The Title is Set, but Not the Tune

Everybody in School Finance Land seems to agree the state needs a new "broad-based business tax" to help buy down local property taxes. You can hear those four words from Gov. Rick Perry, Lt. Gov. David Dewhurst, and from House Speaker Tom Craddick. You'll hear them a lot more over the next six months.

But before you grab the leftover holiday champagne, see what they say about the details. Dewhurst has been most forthcoming, and most likely to say he's closest to a deal that his half of the Legislature would approve. At a pre-session lunch with reporters, he says he's looking at a "bold" plan that would lower property taxes to $1 — from a maximum of $1.50 now. That $1 could be in the form of a statewide property tax or a local property tax, depending on what lawmakers and voters will swallow. Local schools would be allowed to raise some local money, something between a dime and a quarter for every $100 in property value.

One math-equipped lobbyist we know points out that lowering it to a $1 and then allowing local enrichment is a lot like lowering taxes to $1.15 or $1.25. But when you put it that way, many lawmakers tell you it's not a big enough cut to sell voters on the state taxes needed to pay for it — they like calling it a one-third cut.

The ratio of state to local funding would flip; where the state now pays slightly less than 40 percent of the costs of public schools, it would pay "north of 60 percent" under the plan Dewhurst is talking about. If you're looking for a number to stick on here, that's about a $7 billion to $8 billion increase in state funding. The math isn't as tricky as the politics: the policymakers' hope is that voters would look at it as a swap instead of a tax hike. Craddick, in a separate interview, heard former Michigan Gov. John Engler say his state used state taxes to knock down some local property taxes, without costing any lawmaker at the ballot box.

Dewhurst says he would raise cigarette taxes. He's open to video lottery terminals (slot machines), and in code, he says they'd have to be at existing racetracks (what he actually said was that he's against expanding gambling in Texas beyond its current "footprint" and that VLTs could have a surprisingly positive impact on agriculture in Texas; we translate that to mean he'd support slot machines at racetracks that are already in business and if we hear different we'll return to this).

He says the school finance plan would leave the current balance of business and personal taxes more or less in place, but says more businesses would be paying taxes after the reforms. This is where you get the "broad-based business tax," and the story is similar from all corners. Current franchise taxes hit only one business in six. More businesses are figuring out legal ways not to pay those taxes, and the state needs more money and needs a fairer tax. Several flavors of broad-based business taxes have been examined here over the last few years: general taxes on gross receipts — the top line on a business income statement — on income, the bottom line — or on business activity, a tax on the overall proceeds of commerce. Most folks in the Pink Building are talking about business activity taxes. Within that are many variations: Dewhurst is apparently talking about a low-rate tax applied to business profits and employee compensation. Another variation adds in capital spending and subtracts depreciation. They're trying to raise somewhere between $3.5 billion and $5.5 billion a year with whatever variant they end up liking.

One version of the plan — we've seen several — includes a half-cent increase in taxes on sales and motor vehicle sales, and a 1.5 percent tax on real estate transactions. Some have suggested cutouts for "passive income," which would protect investment companies and venture capitalists and others from any "broad-based business tax." But you have to watch those exemptions: Dewhurst says he'll avoid a tax bill that would generate "intra-fraternal genocide," his term for what happens if one group has to pay a tax while another group escapes. Such arguments kill bills.

Craddick is also talking about knocking property taxes to $1, with room for local enrichment, and he says he's for a broad-based business tax. But he says he hasn't seen any consensus on the issue either inside the House or outside. Everybody's working together and playing nice, he says, but no deal is evident. Craddick says "most members think the system is broken," but is also aware of the Legislature's history of not solving problems like this one until the courts have had their say. The school finance system was ruled unconstitutional late last year, and the appeals to the Texas Supreme Court are less than two weeks old. It could be a while before the Supremes have loaded the gun that is pointed at the Lege's head.

Craddick's attention has been on what he calls the "reform side" of education, and he says the House leadership is pretty close — one or two issues remain — to having a bill ready for mass consumption.

