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Scott McCown

Three bad bills

Bad bill #1:

State Sen. Paul Bettencourt, R-Houston, has been trying for months to pass legislation that would make it tougher for local entities to bring in more tax revenue by taking advantage of rising property values.

On Thursday, he managed to add language to a bill from state Sen. Brandon Creighton, R-Conroe, that could do just that, though not as severely as many local officials had feared.

Creighton’s bill, http://txlege.texastribune.org/84/bills/SB1760/, aims to make the administration of local property taxes more transparent with provisions such as directing the comptroller to publish a ranking of property tax rates statewide and requiring local entities to justify future tax increases on election notices and ballots.

Under Bettencourt’s amendment, 60 percent of the members of a city, county, school district or other local entity’s governing body would have to approve a property tax rate that brings in more revenue from existing homes and businesses than was collected in the previous year — a metric known as “the effective tax rate.” Currently, approval of a simple majority of a local governing board is all that is needed.

[…]

The Texas Municipal League, which counts more than 1,000 Texas cities among its members, first heard rumors about Bettencourt’s amendment Thursday morning, and began lobbying senators against it, fearing that it was an attempt to pass his revenue cap bill, according to to executive director Bennett Sandlin.

The actual amendment language could pose problems for some local entities, Sandlin said. But he stopped short of promising that the municipal league would work to kill it in the House.

“We’re still digesting,” Sandlin said. “It’s not a full-blown revenue cap so I don’t want to say we’re going to go to the mat on this.”

Sandlin argued that the amendment should have been vetted more thoroughly by the Senate.

“It was never in a bill and it never had a hearing,” Sandlin said.

Bad bill #2:

Legislation that would upend the legal process in Texas to allow the attorney general to have a three-judge panel to decide cases with statewide implications, rather than a single district judge, was approved Thursday by the state Senate after a lengthy and pitched debate.

Senate Bill 455 by Sen. Brandon Creighton, R-Conroe, would allow the attorney general to request the Texas Supreme Court’s chief justice to form a panel of judges to hear any cases filed in a district court in which the state is a defendant.

School finance and redistricting were two examples cited as among the types of cases that could be covered by the change, which supporters argued was needed to keep one county from steering the outcome of important cases that affects all of Texas.

“When one county is given that much control, it effectively disenfranchises voters of the other 253 counties who did not vote for that district court judge,” Creighton said. “We’ve seen a 40-year saga in and out of court on school finance. We have one trial court that hears that case and it is reviewed on appeal by the Supreme Court based on parameters and decisions set by that court. It would be better representation across the state to allow a process where other judges are involved in decisions of that magnitude.”

[…]

Under the bill, a single state district judge still could hear cases with statewide impact, unless the attorney general requested a three-judge panel. A state district judge and an appellate judge from elsewhere in Texas would join the original district judge in hearing the case.

“It sounds totally unnecessary, since those cases go directly on appeal to the Supreme Court that is 100 percent Republican,” said F. Scott McCown, a University of Texas law professor and former Austin district judge who heard school finance cases between 1990 and 2002. “It will be more costly and slower to have three judges on a trial. Three-judge panels are very awkward and inefficient.”

And if lawmakers think they might get a different outcome with a three-judge panel, McCown and other legal experts noted that the Texas Supreme Court has ruled against the state in five of the six of the school-finance cases since 1984.

Bad bill #3:

Texas is poised to widen its welcome mat to a wide range of industries.

Claiming that the state’s bureaucracy is shooing away businesses, House lawmakers on Thursday night gave initial approval to a bill aiming to quicken regulators’ pace of cranking out permits for major industrial projects – by limiting public scrutiny.

Over the objections of consumer groups and environmentalists, the chamber tentatively passed Senate Bill 709, which would scale back contested-case hearings, a process that allows the public to challenge industrial applications for permits at the Texas Commission on Environmental Quality (TCEQ) – such as those allowing wastewater discharges or air pollution emissions.

Texas’ current bureaucracy puts the state at a “serious disadvantage” compared to its neighbors, said Rep. Geanie Morrison, R-Victoria, adding that her legislation would give businesses more certainty.

Already approved by the Senate, the measure sailed through the House by a 92-50 margin after Democrats put up a roughly 90-minute fight, arguing that lawmakers were poised to squelch the voices of their constituents.

