The Wages of Sin

Now that Gov. Rick Perry has finally and publicly made his proposals for school finance, we've got everything but the date of the dance. Perry told reporters he's not ready to announce that, but said with some conviction that the special session will start this month. April 19 is still a contender, and we're starting to hear talk of April 26. If he were to wait any longer, he'd risk a legislative session in the middle of a sea of educators on summer break, and the management wants to avoid that scene if they can. The implication is that Perry wants to get this thing through the Pink Building in one session, starting this month and ending before the rug rats and their seasonal handlers are free for summer.

The hang-up, apparently, is that dang consensus thing. What had been informed speculation is now in print and in public: He wants lawmakers to vote on three changes to the state constitution, adding a state property tax on businesses, limiting appraisal and tax increases for local governments of all kinds, and expanding gambling to allow video lottery terminals at race tracks and on Indian reservations and letting bettors use their credit cards to buy lottery tickets.

All three issues are tough on someone, and state leaders will have to get 100 votes in the House and 21 in the Senate to get the questions to voters. They're still worrying over whether to put it all in one big fat amendment or to send the issues separately through the Lege and then on to voters, probably in November. The Big Gulp approach keeps it all linked up, but risks creating a confederacy of opponents. The piecemeal approach could make each amendment easier to pass — the 100 votes wouldn't have to come from exactly the same members on each deal — but creates the risk that only part of the package would go to voters. Perry seems to favor the Big Gulp, but he, House Speaker Tom Craddick, and Lt. Gov. David Dewhurst are still polling lawmakers.

The Guv would get the money for his school plan the easiest way possible: By imposing narrow taxes on willing taxpayers who vote and unwilling taxpayers who don't, followed by a grab on state growth that might or should occur in the future. He'd raise most of the money from expanded gambling, higher taxes on smokes, closing business tax loopholes, accounting tricks, a new fee on adult entertainment, accelerated tax collections, stricter enforcement on vehicle sales taxes, and by allowing private companies to be hired to dun delinquent state taxpayers.

The businesses that have been ducking the franchise tax are big, but that's a relatively easy vote for a lawmaker. Car dealers aren't fond of the "liar's affidavits" in Perry's plan — they killed the idea last session — but it's a low-level controversy.

The gamblers and smokers and peepers choose whether to play and puff and peek, and thus are paying what politicos like to call "voluntary" taxes. The theory is that you can stop paying the tobacco tax by getting special patches and gum at the drug store.

Even so, gambling is a tough vote, particularly for conservatives, and especially when you mix in outside influences. Louisiana and New Mexico operators have been "slant-drilling" Texas, grabbing gamblers here who bet money there. Now those operators are hiring lobsters to kill expanded gaming in Texas. At the same time, the three Indian tribes with reservations in Texas have been talking to the governor's staff for months and have lobsters of their own. All that lobbying will make the anti-gamblers nervous and could make for an interesting discussion. Without gambling, however, the governor's proposal won't fly. Throw out the one-time accounting tricks, and wagering makes up more than a third of the funding for his plan.

Both Ugly and Attractive

If you've been watching these past few weeks, you know business lobsters hate the split property tax roll. They hate it no matter how it's done, how it's modified, how it's filleted.

That's clear, and still, Gov. Rick Perry included it in his plan. Why? It's a two-fer, allowing the state to lower local property taxes and cutting the exorbitant costs of those tax cuts by more than 50 percent. Business property makes up more than half of the tax roll, see, and residential property is occupied by 100 percent of the voters. Perry wants to cut local residential property taxes by 25 cents, and it's a whole lot cheaper to do that if businesses don't get cuts that large.

The average school property tax rate in Texas is $1.46. Business property owners, on average, will get a 6-cent cut, to $1.40, while residential taxpayers will get a 25-cent cut, to an average of $1.21 (all businesses would go to the same rate and pay a statewide tax; residential customers would get a quarter cut from whatever they're paying now. If the state gave business and residential taxpayers the same break, it would almost double the cost of the property tax cut.

Here's another detail: School property taxes make up a little more than half of every homeowner's local property tax. A smaller cut in one component of the whole tax bill would get lost. That's not great politics. On the other hand, it's not great politics for a legislator to vote against business, and presence of the split roll is a large obstacle on the road to consensus.