It's the Senate's turn to start the budget and Dewhurst says it'll be done with the first round in early to mid-March. Sounding a little wary of the comptroller's pending revenue forecast, he says the Senate is assuming her numbers will be in line with estimates of personal income growth over the next two years — estimates issued late last year by the comptroller herself. When she speaks and the Legislative Budget Board lets loose its first draft of a spending plan, he thinks the shortfall will be between $1 billion and $2 billion. Craddick came up with the same numbers, and both men cautioned that they don't have a clue what Carole Keeton Strayhorn will say when she presents the biennial revenue estimate next week.

Dewhurst says he thinks state employees deserve a pay raise, particularly those in law enforcement. He says teacher pay is a problem, with young teachers leaving for other professions, and older teachers retiring earlier — at an average age of 56. He says he wants to restore cuts made to children's health insurance, reverting to 12-month application periods from six-month periods, reinstating coverage for vision, mental health and possibly extending dental benefits to beneficiaries.

Both he and Craddick say worker's compensation insurance is in for a fix, and both cited rates that are higher in Texas than in other states. The Senate will lay out a plan next week, and the House will work from the Sunset Committee's report.

Two more from Craddick. He says, first, that the two remaining election challenges in the House won't be a distraction from other business. And he shrugs off a question about distractions from the Travis County courthouse, where prosecutors and grand jurors continue to grind away on a two-year-old investigation of campaign finance in the 2002 House elections. "Nobody's talking to me about it," Craddick says. "The only people talking to me about it are the press."

Life and Death

The state's Child Protective Services agency needs a $329 million overhaul, according to the Health and Human Service Commission's report on problems there. CPS is part of the bigger agency and after revelations of injuries and deaths of children who should have been on the agency's radar, Gov. Rick Perry ordered HHSC to investigate and clean up the mess.

Their recommendations are done and Perry is putting some of them into effect and asking lawmakers to take care of others. The agency is opening an investigations division and asking the Legislature for money to hire caseworkers and lower caseloads by 40 percent, to add support personnel for caseworkers, to cut response times when abuse or neglect are reported, to privatize foster care, adoption and other case management services to "community-based organizations," to increase training, to undo a reorganization that changed CPS from nine regions to five, and to office CPS workers with law enforcement people and prosecutors when it's possible to do so.

HHSC looked at 2,221 CPS cases and found the agency had dropped the ball in one way or another in half of them.

To cut caseloads, the agency will have to hire 828 investigators. That would cut the number of cases per worker to 45 from 74.

The plan already came in for some criticism; the Center for Public Policy Priorities says HHSC is going in the right direction, but asking for too little. Scott McCown, who heads the CPPP, remembers former Gov. George W. Bush declaring the state's foster care in a state of crisis when the caseload average was 24, and calling for more caseworkers then. HHSC is now trying to cut it to an average of 45. McCown says the state would have to cut the load to 12 to 15 cases per worker to meet national accreditation standards.

The Gathering Storm

Add two names to the Kay Bailey Hutchison political squad: Chad Wilbanks, former political director for the Republican Party of Texas and a veteran of previous Hutchison campaigns, and Keats Norfleet, who most recently helped Louis Gohmert, R-Tyler, unseat U.S. Rep. Max Sandlin, D-Marshall, in Congress, and who worked for Rep. Dan Gattis, R-Georgetown, in the state Legislature. The two have signed on a political operativess for the senior U.S. senator from Texas (Wilbanks as a consultant, and Norfleet as a staffer). Hutchison is flirting with a run for governor next year against Rick Perry, the incumbent fellow Republican now in that spot, while also keeping open the option of running for reelection. Several of Wilbanks' former colleagues at the Texas GOP would be on the Perry side of the race, if such a thing comes to pass, including former chairwoman Susan Weddington, who heads a nonprofit started by Perry, Wayne Hamilton, former executive director of the Party, and Robert Black, flack for the GOP then and for Perry now.

Weddington was one of several well-known conservatives who announced they'll support Perry's reelection for a term that would make him the state's first ten-year governor. The rest: Cathie Adams, Texas Eagle Forum; Jim Cardle, Texas Club for Growth; Bill Crocker, Republican National Committeeman for Texas; Becky Farrar, Concerned Women of America PAC; Kay Goolsby, Texans for Texas; James Graham and Elizabeth Graham, Texas Right to Life PAC; Tim Lambert, Texas Home School Coalition; Norm Mason and Jeanne Mason, Texas Christian Coalition; Allan Parker, Texas Justice Foundation; Joe Pojman, Texas Alliance for Life; Marisa Rummell, Republican National Hispanic Assembly of Texas; Kelly Shackelford, Free Market Foundation; Janelle Shepard, Texans for Texas; Peggy Venable; and Kyleen Wright, Texans for Life Coalition.