“This bill is very, very serious,” said Rep. Sylvester Turner, D-Houston, who saw his and other proposed amendments to soften the bill shot down. “You will have to explain to your constituents why you have taken away their right, why you have enhanced their burden and why you have stripped them of protection.”

Contested case hearings resemble a trial in which companies and their critics present evidence and testimony in front of an administrative law judge in the hopes of swaying regulators, who have the final say. For particularly complicated – and controversial – industrial projects, the process can yield information that the short-staffed TCEQ did not foresee.

Protesters rarely convince regulators or a company to completely withdraw a permit application, but veterans of the process say they often win concessions that shrink a plant or landfill’s effects on the community.

[…]

Less than 1 percent of permit applications ever draw a contested-case hearing.

Of 1,960 waste, water and air permit applications filed with TCEQ last year, for instance, the commission granted hearings to just 10, according to an analysis of public records by the advocacy group Public Citizen. The agency confirmed those numbers to The Texas Tribune.

The analysis also found that Texas typically processes air quality permits faster than Arkansas, Arizona, Oklahoma, New Jersey, Colorado and even Louisiana.

I grouped these three bills together because they neatly encapsulate two of the main Republican priorities for this session: Partisan advantage and stomping on local control. Bettencourt’s amendment to Creighton’s bill, which as the story notes is at least not his infamous revenue cap bill, is both an ideological obsession on his part, and a nuisance bit of effluvia that in the end may not make much difference. The city of Houston hasn’t raised its property tax rate in my memory; thanks to its own stupid revenue cap, it may never be able to do so again. HISD raised its lower-than-most property tax rate in 2014 as it said it would as part of the 2012 bond referendum. That passed on a 7-1 vote, so it would have easily cleared the higher bar. As far as counties go, remember that they all have four-member Commissioners Courts plus a County Judge. To pass anything requires either a 3-2 or 3-1 vote depending on whether the Judge votes or not, and all of those are 60% or better. I’m sure this will have some effect somewhere, but here in Houston? Probably not much.

The contested case hearing bill, like the anti-fracking-ban bill, is an example of what happens when the state fails to uphold its responsibilities to the people. Just as there would be no demand in cities to regulate fracking within their limits if the Railroad Commission wasn’t such an industry lapdog, neither would there be much demand for contested case hearings if the TCEQ were worth a damn. The folks in Denton and elsewhere have done what they have done because it was the only viable option available to them. (Well, at least until enough people statewide realize that they need better and more responsive government at that level.) Now that option has been taken away, and this one may be as well. Better hope you don’t live anywhere close to a site that may someday be used for industrial purposes.

(You didn’t think I’d let these bills go by without asking once again what the Mayoral candidates think of them, did you? At least we know what Sylvester Turner thinks of the contested case bill. The Lege and TxDOT are going to have a bigger effect on the next Mayor’s tenure than any of them seem to realize right now.)

Finally, the make-school-finance-lawsuits-more-complicated bill – the story also mention redistricting litigation, but that’s usually done in federal court, and I don’t know that the state has any authority there – is another nuisance partisan bill that like Bettencourt’s amendment may wind up having little practical effect. I mean, if the Supreme Court upholds Judge Dietz’s latest ruling, can anyone claim that politics was a factor? I would also note that it is entirely within the Legislature’s power to ensure that there are no more school finance lawsuits ever again. All they have to do is a better job funding the schools.

From the “Tax breaks for me but not for thee” department

There are two types of people in Texas: Those for whom the tax code is written to favor, and everybody else.

BagOfMoney

The Dallas Country Club, not a place usually thought of as needing a huge tax break, used a quirk in state law to reduce its taxable value by nearly half.

Valero, one of the largest oil companies around, also used this provision to twice to force the Texas City school district to repay millions in collected taxes.

At a time when budgets are tight and school districts are hurting, counties statewide are watching their tax bases shrink by hundreds of millions of dollars in some cases as big business takes advantage of a 1997 amendment to the tax code that was intended to make sure homeowners were treated fairly.

The tax clause allows companies to file lawsuits year after year to reduce taxable value on their properties without any regard for the true market value, slowly shifting the tax burden to homeowners, officials in several Texas counties say.

