The Session in a Nutshell

It's usually best to take your medicine fast, in one ugly gulp, like mom used to say. But House leaders, apparently confident they can pass a major tax bill and an ambitious rewriting of the state's school finance system, decided to let both measures sit unprotected over a long weekend.

That gives opponents more time to work on the 150 people who'll vote on the two measures. The House expects to start debate next Tuesday on the school bill, then to work on the tax bill that funds it. Those two bills form the centerpiece of the legislative session. Lawmakers tried to fix school finance two years ago, failed, then came back in special session last spring, and failed again. A state district court has since ruled the current system unconstitutional, and the state's appeals of that ruling now rest in the Texas Supreme Court.

The tax bill, in particular, is open to snipers. A key component — a 1.1 percent tax on payrolls designed to replace the state's broken corporate franchise tax — is similar to a tax denounced by Gov. Rick Perry ten months ago as a "job-killer." Perry's holding his cards close this time, saying legislation is subject to change as it moves about; ironically, the day after the tax was approved by a committee, Site Selection magazine presented him with its Governor's Cup for nailing down more job creation announcements than his counterparts in other states.

In recent history, lawmakers haven't passed tax bills until after they've passed their two-year budgets. But this one isn't intended to fund the budget. It's supposed to be a dollar-for-dollar exchange for cuts in local school property taxes. Democrats have proposed an alternative that puts more money into schools, one of several proposals that will compete with next week's school finance bill. If the plans hold together, the House will send its two major bills to the Senate by mid-month, and the Senate is supposed to send over a state budget by the end of the month.

Pull!

Introducing a tax bill is a little like sponsoring a skeet shoot, and the House now has the role of host. The $10.8 billion tax bill designed to finance most of the school funding bill includes a payroll tax, an increase in sales taxes, a cigarette tax and an extension of the state's levy on telecommunications. Real estate prices would remain secret but would have to be reported to the government agencies that watch appraisals.

The plan, forwarded by Ways & Means Committee Chairman Jim Keffer, R-Eastland, would kill the current franchise tax, lower local school property tax rates to $1, and automatically sweep a portion of growth in state revenues each year to be added to the state's share of public education costs and a corresponding cut in local taxes.

• Businesses would pay a 1.1 percent tax based on payroll, limited to $880 per employee per year. They'd pay quarterly on the first $20,000 of each employee's pay; workers making $80,000 or more each year would cost their employers the maximum amount, while those making less would cost less. For instance, a company would pay $275 in tax each year for a $25,000-per-year worker, or 1.1 percent of their gross pay. All companies with employees would pay the tax, except for nonprofits. The current franchise tax would go away, and the net effect would be an increase of $1.62 billion in what the state collects directly in business taxes each year.

Insurance companies would pay the new revised franchise tax, but could deduct their premium taxes first. Doctors and other Medicare and Medicaid providers would get a health care credit against the new tax. And it's strictly an employer tax; though they could figure in the costs when they're setting salaries and wages, businesses wouldn't be allowed to deduct it from employee pay. Businesses that don't pay would lose their privilege to do business in Texas; they couldn't sue, and their directors and officers would become personally liable for any debts or liabilities incurred by the companies.

• Sales taxes would increase to 7.2 percent from 6.25 percent, and would be broadened to include bottled water, vehicle repair services, car washes and billboard advertising. The rate change would bring in $2 billion; repairs are worth $252.3 million; bottled water taxes would produce $66.9 million; car washes and billboard ads each would produce $26.5 million in revenue. The drafters left out a sales tax on newspapers that would bring in $25.3 million; they plan to add that when the bill gets to the full House. A historical note: Those five new sales tax items have been components of explosively unpopular tax bills in the past.

• The tax on car and truck sales would increase to 7.35 percent from 6.25 percent, and that rate would be applied to an average sales price set by the state unless the buyer could provide evidence of the real price. That would bring in $391.6 million each year.

• Sales taxes on boats and motorboats would also increase to 7.35 percent from 6.25 percent. It brings in $6.6 million a year.

