been passed.

DMN: On to other items. This is about how Perry is now “open” to an increase in teacher pay (as if he wants the ParentPAC on his hindquarters this fall), but my favorite bit is at the end, on a different topic:

Meanwhile, some health care providers grumbled that the deal they struck with the governor to support the legislation turned out to be worth less once the House finished with the bill.

The House-passed bill lets physicians, hospitals and other caregivers deduct from their gross receipts the payments they receive from government health insurance programs for the poor. But it doesn’t have as big a deduction as Mr. Perry promised.

Several health care lobbyists said the Texas Medical Association erred by negotiating with the governor, not legislative leaders.

All together now:

D-Day: Hey, quit your blubberin’. When I get through with this baby you won’t even recognize it.
Otter: Flounder, you can’t spend your whole life worrying about your mistakes! You f’ed up – you trusted us! Hey, make the best of it! Maybe we can help.
Flounder: [crying] That’s easy for you to say! What am I going to tell Fred?
Otter: I’ll tell you what. We’ll tell Fred you were doing a great job taking care of his car, but you parked it out back last night and in the morning, it was gone. We report it to the police, D-Day takes care of the wreck, the insurance company buys your brother a new car.
Flounder: Will that work?
Otter: Hey, it’s gotta work better than the truth.
Bluto: [thrusting six-pack into Flounder’s hands] My advice to you is to start drinking heavily.
Otter: Better listen to him, Flounder, he’s in pre-med.
D-Day: [firing up blow-torch] There you go now, just leave everything to me.

Let that be a lesson to you, TMA.

Finally, some feedback from a couple of candidates. First, from Dot Nelson-Turnier, as quoted by Stace:

I don’t think using a one time surplus for a tax cut is a good idea. It’s like quitting your job and using your savings to pay the rent. What do you do when your savings run out? It’s not a permanent solution. It’s just not fiscally sound.

There’s more, I just clipped the end. Next is from Diane Trautman:

Yesterday, the House passed a series of legislative proposals known as House Bills 1, 2, 3 and 4. Here’s a rundown of what Members considered and how each bill turned out:

• House Bill 1: Spends $2.4 billion of the $9.3 billion state surplus. Money is spent on lowering the statewide property tax rate to 88.7% of current local property tax rate — local rates vary to school district to school district, but this cut is roughly 17 cents/$100 property valuation for most property tax payers.
• House Bill 2: Created a Property Tax Relief Fund, to which all proceeds from the new business tax, used car sales tax and cigarette tax are dedicated permanently. Under HB 2, the state revenue from these new taxes can never be used to pay for a teacher pay raise, new textbooks, etc.
• House Bill 3: Replaces the current state franchise tax system with a new “margins tax” on business’ gross receipts. The tax is 1% for most businesses and .5% for wholesalers and retailers. Businesses can deduct employee compensation such as salary, health care and retirement. The plan is full of loopholes – under the current system 1 of 16 businesses pay the franchise tax. Under the new system, this number rises to only 2 in 16. Oil companies, insurance companies and big businesses that own lots of property will now pay less than their fair share, while small and medium businesses will see their taxes increase dramatically. Further, HB 3, coupled with 1 and 2 is an $11.4 billion hot-check over 5 years. The new taxes in HB 3 will never be enough to make up for the taxes cut in HB 1. Additionally, with the passage of HB 2, the funds generated in HB 3 can never be used to pay for teacher pay, new textbooks, etc.
• House Bill 4: A new tax on used car sales. Buyers must pay sales tax based on the at least 20% of the “blue-book” value of the car, and not the sale price.
• House Bill 5: A new $1/pack tax on cigarettes. Consideration of this bill has been postponed due to a technical error in the bill. The bill does not include an immediate $1 tax. Instead the tax is phased-in: 50 cents, then 25, then 25 again. Studies have shown that this method does not actually reduce smoking. For this reason, most anti-smoking groups oppose the bill in its current form.

Next week it’s the Senate’s turn. Stay tuned.

