The Ides of March

Mention March 2006 to political people in Texas, and you'll trigger a conversation about the top of the ballot. But March 2006 — the month of the primaries and, in particular, the Republican primaries — is on the minds of a fair number of legislators who want to remain in office after this term.

This can be explained with three words: Republicans, redistricting, and revenues. And confine the speculation to the House for a moment, since that's where tax bills gestate. Republican lawmakers, for the most part, ran for office on themes that include limited government, holding costs down, and keeping taxes on short leashes. Redistricting purified the districts, drawing lines for Republicans that limit Democratic influence, and Democrats in districts where Republicans usually can't win. There are some swing districts, but most House districts are safely in the Republican or Democratic column. Incumbents don't face much risk in November 2006. So long as they don't offend their own party's voters, they'll be okay.

Which brings us to revenues. Legislators want to solve the school finance mess and that will require taxes, even for those who don't want to spend more money on education. State money raised by new taxes would replace local money, thus lowering local school property taxes. The state's share of spending increases, local property owners get a break, school finance lawsuits subside, ba-da-bing, ba-da-boom. But it requires lawmakers to pass a tax bill.

In some districts, even really red ones, that's no problem. Rep. Brian McCall, R-Plano, says his constituents are madder about school finance than they'll be about anything that fixes the problem. A tax vote doesn't trouble him. That's true, too, for someone like Dan Branch, R-Dallas. His district includes Highland Park, where voters want Robin Hood roasted on a spit. But in places where voters are Republican and school districts aren't so wealthy, a vote for a tax bill could be harder to defend. Property taxes aren't such a big problem in rural areas, and Robin Hood's beneficiaries outnumber the victims. Lawmakers in those areas need a different justification to excuse an Aye vote on taxes.

This came up during last year's special session, which was fresh on the heels of the special election that put Kevin Eltife, R-Tyler, in the Texas Senate. He beat Rep. Tommy Merritt, R-Longview, in a contest that featured attacks on Merritt for filing a tax bill designed to cut local school property taxes and ease the Robin Hood mess. A group called Americans for Job Security was at the sharp end of that particular spear, and AJS was overseen by Dave Carney, a New Hampshire political consultant who also runs Gov. Rick Perry's campaigns. Merritt passed around copies of the flyers during the special session. Rep. Talmadge Heflin, R-Houston, got beat by a Democrat last year who sent mail to voters reminding them of a Heflin plan to apply the sales tax to groceries. "Who would tax a banana?" it asked. It's easier to attack a tax vote than to explain one, and some members might vote no, believing the crime isn't worth the punishment.

Some House plotters think they can get one real tax vote out of that body; their strategy would be to pass something without many sharp edges to the Senate, which could transform that into the real tax bill for one hard vote in the upper chamber and one hard vote in the lower chamber. In the language of the Pink Building, that would leave members less cut up than a long fight over every single tax in the bill. House Speaker Tom Craddick has said for a couple of weeks that the main tax bill will be structured for a simple majority — 76 votes — instead of a 100-vote supermajority.

If members want more dramatic change, like appraisal caps, statewide property taxes, or slot machines, those can be voted up or down in separate bills.

Objects in Mirror Are Closer Than They Appear

If they hadn't already been looking over their shoulders for possible threats from more conservative Republicans who might challenge them, Texas lawmakers got a reminder from one of the country's leading tax hawks, Grover Norquist, in the mail.

Four Texas senators and 35 members of the House have signed the anti-tax pledge promoted by Norquist's Americans for Tax Reform. It is unambiguous: "I, (name), pledge to the taxpayers of the (#) district of the State of Texas and to all the people of this state, that I will oppose and vote against any and all efforts to increase taxes." Signers on the group's 2005 list include Craddick, Ways & Means Chairman Jim Keffer, R-Eastland, and Public Education Committee Chairman Kent Grusendorf, R-Arlington (There's a full list at www.atr.org). Keffer's committee does taxes; Grusendorf is steering the school finance legislation. Craddick and others have been careful to say the school finance bill will be tax neutral — that tax cuts will exactly match tax increases — and that would appear to satisfy the pledge.

Norquist sent letters to some Texas lawmakers, urging caution. He's supportive of the idea of cutting local property taxes, and in fact, met with Gov. Rick Perry and some Perry staffers and supporters on a fishing boat in Bermuda last year to talk it over. But he makes the risks clear, too. His letter starts with "I write to urge you to exercise extreme caution as you consider tax shifts to address school finance reform in Texas." He goes on to praise efforts to cover a $10 billion shortfall two years ago without new taxes and said "it would be a shame to throw away all you have accomplished by opening the floodgates of taxes and spending now."