The Guv tried to ease the problem by linking the two rates together, so that both business and residential property taxpayers will see their rates drop in tandem (after that first cut) until both reach 75 cents. But businesses would carry the burden at the beginning. Some would see taxes rise.

In just more than 200 school districts, tax rates are already below $1.40 (in 34 districts, they're below $1.25). Homeowners in those districts would see rates cut 25 cents under the Perry plan. But the businesses in those districts would be part of a statewide property tax pool, and that rate would be the same for every business taxpayer in the state. Businesses in districts with rates under $1.40 now would see a tax increase under Perry's proposal. On average, business tax rates would drop, but the local effects would vary. Use a joke for illustration: If you have one hand in a pot of boiling water and your other hand in ice water, on average, you're comfortable. Some businesses would be in the hot pot.

Here's another weird bit. In most school districts, there's a mix of business and residential property taxpayers, but some districts have a lot of one or the other. In Glen Rose, a nuclear power plant skews the numbers severely toward the business part of the property tax roll. In 14 wealthy areas of the state, the wealth per student — the amount of taxable property divided by the number of students in the district — would increase under the Perry plan. Sure, he would take business property out of the districts, but he'd also be ending the Robin Hood system that pulls money out of the richest districts in the state. In districts that are both on the rich end, property-wise, and that don't have much business property, the split roll will increase the size of the usable property tax roll. In Highland Park, wealth per student would triple. But some districts on the list might surprise you: Palo Pinto is second, then Port Aransas. The rest, in order: Eanes, Lovejoy, Lake Travis, Matagorda, Graford, Llano, Hunt, Alamo Heights, Sunnyvale, Point Isabel, and Lago Vista.

An Urban Legend, Explained

One fable making the rounds is that most of the money in the Robin Hood system comes from just a few school districts. Some numbers to get this back on the rail: Only about 120 school districts export local tax money for use by poorer districts. They ship out a total of $1.08 billion. Of that, 90 percent comes from 44 school districts. Cut it again: 75 percent comes from just 20 districts. Two thirds of the money comes from 13 districts. The top seven districts — here's your urban legend's birthplace — contribute 51.2 percent of all the money that goes into Robin Hood.

The Governor's Plan

Over the three years starting in 2005, the governor says his proposal would add $2.5 billion in new spending in public schools, an amount that includes the incentive programs he already unveiled. He'd continue to fund a $150-per-student amount that was supposed to expire. That brings total new spending to $3.7 billion, by his reckoning. The next $3.2 billion would be used to cut local residential property tax rates by 17 percent. That erases rate increases over the last decade, but not levies, which rose about 120 percent over that time. He estimates the caps on local appraisal increases and limits on increases in local government spending would amount to $3.3 billion.

Perry's plan would satisfy one measure of equity in school funding, bringing 98 percent of the state's students into what the wonks call the equalized system. Critics say it would widen the gap between rich and poor districts to a distance that hasn't been allowed by the courts in the past. The state's share of education funding would jump from about 40 percent to about 60 percent, he said.

Perry tied future improvement to the economy, a neat way of ducking a tax bill now and limiting state government growth in the future. Details weren't available, but he would commit one-third of future state budget surpluses to reducing local school property taxes until those rates reach 75 cents, and another third to increased spending for schools. The remainder would go to other state priorities. The detail that's missing is who would set the size of the surplus, and how would he prevent future budgeteers from jacking with it.

Abuser Fees; Other New Income Producers

Most of the money would come from things you've already heard about, but not all of it.

Like this: If you extract $5 from every person who walks into a strip joint in the state of Texas, every time they go, and if you want to raise $45 million a year doing that, you're saying Texans make 9 million visits a year to see the girls dance without their clothes on. That might be right, but it's a pretty interesting number to think about. And people seem to want to put a snappy name on it. We've also heard it called the S.O.B. tax, for Sexually Oriented Businesses; the Peeper Fee; and the Tassel Tax. Gov. Perry's tax plan includes the fees, and includes $90 million from the door charges in the first three years of his program. The plan also says the $5 amount would be the minimum charged.