In addition to my conversation with Rep. Mike Villarreal, I also spoke to Rep. Rick Noriega about HB3 and the reasons why (unlike Rep. Villarreal) he opposed it. The highlights:

– While he believes it’s not a bad idea to spread the tax burden more broadly, he believes the implementation as spelled out in HB3 is bad. Because the revenues generated by the TTRC plan cannot maintain the desired property tax cut, it makes for bad public policy.

– He reiterated what he’d said on Dan Patrick’s radio show Tuesday (I was a first-time listener to Patrick’s show because of his appearance, which I heard about just in time) that there’s no good reason to vote for “the biggest tax hike in state history” when the budget is in surplus and none of the money raised by the new tax goes to the public schools.

– He thinks the Senate will choose to use HB1 as the basis for its legislation, not HB3. He also thinks that after they’re done adding on to it all of the things that they’re talking about, the final product may be too unpalatable for the House to pass. He believes an anti-tax backlash from conservative activists, including talk radio, will put a lot of pressure on the Senate, which from his perspective may wind up making their final effort worse.

– While some parts of HB3 may get rolled into the Senate version of HB1, he does not think Lt. Gov. Dewhurst wants to let John Sharp get the credit for what the Senate does pass. He cited Dewhurst’s recent cutting remark about Sharp’s prognostication skills as evidence for this, as well as Dewhurst’s recently launched radio ad campaign, which touts lower property taxes, a teacher pay raise, plus some reform, all of which he’s calling the Dewhurst plan.

– When I asked him what he thought the best case scenario was, he cited a minimalist approach: Do enough to meet the court’s ruling, buy down property taxes, don’t use too much of the surplus, and give the teachers a pay raise. He believes it’s better not to get too bogged down in controversial agenda items at this point in an election cycle.

– “Getting money to the schools should be the top priority,” he says.

– Finally, he says that the whole exercise in school finance has been a demonstration of why it’s a lot easier to campaign than it is to govern. “When you’re out of power, it’s easy to go around saying two plus two equals five. Once you’re in charge and you have the responsibility to make it all work, you start to realize that two plus two still equals four, no matter what you may have said before.”

State Rep. Mike Villarreal is a member of the Ways and Means committee, and one of eight Democrats in the House to vote in favor of HB3 on Monday. (A full list of who voted for what can be found at the invaluable Capitol Annex.) I wanted to understand his reasons for supporting HB3, so I called him to talk about it. Here’s an outline of what he told me:

– He believes that HB3, which implements the TTRC business tax plan, fundamentally “heals our broken tax system”. He sees this as an asset that can be used going forward, that puts the state on a firmer financial foundation, and that as such this was something that has to be supported. Getting something like this in place was the key, because once it’s there, it’s generally there forever.

– While HB3 accomplishes some immediate goals for the Republican Party, he sees it as being a long-term benefit for the Democrats. “This allows a future Democratic legislative majority to have a better system to work with to implement its priorities,” he told me. He stresses, though, that this is just the beginning of some much-needed reform.

– He believes that only a Republican-controlled Legislature could have gotten this bill across the finish line, because they were in a position to sell it to their constituencies that would normally oppose it (I dragged out the Nixon-goes-to-China cliche before he could bring it up). He noted the seeming absurdity of Republicans arguing in favor of an increased tax on businesses, while Democrats argued against it. Given this unusual dynamic, he believes it was best to take the long view.

– While he voted against HB2, which limited funds raised from HB3 to property tax cuts only, he believes that without it, there would not have been enough Republican support to pass HB3.

– When I asked about what vehicle there will be to fund schools in the future, he pointed out that all it will take to make any changes in what HB2 set up for the business tax is a simple majority in the Lege. This isn’t a Constitutional amendment, and it isn’t a lock box (though it’s being spun as one by some Republicans). The next Lege will not be bound by this when it writes a budget if it chooses to use funds from the business tax for other purposes. He cited other funds, created by past legislatures for a specific purpose, that are now used for other things. Two examples he named were the Texas Infrastructure Fund, and a fund to help poor people keep their electricity running, both of which now go to general revenue.

– He disagrees with the argument that HB3 will be more burdensome to small businesses than large ones. He said the $400,000 exemption on a firm’s revenues is sufficient to take care of smaller businesses.