In Bexar County, the clause allowed a new $600 million J.W. Marriott resort, in 2010 the largest Marriott in the world, to reduce its taxable value by more than half.

To Michael Amezquita, Bexar County’s chief appraiser, “It’s the equivalent of backing up the Brink’s truck to the public trough and driving away.” In his opinion, “It’s a legal way to steal dollars.”

As of Jan. 1 this year, there were 4,222 lawsuits challenging property values in Harris County, about 98 percent of them using the tax clause. The lawsuits represent about $35 billion in taxable value.

[…]

Lawsuits using the tax clause flooded the courts after the Texas 14th Court of Appeals ruled in 2005 that tax consultants testifying for the property owner did not need to use approved methods for determining value. The judge only has to believe that the testimony is reasonable.

“It’s like the Legislature just gave them a big red ‘easy’ button to reduce property taxes on the basis of equity,” said Sands Stiefer, attorney and deputy chief appraiser for the Harris County Appraisal District.

The lawsuits are nearly always successful, and most are settled out of court.

“It’s going to shift the tax base back to residential property,” said Ken Nolan, chief appraiser for the Dallas County Appraisal District.

Amezquita, the Bexar County appraiser, said that after Marriott lowered its tax value, he was sued by nearly every hotel in the county for tax rate reductions.

In El Paso County, a refinery used the law to slash its $781 million taxable value by 60 percent.

In Harris County, Houston 8th Wonder Properties purchased 104 acres of unimproved land for $77 million and a judge reduced the taxable value to $38 million. The appraisal district is appealing to the Texas Supreme Court. Houston 8th Wonder Properties officials did not respond to a request for comment.

The key element of the 1997 law allows companies to reduce their taxable value to the median value of similar properties. But because there is no definition for a comparable property, businesses are able to pick properties that in reality are dissimilar, appraisal district officials say.

In Harris County, HCA Gulf Coast compared 62.5 acres of prime, undeveloped property with a strip of property 90 feet wide, so narrow that it cannot be easily developed, according to an example of unfair property comparison given to legislators by the Harris County Appraisal District. The court reduced the value of the prime property by half.

Isn’t that nice? The effect of this ridiculous largesse is in the tens of billions statewide; it cost HISD $11 million just last year. There was a bill by Sen. Wendy Davis to try to limit the damage of this by restricting these lawsuits to properties valued at under $1 million, but it never had a chance in the Senate. Way too much money at stake to for that.

Hand in hand with this kind of generosity towards the wealthiest taxpayers is the notion of tax “reform” that lowers their taxes even more but does nothing for anyone else.

When the Texas House began debating HB 500 last Tuesday, the proposal would have reduced the collective tax bills of Texas businesses by $400 million. After several hours of debate, that figure had ballooned to $627 million as lawmakers eagerly tacked on amendments for various industries who said they had been treated unfairly under the state’s “margins” tax.

After all, Gov. Rick Perry has promised the Legislature will approve $1.8 billion in tax relief. Why say no to any exemption?

“HB 500 takes a stupid tax policy and makes it stupider,” a frustrated Rep. Mark Strama, D-Austin, told the House at the end of the lengthy debate. The bill, especially with all the amendments just approved, he said, would make the margins tax “more inequitable and more arbitrary.”

What the Legislature should be doing, he said, is a complete overhaul of the tax.

As Tuesday’s debate showed, that is easier said than done.

Texas’ tax system is “unbalanced, inefficient and inequitable,” said Bernard Weinstein, an adjunct professor of Business Economics at SMU’s Cox School of Business. And yet, elected officials view tax studies as opening a Pandora’s box, said Weinstein, a member of the 1987 Select Committee on Tax Equity,

“It’s great to sit down and talk about the big picture, but I don’t know too many politicians who are willing,” he said.

“Tax reform to many people equals tax increase.”

For those who are already winning, maybe. For the rest of us, it might mean we’d be screwed a little bit less. Again, we can’t let that happen.

“When the state cuts, local governments have to pick up the pieces,” said Scott McCown, executive director of the Center for Public Policy Priorities. “You can’t just cut taxes. We need tax reform.”

[Former Deputy Comptroller Billy] Hamilton agreed that it made sense to view “state and local tax structure as a unit.”

“High property taxes are the price we pay for the tax system we’ve got,” he said.