The Perry gang is maneuvering for further signs of support. If they get the ducks lined up, they'll announce endorsements from other Republican statewide officials in the next few days; a list we're told could include almost all of the non-judicial elected honchos. Probably not on the list: U.S. Sen. John Cornyn, who'd have more to lose than to gain by getting involved, and Comptroller Carole Keeton Strayhorn, who is widely believed to be the third potential candidate in the governor's race. The Perry folks are also calling around to financial supporters, trying to compile a list of GOP heavies who'll say they're with Perry — and not Hutchison or Strayhorn — in the 2006 race for governor.

Sidebar: Nobody has successfully knocked off a sitting governor in a primary since John Hill beat Dolph Briscoe in the Democratic primary in 1978. Hill went on to lose to Republican Bill Clements...

Ground Rules

Melissa Noriega of Houston will represent HD-145 during the regular session, filling in for her husband, Rep. Rick Noriega, a major in the Army National Guard who's serving in Afghanistan, training soldiers for that country's army. She'll serve until he gets back or until his term ends, whichever comes first, and will have full voting rights as his proxy in the House.

There was some discussion about that among the House's rule-makers, and some question about the legality of her votes and of her pay for time in office (Major Noriega, by law, gets his daily legislative pay while he's on the front). The question is apparently resolved, at least where the votes are concerned. Rep. Joe Nixon, R-Houston, one of those who raised the issue, says he wanted her to get full legislative rights but first wanted to make sure it was legal. The other question — whether both Noriegas will get paid for the same gig — remains unanswered. The proxy issue was settled with a constitutional amendment voters approved last year, and though some members raised questions about whether Mrs. Noriega would have full privileges as a proxy, they've decided last year's amendment made it constitutional, as it was supposed to do. The pay question is something nobody thought to address before now and the lawyers are still researching and tinkering. That issue could arise next week when state reps vote on changes to their internal rules as the session gets underway.

That's not the only cloudy picture: The House will change its rules on record votes, but members who've been working on that haven't reached consensus on what changes to make.

Some types of legislation require record votes, usually when something more than a majority is needed to pass something. Constitutional amendments need 100 votes, for instance, and it takes a supermajority to get a bill to take immediate effect on passage. But on everyday stuff, record votes aren't required unless at least three members request a record vote. The Dallas Morning News has led other media outlets to bang the drums on the issue, and lawmakers are stuck between the rock of tradition and the hard place of ugly editorials back home. The papers want record votes on everything of substance, so they and their readers and other voters will know what their senators and representatives are doing when they're in Austin.

That's hard to argue against, and the House is considering several options, from record votes on everything to lower thresholds for requesting votes (something less than three members asking) to record votes on final passage of bills.

The rules people also talked about and then discarded the idea of sanctions against members who deny a quorum with organized walkouts or bus trips to Oklahoma or pilgrimages to Albuquerque that stifle redistricting and other issues. The House has apparently decided to leave that alone.

Game Over

Rep. Jack Stick dropped his challenge to the election that knocked him out of office, saying the voting was fouled up but that an election contest would be politically divisive and would leave the voters in HD-50 without effective representation for much of the legislative session that starts next week. The Austin Republican says he'll spend his time working over the elections process in Travis County to make sure future elections are kosher, and says more generally that he probably will run for office again sometime in the future.

That means Mark Strama, D-Austin, will take a seat in the Lege next week. Strama says he'll file papers asking Stick — who raised the challenge in the first place — to pay his legal fees. Strama didn't say how much he spent on attorneys. And he vented a bit about Stick's allegations of tainted voting and vote counting, saying he thought the election was clean and that he won it fair and square.