– He points out that Scott McCown and Dick Lavine of the Center for Public Policy Priorities testified in committee in support of HB 3; also, the Texas Federation of Teachers has decided not to oppose HB 3. “These groups who are advocates for poor and working class Texans understand HB 3 represents good policy,” he said.

– Finally, he sees what the Senate is doing with their modifications to HB1 – in particular, the teacher pay raise – as a start at making a meaningful investment in our children’s education. He believes the Lege must also restore the cuts in education made during the 2003 legislative session and restore the health care stipend for school employees. He said that while state revenues rise and fall over time, they tend to fall back to a higher point than where they started (this was a point that John Sharp made during the TTRC process as well), and that with the new business tax in place, revenue growth will be more stable over time.

This really annoys me. One could read this Chron piece on how HB3 was passed and come away with the impression that the only debate over the bill was between conservatives who wanted to cut property taxes by raiding the surplus and conservatives who wanted to cut property taxes by swapping them for the TTRC business tax plan. No other possible reason for opposing HB3 is mentioned, let alone explored, even though the crux of a big swath of HB3’s opposition is right here:

In addition to the surplus spending bill, the House also passed a bill dedicating all future new business tax revenue to property tax cuts and one that raises an estimated $60 million a year through better collection of sales taxes on used vehicles. A bill to raise $700 million through higher cigarette taxes is scheduled for House debate Thursday.

Emphasis mine. This is what united the Democrats in opposition to HB3, and what has them grumbling about the ten who broke off to support it. (The 2008 version of Al Edwards can be found at the top of the list on the right sidebar of the Chron story.) In a vacuum, HB3 has its merits. It’s not adequate, to be sure, but it’s at least a semi-decent starting point for finally fixing the laughable franchise tax. HB4 and HB5 have things to recommend them, too. But once HB2 passed, once the business tax was essentially severed from school finance, none of that mattered. That’s what the Democrats were fighting about, and it’s an argument that deserves to be heard. Apparently, since Janet Elliott and Clay Robison didn’t bother to collect any quotes from anyone making that argument, it’s up to the likes of me to make it audible. Thanks, guys.

For what it’s worth, the Statesman has a very similar story, though they at least managed to quote one Democrat. The DMN, Express News and Star Telegram have all moved on to the Senate.

UPDATE: If the comments in this DallasBlog post are any indication, HB3 is not very popular among Republicans. Again, their reason for not liking it is not the same as mine, and I’m still cheesed at the Chron for so blatantly short-shrifting the Democratic perspective, but this is nonetheless worth reading.

In writing about what I think of the legislative action on Monday, I’m going to start with a long quote from Rep. Garnet Coleman, which I take from this useful Capitol Annex post that gives an overview of how everyone voted on everything.

I oppose CSHB 1 because, at this point in the process, I cannot support legislation that only addresses property tax reduction and does nothing to improve our children’s schools. If, at a later date in the session, a bill is presented to this legislature that would increase our state’s investment in public education, I will support CSHB 1 or its equivalent.

I support property tax reduction and recognize that it is a worthy policy goal. Obviously, we must address the issue of an unconstitutional property tax system in order to comply with the supreme court ruling. Although CSHB 1 addresses the property tax issue, my constituents and a majority of Texans believe we are in special session to increase the state’s investment in our public schools because that is their highest priority.

Unfortunately, instead of placing equal importance on property tax cuts and our children’s schools, CSHB 1 fails to provide a single additional dollar for our public education. Even worse, CSHB 1 would actually take money away from Texas schoolchildren by deleting a rider that was intended to provide $1.8 billion in new money for our public schools. Additionally, CSHB 1 would make it more difficult for local school districts to raise funds for local enrichment. It also establishes unsound budget policy by requiring a property tax reduction without a corresponding funding source to cover the cost of the cut – a move that could certainly lead to an increase in the state sales tax and other consumption taxes that are disproportionately harmful to my constituents.