When the governor promises tax relief, added SMU’s Weinstein, an important question is: “For whom?”

Unless you have a lobbyist there in Austin schmoozing for you, the answer is not you. You don’t get the breaks, you get the tab. It’s not by accident, it’s the system we’ve put in place.

Finally, on a related note, Mayor Parker’s office put out this statement on property tax fairness yesterday.

Property tax fairness is an issue important to the city’s bottom line and that of every residential property owner because they are bearing an unequal tax burden. Clearly, all properties need to be valued appropriately. The current system is obviously inequitable and rewards a lack of transparency by the owners of many commercial properties. All too often, sound valuations made by Harris County Appraisal District (HCAD) are unfairly attacked by these owners, and HCAD, bound by a system that favors the owners, is forced to defend its actions with one hand tied behind its back. It is time for a change, and the state legislature is the primary place to make that change. The City of Houston will work with HCAD, the Houston Organization of Public Employees and other groups to achieve that change.

See here for more. It’s a little late to address this in the current legislative session, but the sentiment is correct, and I hope the fight for more tax fairness is a highlight of the next session.

Division over the payday loan bill

Quite a heated little fight in the Senate yesterday.

An ugly scene erupted in the Texas Senate today, with Sen. John Carona (R-Dallas) suggesting that some of his Republican colleagues were “shills” for the payday loan industry and worrying that the GOP would be seen as “the party that is backed and bankrolled by payday lenders.”

After intense negotiations this week, Carona told lawmakers he had struck a deal to pass legislation to reform payday and auto-title lending in Texas. Most of the consumer groups, the cities, Senate Democrats and even the payday loan industry were on board with the “hard-fought compromise,” he said.

“There have been great concessions on both sides,” Carona said. “We can leave this chamber at the end of May and honestly say we made a significant incremental step forward on protecting consumers.”

However, as Carona moved toward a suspension of the rule to bring the bill up for debate, which requires two-thirds of the Senate, he complained that payday-loan lobbyists were calling senators on the Senate floor and asking them to change their votes. He even hinted that two GOP senators were acting as agents for the industry.

“If we don’t do it this time, you won’t be able to regulate this industry two years from now,” he said. “This industry will be so much wealthier, so much more politically powerful that you won’t be able to say no and you won’t be able to draw the line. I know the lobbyists are just in a frenzy right now to try to stir up some action on the floor and get one or two of my colleagues who seem to be working the floor to change their vote.”

Sen. Carona wound up pulling the bill down. The Trib adds some details.

Carona, who said the bill had been “negotiated literally through the night,” brought with him to the floor six amendments that were intended to address the concerns of some consumer advocates who said the bill didn’t go far enough in limiting the abilities of short-term lenders.

Ultimately, the bill was pulled before debate on the amendments began, but Carona said they mostly contained ways to strengthen consumer protections, including limiting the types of loans that short-term lenders could offer, mandating that lenders accept partial payments, and limiting the maximum duration of multiple-payment loans — a major sticking point for consumer advocates.

“There are only two or three amendments that the industry really finds objectionable,” he said, “and in that case, all we’re asking the chamber to do is do what’s right for consumers.”

Early in the debate, state Sen. Kirk Watson, D-Austin, said many senators’ support for the measure would depend on the inclusion of those six amendments in the final bill.

“I think that there will be an effort to stop 16 people from voting for any conference committee report that strips those out,” he said, referring to the version of the bill that could emerge from a future House vote.

But some senators, who had previously expressed their intent to vote for the bill that emerged from committee, balked at the proposed changes. In an argument about process that turned personal, critics of the bill took issue with the way Carona brought his amendments to the floor.

Leading the criticism was state Sen. Troy Fraser, R-Horseshoe Bay, who charged that Carona hadn’t given the chamber enough time to review the proposed changes. While calling payday lending reform a “difficult issue,” he asked Carona if he had sent the amendments around 24 hours in advance. Carona’s reply was sharp.

“No, sir,” he said. “And, frankly, I haven’t seen you do that with your bills.”

[…]

Fraser was joined in his criticism by Sen. John Whitmire, D-Houston, who also argued that the legislative process should be slowed down to give senators time to consider prospective amendments, adding that he had concerns about Houston’s ability to regulate payday lending under the bill.