• The state would add $1 to its 41-cent tax on each pack of cigarettes sold. Taxes on cigars would go up 344 percent (not a typo — it's the same percentage increase as the cigarette tax), and the state would increase the tax on other tobacco products to 40 percent from 35.213 percent now. Together, they'd bring in $648.6 million annually.

• The telecommunications infrastructure fund (called TIF), originally set up to wire schools and libraries and such — and to expire after ten years — would have its life extended for two more years and the money would go to the general fund. The tax was supposed to expire after it raised $1.5 billion for its original purpose, but it's easier for lawmakers to extend an existing tax than to create a new one. That's worth $137.5 million a year.

Keffer's bill would also lower the rollback rate for cities and counties and other government entities — other than school districts — that depend on property taxes. The idea, apparently, is to keep increasing taxes from those governments from negating the cuts being made in school property taxes. It would require the state comptroller to take 15 percent of the growth in non-earmarked state revenue each year and send it to school districts to buy down their property tax rates. That would continue until the rates are pushed down to 75 cents in each district. If you hear somebody saying the House wants to cut school property taxes in half (eventually), this is the provision they're talking about.

To help keep appraisals in line with reality, the bill would require Texans to report the prices they pay for real estate; sales prices would have to be filed with county appraisal districts within a few days of each sale. Tax wonks say those disclosures will bring in $87 million annually. But unlike price disclosures in other states, the documents would be secret — not available for public inspection. In fact, the bill makes it a class B misdemeanor to show the disclosure forms to unauthorized persons. That's tougher than the penalty for not reporting in the first place; lying on the forms would be a crime, but people who don't file the disclosures aren't open to criminal penalties. Appraisers can get courts to order compliance, but can't call in prosecutors.

Message Massage

Texas Realtors are replacing radio ads blasting new state taxes with radio ads supporting the House's new tax bill, but the old ad ran for at least a day-and-a-half after the new bill was out.

Lawmakers' conversations about real estate transfer taxes — basically a sales tax on homes and other properties — set them off. But no such tax made it into a House committee's bill, and with House leadership trying to build support in the lobby and in the House itself for the legislation, the ads stuck out.

The Realtors say they weren't really hitting hard, but one line jumps out of the ad because it echoes the "not net tax increase" line issuing from the Capitol: "Some ideas claim to lower property taxes, but they just swap old ones for new ones. Sure, they're called something else, but homeowners are still on the hook. And these plans to further tax real estate drag down the economy, eliminate jobs, and prevent thousands of Texas families from realizing their dream of homeownership."

The target, apparently, was the idea of paying for cuts in property taxes with a tax package including fees on real estate transfers. The new tax bill still raises some taxes to lower others, but a spokesman for the Realtors says they support that one. They're trying to drive traffic to a website showing off their viewpoint. It's at www.truthabouttexastaxes.com. They're more explicit there, with a section called bad ideas that lists both the transfer tax and extending the state sales tax to services like those offered by real estate agents.

The new ads, which should be in place as lawmakers head home for the weekend to talk to constituents about the tax and public ed bills, take a whole new tack: "Truth is property owners have been paying more than their fair share for far too long. Texas Legislators now have a plan to fix this problem. House Bill 3 cuts school property taxes by one-third. That’s not only good news for property owners—it also means great things for the state’s economy. This property-tax decrease attracts business to Texas, creates more than 28,000 new jobs, and increases personal income in the state by one-point-five billion dollars. So your property tax goes down, more Texans can afford homes, and the economy gets a big boost. That’s the truth about Texas Taxes." The ad doesn't mention any of the specific taxes in the new bill.

Roadmap to the House

In a party-line vote that followed a fulsome attack from administrators, school board members, teachers and others, the House's public education committee sent its school finance bill to the full House for a look next week.

