The Other Big Deal

The state budget is a big deal in Austin and in scattered pockets around the state where people who make their livings by knowing about this stuff are paying attention. But even though the people in the bubble—we include ourselves in that gray world—are certain that the budget and taxes will be the centerpiece of the legislative session, regular people have something else on their minds.

Home and automobile insurance.

It wasn't enough to change the elections, but that's not because it wasn't an issue. That's because nobody running for office thought it would be smart to jump up and defend the insurance industry. Gov. Rick Perry's opponent tossed it at him, saying the Republican is a tool of the industry, but Perry came back by rhetorically scorching Farmers Insurance and by pointing out that Tony Sanchez was the only candidate who owned a bank that was selling the policies that were making people so mad. Short form: It didn't get anyone elected, but it did get their attention.

And now there's legislation to pore over. Sen. Troy Fraser, R-Horseshoe Bay, unleashed a pack of bills that would give the state more control over insurance rates. It would restrict the use of credit scoring by insurance companies (which have been using people's credit ratings as one indicator of the number and size of the claims they'll file in the future). It would bar companies from "cherry picking"—choosing to sell only those lines of insurance that are most profitable while closing down other lines that the companies offer elsewhere. It would stop companies from denying coverage to homeowners who have previously filed water claims. Companies set up to test and control mold in homes would be regulated, tested and licensed. And it would allow the state to overturn rates filed by the insurers if state regulators think the rates are unfair.

Fraser and Sen. Mike Jackson, R-La Porte, sounded almost like a couple of consumer-oriented Democrats, saying the package of bills is designed to lower rates and to end the dominance of just three companies over most of the homeowners and automobile insurance markets in Texas.

The rate bill looks like a target for both consumer groups and the industry. The senators want to let the companies propose new rates and then give regulators 60 days to overturn their changes. Those "file and use" rates would take effect unless regulators acted to knock them down.

The consumer groups want the companies to ask for rates, prove the need for them by opening their data to the public, and then abide by regulators' rulings over what they should charge.

The industry wants more freedom than that, and argues that full regulation would force them to reveal trade secrets in order to prove their cases. The industry is also squawking about a bill that would require insurers to file new forms and data supporting them and that opens those filings to the public. They plead trade secrets on that one, too.

The cherry-picking bill would force companies to stop selling all insurance in the state if they wanted to pull out of the homeowners or automobile business, or if they made changes that dramatically cut the number of policies they were writing in Texas. That means a company dropping car insurance would also have to give up lucrative business property insurance policies, for instance. Companies that withdrew from Texas would be shut out of the market for five years unless they sought and got regulators' permission to return.

Insurance will be one of the first issues up to bat; Perry has said he'll make it an emergency, meaning it can be considered during the first 60 days of the session.

Sparring Partners

Comptroller Carole Keeton Rylander told the Texas Retailers Association she's as against new taxes as anybody, but she thinks one of the state's existing taxes has a hole in it that ought to be fixed. The state is losing about $143 million a year to companies that are taking advantage of existing law to reorganize themselves into partnerships to dodge that tax.

She's worried about companies transmuting themselves from taxable corporations into non-taxable partnerships, changing nothing else about their structures and making the switch solely to avoid taxes. Another variation has them moving their assets (on paper, anyhow) into out-of-state partnerships in which the Texas part of the company is a mere partner, thus avoiding taxes on those assets. It's perfectly legal, and high profile companies like the Fort Worth Star-Telegram, the Austin American-Statesman, Dell Computer Corp. and Southwestern Bell Telephone are all taking advantage of the fact that Texas taxes corporations but not partnerships.

But Rylander says the number of companies avoiding the franchise tax is growing, shrinking the revenue the state thought it would collect when it passed the franchise tax. This year, the tax avoiders are not paying $143 million. But the comptroller's number-crunchers say that number is growing by about 40 percent annually. That might be good for the companies, but it's bad for the state, with its growing spending needs and the "no new taxes" environment. Rylander wants the hole plugged.

She might get help, and she might not. Gov. Rick Perry and others have framed the argument as one of "tax fairness," saying the companies that do business in the state should pay their fair share. Whether that will fit into the general Republican promises of no new taxes remains to be seen.