He's critical of business taxes, tobacco taxes, alcohol taxes and increases in sales taxes, and he's really against any new taxes the state doesn't have now. "In particular, I would caution against replacing the business franchise tax with a new, yet-to-be-named business tax... much better to repeal the franchise tax and replace it with nothing..." he writes. His recommendations: Open a new race track and allow "video poker"; open liquor laws to allow Sunday sales; and sell off some state property.

And he advises lawmakers to kill off big cost drivers in state government. He says Perry wants to let voters decide on a state property tax and he mentions efforts to "define educational adequacy by statute. Such changes would undermine court challenges, and relieve future pressure for tax increases." In his letter, dated earlier this month, he says "Medicaid is bankrupting states across the nation." Perry, a few days later, gave a speech saying essentially the same thing. And Norquist suggests lawmakers work on state employee benefits to cut costs. Specifically, he mentions health savings accounts and defined contribution retirement plans. He closes by offering to "help you find solutions to your budget problems without raising taxes."

Fuzzy Numbers

The fiscal note on the school finance bill says it would cost the state a total of $11.8 billion over the first two years of its life. Read through the seven-page explanation of the bill's finances and you find a peculiarity: It includes about $1.5 billion in net new revenue for school districts, or less than half what was touted by the author, Rep. Kent Grusendorf, R-Arlington.

He says it's a foul-up, partly due to a drafting error in the bill itself, and partly because of the way the Legislative Budget Board staff did their work. When all is patched — maybe next week — it'll include the $11 billion it needs to lower local school property taxes, and it'll include $3.3 billion in new spending.

The Mexican American Legislative Caucus and others attacked the bill for a variety of sins, including that one, saying there is less new money than advertised, and arguing that it's not new money at all — but money to replace cuts made to public education two years ago when the budget was tighter. Some of the new money, for instance, is used to pay stipends to teachers to use for health insurance or whatever else the teachers want to use it for. But that's a replacement of funding that was chopped two years back. MALC's leaders haven't said what they'll support, but say they won't support this version of Grusendorf's bill.

They and others are lighting into other parts of the legislation, saying it increases the spending gap between the richest districts and everyone else, and that it doesn't provide for the "adequate education" called for in law. All schools would get at least a three percent increase in funding, but more than half of the money poured into the system would flow, indirectly, to the richer districts that now redistribute money to poorer districts. Lessening that "recapture" money is a key component of the school finance fix and the efforts to "end Robin Hood."

Grusendorf says the bill goes further to equalize school spending than any previous effort, and says 96 percent of the state's students would be brought under the umbrella of an "equalized system" that levels out funding differences between rich and poor school districts. It does that, in part, by forcing richer districts to pay some money back to the state for distribution to poorer districts. That's the Robin Hood part of the deal, and without a statewide tax, lawmakers say they can't get rid of it.

But to ease the anger in those rich districts, they cap the "recapture" amounts at 35 percent of local revenues; under Grusendorf's bill, districts can't be forced to send the state more than 35 percent of the money they raise from local taxes. That reduces their squealing, but it means a whole lot of money remains in districts like Highland Park in Dallas County. Because HPISD and a few other rich districts have such valuable property, the money they'd be allowed to keep widens the gap between what's available to spend on students there as opposed to what's available everywhere else. Representatives from everywhere else are unhappy about that.

The lawsuit challenging the constitutionality of the school finance system is working through appeals. It has rich and poor districts working together. Some of the education wonks who watch this stuff say that cooperation would disappear in the future if Grusendorf's caps remain in law. The fortunes of rich districts would no longer be so closely tied to the fortunes of poor districts, and they'd have no incentive to challenge a system that gives them an advantage. The 35 percent cap is a key arguing point in the debate.

Grusendorf says the next version will also answer questions about whether school districts in the new system will have "meaningful discretion" over their local taxes. The courts have said the current system forces districts to raise taxes to meet state standards and that the districts don't have "meaningful discretion" over their property taxes. Since state property taxes are unconstitutional in Texas, that lack of discretion makes the system illegal. The current system allows tax rates up to $1.50; the new one would allow up to $1, with the state providing the difference. Lawyers who watch this stuff are wondering why $1 would be constitutional if $1.50 isn't; Grusendorf says he'll have a fix and an explanation soon. Some of the lawyers think a statewide property tax is the only way around that problem, but it would require voter approval for a constitutional amendment. Grusendorf thinks voters would turn it down, and by a wide margin.