Stick says voter turnout was up in this election (over 2000), but that straight-ticket voting in Travis County rose by greater numbers than overall voting. And straight-ticket voting by Democrats, by his reckoning, outgrew similar voting by Republicans. But Strama pointed out that there were more straight-ticket Republicans than Democrats in the House district (though there were more Democrats than Republicans in the countywide totals).

Worse for Stick, Rep. Will Hartnett, R-Irving, who was assigned to ferret out the facts and present them to a committee for consideration, was sending ominous signals to the Stick camp.

In a mid-December email to the candidates and their lawyers, Hartnett told Stick he needed more info: "Unfortunately, other than the allegation of 72 duplicate votes, the amended petition, despite the passage of 43 days following the election, appears to be founded entirely on speculation.  I think I can say with confidence that neither I nor the Select Committee will consider any speculation in reaching a decision on this matter.  Please be prepared to discuss the amended petition’s allegations in detail during our conference tomorrow, and how Mr. Stick intends to meet his burden of proof by clear and convincing evidence within a short timeframe."

In an email a day later, he told the parties he wouldn't need to interview two witnesses unless Stick's case improved: "Unless Mr. Stick files a solid petition and discloses a solid list of alleged illegal or excluded voters quickly, however, there will be no need for the ladies to provide me any information." And two weeks later, he denied Stick's request for more time. Stick subpoenaed county officials for records, but didn't deliver the subpoenas in any official way, then wanted a continuance based on the lack of any answers to those unserved subpoenas.

Stick said he is withdrawing, in part, because the information he'd need to contest the election didn't appear to be forthcoming and that, in essence, he didn't want to drag it out.

Two Contests Remain in Overtime

Hearings on the remaining House election challenges are set for the third week of the session. Two more Republicans who lost their elections are challenging the Democrats who won them, and Hartnett plans to hold hearings on January 25-27 before writing his reports and recommendations to a House committee that will then take the contests to the full House. He had scheduled three days of hearings, but that was when the Stick/Strama duel was on, and we haven't seen a new schedule if there is one.

The House can throw out a challenge or try to figure out — from the election results, voter rolls, and other evidence — who won. If it can determine the winner, it has to seat that candidate. If it can't, it has to order a new election in that district, throwing the candidates back to the voters for another bite.

The headliner here is former Appropriations Chairman Talmadge Heflin, R-Houston, who lost his reelection bid to Democrat Hubert Vo. Heflin's lawyer says Vo's totals include votes from people who shouldn't have been allowed to vote; however it turns out, Heflin is out of the center chair on the budget-writing committee and probably out of the House leadership, at least for now. Committee chairs and other leadership positions will likely be doled out before the election contests are decided, and House Speaker Tom Craddick would have to decide if he wanted to rearrange the chairs again in the event of a Heflin win in the election contest. The facts of the case aren't yet clear, but the politics are: Heflin's challenge gives House Democrats a solid talking point in the Legislature's ongoing War on Bipartisanship.

The second jump-ball involves two newcomers: Republican Eric Opiela, R-Karnes City, wants the House to have another look at his loss to Yvonne Gonzalez-Toureilles, D-Alice. She beat incumbent Rep. Gabi Canales, D-Alice, in a primary runoff and then won the general election in November. He says the vote totals are suspect and is pressing forward. To prevail, a contestant has to show that enough of his voters were barred or that enough of his opponent's were illegitimate to overcome the margin of defeat. If the number of tainted votes is greater than the margin — and they can prove it — the House has to either overturn the result or order a new election. That's happened only once in recent history.

The documents filed in the three cases are available online at the Texas Legislative Council's website. When you're there, you'll see "Election Contest Documents" as one of the selections on the right side of the agency's home page.

While We Were Out

The news slowed down while we were on a year-end break, but it didn't stop. To wit:

• Sears, Roebuck and Co. became the second corporation to agree to help Travis County prosecutors' inquiry of campaign finance in the 2002 Texas House races. In return, the indictment against the company is being dropped. Meanwhile, political consultant John Colyandro filed documents asking for a dismissal of the indictments against him, saying the laws involved apply only to candidates, political committees and officeholders and that he is none of those things.