Outfits like the Texas Association of Business say the change Rylander wants would amount to a new tax. Partnerships aren't taxed now, and if they are taxed in the future, that will amount to new taxes. Also, there's a fair amount of noise over just how to get to the partnerships without unintended consequences. If a partnership tax were to reach law firms and medical practices and such, the amount of squealing would rise considerably. And a tax on partnerships that has individuals as partners would amount to a personal income tax. That's both unconstitutional and politically dangerous.

Rylander says she doesn't want to nail those professional partnerships, and the tax gurus say the money could be trapped if tax collectors were allowed to pierce the partnership veil to get to the corporate ownership. Dentists and mom-and-pops wouldn't be affected, they say.

As a political matter, if lawmakers think Rylander is pushing a new tax, she'll have a hard time.

Start it here: Speaker-presumptive Tom Craddick said when he announced he had the votes to take over in the House that "We're going to work at a budget and I don't think we're going to have a tax bill." And then add this: Rep. Talmadge Heflin, R-Houston, is one of the Republican leaders on state finance. His first impression, he says, is that the franchise deal would be a new tax and that he's not inclined to support new taxes. He hedges that by saying Rylander is supposed to be "protecting the revenue stream" and by saying that's what she's doing in this case. He'd prefer to write a budget without a tax bill during the coming legislative session, which he says would prove to Texans that GOP lawmakers can do what they said they would do. Two years later, in 2005, he says, is the time to "address the entire tax code and school finance, too."

File under Chairs, Musical

This has more effect on office space than anything else, but U.S. Sen. Phil Gramm says he'll resign November 30, helping U.S. Sen.-elect John Cornyn to get a one-month head start on other new senators. Officially, Cornyn has to be appointed to that vacant office, once Gramm is out, by Gov. Rick Perry. That'll leave the attorney general's office, where Cornyn is El Queso Grande, open until AG-elect Greg Abbott takes office. That opening, assuming another gubernatorial appointment, will last for about five minutes. Gramm made his announcement after it became clear that the U.S. Senate won't be doing any more business this year, and he apparently caught the Austin folks off-guard. Abbott, for instance, thought he had six weeks of transition time left and now he's down to two.

The Party Never Ends

The Texas House is itself the final authority on who is eligible to serve in the Texas House. If you want to challenge the suitability of a newly elected member of the House on grounds of, say, residency, you make your case to the House itself and they settle it. And you have to be a member of the House to bring it up. Election challenges come up from time to time, but challenges on the basis of residency are relatively rare. Successful challenges at that level are almost unheard of, but both Republicans and Democrats were planning for a tight race for Speaker of the House where one or two votes could have made the difference. Just a few days ago, it looked like three challenges were in the works. Now that the elections are over and Republicans won convincingly enough to end the speaker race within 36 hours, the fights are cooling off.

• Rep. Jim Dunnam, D-Waco, was drawn out of his district during redistricting, but moved, ran and won election to another term in the House. Now that the election is over, his opponent—Republican Jeffrey Hibbs—sued to challenge the result, contending Dunnam doesn't live in the district he was elected to represent and is therefore ineligible to serve. That's in court now, but the results of the election have already been canvassed and Dunnam's certificate of election—showing that he ran and won—will probably be in the mail before Thanksgiving. That would leave only one way to challenge, and that's on the floor of the House in January.

• Rep.-elect Bill Zedler, R-Arlington, was sued by his opponent—Democrat Darrel Cox—over the same issue. A district court judge ruled before the election that the contest should proceed, but put a hold on the final certification of the vote. Zedler won. The court reconvened. The judge looked it over, said Zedler isn't a resident of the district by his own admission, but said that the matter is out of the court's jurisdiction and released the hold on the certification. Cox says he probably will not pursue an official challenge in the House, because, he says, he thinks he would fall victim to a party-line vote. He says he is still thinking about an appeal in the courts. Zedler says he thinks the issue is closed now that the court has ruled. That apparently leaves that one in the same condition as the Waco seat.