He'd raise $350 million over two years by letting private firms collect state taxes. That's not unusual on the local level, but state comptrollers and attorneys general have been jealous about tax collection duties in the past. He'd raise $1.2 billion by speeding up collections of sales and franchise taxes, a one-time trick that moves some of a fiscal year's money into the previous fiscal year, thus swelling the earlier year's income. It's unpopular with lawmakers, but it's less unpopular than a tax bill.

And there's the gambling bit. Perry would allow video lottery terminals at racetracks and, under contracts with the state, at Indian reservations in El Paso, Eagle Pass and in East Texas. He'd allow people to pay for lottery tickets with credit cards, perhaps at gasoline pumps. That's been done elsewhere. Customers at self-service pumps can buy lotto tickets the same way they add on car washes now. One trouble spot is keeping minors from buying tickets that way.

Total cost and total income for his program? $7.1 billion.

More from the Loyal Opposition

A group of North Texas mayors and commissioners gathered in a Dallas fire station to plead against the property tax caps Perry has proposed, saying he'd chop into basic services and make their work harder than it ought to be. They also contend their taxpayers wouldn't notice the difference, saying the savings from the idea would be so spread out as to be invisible. Perry's proposal is to cap increases in residential property appraisals at 3 percent per year. Local governments — counties, cities, hospital districts, schools, you name it — wouldn't be allowed to raise tax rates beyond what's needed for economic and population growth unless they had permission from voters.

Something Short of Kumbaya

We don't usually do this, but the post-announcement statements from Lt. Gov. David Dewhurst and House Speaker Tom Craddick — if you read them carefully — tell you all you need to know about the status of the consensus the governor has been seeking. After Perry talked in San Antonio, his fellow state leaders kicked out these written statements. Neither did interviews that we know of.

Craddick: "Members of the House will address the governor's plan when he recalls the Legislature to the Capitol. At that time, we hope to find a solution to this public education funding problem that has eluded our state's leadership since the days of the republic. We will give the governor's plan the consideration, analysis and respect due our state's chief executive. And we will make every effort to find answers to this puzzle that are fair both to the children who attend Texas' public schools and to the taxpayers who fund those schools."

And Dewhurst: "Today's proposals by Governor Perry, as with other school reform ideas currently being discussed, merit careful consideration by the Legislature. As I have repeatedly said, I will continue to work with Governor Perry and Speaker Craddick to develop a permanent and comprehensive school finance reform plan which reduces local property taxes, lowers the overall tax burden on hardworking Texans, ends Robin Hood, maintains equity, continues local control, and provides new resources to improve our schools, tied to performance and accountability."

Craddick hasn't been talking publicly about school finance, or much else, but has been talking to House members about various plans to see what they like, hate, or are willing to swallow. It hasn't been promising, apparently, and he and his have passed that on to the governor and his staff. Privately, we're told that Craddick's hesitation is the reason Perry hasn't yet called a session.

Dewhurst, after a conference call with a gaggle of senators, told the Association of Texas Professional Educators last week that the Senate doesn't favor what he called "an incremental approach." That's a fair description of Perry's proposal. Dewhurst said later that the Senate had already passed a Big plan — last year's vote in favor of a set of sales tax increases that would have halved school property taxes — and weren't as interested in less dramatic plans. Advisors to the governor think the Senate will come around if the House comes around. If, if, if.

Tax Notes

• State Rep. Eddie Rodriguez, D-Austin, put together a website to show people what would happen to them — personally — if the state started up an income tax to pay for cuts in property taxes. You can put in your own numbers and see if you like what would happen under a state income tax put together the way he'd put it together. The address is ww.texastaxrelief.com.

• Residents of Houston pay $300 more in sales taxes every year, on average, than other Americans, according to a study done by the City of Washington, D.C. While that average tab is $1,509, they pay no state and local income taxes — the national average is $2,903 — and their average property taxes, at $2,849, are only $100 a year higher than the national average. The total nut, for state and local taxes, averages $4,698 in Houston, the only Texas city included in the study, compared to a national average for local and state taxes of $6,774.