I stand ready to vote for a school finance solution that would provide both meaningful school property tax reduction and increased investment in our children’s schools. CSHB 1 fails that test, and for the foregoing reasons, I must oppose it. – Coleman

The problem with Monday’s votes is pretty neatly summed up by Matt, and it reiterates what Coleman is saying. It’s not that this special session has done nothing to fix school finance – as that is not yet on the call, we knew going into the session that it would wait, perhaps till next year. It’s that thanks to HB2, nothing that comes out of this session, or any other barring a change, will do anything to fix school finance. Whatever the merits of the TTRC plan are, it was sold to the public as a way to put school finance on more solid footing, while also providing for property tax relief. You’ll get the latter, but not the former, not now and not in the future. That’s what HB2 did.

It’s possible we’ll eventually get some money thrown at the schools this session. The Senate is already talking about adding a teacher pay raise plus some other miscellaneous spending to their version of HB1. That would come out of the existing surplus. Any future salary increases for teachers, or other extra money to pay for things like the continued rapid growth in enrollment, will have to come from somewhere other than the new business tax. I suppose we should all start hoping that Brooke Rollins is a visionary and not a hack, because we’re going to need endless surpluses from here on out.

One of the things that this suggests to me is that we may wind up revisiting the issue of adequacy a lot sooner than perhaps the State Supreme Court thought we would. How can you claim that the system will be adequate when you’re enshrining in law a cap on how much revenue for schools there can be? Any new money that the TTRC plan generates goes to buying down property taxes, period. Where’s the mechanism to keep up with enrollment growth, let alone state and federal mandates or the need to educate in an increasingly complex and technology-oriented world? The more affluent school districts will have the option of raising their school taxes a few more pennies to make up any shortfall they perceive. The less so will be right back where they started, unable to keep up. Do we really want to go through this again so soon?

I don’t necessarily agree with his conclusion about HB3 equaling an income tax, but Rep. Gary Elkins, no one’s idea of a tax-and-spend type, gets this right (also quoting from that Capitol Annex post from above):

Many supporters of HB3 have argued that this new tax actually reflects a tax shift, shifting the tax burden from property owners to businesses that are currently not paying the franchise tax. I agree that this bill creates a tax shift, not a shift from property owners to businesses, but a shift from big business to thousands of small businesses. The governor’s own policy advisor has informed members of the house that the average small service sector business will pay more in taxes and in most cases double, triple, or even quadruple what they are currently paying under the current franchise tax system.

This new tax is bad public policy and is harmful to most of our small businesses. More importantly, my constituents can see through this subterfuge and recognize this tax to be what it actually is, a state income tax. For the cited
reasons, I must respectfully oppose this measure. – Elkins

Yep, it’s a tax shift. Perry and Craddick tried and failed to swap sales taxes for property taxes last year, and this year they succeeded with the TTRC tax. Anyone want to guess where the inevitable shortfall for school finance will be made up down the line? I’ll give you a hint: it rhymes with “Tales Max”.

At this point, all I can do is hope that the Senate changes directions, and that either causes everything to fall apart or somehow, miraculously, Lt. Gov. Dewhurst doesn’t get taken to the woodshed by Craddick again. (I suppose one bright spot in all this is that it’s given In the Pink the opportunity to quote from Meg Ryan movies again.) Maybe a little pressure can be applied to some of the wayward Dems for when these bills come up for final votes. All I can say right now is that given a choice between HBs 2 and 3, and the Get Out Of Dodge plan, I’d have picked the former as the lesser evil. At least then when we did have to start all over again, we wouldn’t be doing so from a worse position than we’re in now.

Finally, on a not-really-related note, I have to recognize State Rep. Joaquin Castro for pulling off this stunt. How that made it through is a mystery to me. I suppose anything really can happen during those long Legislative nights. Nicely played, sir.

Ultimately, the new business tax plan, written into HB3, passed the House on first reading last night. There’s still another round of approval for it before it goes to the Senate, but I think it’s safe to say that it’s been approved by the House.

Let’s look at the coverage, starting with the Chron.

The $3 billion measure will now go to the Senate, with supporters hoping the two chambers will finally be able to agree on a tax overhaul. Four previous efforts in the past two years failed.