• Finally, former Rep. Pete Nieto, a Democrat-turned-Republican from Uvalde, was talking about a residency challenge against Rep. Pete Gallego, D-Alpine, accusing the incumbent of living in Austin rather than in Alpine. Nieto said he "was approached by certain parties who wanted me to challenge" Gallego, but said those unnamed parties changed their minds and told him he was on his own. Nieto, who never raised the issue during the campaign, says he'll drop it.

What's in a Name?

Not that we're making light of an election to Congress, but this race for CD-19—the Larry Combest seat—has some of the makings of a Dr. Seuss tongue-twister. State Rep. Carl Isett, R-Lubbock, is looking at the race, and the Lubbock Avalanche Journal reports that former Lubbock Mayor David Langston, a Democrat, is thinking about running as a Republican. There are some others on the might-wannabe list—normal enough so far.

But the potential contestants from the southern end of the district have names that could flummox an inattentive voter. Former Midland Mayor Bobby Burns is looking. And from Odessa, restaurateur Bob Barnes is looking. Would Burns beat Barnes or would Barnes beat Burns? Aw, forget it.

Combest, a Lubbock Republican, is quitting his post in May. If you're coloring by numbers, it's a Republican seat, and the fight shapes up more as a geographic contest between Lubbock and its ilk on the one hand and Midland-Odessa and their ilk on the other. Don't discount the possibility that the two southern cities will fight each other as hard as they fight Lubbock.

The list of potential contestants initially included Sen. Robert Duncan, R-Lubbock, considered by many a preemptive favorite had he wanted the job. Between our last edition and this one, he bowed out, saying his work in the Texas Legislature is unfinished and that he isn't interested in Congress right now. Isett, who is on Navy Reserve duty in Singapore at the moment, issued a statement saying former U.S. Rep. Kent Hance would head an exploratory committee.

Choo, Choo

The late train is running—state officeholders and officeholders to be have only a couple of weeks left before they can stop collecting money from contributors. That ban starts a month before the legislative session and continues through the 20 weeks that the Legislature is meeting. The time after the election and before the start of that quiet period is when contributors cozy up to candidates, especially to those they opposed during the election. Thus the name: Late Train.

• Houston Rep.-elect Martha Wong attracted some big talent for her fundraiser next month. Speaker-presumptive Tom Craddick will be there—he's making it to most of these things for House members—but other "special guests" include statewide officials who don't usually come to these events. Comptroller Carole Keeton Rylander and Agriculture Commissioner Susan Combs are on the invitations to Wong's event. And the money sought is big. Where most House funders ask for amounts ranging from $100 and up (if they specify the amounts at all), Wong is asking for real money, suggesting contributions of $2,500, $1,000, $500, or "other amount." Sen. Chris Harris, R-Arlington, is having an event in that city next month. By way of comparison, he suggests up to the same amount (senators generally ask for, and get, bigger contributions than House members), but he also notes that people can get in for $25.

• From the Department of Hands Across the (Partisan) Water: Sen. John Whitmire, D-Houston, is now the dean of the Texas Senate. And he's in the minority party. But he got a boost at his November fundraiser from Lt. Gov.-elect David Dewhurst, who went out of his way to attend and to introduce the Houston incumbent.

• Gerhardt Schulle Jr. is opening a freelance lobby practice after 18 years with the Texas Society of Professional Engineers. The former state representative will continue to handle that group's legislative business, but he'll be looking for other clients, too. He's one of only a handful of lobbyists who jumped on the Dewhurst bandwagon before the elections—most of the rest of the lobby is riding the late train.

Slow Connection Speed

Texas and other sales tax-reliant states are a step closer to collecting the taxes they're due from sales made over the Internet, but don't count on seeing any of the money any time soon.

Under state law, taxpayers are supposed to pay taxes when they buy taxable things. As a practical matter, the tax is collected by retailers who then hand it over to the state. But out of state retailers—those that sell through catalogs and over the Internet—aren't required to collect and remit the taxes. That's federal law. And the people who do the buying from those retailers only rarely send in their tax money; most people don't realize they owe the money even though the sellers didn't hit them up for it. That puts retailers that do collect the taxes at a disadvantage, since their prices include the sales taxes and thus look higher.