Before voting on Rep. Kent Grusendorf's education and finance package, they changed a provision that limited wealthy districts' contributions to the state finance system, but only slightly, phasing in something that had been planned for immediate effect. Other provisions of the Arlington Republican's bill were left pretty much intact. Even so, the committee members had to vote without seeing a fiscal note toting up the costs of the legislation, or a "printout" detailing the effect the bill would have on each of the state's 1100-some-odd school districts. They had a printout in hand, but quickly decided the numbers were buggy. Grusendorf asked his committee to disregard it and not to pass it on to others. He's got the Legislative Budget Board staff working up a new version.

Under current law, some districts get more money from the state to make up for their smaller local tax bases. Districts with bigger tax bases have to send money to the state. The idea is that kids in public schools get similar amounts regardless of where they live.

In Grusendorf's original bill, the amount of money "recaptured" from those wealthy districts — Highland Park ISD has become the poster child — would have been capped. Where they now share from all of the money they raise from local taxes, he proposed having them share only from the first 35 percent of what they collected from local taxpayers, allowing them to keep the rest. Rep. Dan Branch, R-Dallas, who represents that district, argues that it's not fair to share from 100 percent of the local pool, and championed that provision. Doing that would leave a lot more money in the hands of around two dozen school districts, but also would increase the distance between the amounts of local money available to students there as opposed to what's available to students elsewhere in the state. The local example: Money to the Dallas ISD would have increased 3 percent while Highland Park's take would increase more than 40 percent.

The fix: Highland Park will still get the money, but it'll be phased in over four years instead of changing right away. The Democrats on the panel weren't appeased, and all three voted against that change, then alone against four Republicans in favor of a change to kill the 35 percent provision, and finally, against the bill itself.

Chin Music

If Rep. Kent Grusendorf, R-Arlington, were up to bat, the education establishment would be on the mound throwing baseballs at his head.

What he calls the "most equitable school finance bill" in recent state history, they say "jeopardizes the education of our children in the name of tax relief." He sees the state trying to add $3 billion to public education spending; they see the state ignoring testimony in a school finance lawsuit from its own experts, who said it would cost almost $5 billion to reach a minimal standard for an "adequate" education.

As a general rule, the educators think they'll do better in the courts than in the Legislature if House Bill 2 is the standard. "HB 2 in its present form is the worst thing to happen to Texas school children since chicken pox," said John Cole, the president of the Texas Federation of Teachers.

Others were running their engines at a lower temperature, but moving in that same direction. The opposition of the Coalition to Invest in Texas Public Schools — an umbrella group made up mainly of various education associations — is interesting because of the membership. That organization and its allies include trade groups for school boards, for administrators, community schools, rural schools, the state's four biggest teacher groups, the PTA, and principals. As Grusendorf was readying his public education panel for a vote on the school finance bill, they were blasting it as a flawed and failed effort.

Their main attack: It's not a long-term solution, and it doesn't restore cuts made to education two years ago when the state's budget was running red and lawmakers were determined not to raise taxes. What new money is in the bill would be used, in part, to meet new state requirements, they say. And the $1,000 stipends for school employees, reduced two years ago, aren't fully restored. What restorations are made would come in part from the new $3 billion in the bill, the educators say. The gap between the richest and poorest districts would widen, partly because taxes that pay for "local enrichment" wouldn't be shared between districts, creating some distance between the amount spent per student in poor and rich areas of the state.

Dawson Orr, the superintendent at Wichita Falls ISD, said HB 2 is more about property tax relief than education — that's his quote up there in the first paragraph — and said the bill doesn't satisfy the principles his group laid out last year: providing adequate funding to all districts, equalizing funding for at least 90 percent of schools, building in funding capacity for growth, "respecting" local control, and providing for facilities. "If the Legislature is willing to raise $11 billion for local property tax relief, surely it can raise more than $1.5 billion for public education," he said.

In spite of their opposition, Grusendorf's committee voted to send the bill to the full House, where it's expected to come up for debate next week.

Plan B

Texas Democrats trying to fix school finance say they'd spend the same amount of money as their Republican colleagues in the House, but they wouldn't spend it the same way. That gives them the same bottom line, more or less, at $14.1 billion, and it answers critics who said the Democrats should offer a plan of their own instead of whining about management's plans.