“The (tax) system is broken. It’s time to fix it. This is a fair bill,” said Rep. John Otto, R-Dayton, a co-sponsor of the measure that passed 80-68.

But Democrats attacked it as underfunded and complained that it wouldn’t raise any additional funding for the public schools.

“It is the largest tax bill in Texas history, and it doesn’t give one penny to the public schools,” said Rep. Jim Dunnam, D-Waco.

[…]

Several dozen amendments, many proposing special tax breaks for an assortment of industries, were offered to the business tax bill. Most were withdrawn or defeated, but one amendment, an accounting provision designed to soften the financial blow for current payers of the franchise tax, could cost as much as $40 million in tax collections in the first year.

Altogether, Speaker Tom Craddick said, amendments that were adopted cut $58 million from the $3.45 billion that the bill, as approved by the House Ways and Means Committee, would have raised for the governor’s proposed property tax buy-down.

[…]

The House adopted 141-1 an amendment to prohibit companies from deducting the costs of hiring undocumented immigrants from their taxable income. The provision also would give the state comptroller the authority to enforce the restriction.

Rep. Rafael Anchia, D-Dallas, the amendment’s sponsor and the son of immigrants, said he was attempting to crack down on the “thousands and thousands” of Texas businesses that hire illegal workers.

“Without a demand, there’s really no supply,” he said.

“I’m tired of hearing the demagoguery out in the marketplace,” he said, referring to the current political debate over immigration. “Unfortunately, it’s Texas business that is breaking the law on a daily basis.”

Otto questioned how effectively the state would be able to enforce the provision, but only Rep. Ryan Guillen, D-Rio Grande City, voted against it.

[…]

The House adopted an amendment by Rep. Larry Phillips, R-Sherman, that would remove the tax liability from any company owing less than $1,000 in taxes a year.

Rep. Corbin Van Arsdale, R-Tomball, won approval of a provision that would require Texas voters to approve any subsequent increase in the new business tax rate.

In addition, a “safety net” provision that would allow schools to remain open if all else failed passed by a 146-2 margin. Other bills representing other parts of the Perry plan were brought to the floor as well. The Star Telegram runs them down:

Lawmakers also adopted House Bill 2, which requires any extra revenue that comes from revamping the state tax system go to lowering property taxes — and not to increasing spending on education.

The bill passed on a largely party-line vote, with the Republicans prevailing 81-65. Among the local delegation, only state Rep. Toby Goodman, R-Arlington, bucked party leadership.

Late Monday, lawmakers also adopted House Bill 4 that revamps sales taxes for used cars.

Near midnight, House Bill 5, the last piece of the legislative package, was rejected on a technical point of order. The fate of the bill was unclear. Under it, the state would have phased in an additional $1.05-per-pack tax on cigarettes over three years. The original proposal by Perry’s commission would have immediately increased the cigarette tax by $1 per pack.

Aaron Pena has a few more details.

I admit, I’m a bit surprised at how quickly all this got passed. Matt quotes from the Quorum Report that the status of HB3 was in doubt early on Monday, which is why debate on it was delayed. QR:

In post-recess comments, [House Speaker Tom] Craddick confirmed that support for HB 3, the revamped business tax, had slipped to 60 votes by Monday morning. It took a concerted effort by the leadership to get the total back up to 80 votes, he said.

How did they do that? I believe the DMN story answers that question.

Sponsors of the business tax were unsure whether they had secured enough votes to pass the measure as debate began.

On Monday morning, Mr. Perry’s staff and sponsors on both sides of the aisle were still polling members who had not committed their votes.

Thought to be wavering were some conservative Republicans concerned that they could pay a political price for enacting new taxes when the state has a robust surplus.

But supporters of the plan, trying to bring more votes on board, argued that it could have a political benefit.

If the bill passes, Mr. Perry “will run for re-election based on the tax cuts made possible by this bill,” said Rep. Mike Krusee, R-Round Rock. “People who vote against making the business tax fair are obstructing property tax cuts.”

