In with a Bang

Texas lawmakers returned to Austin for school finance, met as two large groups and then promptly adjourned for a week. That stifles legislative mischief while committees meet to talk about taxes and education and nothing else is going on. And it serves to get them out of the way of the nastiest comptroller-governor squabble since Mark White and Bob Bullock formed their mutual admiration society in the mid-1980s.

Comptroller Carole Keeton Strayhorn, who's done everything you need to do to run for governor except declare, tore into Gov. Rick Perry's plan with a vengeance at the beginning of the week, initially stealing the headlines leading into a Perry-called special session that would start with his proposal to cut local property taxes, end Robin Hood, cap local government spending increases, pay schools for high performance, and move sliced bread down a notch on the list of cool inventions.

By mid-week, Perry had grabbed some of the thunder back, but the net effect in the first few days was to crowd out tax and education stories with noise about the 2006 governor's race. During the sessions on redistricting, everybody was talking about partisan legislators. Now they're talking about the Battle Royale between two of the state's top Republicans. More on that in a minute.

Lt. Gov. David Dewhurst started off the new session by telling reporters that if the House had gone along with the Senate last year, school property taxes would already be cut in half, Robin Hood would be dead, and lawmakers would be at home, doing what they do when they're not in Austin.

That Senate plan included a broad array of sales tax expansions and increases, and while some of the particulars are certainly dead — sales taxes on day care make for bad headlines and angry voters, for instance — the sales tax is one of the current favorites among Republicans looking for ways to raise money without doing harm to their constituents. Democrats generally don't like sales taxes, because they're regressive — harder on the poor — and because sales taxes are already relatively high. But Republicans outnumber them, and they're fiddling with expansions to items that most people never buy or won't really see in their day-to-day living, like taxing some professional services.

Perry has proposed a combination of VLTs, lottery expansion, tobacco taxes, taxes on adult entertainment (a friend calls it a Sir Charge), sped-up tax collections, and so on. He says he's against business activity taxes (talked about in the Senate) and gross receipts taxes because those are "job killers." He's leaving the door open for sales taxes, however, and for a statewide property tax that could include both business and residential properties. The first, Perry says, is hard because so many Democrats would vote against it. Including residential property in a state property tax is hard for two reasons: with business and residential thrown in together, the cost of cutting property taxes roughly doubles; and putting rooftops in the statewide tax would reduce local control over money.

And then there's House Speaker Tom Craddick, who was nearly invisible to the public during the run-up to the session and who is now saying he hasn't seen a plan that has many votes in the House. He's talking to members while a giant, 29-member committee holds hearings. And he's hoping to get a bill out of committee and on to the floor for a vote by the halfway point of the 30-day special session.

Without a consensus to begin with, and with the state's chief executive and the chief financial officer squabbling over numbers, a one-session solution would be something of a miracle. In practical terms, the Perry-Strayhorn feud has left lawmakers with the prospect of voting on an expensive program without knowing whose numbers to trust.

Everybody was Kung Fu Fighting

If we were a tribe that believed in reincarnation, it might be logical to assume that in some previous lifetime the governor of Texas and the state's comptroller of public accounts had a really ugly marriage. Or maybe a war.

Thirty minutes before Gov. Rick Perry publicly presented his school finance plans to legislators, Comptroller Carole Keeton Strayhorn sent him — and legislators, and the press — a letter describing the state's generally rosy financial condition. The letter is required before a legislative session. The timing was her own. Mostly, the letter holds good news. Strayhorn said the state has $727 million in the till that's not committed. About half that amount — $379 million — came in as the result of a March amnesty for businesses that were behind on sales taxes. Strayhorn said the state should use some of the money to restore Children's Health Insurance Program benefits for kids who became ineligible as a result of last year's budget cuts. And then came the swat at Perry's school finance plan, which she wrote, "cannot even be financed within its own terms."

She held a press conference later in the day to elaborate, saying the number-crunchers on her staff found that the plan would increase taxes and levies by $12.1 billion and would create a $10 billion deficit — another way to say that the plan, over five years, comes up $10 billion short of paying for itself. She attacked the plan in detail (a copy is available on her website), questioning Perry's math, the legality of the plan, and the political wisdom of it.