• The Tax Foundation — that's the group that made itself known with the "Tax Freedom Day" telling people when they stopped earning money for government and started earning it for mortgage companies and car companies and all that stuff — says in a couple of studies that Texas is a sweet spot for tax averse businesses and individuals. That outfit ranks states by their tax climate for business, and Texas is 13th. Most of the big states rank lower, although Florida is 7th. Wyoming was best on the list, and Mississippi was worst. Texas was buoyed by its lack of a personal income tax, but ranked 26th in the category of "corporate income tax" which takes in the state's franchise tax. Texas, according to that group, ranked 46th in local and state tax burden, based on those taxes as a percentage of income. But federal taxes paid by Texans push the state up in the listing (lower is better); residents of 30 states have lower local/state/federal tax burdens than we do, according to the Tax Foundation.

Officially, a New Winner

The official and final recount in CD-28 says Henry Cuellar, D-Laredo, beat U.S. Rep. Ciro Rodriguez, D-San Antonio by 203 votes, and that's going to court. The Democratic Party made the result official, clearing the way for an election contest in court, if that's what Rodriguez wants. Nothing was filed this week, but Rodriguez' lawyer says they'll challenge it and they have a Thursday (April 15) deadline to do it. Rodriguez was ahead by 145 votes after the Election Day counting. Enough new votes — overwhelmingly for Cuellar — turned up in Webb and Zapata counties to flip the result.

The two were friendly colleagues in the Texas House, and Rodriguez helped Cuellar challenge U.S. Rep. Henry Bonilla, R-San Antonio, two years ago. But redistricting changed the numbers and Cuellar wanted to capitalize on Laredo's desire for a member in Congress. Instead of running against Bonilla in a district fortified for the Republican incumbent, he went after Rodriguez. Whoever prevails in court should have a relatively easy time in November. Though there are Republicans in the race (a runoff there, too), it's a prohibitively Democratic district.

Political Notes

Comptroller Carole Keeton Strayhorn's blast at Gov. Rick Perry last week drew an indirect rebuke from state GOP Chairman Tina Benkiser. Benkiser sent a note to State Republican Executive Committee members updating them on school finance and closing with a frown at Strayhorn. The comptroller blasted Perry at a couple of trade group meetings last week and made all of the sounds challengers make, saying his policies were failing. Benkiser, who is closer to Perry, didn't like it: "These types of attacks, described by a news report as 'from the left,' do not further the policy debate in any substantive way and only serve to generate negative media attention for our entire Republican family." She didn't name Strayhorn, but attached a news clip about Strayhorn's attacks.

• Mike McCaul is being outspent, but not out-endorsed. He already had nods from a former president, a former U.S. senator, and the state's two sitting U.S. senators. Now he's done the hat trick, running radio ads where Gov. Rick Perry is announcing his endorsement. When the checks are tabulated, most watchers are betting that'll be the nation's most expensive primary race of the year.

• Rep. Arlene Wohlgemuth, R-Burleson, is getting help from several members of Congress in her race to join their number. She's in a runoff with Dot Snyder of Waco, and U.S. Reps. Joe Barton, R-Ennis, and John Culberson, R-Houston, staged events to get her some attention during early voting in the runoff. Barton used to be her congressman, and Culberson is a former colleague in the Texas House. Snyder's congressman, Waco Democrat Chet Edwards, is the target of all this; the winner of the runoff will face him in November. Culberson shared an announcement of a request for money for a highway on the southern end of the district with Wohlgemuth. Brazos County is the battleground in the runoff, and it's not home turf for either of the candidates. Barton, meanwhile, did a homeland security riff with Wohlgemuth, taking her along for a briefing and saying she ought to be on the committee that handles those issues if and when she's elected to Congress.

• Former Land Commissioner Garry Mauro says he hasn't been actively campaigning for a June race for state Democratic Party chairman, but don't take him off your list yet. The State Democratic Executive Committee picked Charles Soechting over Mauro to be interim chair until the state convention, where all of the delegates vote. When Soechting won the first round, Mauro said he'd be in the wings when the time came to run for a full term.

• File this with other unusually direct fundraising notices: Rep. Ken Mercer, R-San Antonio, did an Austin funder headlined by Lt. Gov. David Dewhurst in the role of the guy cordially inviting donors and House Speaker Tom Craddick in the role of special guest. The pitch? "Rep. Mercer has a campaign debt and a general election opponent."

• Five of the seven members of the Haltom City Council were recalled in a February election, and Attorney General Greg Abbott, in an official legal opinion, says that panel cannot meet without a quorum, which requires at least five members. The election to fill the empty seats is in May.