Most states have been working together to set up a system to collect those taxes, and they've now agreed on how that would work. All they have to do now is get the states to opt in, one by one, until states that have at least 20 percent of the U.S. population are signed up. At that point, they'll start collecting taxes. The comptroller's office estimates almost $400 million in sales taxes is going uncollected on catalog and Internet sales each year. The states that opt in would agree to give amnesty to sellers that register and begin collecting and remitting taxes on interstate catalog and Internet sales, and the coalition that's been working on this says there is a handful of large but unnamed companies that have said they'll willingly sign up if the states can get together on a uniform system.

Don't count on that money for the current budget problems: The tax folks who've been watching this evolve say it will take several years to get a working system in place.

Dad's In—and Daughter's Out

Christi Craddick, daughter of Rep. Tom Craddick, R-Midland, says through her father's spokesman that she'll give up her lobby practice to avoid conflicts of interest when he becomes speaker of the House next year. The younger Craddick listed only two clients on her most recent report: the Alliance for Retail Markets, and Texas Independent Energy. The spokesman, lobbyist and publicist Bill Miller, said he's not sure what she'll do next, but said it won't involve the public sector. Craddick announced her decision after critical stories about her father's transition team, which includes Miller and lobbyist Bill Messer, and after the Fort Worth Star-Telegram raised questions about the elder Craddick's legislative help for an electric utility and his business relationship with one of its affiliates.

Reincarnation, Part 1: Home Equity

The Texas Credit Union League's legislative wish list includes a constitutional amendment that would allow Texans to use their home equity as collateral for revolving lines of credit. Under current law, you can borrow against your home equity, but only in lump sums. The lenders want to let you borrow more freely against your home. Consumer groups aren't automatically against that, but say they want to tighten protections against high-cost "sub prime" lending and against "flipping" loans annually to boost fee income, among other things.

Reincarnation, Part 2: Phones

The phone fights are on again, if they were ever off. This time, a group of phone companies has banded together under the banner of the Competitive Telecommunications Alliance with the explicit goal of "asking the Texas Legislature to reject legislation being proposed by Southwestern Bell for consideration during the 2003 legislative session." They say that legislation would let Bell keep smaller companies from leasing time and space on the phone company's network. That new outfit includes Birch Telecom, El Paso Global Networks, NTS Communications, Sage Telecom of Texas, VarTec Telecom, the Association of Communications Enterprises and the Competitive Telecommunications Association (not to be confused with the alliance itself). Just in case you get tired of watching the budget and insurance fights during the next legislative session.

Flotsam and Jetsam

• The special election to replace Rep. Ron Clark, R-Sherman, is set for December 14, and candidates have only until the Tuesday before Thanksgiving to sign up for that race. Clark, appointed and confirmed for a federal judgeship, won't serve the term he won in the November 5 election, and the special election will fill his spot in the House.

• December 14 is the magic date for contributions to state officeholders. That's the last day they can accept money for political accounts until June 2. There's a loophole that could come into play for legislators who want to run for federal office, like the seat that's opening up in West Texas. The ban on contributions only applies to state candidates raising money for state races. A lawmaker running for, say, Congress, can hit people up for money for that effort. The ban does apply to legislative caucuses.

• Jennifer Ransom Rice, who took over the communications section at the comptroller's office when Mark Sanders left that agency to work for Tony Sanchez, has left the job. Bill Kenyon, hired for the top communications job a few weeks ago, says she was offered other positions but decided to go. She hasn't said what she'll do next.

• Bill Jonas is being recommended for a second tour as a U.S. Marshal by U.S. Sens. Phil Gramm and Kay Bailey Hutchison. He's currently an inspector in the police—yup, they've got them—at the University of Texas System. Jonas, who according to the recommenders is the father of lobbyist/lawyer James Jonas of San Antonio, is a former FBI agent and an Aggie. The recommendation goes to the president. If the Senate confirms Jonas, he'll be based in the San Antonio and will have jurisdiction over the western district of the state.