The inquiries began shortly after the 2002 elections. Prosecutors are investigating allegations of illegal coordination between campaigns and third party organizations and political action committees, and illegal use of corporate funds in those same elections. Sears, for instance, had been charged with making an illegal contribution to Texas for a Republican Majority PAC, one of several groups trying to win the first GOP majority in the Texas House since Reconstruction. Prosecutors have indicated that this will be the last year any of this could bring indictments: Most of the allegations have three-year statutes of limitations.

Two grand juries were working on that investigation during the last quarter of 2004. Their terms ended, and two new grand juries are being impaneled now. At least one will be working on this issue for the next three months.

• Bob Richter, a veteran journalist who left newspapering to be House Speaker Tom Craddick's spokesman two years ago, got a pink slip over the holidays and is interviewing for a job set aside for him somewhere in the state's vast health and human services domain.

Richter was a victim of his own words, and of harsh media coverage of his boss, a prominent figure in the 2002 elections that are being investigated by grand juries and prosecutors in Travis County. We're admirers: Richter is honest, forthcoming, and has the sharp tongue of a former editorial writer. That last attribute can be a liability when used in the vicinity of politicians. His assistant, Kate Huddleston, was moved to another job in the Speaker's office. Neither saw it coming, apparently, but their replacements were interviewed and hired before the involuntary relocations took place, and the HHS people were drawn into the hunt for a new job for Richter early in December, well before he knew his fate.

In their places, Craddick hired Heather Tindell and Alexis DeLee. Tindell worked in a couple of hotspots: ERCOT (the Electric Reliability Council of Texas) and before that, at the Texas Department of Housing and Community Affairs. DeLee was most recently the spokeswoman for the Texas GOP, and before that worked in public relations with lobbyist Bill Miller; she was the spokesperson for a West Texas group seeking water rights that tussled with Land Commissioner Jerry Patterson and that included several Midland business people...

• Sonny's Last Shot, a play by Austin writer Lawrence Wright, began a five-week showing down the street from the state Capitol through February 6. It's a spoof on the Texas Legislature, in case you need one.

• Ron Kirk said he won't run for chairman of the national Democratic Party. The former Dallas Mayor, Texas Secretary of State and U.S. Senate candidate endorsed former U.S. Rep. Martin Frost, D-Dallas, who is actively seeking that job.

• The next election cycle started, with an invitation to a fundraiser at the home of Texas political guru Ben Barnes for one Eliot Spitzer, the New York attorney general who wants to be governor there. The hosts include several regular Democratic contributors — Ken Bailey, Joe Jamail, Harold Nix, Audre and Bernard Rapoport, Wayne Reaud, and Jack Martin. Of the group, Martin might be closest to that situation; the founder of Austin-based Public Strategies has been spending much of his time in New York City, working for clients there. Call this a hunch: If Texas Democrats don't mount serious candidates for state office in the face of Republican strength for the next couple of cycles, rich Texas Democrats could become prime financiers for out-of-state candidates.

Political People and Their Moves

James LeBas quit his job as the state's chief revenue estimator to take over as chief financial officer of the Texas Water Development Board. That move isn't as unusual as the timing: Comptroller Carole Keeton Strayhorn, LeBas' former boss, is uncorking the biennial revenue estimate next week, and she'll do it with a new forecaster. The new guy, John Heleman, is a veteran revenue estimator who started at the agency in 1988 and has survived three comptrollers. While he and his staff are forecasting state income over the next two years, LeBas will be working on bond and finance programs. That biennial revenue forecast tells legislative budgeteers how much money they can spend in their next budget without running an unconstitutional deficit. In recent years, legislators have accused Strayhorn of cooking the numbers for political reasons, and you might be hearing more about that in a week's time, when the new BRE comes out...

Dan Lambe decided to leave Texas Watch to take a job in his hometown of Lincoln, Nebraska, with the National Arbor Day Foundation. The new executive director here is Alex Winslow. Texas Watch is a consumer protection group that regularly lambastes insurance companies for high rates on home and auto policies...

Janice Steffes is the new chief of staff for state Sen. Troy Fraser, R-Abilene. She's been his legislative director for several years, and will replace Bill Scott, who had been the chief. Scott is leaving the Pink Building to become manager of public affairs in the Austin offices of Exelon, a Chicago-based electric utility with regulatory interests here. Bill Bragg, who worked for Rep. Jack Stick in the House and has done campaign work for Supreme Court Justice Scott Brister and others, is also joining Fraser's staff...