But while the totals are the same, the details are significantly different. They'd give a bigger tax break to homeowners and divert $2.2 billion from business tax breaks to teacher salaries and other education spending. The Democrats claimed that owners of average homes in 135 of the state's 150 House districts would see lower school property tax bills under their plan than under one offered by Rep. Kent Grusendorf, R-Arlington, and passed by his Public Education Committee this week.

That bill would cut local school property taxes from a high of $1.50 to a high of $1, a cut that would apply to business and residential property owners alike. The Democrats would cut those taxes to $1.25, but would triple the homestead exemption to $45,000. Businesses would share in the lower tax rate, but wouldn't get the exemption. Put another way, Republicans would give business property owners twice as big a tax break. But the Democrats would give a bigger break to most homeowners, and would have $2.2 billion left over for new education spending, all without raising any new taxes the Republicans in House leadership weren't already planning to raise.

There's some artful terminology involved here. House Speaker Tom Craddick and other House leaders have said over and over that they won't support a net tax increase. Another way to say that: Every dollar raised in new state taxes would be used to lower local or state taxes by a dollar. They want to spend $3.2 billion in new money on public education (not including what they're spending to keep up with enrollment growth), but hope to raise that money with cuts, efficiencies, better use of federal matching programs, and other budgeting measures.

The Democrats' plan would use the same pot of money, but wouldn't use each new tax dollar to lower local property taxes. Most would go there, but that $2.2 billion freed by replacing lower tax rates with higher homestead exemptions would become new education spending. They'd also use the $3.2 billion Grusendorf is counting, but in different ways. The big-ticket items: $2.5 billion to bring Texas teacher salaries to the national average; $650 million to reinstate a health insurance stipend for school employees; $600 million for technology and textbooks; $1.3 billion to fund compensatory and bilingual education programs; and new spending on school facilities, transportation, and other programs. The Democrats wouldn't change current formulas for distributing funds, but claim the influx of new money would bring "virtually 100 percent" of the state's students into so-called "equalized districts."

The Democrats offered a chart comparing the effect of their plan on the average-priced home in each legislative district to the effect the Grusendorf plan would have on those same average homes. In all but 15 districts, they said, their plan is better for homeowners. The break point is around $165,000. Homes worth more than that would get a bigger tax break from HB 2, Grusendorf's bill, than from the Democratic alternative. Below that, they'd do better with the alternative. And in all but 15 districts, the average home is worth less than $165,000. Nine are in and around Dallas. Three are in and around Houston, two are in Austin, and one's in San Antonio. You can download the Democrats' chart by clicking here.

Campaign Finance Corner

Our quick take on the campaign finance trial currently underway at the Travis County Courthouse goes something like this. Plaintiff lawyer: Legislator-turned-political consultant Bill Ceverha was at the center of an illegally coordinated, illegally funded effort to elect a Republican majority and then a Republican Speaker to the Texas House. Defense lawyer: Legislator-turned-political consultant Bill Ceverha was a bit player in Texans for a Republican Majority, a political action committee that did nothing wrong in its efforts to upend the Democratic majority in the Texas House.

The lawyers for five Democrats who lost in the 2002 elections to TRMPAC-backed Republicans contend the PAC used corporate money illegally, for more than administrative expenses. Ceverha's team says the corporate money wasn't used in particular races and so was used legally even when it went to pay for polling and phone banks and other political chores not directly linked to particular candidates. There are thousands of details, but that's the gist. And the import? It's the first court test of some of the ideas and legal arguments that are sure to surface if and when three other Republican consultants and possibly some corporate donors go to trial on criminal charges handed up by Travis County grand jurors last September.

• We noted last week that House Speaker Tom Craddick was subpoenaed to appear in Ceverha's trial. It turned out he wasn't critical to the deal, and the plaintiffs dropped their request to make him appear. A couple of witnesses testified without entering the courthouse at all, instead getting their version of events into the court record via videotaped depositions edited by the legal teams on either side.