For instance, Perry says his plan would add $375 to what schools get to spend on each student. Strayhorn said the plan actually contributes only $10 in 2006 and $53 in 2007. That's an arithmetic quagmire, but it's fair to say the comptroller's number crunchers read Perry's plan in the worst light while he was presenting it in the best light. To get where Strayhorn landed, Perry pointed out later, you have to assume that none of the kids in many of the state's high schools — none of them — would advance to the next grade level every year. Strayhorn didn't back off of her numbers, but did change them; aides said numbers compiled before they saw Perry's proposal in bill form were being redone. They blamed Perry, saying he changed some details. Perry's team pointed to errors in the printouts that Strayhorn prepared for lawmakers: some schools were in the wrong legislators' districts. And some of the numbers were pooh-poohed by legislators who had talked to their superintendents.

Perry would raise some of his money with a special tax on cigarettes made by companies that didn't join in the settlement of a lawsuit the state filed against the tobacco industry. She questioned the constitutionality of that. As for politics, she said Perry's proposal to split business and residential property tax rolls "replaces Robin Hood with Robbin' Everybody" and said it would reward "rich, mansion districts." The comptroller said Perry's staff underestimated the costs to the state of a 25-cent reduction in local homeowners' property tax rates. He said it would cost $3.2 billion; she said $4 billion. His number on education enrichment came in at $3.7 billion; she came up with a tab of $5.86 billion for what Perry is proposing to do. Her staff attributed some current costs to his bill, adding current hold harmless expenses to the additional expenses from his proposal; his included only the new costs, and not the existing ones. And she tweaked him for using average home sales prices instead of appraised values to reach his claims for how much the average homeowner would save. By his reckoning, it would be $418 a year; by hers, $204. She offered up no school finance proposal of her own.

Perry didn't initially jump into the fight. After letting aides answer Strayhorn for a couple of days, he started hitting back, saying the comptroller's "shoddy, fly-by-night analysis" wasn't contributing anything but heat to the debate. "It is an astonishing fact that the top number-cruncher in this state could be so wrong on the numbers and the facts about the plan. But as John Adams once said, 'Facts are stubborn things.'"

Three in a Row

Gov. Rick Perry rolled out his school finance plan for a packed auditorium and the House/Senate panel set up to chew on that subject matter. It might seem unusual for a governor to assume the position of supplicant, but Perry became the third Texas governor in a row to propose a school finance plan, hoping like his predecessors that his will be acceptable to the Legislature. It would be the first, but he laid out the plan and took questions, as a few of his predecessors have done on big issues. Perry did alright, but the questions revealed some of the cracks in the consensus he sought.

Sen. Eddie Lucio, D-Brownsville, led off with some questions about a reported $500 million to $600million shortfall in the Medicaid program, and told the governor that teachers "didn't hear anything [for them] in your plan." Perry questioned the information about Medicaid — his health and human service commissioner lowered caseload estimates during the last session and is now, according to the Houston Chronicle, short by about the same amount he then gave up — and told Lucio that the experts were still working to come up with a solid number. And he said teachers and other educators would benefit from the performance incentives in his proposal.

Sen. Leticia Van de Putte, D-San Antonio, pressed the governor for details on who would set the surpluses in his plan. Perry wants to use future budget surpluses — determined, he said, by the Legislative Budget Board — to buy down local property tax rates. In a growing state economy, he thinks the surpluses would generate enough money, eventually, to get business and residential property tax rates down to 75 cents, or about half the current average rate. The Senate tried last year to do that by replacing half the local property tax with an $8 billion cocktail of sales tax increases.

Later, Mike Toomey, a former legislator and lobbyist who is now the Guv's chief of staff, told the panel that the property tax buy-downs from the state surpluses would not be in the state constitution, but up to the Legislature. In tight times, he said, lawmakers might decide to spend the money on something else. That got a noisy reaction from the crowd, which was well salted with local government officials from around the state who came to criticize the governor's proposed cap on local government revenue growth. Bill Allaway of the Texas Taxpayers and Research Association said the initial gap between business property taxpayers and residential taxpayers would force the state to use more of its surplus each year to ease business taxes than to ease residential taxes. Perry's aim is to eventually get both rates to 75 cents, but business lobsters like Allaway worry that giving more money to business will be politically unpopular, and won't stand the test of time.