Susan Steeg, until recently the general counsel for the Texas Department of Health, is the new executive director of the Public Health Law Association, a relatively new group for people in that specialized area of law. She'll remain in Austin...

Damaris Barton, daughter of Texas GOP Vice Chairman David Barton, will be that party's new director of community partnerships. That announcement described her as a "grassroots outreach specialist"...

Deaths: Mack Kidd, a judge on the state's 3rd Court of Appeals in Austin and a former president of the Texas Trial Lawyers Association. He was 63... Roy Evans, former president of the Texas AFL-CIO. He was 79... Bill Stump of Georgetown, who served in the Texas Legislature back when Harry Truman was President of these United States. He was 93...

Quotes of the Week

Attorney General Greg Abbott, appealing a ruling that the state's school finance setup is unconstitutional: "Because this is a crucial matter of statewide importance, and because the students, parents, school districts and taxpayers need closure on this matter, we urge the Texas Supreme Court to hear the school finance case at the earliest possible date."

Clayton Downing of the Texas School Coalition, talking to The Dallas Morning News about legislative proposals to replace local school property taxes with state school property taxes: "A state property tax does not eliminate Robin Hood — it's just another version. It shifts the burden from the local districts to the local taxpayers who still have to pay it."

Rep. Jack Stick, dropping his challenge of the results of the election that lost him his state job: "To prove exactly what transpired in the last election will require a massive effort and will result in further political division. I have concluded it is not in the best interest of my constituents, the Texas House of Representatives or my family for me to pursue this election contest further."

Travis County District Attorney Ronnie Earle, quoted in the Texas Lawyer: "There is a basic rule that the Mafia follows and it is used as a template by most politicians that I have investigated: Deny the allegations and attack the allegator."

House Speaker Tom Craddick, in a pre-session interview with the Fort Worth Star-Telegram: "I don't expect to be indicted. I didn't do anything wrong. I feel very comfortable about that."

U.S. Rep. Zach Wamp, R-Tennessee, quoted in The New York Times after House Republicans decided not to amend ethics rules to allow indicted members to remain in leadership positions: "It allows the Republicans to focus on the issues, the agenda that is before us and not to have Tom DeLay be the issue. I feel like we have just taken a shower."

Houston lawyer Pat Oxford, a longtime supporter of U.S. Sen. Kay Bailey Hutchison, talking to the Fort Worth Star-Telegram about a potential contest with Gov. Rick Perry: "If there is a Republican primary, Kay will win it. Kay Hutchison is one of the most conservative senators in the United States Senate. If they're going to try to beat Kay as being a liberal, they better bring their lunch with them."

Political consultant Jason Stanford, whose "Practice What You Preach" is a counter to efforts to ban gay marriage, quoted by the Associated Press: "Any fool could run the other side. When George Washington crossed the Potomac, no one gave him much of a chance, either. The really great stories in history are not written by slam-dunk favorites."

U.S. Rep. Chet Edwards, D-Waco, quoted in the Waco Tribune-Herald: "I've got a lot of people saying anyone who can win in the heart of Bush Country should run statewide for Senate or something, but... I have no interest in running statewide."

Rep. Craig Eiland, D-Galveston, commenting in the Houston Chronicle after that paper reported on Texas Workforce Commission contracts given to people connected with former Mississippians Larry Temple, TWC's director, and Gregg Phillips, a former deputy commissioner at HHSC: "All their friends seem to be from Mississippi. At least they could get some friends here in Texas."

James LeBas, who quit his job as the state's chief revenue estimator two weeks before the new estimates of state income were to be announced, in the San Antonio Express-News: "I just found a job that I wanted."

Rep. Norma Chavez, D-El Paso, quoted by the Associated Press after getting the first "state official" plates ever issued for a motorcycle: "When I turned 40, I said I was going to get a Harley or a husband. I got a Harley and I still have the Harley."

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Texas Weekly: Volume 21, Issue 28, 10 January 2005. Ross Ramsey, Editor. George Phenix, Publisher. Copyright 2005 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.

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