Just Don't Call it a Tax Increase

House Speaker Tom Craddick surprised a fair number of people when he said he'd favor tying gasoline taxes to some index of traffic or inflation. Gov. Rick Perry and Lt. Gov. David Dewhurst left the door open, but didn't give the idea the sort of full embrace it got from Craddick. He didn't equivocate: ""I support the indexing. I think if we don't do it, we're not going to be able... to keep up with the inflationary problems we're experiencing with the gas tax. I support it fully."

Dewhurst, asked if he's on board, jumped in with one toe: "We'll take a look at it over here in the Senate." Perry called it "interesting" and said he's willing to consider it.

Rep. Mike Krusee, R-Austin, heads the House's Transportation Committee, and gets a little jumpy when he hears indexing referred to as a tax increase or an automatic tax increase. He compares the tax to sales taxes, which rise and fall with prices of the taxable things you buy. Putting a percentage tax on gasoline wouldn't work, he says, because gas prices are too volatile and the revenue would be unstable. People buy about the same amount of gas when prices move around, however, and tying the tax to the number of gallons sold is more stable. Letting the tax rate move with inflation gives the highway engineers a better idea of how much money they'll have to build roads.

Krusee hasn't decided what link should trigger changes in the tax. He's talking about consumer prices, road use, and construction costs, among other things.

Taxes That Might Have Been

The state could have brought in billions in revenue had it indexed gas taxes back in 1991. The Legislature raised gasoline taxes three times in seven years starting in 1984, but hasn't touched that particular item since 1991. The rate rose to a dime from a nickel in 1984, to 15 cents in 1987, and then to the current 20 cents in 1991. Three-quarters of the tax goes to roads, and the other 25 percent goes to public education. The price is fixed: it's not a percentage of gas prices and it's not tied to anything but statute. No matter what Texaco is getting for a gallon of regular, you pay the state 20 cents. Since that's a fixed price, inflation eats at it; the roadies are correct when they say the gasoline tax doesn't give them the buying power they had 14 years ago.

Some lawmakers — a group that now includes House Speaker Tom Craddick — want to index the gas tax to something that will hold the revenue stream in line with growth of the economy, or gas prices, or traffic. That would tie revenues to needs, one way or the other, and would free legislators from voting for politically troublesome tax increases whenever they decide to catch up with inflation.

We decided to see what might have happened if indexing had started with the last increase in gas taxes.

In 2004, according to "Pocket Facts" from the Texas Department of Transportation, people traveled 591,433,779 vehicle miles every day, on average, on all roads in Texas. We and our driving visitors drove 442,211,318 miles on state roads, a subset that includes everything that's not a city or county road. (They get the so-called "annual average daily vehicle miles traveled" by constantly sampling traffic counts all over the state. Think of TXDOT when you run over those black air hoses stretched across the lane.) In 1991, the equivalent vehicle mile numbers were 434,923,912 and 297,959,407. Had the 20-cent gasoline tax been tied to traffic on all roads, you'd be paying 8.3 cents more per gallon. Pegging it solely to state roads would have added 7.2 cents to the gallon price by now.

Tying the number to gasoline prices would have made the tax volatile, like gasoline prices themselves. But state income would have risen. According to the U.S. Bureau of Labor Statistics — the keepers of consumer price numbers — the average gallon of gasoline in Dallas-Fort Worth was $1.17 in 1991, when the tax rate was set at 20 cents. In percentage terms, the state was taxing gasoline then at a rate of 17.1 percent, on average. In 2004, the average price per gallon was $1.81. Had the state tax been pegged to gas prices, Texas would have received about 31 cents per gallon sold last year instead of 20.

Another way to do this is to tie the tax to the prices of other consumer goods. It's not legal to index a Texas tax to the official Consumer Price Index, but the state could concoct a similar index of its own to make the proposition a legal one. Just for argument's sake, we'll break the law and use the CPI. It rose steadily from 1991 to 2004 — $1 then had the buying power of $1.39 today. Tied to the CPI, the gasoline tax would be 27.8 cents today instead of 20 cents.

What would that have meant, in real money? Gasoline and diesel taxes are supposed to bring in $2.99 billion this year. Depending on which of the numbers you use, an index created in 1991 would have added $813 million to $924.9 million more this year, rising and falling with prices or traffic. That's not counting the money that would have come in during 2003, and 2002, and 2001, and so on. Also not factored in, and we haven't heard good numbers from anyone on it: What economic effect those higher transportation costs might have had.

The indexing advocates aren't necessarily calling for increases in the current gasoline tax — some want to tie it to an index and let the index handle the rate changes. Others are talking about bringing the rate in line with inflation now, and indexing future increases to avoid similar battles later.