Political People and Their Moves

Former Railroad Commissioner Barry Williamson's name is floating as a possibility for the open chair at that agency now that Tony Garza has become the U.S. Ambassador to Mexico. Williamson says he's flattered, but won't comment on the rumor. Rep. Warren Chisum, R-Pampa, remains interested in the job and has support from some of the folks in the oil patch, but the governor hasn't named his choice for the post. If you look at the official list of folks who've applied for the job or who have had their names put in the hat by supporters, there are almost 20 people in the running... Gov. Rick Perry's deputy chiefs of staff—Chris Britton and Ray Sullivan—will be working in the private sector when the New Year comes around. Those are friendly departures, by all accounts: Britton told colleagues he'll go into the private sector but didn't say where. Sullivan, who went on leave from the government job to work on Perry's reelection campaign, will probably set up a public affairs consultancy. Mike Toomey, the new chief of staff, hasn't named his choice for deputy... Speaker-presumptive Tom Craddick is still working on the top of his org chart, but you can pencil in Don Green as Craddick's budget specialist. Green is currently the chief budgeteer for the state's Health and Human Services Commission... Larry Laine, a former real estate agent who helped Jerry Patterson get elected to the Texas Senate and then became his chief of staff there, will become Patterson's chief clerk (a constitutional job) at the General Land Office after Patterson is sworn in. Laine has been working for Comptroller Carole Keeton Rylander... Craig Hudgins is leaving the Texas County and District Retirement System to hang out his own shingle and do legislative and appropriations consulting for several retirement systems and for whatever clients come his way. He was at Texas Legislative Council for almost three decades before taking the TCDRS job two years ago... Edelman Public Relations is opening a public affairs office in Austin and put Republican PR consultant Thomas Graham in charge of it. He's been a consultant to the House Republican Caucus and will bring that and several other clients along with him from his last job at Texas-based SWG&M... House Sergeant-at-Arms Rod Welsh is the new president of the National Legislative Services and Security Association, a group of the people who decide who can and can't walk into the nation's legislative chambers... Recovering: Nick Voinis, spokesman for Lt. Gov.-elect David Dewhurst, after a suddenly discovered bleeding ulcer that lost him 1.5 liters of blood (which turned out not to be orange, after all). After a couple of days in the hospital, he has returned to eating salsa.

Quotes of the Week

Gov. Rick Perry, defending his hiring of lobbyist Mike Toomey as chief of staff: "I think the lobby, by and large, is a place where substantial knowledge resides, where there are men and women who have great understanding of the legislative process and the issues that face the state of Texas."

Sen. Teel Bivins, R-Amarillo, quoted in the Midland Reporter-Telegram from a speech to a business group: "The responsibility of governing is now entirely on our (Republican's) shoulders. And if we mess it up, kick us out and put in a new team."

Roger Ailes, chairman of Fox News Network, contending Bob Woodward's newest book mischaracterized a memo Ailes wrote to the White House urging them to use "the harshest measures possible" in the war on terrorism to sustain the public's support of the president: "I'm not saying he deliberately distorted it. But he's like Tom Clancy. They both make up a lot of stories, but Clancy does better research."

Darrel Cox, who lost the election and a court fight to Bill Zedler, R-Arlington, after a judge agreed Zedler lives outside the district, but that his court had no jurisdiction: "If you follow this though, all the seats in Tarrant County could be held by people who live in Dallas County. It's just crazy."

Joyce Escudero, publisher of the Cheyenne Wells [Colorado] Range-Ledger, quoted in the Denver Post after the president of the county school board responded to a negative story with distinction and creativity: "I got madder than the devil and then I got sad. I don't know how many other newspapers get manure dumped on their counter."

Texas Weekly: Volume 19, Issue 22, 25 November 2002. Ross Ramsey, Editor. George Phenix, Publisher. Copyright 2002 by Printing Production Systems, Inc. All Rights Reserved. Reproduction in whole or in part without written permission from the publisher is prohibited. One-year online subscription: $250. For information about your subscription, call (800) 611-4980 or email biz@ texasweekly.com. For news, email ramsey@ texasweekly.com, or call (512) 288-6598.