“What’s the rush?” Whitmire asked Carona.

Because “the industry has hired damn near every lobbyist in town to kill this bill,” Carona replied.

When Carona replied that he had been in constant contact with the city of Houston to determine its position on the bill, Whitmire erupted, telling Carona that he would represent his own constituents. He again criticized Corona for rushing the process.

“When you were negotiating this most recent agreement, I was chairing [Senate] Criminal Justice for four hours,” Whitmire said. “I think this has gotten totally out of control.”

The bill in question is SB 1247. Before this kerfuffle, the main divisions had been among consumer advocates.

Some progressive groups, including the Center for Public Policy Priorities and Texas Impact, have thrown their support behind the bill, arguing that it’s better than the status quo.

“For us, doing nothing is not an option this time around,” said Don Baylor, senior policy analyst at the Center for Public Policy Priorities. He points to estimates that limiting the number of times borrowers can “roll over” loans would save consumers at least $132 million.

“You get to a point where you ask yourself the question, Is there any more money [for consumers] left on the table? The folks that have decided to support it have decided there isn’t any more money on the table.”

Bee Moorhead, director of interfaith group Texas Impact, said that it’s important that legislators show the increasingly aggressive and powerful industry who’s boss.

“The thing that’s hard is that first step,” Moorhead said, “saying the state gets to decide under what terms you do business.”

Opposing the bill, however, are most Senate Democrats, the Texas Catholic Conference, Baptist organizations, Texas Appleseed and AARP.

They say that Carona’s approach falls short of meaningful reform and sanctions harmful new loan products.

“Our opposition is that this bill doesn’t do what it purports to do,” said Ann Baddour, with Austin-based group Texas Appleseed.

The pre-emption of local ordinances is the sticking point for many, myself included. It should be noted that there is a decent argument for proceeding anyway, as articulated in the Chron.

The bill has split the community of nonprofits that lobby legislation affecting the poor. Favoring it are the Center for Public Policy Priorities, Goodwill Industries and Texas Impact, whose leaders believe it provides a pragmatic system of statewide regulation.

While it pre-empts the stronger city ordinances, they believe lenders simply are directing borrowers to suburban locations outside the reach of city enforcement.

The industry has launched legal challenges to those ordinances that probably will be resolved by the conservative Texas Supreme Court, said Scott McCown, executive director of the public policy center. “Do we really think that if the ordinances are challenged, the Texas Supreme Court is going to say they are valid and enforceable?” he asked.

McCown also said most cities do not have the “economic wherewithal” to enforce the ordinances. While he would like the bill to be stronger, McCown said, “our assessment is that this was the best we could do.”

[…]

Carona’s bill would limit the number of times lenders could “roll over” a loan and charge new fees. That provision would save Texas consumers at least $132 million a year, according to an analysis by the Texas Consumer Credit Commission.

[Rob] Norcross said [the payday lending group Consumer Service Alliance of Texas] agreed to it in response to the plethora of city ordinances and the burden that dealing with so many different laws creates for business. “If anybody thinks anybody (in the industry) is happy, they are wrong,” he said. “This is a high price to pay.”

I’m a half-a-loaf guy and I get where McCown and Moorhead are coming from. I’m still reluctant to support this thing, though perhaps I’d feel better once I knew what the amendments that never got to be debated are about. The Observer indicated that Carona may bring the bill back on Monday, though the Trib suggested it could be longer than that. I don’t know what to think at this point, other than to marvel once again at how sleazy the payday lending industry is. Trail Blazers has more.

As always, the hole is bigger than we thought

Remember how the Republicans in the Lege underfunded Medicaid by $4.5 billion, which they will have to tap the Rainy Day Fund in 2013 to deal with, in order to make the budget for this biennium appear to be “balanced”? Turns out we’re going to need a lot more than that.

Tom Suehs

Kudos to the Quorum Report’s John Reynolds for reporting State Health and Human Services Commissioner Tom Suehs’ latest prediction on the looming state Medicaid funding shortfall which will have to be addressed by the Legislature when it meets in January 2013.

As has been widely reported, the Texas Legislature passed a so-called “balanced” budget by intentionally under-funding the Medicaid program by $4.5 billion, essentially choosing to postpone payment of that bill until 2013. Now, escalating caseload growth will bump that figure into the atmosphere, Suehs told hospital administrators in a speech Wednesday.