The Smoking Lamp is On

Adding a buck to the price of a pack of cigarettes has been, for some time, the easiest tax the Legislature wouldn't pass. It's politically safe, since the taxpayers get to choose whether to partake, and it raises a reasonably large amount of money. Two years ago, with budget problems before them, lawmakers took a pass on that and every other tax idea that came in.

Now, with school finance on the front burner and the conditions set for a tax bill, the battle is on again. The industry wants lawmakers to phase in any new tax. They say the differences in prices between Texas and some of its neighbors — they point mainly at Mexico — are too big for smugglers to ignore. The Internet, they say, is another potential source of tobacco fraud, since people here can buy from out-of-state vendors who don't add the state's taxes when they ship (that's against the law, but so is smuggling). And they say, quietly, that the state's tobacco settlement, which is based partly on sales figures, could run short of breath. We haven't seen anyone put numbers to that, but if a new source of money threatens an existing source, the budgeteers would want to know about it.

Phillip Morris USA, which wants the state to slow down, says the average price of a pack of cigarettes would jump to $4.87 with a $1 tax increase, or about $3.37 more than the same pack of smokes in Mexico. That company says the price shock would lead to a drop in sales. As long as people aren't smuggling, state officials don't seem to have a problem with a drop in smoking, but the tobacco companies say people will buy cigarettes across the nearest state border. Texas taxes smokes at 41 cents per pack now, $1.41 if the buck is added on. New Mexico charges 91 cents, Oklahoma's tax is $1.03, Arkansas' is 59 cents, and Louisiana adds 36 cents to each pack. Mexico is the cheapest source, but the longest of the state's borders is also the only one with U.S. Customs agents on it.

Advocates for the tax come from different angles. Politics: It's an easy tax to pass, even for a Republican, and it lowers the amount of tax revenue that has to be raised from other, less palatable, sources. Economic/health: Smoking drops as prices increase. The amount that would be raised by a cigarette tax drops every year, as smoking drops. Advocates from groups like Texans Investing in Healthy Families — an outfit comprised of several other groups — say a $1 tax would raise about $800 million the first year it's in place.

Tomorrow Never Knows

The directors of the Texas Tomorrow Funds decided to freeze sales for the state's prepaid college tuition program for the second year in a row. They don't have a steady bead on what future tuition will cost at state colleges and universities in the wake of tuition deregulation approved by the Legislature two years ago. Without a predictable target to aim at, they're wary of selling new contracts.

Holders of existing contracts count themselves lucky: The constitutional guarantee approved by voters a few years ago means those contracts will cover tuition and fees no matter how much costs rise between now and whenever the kids on the contracts go to school.

What's good news for those folks is bad news for state budgeteers, however. Actuaries hired by TTF say the state's liability on those contracts — the difference between the costs of college on one hand and the value of the investments on the other — is $222.8 million. That's a little less than a year ago. Investments did better over the last 12 months than the number-crunchers had expected, and the numbers improved by about $13.2 million. And the program's unfunded liability isn't all due right away; the state doesn't have to fill the gaps until they arise — when each contract holder starts college and begins to draw from their account.

The Tomorrow Funds — a satellite of the state comptroller's office that has its own independent board — also runs a "529" investment plan that allows Texans to invest tax-free in college expenses. That's still open for new customers. The prepaid plan could eventually reopen, but might be less attractive when it does: The costs of contracts were rising steadily each year even before tuition deregulation; locking in future rates will be a more expensive proposition than it used to be.

Just Interested in Good Government

Sixteen Texas PACs each hauled in more than $1 million over the last two years. Texas Realtors ran the biggest political action committee in Texas during the last two-year election cycle, according to John Doner & Associates. That political consulting firm compiled a list of the top 500 "general purpose committees" during the 2003-04 cycle, mashed the numbers and ranked them by how much money they raised. Sixteen PACs raised $1 million or more; four broke the $2 million barrier, and two broke $3 million.

The million-dollar club: Texas Association of Realtors PAC, $3.5 million; Texans for Lawsuit Reform PAC, 3.4 million; Texas Medical Association PAC, $2.2 million; Union Pacific Corp. Fund for Effective Government, $2.1 million; Texans for Insurance Reform, $1.9 million; Republican Party of Texas, $1.7 million; Texas Trial Lawyers Association PAC, $1.5 million; Valero Refining & Marketing PAC, $1.5 million; Compass Bancshares Inc. PAC, $1.4 million; Associated Republicans of Texas Campaign Fund, $1.4 million; Burlington Northern Santa Fe Corp. RAILPAC, $1.2 million; SBC Texas Employee PAC, $1.2 million; United Services Automobile Association Group - State, $1.2 million; Texas Democratic Party, $1.1 million; Stars Over Texas PAC, $1.1 million; and Vinson & Elkins Texas PAC, $1 million.