The Guv said he'd leave current property tax exemptions alone, focusing the answer to questions from Sen. Todd Staples, R-Palestine, on farm exemptions that might otherwise be affected by splitting business property from residential property and taxing the business property at the state level. (There's a question for the tax lawyers buried in there somewhere: If exemptions are more generous in one part of the state than in another, and if taxable business property is combined into one state roll and the exemptions are left in place, does that tax treat each taxpayer the same?)

Sen. Steve Ogden, R-Bryan, asked Perry if he considered any of the revenues raised by his plan new taxes, then paraphrased Perry's answer and said he agreed with it: Taxes raised to offset taxes lowered don't create a tax increase. Keep watching that: It's one rationale for a big tax increase that produces a politically measurable local property tax cut. Ogden, the new chairman of the Senate Finance Committee, also pressed Perry on 2.6 million in "one-time" revenue sources in the governor's plan, asking Perry what he planned for later years. Perry's plan counts on $1.2 billion raised by speeding up franchise and sales tax collections (one variation would have the government trying to collect sales taxes based on sales forecasts rather than actual sales). The money from sped-up collections stays in place each year, but only gives an extra boost to the first year of the plan, which effectively gets an extra month's revenue. Another $1.4 billion would be raised before the spending starts, meaning the program might not be self-sustaining in those later years. Perry punted to his aides, but only after insisting some of the "one-time" money would be available each year.

Craddick Breaks Radio Silence

Gov. Rick Perry's school finance plan will face tough sledding in the House, according to Speaker Tom Craddick, who also said he thinks the Legislature can address the issue and go home within 30 days. The speaker, who by many accounts didn't want a special session right now, ended up sounding considerably more optimistic than some of his colleagues in that regard.

Craddick expects "multiple plans" to be introduced in the House, and said the Select Committee on Public Education, a 29-member panel he set up last year, will handle both the education and tax components of the bill. For the early part of the session — including weekends, so teachers and others won't say they've been shut out — that committee will hash out ideas and take testimony.

He and his top lieutenants are still polling members, but as the session began, Craddick said he didn't sense any momentum for any plan, other than a general sense that "everybody here wants to get something done." And with conversation about "big" solutions, like what was proposed last year by the Senate, and "small" solutions, like the one proposed by the governor, Craddick said he has no preference about how big a bite the Legislature takes at school finance. He's not backing a plan, either. However, members say House leaders are asking them about alternatives to Perry's plan that might yield something more immediate than the Guv's ideas, and something bigger. More notes:

• The speaker wants everything to be in one omnibus bill. He and his aides were still talking about strategy, but he leans toward a solution that can get everything into one amendment for voters to consider, rather than several. Various proposals would require constitutional change: video lottery terminals at race tracks and on Indian lands, any statewide property tax proposal, and spending caps on local governments are a few examples. Some don't: expanding or increasing the sales tax, an income tax (though it requires a public referendum) and, if you work carefully, a gross receipts tax or a business activity tax.

• Members, Craddick said, don't consider it a tax increase if they lower other taxes by the same amount, or more, than they raise new levies. We'll say here what he won't: Whether voters will accept that framing on taxes is a separate and still open question that'll depend on the package, if any, that gets legislative approval. It might be an even swap when a legislator talks about it, but it won't look that way when an election opponent prints up mailers to send to voters.

• Craddick said he and his peers in the leadership are "pretty close" on what should be in the education part of the school finance bill; the questions are on the side of how to pay for whatever tax relief the Lege wants to give local property taxpayers.

• "I don't see a lot of support for the split roll," he said, after weeks of talk and nose counting. He said essentially the same thing about the complete Perry proposal; it's not popular, and the House is looking for other ideas.

• He said he was surprised when House Democrats complained of not being included in talks about school finance, and said he invited them to meetings and that some of them attended.