According to Reynold’s report:

That multi-billion dollar bill to sustain the Medicaid program – one of the state’s biggest cost drivers – will drop on lawmakers’ desks next January at the same time that demand for services elsewhere in the state budget continues to increase.

Suehs told the Texas Hospital Association that his message isn’t all that different from the one he sent two years ago. “I basically said something to the effect, ‘I don’t see how the Legislature’s gonna get out of this session without some form of revenue.’ I got in trouble for that,” Suehs said. “And I’m going to say the same thing today. I think I have a little bit more data with me today.”

Leaving a shortfall in the current budget has “a compounding effect” on future needs, Suehs told QR after his remarks. Still, he acknowledged at the conference that the level of need in the Medicaid budget concerns him.

“I don’t sleep some nights just thinking about having to lay that type of number out at some point,” he said.

Reynolds goes on to point out that the Legislature probably will spend some $7 billion left in the state’s Rainy Day Fund to cover part of the Medicaid shortfall. But Sueh’s predictions highlight the importance of the new Medicaid “transformational waiver” I highlight in my column in Wednesday’s print edition of the Chronicle. Approved by the Obama Administration in December, the new waiver empowers local hospital districts to re-define the rules for Medicaid reimbursements. Proponents believe the changes, if done correctly, could save taxpayer dollars, and help fund more patients who will be eligible for care under the federal health reform law.

Couple things to note here. One is that the recent uptick in sales tax revenue means that the Rainy Day Fund is a bit fatter than it was at sine die. That has led some folks to call on Governor Perry to call a special session to use some of that extra dough to mitigate the second year of cuts to public education. The TSTA has a petition you can sign if you want to join in that call. I support the effort, but I expect it to go nowhere for precisely this reason, which is the main reason why the Lege and Perry resisted so mightily calls to use the Rainy Day Fund originally. You can’t spend what’s already spent.

Suehs wasn’t the only Perry appointee going off the reservation. Texas Education Commissioner Robert Scott has been talking out of school (as it were) as well.

Scott warned school administrators that the ban on social promotions – a legacy of Gov. George W. Bush – will be lifted unless lawmakers provide money to help struggling students.

More money also will be needed to pay for the state’s new school accountability system, whose high-stakes testing may be going too far, Scott told school officials.

Scott’s statement that believes testing has gone too far drew a predictable rebuke from the sort of people who want accountability and standards but don’t want to pay for them. You do have to wonder what Perry is thinking, with his hired hands making trouble like that. Anyway, in re: schools, even all that Rainy Day money won’t get at the real problem:

Everyone agrees that Texas needs to do a better job of educating the state’s five million students in public schools. Folks like [Scott] McCown and [Sen. Leticia] Van de Putte, who serves on the Senate Education Committee, say it will take more money.

“What folks just don’t appreciate is how much we have cut,” McCown said, noting that state tax revenue would have to increase $13 billion a year to reach 1994 levels – the peak year for a measure of “how much of our total economy went to state and local taxes.”

Political realities mean that significant tax reform won’t happen next session, he said. It will take a modest, smart approach to put Texas on the right road resulting in several billion dollars of additional revenue, he said.

“It would be a responsible use of the rainy day fund and it would include revenue measures such as increasing the cigarette tax and eliminating the high cost gas exemption from the severance tax,” McCown said.

“If we don’t do that, then we are gong to face really serious damage to our schools and just not being able to help people as we move out of the difficult economic times in this recovery,” he said. “Regular Texans have to speak up loudly about what they want but we can have responsible approach to meeting the state’s needs in the next session if they do that.”

Well, that’s what the next couple of elections need to be about. Nothing will change until the Lege and the state leadership changes. EoW has more.

Talking about the T word

Scott McCown brings up the subject of taxes but leaves it short of where to go from here.

If a stronger economy, honest budgeting and pitting priorities against each other aren’t the answer, what is? Texas must modestly increase taxes. No one is suggesting that Texas become a high-tax state, but Texas must raise the money needed to invest in education and other building blocks of a strong economy. As a group, Texans pay low taxes, and as a percentage of our economy our contribution has been falling.

This is not a question of living within our means. Texans have the resources in our trillion-dollar economy to meet today’s needs and build a prosperous future. But until we fix our tax system, we can’t make important investments for the common good.