Presumably, the argument was that it would be easier to explain action than inaction. Dissent on HB3 was broad but not focused, with Democrats and conservative Republicans having different problems with it. I expect that wavering members eventually bought into the idea that passing HB3 can be spun positively if needed, while yet another failed special session could not be explained away in any fashion. If I were in their place, I’d probably find that compelling, too.

I assume the problems with HB5, the tobacco tax bill, will be fixed and the bill will be passed. Enough money has leaked out via various loopholes and exceptions already. The loss of that revenue would put a big hole in Perry’s shaky-from-the-start claims that the total TTRC package balances out the property tax cuts.

More media coverage is here and here; more blog coverage is here, here, and here. I’m still thinking about the implications of all this, and will write more when I’ve collected my thoughts. I believe the next action is scheduled for Thursday, so we may be able to catch our breath for a moment or two. As always, stay tuned.

As I understand it, the debate on HB3 will be going till midnight or so. That’s past my bedtime, so I’ll do a link roundup now and figure out the news in the morning. Here’s what we know so far.

The first thing you need to know is that HB1, the Get Out Of Dodge plan, has passed out of the House by a near-unanimous margin.

The House approved an 11 percent cut in school property taxes Monday that proponents said would ensure schools stay open this year.

“We can go home and tell the people that we have reduced the property taxes, that the schools will stay open in June,” said Rep. Warren Chisum, R-Pampa.

[…]

House Bill 1 passed 139-5.

The idea behind it is that the state will give school districts more than $2 billion from the state’s surplus, and the districts will use that money to lower their tax rates to provide some breathing room between themselves and the maximum rate. Then, the districts can exercise their newfound discretion and inch their tax rates back up.

This is presumably for the worst-case scenario (at least, worst from some perspectives) that nothing else gets done. One assumes no one wants to face the voters if the schools are not open. As I’ve said before, however, wait until the West Orange-Cove plaintiffs make their next move before you breathe any sighs of relief. More on this here, here (on recapture), here, and (much more) here.

The most blatantly political thing to happen today was this.

The House version of Gov. Rick Perry’s tax overhaul says that the secretary of state – an office that has little involvement in tax policy – will write a letter and send it to county tax assessor-collectors so they can send it out to taxpayers around Oct. 1. The letter would tell voters, er, taxpayers about the property-tax reductions that, presumably, the Legislature will have just passed.

Some lawmakers said this is simply a government-funded political advertisement a month before an election. “When we tax people and we charge them a tax, we don’t ever send them a notice,” said Rep. Senfronia Thompson, D-Houston.

Rep. Ana Hernandez, D-Houston, tried to change the proposal so the comptroller, who deals very much with tax policy, would write the letter. Initially an effort to kill her amendment was defeated. But then some lawmakers’ “machines malfunctioned.” Here’s what that usually means: They either saw how the vote came out and didn’t want to make anyone important mad by siding with the wrong side, or they were asked nicely by House leaders to change their votes. When the dust settled, Hernandez’s amendment failed.

Something else to keep in mind: the comptroller is a woman named Carole Keeton Strayhorn who is running against GOP Gov. Rick Perry. She has called Perry’s tax proposal, in part, a “hot check.” Her letter indeed would have been interesting.

Instead it will be written by Perry’s appointed secretary of state.

“It’s for transparency, it’s to make sure everyone is aware of what we have done,” said Rep. Beverly Woolley, R-Houston, a proponent of sending a letter authored by the secretary of state.

Seems pretty transparent, indeed.

No freaking kidding. If the Democrats in this state had any money, you could make a nice attack ad out of this. Hell, maybe Strayhorn will – for sure she won’t be quiet about it. Go for it, Carole, this is exactly the sort of thing you really excel at. Kudos to Rep. Ana Hernandez, in her first session, for nearly giving this turkey the shiv it deserved. More here and here. Some tidbits on the current status of opposition to HB3 is here. Aaron Pena still thinks it will pass, albeit narrowly.

That’s about it for now. Other coverage can be found via Matt, In the Pink, and here. If you haven’t bookmarked Capitol Annex yet, do it – Vince has been glued to the live feeds, and is transcribing up a storm. More tomorrow when the dailies do their thing.