The entire list of 500 is available on our website at this address: www.texasweekly.com/documents/ Top500GPACs.pdf.

Political People and Their Moves

The Frost Factor? Former U.S. Rep. Martin Frost, D-Dallas, will be a commentator for Fox News. After losing to Republican U.S. Rep. Pete Sessions in November, Frost ran for Democratic Party chair, a contest eventually won by Howard Dean.

Gov. Rick Perry named Mauricio "Reece" Rondon of Bellaire to the bench; he'll wear the black robes in the 234th district court in Harris County. Rondon is a lawyer with Andrews Kurth and a former judge in the 334th district court. Perry appointed him to that one, too, back in October 2003, but Rondon lost a squeaker in the GOP primary against Sharon McCally, who's now the judge in 334. He'll have to run for this seat, but not until next year...

Perry appointed Austin investor James Coley Cowden Sr. to the Texas State Cemetery Committee. He used to be on the Texas Commission on Alcohol and Drug Abuse...

And the Guv named David Allex of Harlingen to the Cameron County Regional Mobility Authority. He's a partner with Allex and Associates International, a commercial real estate firm, and was chairman of the Harlingen Chamber of Commerce for 30 years.

We misspelled Geoff Connor's name in this space last week. Sorry, sorry, sorry.

Deaths: Mae Jackson, a former president of the Texas Democratic Women and political activist who was elected mayor of Waco last year, the first black woman to serve in that position. She was 63.

Quotes of the Week

Gov. Rick Perry, quoted in the Fort Worth Star-Telegram: "I'm committed to ending Robin Hood. America is committed to peace and harmony. But it may take awhile to get there."

Rep. Pat Haggerty, R-El Paso, saying the new money in Grusendorf's bill isn't new: "When the funding cuts of 2003 are taken into account, public education gets $398 million less under the provisions of House Bill 2... Actually, they're putting back what they took out last time."

Rep. Kent Grusendorf, R-Arlington, quoted in the San Antonio Express-News about opposition to his school finance bill from people who think it adds too little to spending: "If they want to kill House Bill 2, then the state can save that $3 billion. There's a choice. They can either have no new money, or they can have $3 billion (in) new money. But they're not going to get $6 billion (in) new money. It's not going to happen."

Sen. Kel Seliger, R-Amarillo, quoted in the Midland Reporter-Telegram: "The only tax that's off the table is the tax on strip joints, and the only reason that's not on the table is because we're too embarrassed to talk about it."

Gov. Rick Perry, asked by the Houston Chronicle whether he supports legislation that would make slot machines legal at Texas race tracks: "I really hate getting into the position of telling you what I would sign or what I would let become law without my signature or what I would veto, without actually seeing it on my desk."

El Paso Probate Judge Max Higgs, quoted in the El Paso Times from legislative testimony on problems at Adult Protective Services: "This is an agency which has seen its mission as one of going out and documenting human misery and then putting that report into the computer and waiting until the next phone call so that they can go out and document more human misery."

Don Toner of the Texas Department of Transportation, in an Austin American-Statesman story that noted differences of as much as 71 percent in what the state paid landowners for properties along Texas 130: "Are property owners upset? Isn't everybody upset when they have to sell their land? When they think it's worth more? When they planted the tree? When they built the fence?"

Judith Miller, a reporter for The New York Times who decided not to write about the identify of a covert CIA operative but who was ordered by a federal appeals court to reveal her sources, in a partially redacted ruling opinion partly on secret evidence she and her lawyers weren't allowed to see: "I risk going to jail for a story I didn't write, for reasons a court won't explain."

Comptroller Carole Keeton Strayhorn, quoted in The Dallas Morning News after the Texas Tomorrow Fund decided for the second year not to sell contracts for prepaid college tuition: "As long as we have this wild fluctuation coming from the deregulation of tuition, our first priority is to make sure the program remains solvent. If we ever get tuition stabilized, then perhaps the fund can be reopened."

Lt. Gov. David Dewhurst, who traded Austin for Amarillo to compete in the National Cutting Horse Association World Finals, on his reasoning: "When you earn $20 a day, you've got to do something to earn a buck."

Overton Police Chief Edward Williams, telling The New York Times he keeps an eye on the Republic of Texas group there: "However ludicrous their beliefs might sound to you and me, we can't forget that Jim Jones got a bunch of folks to drink Kool-Aid with him down in Guyana. You could shave one side of your head and have a loyal following around here by nightfall."

---

Texas Weekly: Volume 21, Issue 34, 21 February 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.

---