• Meanwhile, Houston lawyer Andy Taylor was hired by Ceverha's boss and six other prominent Texas political financiers to work on revising the state's campaign finance laws to make them more clear. He said he'll be working on a variety of changes, but pointed specifically to laws governing the use of corporate money in campaigns. He said the experts brought forth by the two sides in Ceverha's trial couldn't agree on what the law says. That, according to Taylor, is an indication the law isn't clear enough, and he called the trial "exhibit A" in his case that the state's campaign finance laws are too confusing for the participants. Travis County District Attorney Ronnie Earle responded that the law governing corporate and union contributions has been clear "for roughly 100 years," and said Taylor's call for clarity "should be viewed with alarm by every Texan who is not one of Mr. Taylor's seven." Those seven backers, according to Taylor: oilman Louis Beecherl, whose political advisor is Ceverha, banker Charles McMann, real estate broker Vance Miller, developer Walter Mischer, homebuilder Bob Perry (lately the most prolific giver in Texas politics), real estate developer Michael Stevens, and oilman Fred Zeidman. Texans for Public Justice, a campaign finance reform group, said the seven contributed $5.5 million to candidates in Texas during the last election cycle.

• A new campaign finance bill would limit contributions from any one person to $100,000 per election cycle. That would have affected about 114 contributors during the last cycle, according to the sponsors, Democratic Reps. Mike Villarreal of San Antonio and Mark Strama of Austin. Fifteen of those gave more than $500,000. Lt. Gov. David Dewhurst said the limit on overall gifts might not fly: "That probably wouldn't be constitutional. The Supreme Court has ruled that's free speech."

Another Day, Another List

Republican consultant John Doner, who cranked out a list of the top 500 political action committees here a couple of weeks ago, has now unveiled a list of 500 political campaigns ranked by contributions.

The new list is topped by Gov. Rick Perry, whose sack-dragging produced $11.4 million in contributions during the two years that ended at the end of 2004. Lt. Gov. David Dewhurst was second on the list, bringing in $9.6 million. Those were among the eleven campaign committees that brought in more than $1 million during those two years. The rest: Carole Keeton Strayhorn, $6 million; Tony Sanchez, $4.6 million; Greg Abbott, $4 million; Tom Craddick, $2.9 million; Susan Combs, $2 million; Kevin Eltife, $1.7 million; Victor Carrillo, $1.6 million; Paul Sadler, $1.6 million; and Patrick Rose, $1.1 million.

The listings don't cover loans taken out by candidates, and so don't reflect the full amounts some of them had on hand to spend for their elections (those who had elections, that is).

The campaign list is at www.texasweekly.com/documents/Top500Campaigns.pdf.

And if you missed it the first time around, the list of the biggest PACs (also ranked by revenues) is at www.texasweekly.com/documents/Top500GPACs.pdf

Picking Teams

State officials can't raise money during a legislative session, but they can solicit other kinds of support.

In his continuing effort to show fellow Republicans that resistance is futile, Gov. Rick Perry announced a statewide steering committee for his 2006 reelection campaign that includes more than 450 people, including some named earlier as part of his state finance committee and another campaign effort announced earlier in the year.

Perry is so far the only Republican who has announced he'll run. U.S. Sen. Kay Bailey Hutchison and Comptroller Carole Keeton Strayhorn are openly considering gubernatorial campaigns. Independent Kinky Friedman announced he'll run, and Democrat Chris Bell of Houston formed a formal exploratory committee while he considers a run against Perry.

Perry's list includes about half the members of the State Republican Executive Committee, the 62-member advisory board of the state GOP and seven of the nine non-judicial statewide elected officials; he didn't list himself, and Strayhorn's not on it. Elizabeth Ames Jones, the San Antonio Republican who left the Texas House to accept Perry's appointment to the Texas Railroad Commission, is on the list. She was sworn in two days after the list came out.

The curious can download a copy of the list —five pages long, two columns wide — by clicking here.

Sam's Friends Sell Out

The fundraising dinner for the Sam Attlesey journalism scholarship at the University of Texas is sold out, and the organizers are trying to steer people to donating to the fund itself.