On the East End, a Waiting Game

Tax bills start in the House, and the Senate is waiting to see what the House will provide. Senators already voted on this once, putting together their own package of sales taxes. There's the germ of a popular idea in there, but a cautionary tale, too: Rep. Tommy Merritt, R-Longview, lost a special election for Senate after attacks on his proposal to do what the Senate had voted to do: Cut local property taxes and pay for it with a mess of sales taxes. The ads that ran against him didn't mention the property tax cuts. Still, Lt. Gov. David Dewhurst says senators want a big fix — one that results in a property tax cut big enough to justify a tax bill to voters. Perry's plan would cut residential school property taxes by 17 percent. But other property taxes are in that bill, too, and the Perry cut would represent an overall drop of less than 10 percent of total property taxes, and that's if no local governments raise taxes. Some lawmakers think that would be too small a benefit. If they have to sell a tax bill when they go home, they want something more dramatic to show for it.

While You Were Looking the Other Way

The Office of Public Utility Counsel, set up to represent residential and small business consumers in utility cases, ought to be disbanded, according to a staff report from the Sunset Advisory Commission. That agency is run by Suzi Ray McClellan, daughter-in-law of comptroller Carole Keeton Strayhorn. The sunset folks say changes in utility regulation have made it obsolete. They say the Telecommunications Infrastructure Fund board should suffer the same fate, and for similar reasons.

The sunset staff also wants to increase the size of the Texas Lottery Commission to five members from three. They recommend the Texas Optometry Board change contact lens regulation in Texas to conform to federal regulations on release of prescriptions (think mail order contacts), and they left the continuation of that agency as an open question. They think the PUC ought to be able to fine companies up to $25,000 a day — up from $5,000 — for administrative violations. They also made a long list of recommendations on the Texas Workers Compensation Commission. The reports are online if you click here.

Flotsam & Jetsam

• If Texas schools got every eligible kid signed up for free lunches and free breakfasts, local school districts would bring in $582.8 million from the federal government every year. That money would have to stay in the food program, but could offset costs, and potentially free local money now spent on food for other stuff, according to Agriculture Commissioner Susan Combs, who's pushing the idea. An increase of 10 percent, she says, would bring in $90.7 million.

• The Texas Education Agency jumped into the Perry-Strayhorn spat, on the governor's side. Education Commissioner Shirley Neeley admonished the comptroller for doing printouts describing how the plan would affect schools in legislators' districts, saying her agency has been working with the governor and should do the numbers. "Since the TEA, not the comptroller, will be responsible for implementation, her estimates may not reflect the actual impact on Texas schools," Neeley wrote.

• Republicans worried about splashes from the Travis County district attorney's campaign finance investigation didn't wait for the Democrats to bring it up; they did it themselves. Jared Woodfill, the chairman of the Harris County Republican Party, filed Texas Ethics Commission complaints against the Texas Democratic Party and the Texas Partnership, a political action committee set up by then-House Speaker Pete Laney to help Democratic incumbents. The Republicans say the Democratic groups didn't properly report their contributions to about two dozen candidates, and they want TEC to look at it. A Travis County grand jury is looking at GOP efforts to elect a legislative majority in 2002, but also subpoenaed records from Laney and others, after Republicans said they were singled out for something both sides were doing.

• Sens. Kevin Eltife, R-Tyler, and Kel Seliger, R-Amarillo, will both be on the nominations committee and the international relations and trade panel. Lt. Gov. David Dewhurst also named Eltife to administration, and health and human services. Seliger also got criminal justice, and veterans affairs and military installations.

• Glenn Smith, who managed Tony Sanchez' campaign for governor and then spent the last year writing a book on politics, is launching a Texas version of MoveOn.org called DriveDemocracy.org. That's beginning with an online petition drive to urge Gov. Rick Perry and the Legislature "to give all Texas children access to an excellent education." The particulars include prohibiting vouchers, avoiding "smoke and mirrors financing schemes, limiting class sizes, and upholding equity.

• Sen. Kyle Janek, a Houston Republican and a doctor, is raising money and offering his top donors the opportunity to have dinner with him. The letter suggests sponsorships of $1,000, $2,500, and $5,000; people who sign up at the top levels "are also invited to join me for dinner... immediately following the reception." That top level is named for William B. Travis, the Alamo hero. People who don't want to play can check off the last box, which says "No, thank you. I'm not interested at this time." That one is named Santa Anna.