The issue isn’t whether to increase taxes, but how. Our state’s major tax is a sales tax on goods – a tax designed for yesterday’s economy when we sold more goods and fewer services.

The business tax is also flawed – redesigned in 2006 to help pay for a property tax cut, it instead leaves us $10 billion per biennium short. And our state has tax giveaways and loopholes galore.

Between now and the 2013 legislative session, Texans must square our shoulders and do two things.

First, we must solve some technical problems – how do we modernize the sales tax, reform the business tax and address tax giveaways and loopholes so we have a smart and fair tax system that produces adequate revenue.

Second, we must work together to build the public will for a tax increase. There’s no other answer.

What McCown doesn’t say is which taxes should be increased. I feel reasonably confident saying that the CPPP is not about to begin plumping for the sales tax to be hiked, as that would be a regressive tax increase. To expand the sales tax to include more services, and to remove some questionable exemptions to the sales tax such as those for bottled water and high cost gas, sure. But to raise the base percentage, I don’t think so. I sure hope not, anyway.

The missing piece of the puzzle here is property taxes. The problem, as we well know, is that the business margins tax and the increase to the cigarette tax from 2006 have not come close to paying for the property tax cut of that same year. To me, the goal needs to be to close the structural deficit that was caused by this tax swap. If that can be done by simply tweaking the margins tax, or by scrapping it for a better business tax, that’s fine. If it can be done by fixing the margins tax and revamping the sales tax as described above, that’s fine too. But if we can’t do it with those things alone, then it’s the property tax rate we need to talk about increasing. There are some exemptions to property taxes that we can examine before we get to that, but if we’re really talking about raising taxes then that’s what we need to be talking about. I’m not sure if McCown avoided the topic because he ran out of space or because he wanted someone else to be the one to bring it up first. If so, here it is. Now we just need the people who are running for office to start talking about it.

Pitts endorses using at least some of the Rainy Day Fund

It’s a start.

Rep. Jim Pitts, R-Waxahachie, the House’s lead budget writer, today filed bill that would draw down nearly $4.3 billion of rainy-day money to cover the state’s deficit in the current two-year cycle.

Pitts’ plan would tap a fund composed mostly of oil and natural gas tax revenues, though general revenue fund surpluses also make some contribution to the rainy day fund. Under a 1987 constitutional amendment, tapping the fund to plug holes in a current budget requires three-fifths approval of those present in each chamber. If everyone votes, that means at least 90 House members and 19 senators would have to consent. It’s only in writing the next two year budget that the higher threshold of two-thirds in each house is required.

If you look at House Bill 275, you see a proposed draw-down of $4,273,557,000 — the very same number Comptroller Susan Combs used last month in estimating the 2010-2011 deficit.

That number may wind up being smaller for the 2010-11 deficit, depending on the effect of earlier cuts and possible upward revisions in sales tax revenue. If so, it’ll be all the more to be available for the current biennium. Still not nearly enough, but every little bit less horrible helps.

Pitts’ bill for this is HB 275, which will require supermajority votes in each chamber. That would be a challenge under any circumstance, and will be even more of one given the teabaggers’ insistence on inflicting as much damage as possible on the state’s economy. Pitts hopes he has the votes, but I won’t be too sure till they’ve been cast. More rational folks like Scott McCown have pushed back on this, though I doubt his words will have much effect on those who believe that taking money out of the economy is good for it. Abby Rapoport has more.

Business leaders urged to oppose “cuts only” approach to the budget

Good luck with that.

Former Lt. Gov. Bill Hobby is helping lead an effort to rally Texas business leaders against what he calls a “catastrophic” cuts-only approach to balancing the state’s budget in the face of a massive shortfall, estimated at $15 billion to $27 billion over the next two years.

Hobby, a board member of the Center for Public Policy Priorities, and F. Scott McCown, the group’s executive director, say in a letter being sent today to the state’s hundreds of chambers of commerce that such an approach would undermine the state’s economic recovery, weaken education and leave vulnerable Texans unprotected. The center focuses on low- and moderate-income Texans.

“We simply can’t balance the budget through cuts alone without doing terrible damage to our economy and our future,” Hobby and McCown said in the letter.