The scholarships were created to memorialize Attlesey, the late political reporter for The Dallas Morning News. The fundraiser should bring the balance in that account to more than $160,000, and they're trying to push that into the $175,000 range. The scholarships are for journalism students who've shown strong interests in covering politics and public policy. There's more information online at this University of Texas at Austin website.

Political People and Their Moves

After four years, Ann Quirk is leaving Comptroller Carole Keeton Strayhorn for greener-pastures-to-be-detailed-later. Strayhorn, who is considering a run against Gov. Rick Perry, will have to run those waters without one of the most experienced political hands in her shop. Quirk is well-known around the Pink Building and in Republican circles, having worked for several legislators and on a zillion campaigns, both in San Antonio, where she started, and statewide.

Texas Railroad Commissioner Elizabeth Ames Jones, sworn in officially several days ago in a move that filled the RRC spot and formally ended her hold on her spot in the Texas House, has now been sworn in ceremonially. Gov. Rick Perry did the honors after former San Antonio Spurs center David Robinson did the invocation.

ERCOT General Counsel Margaret Pemberton resigned but plans to stick around for a month to give the agency time to hire a replacement. She's been at the agency for eight years.

James Jonas III has signed on with the San Antonio office of Holland & Knight, a dinky little law firm with 1,250 lawyers in 26 offices around the country. He left former congressman Tom Loeffler's firm last year (Jonas was a name partner there), saying he wanted to be closer to a family business founded by his later father-in-law. He'll work on regulatory and legislative issues in San Antonio, Austin and Washington, D.C.

Three lobbyists with ties to the state's top three officeholders are joining up for some but not all of their clients. Walter Fisher, Bill Messer, and Mike Toomey are working together for the Texas Association of Realtors and SBC. Fisher's the former Senate parliamentarian, close to Lt. Gov. David Dewhurst. Messer is close to former House colleague turned Speaker Tom Craddick, and Toomey was Gov. Rick Perry's chief of staff until last year.

Quotes of the Week

House Public Education Chairman Kent Grusendorf, R-Arlington, telling a committee witness that the $3 billion in new money in his bill is the best deal available: "Would you rather take $3 billion up front, or take table scraps at the end of the session? Is $3 billion better than zero?"

Scott McCown, the director of the Center for Public Policy Priorities and, in his previous job, a state district judge who decided several school finance cases, on the latest fix offered by House leaders: "Just as there is no such thing as 'separate but equal,' there is no such thing as 'unequal but adequate.'"

U.S. House Majority Leader Tom DeLay, reacting in the Houston Chronicle to questions about the campaign finance trial in Austin: "That's a group of losers that are trying to get rich quick and using the Texas legal system for their own political purposes. They have decided to use the court system to override the will of the people of Texas."

Houston Democrat Chris Bell, known for hitting U.S. House Majority Leader Tom DeLay with ethics charges, speaking at a stop in his exploratory run for governor: "Some people have called me a 'reform candidate.' I guess I can't blame them. You file one little ethics complaint, and suddenly you have a reputation."

Luis Saenz, campaign manager for Gov. Rick Perry, reacting to reports that Chad Wilbanks, a campaign consultant to U.S. Sen. Kay Bailey Hutchison, phoned into a Dallas radio program under a different name to promote Hutchison: "We're proud of who we work for and we're willing to admit it."

President George W. Bush, touting his experience: "My six years as governor of Texas have been invaluable to me as I carry out my duties as the presidency."

Sen. Rodney Ellis, D-Houston, after the U.S. Supreme Court ruled unconstitutional the death penalty for juveniles: "For too long, the Texas criminal justice system has tilted toward the hang 'em high mentality. This will take a little of the wild out of the wild, wild West."

David Kaczynski, executive director of New Yorkers Against the Death Penalty, and the brother of Unabomber Ted Kaczynski, quoted by the Associated Press: "When you're talking about life and death, in a sense, you are trying to create a government program that you hope will work flawlessly."

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Texas Weekly: Volume 21, Issue 36, 7 March 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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