Political People and Their Moves

Margaret Hoffman, the executive director at the Texas Commission on Environmental Quality for the last two years, is quitting that job and the agency. Hoffman, who took over the agency at a time when the appointed commissioners were getting more involved in day-to-day affairs there, said she'll stay on the job while commissioners start looking for her replacement...

Karina Casari is the Senate's new parliamentarian, replacing Walter Fisher, who retired in February and turned into a lobster. Casari has been director of policy for Lt. Gov. David Dewhurst, and before that worked as deputy commissioner of insurance and as an aide to former Sen. David Sibley of Waco...

Katherine Antwi, who had been the general counsel (and at one point, the interim director) at the Texas Commission on Human Rights, is now legal counsel to Railroad Commissioner Michael Williams. She's also a former assistant attorney general...

Jenny Fowler left the Texas Medical Association and is now lobbying for Humana. She worked in the Texas House — surviving tenures with three state reps — before going to TMA as a lobbyist...

Gov. Rick Perry went looking for someone to regulate electric and telephone utilities in Texas and found himself a prosecutor. Barry Smitherman of Houston, an assistant district attorney who spent 16 years before that as an investment banker, will get the spot opened when Becky Klein resigned to run for Congress at the beginning of the year. Smitherman, like the Guv, is an Aggie, but he's also got a master's degree in public administration from Harvard...

Perry nominated Elvis Hightower of Georgetown to the Board of Pardons and Paroles. Hightower has been a warden for 11 years...

The Texas Ethics Commission has two new appointees, this time from the governor's office. Tom Harrison, who used to be the executive director at ethics and who now lobbies for the Texas County and District Retirement System, will now be on the ethics board. So will David Montagne of Orange; he's the number two guy at the Sabine River Authority...

Perry put Cobie Russell of Dallas on the Texas Commission on the Arts. She's an artist an the co-founder of the Texas Women's Initiative...

And Richard Terrell, an Alice attorney, is Perry's choice to wear the robes in the 79th Judicial District Court...

The new senator pro tempore, if you follow these things, is Jeff Wentworth, R-San Antonio.

Quotes of the Week

Gov. Rick Perry, on criticism of his proposal for school finance: "I hope no one will throw the baby away because it has a birthmark, that someone won't vote for the bill because it is not perfect."

House Speaker Tom Craddick, on his sense of things: "The House's overall feeling is they want to see a larger overall plan that fixes the system, not a Band-Aid, and they want to see immediate relief. They want to see more property tax relief."

Business lobbyist Bill Allaway, describing Gov. Rick Perry's plan to set a high initial business tax rate with the promise that it will eventually be in line with residential property taxes: "It's 'I'll repay you later for a hamburger today.'"

Former Sen. Bill Ratliff, quoted in the Dallas Morning News: "There's the expression that all politics is local. Well, there's nothing more local than whether your school district got the shaft."

Former House Speaker Gib Lewis, quoted in the same Dallas Morning News story on the risk of voting for something unpopular: "I've seen more members get beat for changing the squirrel season in East Texas than ever got beat for voting for gambling or a tax increase for public education."

Grover Norquist, telling the Houston Chronicle that his Americans for Tax Reform wouldn't go after legislators who passed one tax to replace another one: "If I were king, I would say, 'Let's do the tax reductions and not offset them with other revenue, but simply reduce spending. The pledge is specifically no net tax increase."

Peggy Venable of Americans for Prosperity, defending the idea of small cuts in property taxes combined with caps on growth: "I think taxpayers would be happy to see taxes just hold the line."

Health and Human Services Commission spokesman Russell Smith, in a Houston Chronicle story about a budget blowout in drug costs in CHIP, on why the agency hasn't published a second-quarter spending report due at the beginning of the month: "The second quarter is not out yet. It's just not done yet. If something were to be hidden, it's not like it can be hidden indefinitely."

Tim Lizardo, chief of staff to U.S. Rep. Ron Paul, R-Surfside, talking to Roll Call after an intern from that office was arrested for possessing "a green leafy substance" and another staffer got caught kicking another congressman's car: "How would anyone link the two incidents at all whatsoever?"

Texas Weekly: Volume 20, Issue 43, 26 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.