They want business leaders to speak up for a “balanced approach” that includes spending the state’s rainy day fund savings account, which is expected to contain $9.4 billion; adding new revenue through such options as increasing alcohol or tobacco taxes; raising taxes on “sugar-loaded” drinks; eliminating “unwarranted” sales tax exemptions; or temporarily increasing the state’s sales tax rate.

You can read Hobby and McCown’s letter here I applaud them for this, and I wish them the very best of luck, but a couple of points. One, let’s not expect too much from the business community. They’re kinda sorta on board with this, but if you read their quotes in the story or listen to what they have to say here, they’re supportive in a very mush-mouthed kind of way. They’re okay with using the Rainy Day Fund – which is a big deal, don’t get me wrong – but not much beyond that. They don’t want to see education gutted, but they don’t want to pay for it, either.

Bill Hammond, president of the Texas Association of Business, which has 220 local chambers as members, said his group opposes a cuts-only approach, although it doesn’t back spending the entire rainy day fund and doesn’t want new taxes. It favors keeping spending about the same over the next two years.

Well, we have $15 billion less to spend than we did two years ago, and the entire Rainy Day Fund would only cover 60% of that. How do you expect us to get there from here, Bill? This is likely to have as much effect on the debate as the business community’s pitiably weak opposition to anti-immigration legislation has had. I have more faith in the school superintendents.

The other point I’d make is that if I’d written the CPPP’s letter, I’d have stuck to the revenue ideas already on the table, which include reviewing the sales tax exemptions, fixing the business margins tax – yes, I know, even with this audience – the LBB recommendations, and expanded gambling. I would not have mentioned new things like the sugar tax or other extra sin taxes, since they’re extremely unlikely to get anywhere and might distract from the overall message. Just my opinion.

By the way, if anyone reading this still thinks that balancing the budget with cuts only is a good idea, here’s more evidence that you’re wrong.

State protective services chief Anne Heiligenstein dropped some bad news on Senate budget writers today: Her year-old push to redesign the payment system for foster care providers will be a non-starter if lawmakers approve proposed cuts that would effectively drive down rates by 12 percent.

Abused and neglected children with complex emotional and psychiatric problems often are ripped from their home communities in North Texas and shipped down I-45 to so-called “residential treatment centers” in the Houston area, Heiligenstein has said, saying she’d like to change that. An agreed-upon overhaul of rates and contracting would put a private provider in charge of a region, which would include a duty to make sure there are enough beds close to home.

Sen. Jane Nelson, R-Flower Mound, who’s sponsoring the redesign bill, asked if efficiencies might be found that would allow the effort to go forward.

Not really, said Heiligenstein, head of the Department of Family and Protective Services, which oversees Child Protective Services.

“The presumption for being able to do this is that there would not be a rate roll-back,” she told the Senate Finance Committee. “We will not ask for an increase in foster care rates … , but we need what is currently invested in the system, plus normal caseload growth.”

Is that something you really want to support? BurkaBlog has more.

It’s easier than you think to behave responsibly

With all the clutching of pearls and threatening of lawsuits surrounding those federal funds that Congress intends to be used for education and not general fund budget balancing tricks, we should all take a deep breath and keep in mind just what exactly it is that Congress is telling Texas to do.

The political jousting might all be for naught, depending on how strictly the Obama administration interprets the provision. Scott McCown, a former Democratic state judge, said a “reasonable” reading would allow Perry to simply give assurances similar to those he made last year to receive stimulus money.

“All the governor has to do is promise in good faith that he’s going to aim for this target and that he thinks Texas can hit it,” McCown said. “If he does that, we get the money.”

U.S. Education Department officials said that they would follow the law but that they would work closely with Texas to ensure that the state receives the funds.

A pinky-swear of our good intentions would probably suffice for now, as long as we don’t go backsies on it later. We could even be a little snotty about it – “Well, of course we’re going to use that money for education. Duh! We don’t need you to tell us that.” And it would still be a more mature response than the foot-stamping and breath-holding we’re getting from Rick Perry and his pals. It’s also less embarrassing later when you decide to accept funds you had once publicly rejected.

By the way, this same legislation also sends $850 million in Medicaid matching funds to Texas. A statement by Rep. Garnet Coleman about that is beneath the fold. BOR has more.

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