Political People and Their Moves

Dolly Gonzales, who's been raising money for Comptroller Carole Keeton Strayhorn for better than a year, left that operation to open her own shop. She told friends she'll be raising money for Becky Armendariz Klein — the former public utility commissioner who's running in November against U.S. Rep. Lloyd Doggett, D-Austin — and for other clients. Strayhorn aides say Gonzales will do some contract projects for their boss and say they haven't hired a replacement fundraiser yet...

Trey Blocker is the newest lobster and litigator we know of at the Jackson Walker law firm. He had been with Sen. Craig Estes, R-Wichita Falls...

Mance Bowden is the new in-house lobster for the Texas Credit Union League. He had been doing similar work at a Fort Worth credit union, and used to work for then-Rep. and now-Sen. Kim Brimer...

Gabriel Valenzuela, who worked for Rep. Vicki Truitt, R-Southlake, and before that for Rep. Bob Turner, D-Voss, is moving to the other end of the building; he's the new flack for Sen. Judith Zaffirini, D-Laredo...

Monica Aleman, who worked for Rep. Norma Chavez, D-El Paso, and for Texas Watch, has joined the Texas Department of Housing and Community Affairs. She'll work in their legislative shop, and replaces Roy Lopez, who went to Fort Worth to become a planner in city government...

Frank Galitski is the new director of public affairs for Farmers Insurance Co. He did two years as head of the Texas Alliance for Patient Access, the coalition of business and medical groups that promoted the constitutional limits on lawsuit awards in medical malpractice and other cases. In a previous life, he worked as an aide to then-Rep. Mike Toomey, who's now the governor's chief of staff...

U.S. Attorney Jane Boyle of Dallas has moved a step closer to the bench. The U.S. Senate's Judiciary Committee approved her nomination for a federal judgeship and sent that on to the full Senate...

DEPARTMENT OF CORRECTIONS: Trish Conradt spells her name like you see it here, and not like we spelled it last week. Sorry, sorry, sorry. If you missed it then, she's gone to work at the comptroller's office as "tax ombudsman."

Quotes of the Week

Gov. Rick Perry, telling the Houston Chronicle why he's pushing a slow fix on school finance: "We didn't get ourselves into this problem overnight, and I don't think you can get out of it overnight without a very, very large tax bill, and a large tax bill will have a negative impact on job creation."

Sen. John Whitmire, D-Houston, when Gov. Perry's proposed tax on adult entertainment was only a rumor, asked by the Houston Chronicle what it might be: "You're asking the wrong adult. You'd have to ask Perry. Maybe he knows more about that than me. I could refer you to a couple of my colleagues, but I don't frequent them. It does sound like a consumer tax to me."

U.S. Rep. Charlie Stenholm, D-Abilene, quoted in the Plainview Herald answering a question from a constituent who wanted to know why Democrats are unpopular in West Texas: "Gays, God and guns. I've even been asked how I can be a Democrat and still consider myself a Christian."

Johnson County GOP Treasurer Roy Giddens Jr., after photos of House candidate Sam Walls in women's clothing surfaced, quoted in the Fort Worth Star-Telegram: "I don't have a problem with cross-dressing. There are lots of them. People think J. Edgar Hoover was one of the greatest Americans that ever lived. He was a cross-dresser." Walls, in a written statement after the story broke: "These are personal family issues that we have dealt with. What I never dreamed was that my opponent would use it to attempt to get me out of the campaign."

J.D. Pauerstein, a San Antonio lawyer who represents Jim Ellis, a political advisor to U.S. House Majority Leader Tom DeLay who was deeply involved in redistricting and who says he didn't do enough campaign work in the state of Texas to be sued for things that happened in campaigns: "If I go to Florida to go fishing, that doesn't mean I can be sued in Florida on something that has nothing to do with my fishing. If I hit someone with a fish hook, I can be sued in Florida for hooking someone."

Hiram Sasser, an attorney for the Plano-based Liberty Legal Institute, quoted in a Dallas Morning News that described the group as a conservative version of the American Civil Liberties Union: "If there's something weird going on or controversial, I suspect we'll have an iron in the fire."

Texas Weekly: Volume 20, Issue 41, 12 April 2004. Ross Ramsey, Editor. George Phenix, Publisher. Copyright 2004 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.