Perry: It'll Hurt More if You Put it Off

Now that he's called a special session on school finance for April 17, Gov. Rick Perry has to sell lawmakers on the idea of raising state taxes to lower local property taxes while not putting new money into education. It's a swap, see, and not an increase in taxes.

He has to get Lt. Gov. David Dewhurst and House Speaker Tom Craddick on the same page for the first time on the issue. More on that in a moment.

That's not all: He has to do that while lawmakers eye a burgeoning budget surplus that could defer school finance until next year — a "fast train out of town" that could give them temporary relief during a confusing and unstable election year.

School finance and a new business tax provide the centerpiece for Perry's speeches of late. The tax reform commission he set up — headed by state comptroller-turned-tax consultant John Sharp — has put together a new business tax that'll be publicly unveiled next week. A public hearing will follow that, and Perry will have lawmakers over to the Mansion to try to sell them on his plan as the session begins.

The surplus is a big obstacle, as we pointed out last week. Perry and Sharp and their wonks are pushing the notion that it will never be easier — as a matter of legislative and electoral politics — to get a new business tax in place. The Texas Supreme Court set a June 1 deadline for a fix to the current school finance system: In short, they directed the state to put more money into public education to take some of the financial pressure off of local school districts.

The Perry-Sharp proposal — already agreed to by the 24-member tax panel but not yet detailed for the public or for most lawmakers — would raise around $6 billion that would be used to replace the current corporate franchise tax and to reduce local school property taxes by 50 cents.

Doing it now would let Perry — and lawmakers, too — run for election on the boast they lowered property taxes significantly and that they solved school finance before the courts stepped in. The wallet argument could be popular with homeowners and with businesses that own taxable property — school taxes on a $150,000 house would drop $750 a year. The risk is that the businesses paying a new tax would be angry about the levy and about the neutrality of it: Their taxes would go up, but schools wouldn't get any more money and the proposal means a net shift of tax burdens to businesses and away from homeowners.

Most businesses don't pay taxes now and most wouldn't under the proposal — sole proprietors and businesses with revenues under $300,000 a year would be exempted. But substantial businesses that don't pay the current franchise tax — from big manufacturers to newspapers to law firms to you-name-it — would be added to the rolls. They'd pay a one percent tax on their gross receipts minus their choice of cost of goods sold or employee pay (retailers and wholesalers would pay 1/2 of one percent). Some lawyers and law firms complain that amounts to a personal income tax, but their firms would pay it whether they had any income in a given year or not (the Texas Trial Lawyers Association endorsed the tax).

It's complex, and so are the patterns of support and opposition. And there's that surplus, now at $4.3 billion and expected to grow by $2 billion or more when the comptroller makes an official estimate before the session. Lawmakers could use that one-time money to buy down local property taxes now, got out and get reelected, and then come back in January to try to cobble together a permanent fix.

That's not as clean an escape as it seems.

A tax bill enacted this spring wouldn't hit full steam for almost a year. The new tax on businesses would give them time to adjust and would come due in May 2008. In the meantime, some of the surplus and taxes that come in faster — like a proposed $1 additional tax on smokes — would cover the cost of lower school taxes between now and then.

If lawmakers use the surplus now and do the tax bill in January, they'll have to figure out how to cover the bills while the tax is gathering steam. The surplus will cover costs between now and January, but the Legislature would have to either rush businesses into a new tax next year or find another pot of money to bridge the gap. Voters eyes glaze over at these sorts of explanations, but there's the risk that they'll tag lawmakers later for what will look more like a tax hike to cover a deficit than the tax swap Perry is proposing.

All Together Now

If you listen to Gov. Rick Perry, you'll hear a pitch for a new business tax that would raise enough money to replace the current franchise tax and lower local school property taxes by 50 cents. That would, in the Guv's view, make the courts happy. He says he'll keep the "call" — the legal agenda for the special session — narrow, to avoid distracting fights over education reform and other issues.

He says the notion of skipping the new tax and using the state's current surplus — a balance of $4.3 billion, with an asterisk — would be irresponsible. It would forfeit a "rare chance" to fix the state's busted business taxes and it would set the stage for a tax bill next year, when legislators convene for their regular biennial session. And it would only pay for a 20 percent property tax cut, while the proposed tax swap would cut property taxes 33 percent. A carrot: Perry says he's willing to let lawmakers tackle education reform: "... if the speaker and the lieutenant governor can bring me a school reform bill that both chambers agree on, I will gladly add it to the call once the tax issue is resolved."

If you listen to Lt. Gov. David Dewhurst, you'll hear a similar pitch for a new business tax — with major and minor differences — and an argument for reforms in public education, with higher standards for students and across-the-board and incentive pay raises for teachers. Dewhurst thinks the education stuff needs a boost from the court-ordered changes to school finance to help it along: "Once the lawsuit is solved, the wind goes out of the sails of a lot of the members of the Legislature. They'll want to go home." He says the Senate will probably pass an education reform bill early in the session, while they're waiting for the House to pass a tax bill (or, in the alternative, to send the Senate an appropriations bill that spends the surplus and skips the tax issue).

He's also against using much of the surplus and walks through the sort of semantic pretzel you can only get in politics or sitcoms. Increasing the business tax now to reduce property taxes is a wash — since one goes up and one goes down, there's no net tax increase. There would still be a budget surplus. If, however, you use the budget surplus to reduce local property taxes and you come back later and raise business taxes to cover the ongoing costs of that property tax break, the business tax then becomes a tax increase that puts everyone in political trouble.

About that asterisk on the surplus. The non-official number-crunchers around Austin are telling us that surging sales and natural gas tax revenues are running up the balances in the state's accounts. Don't be surprised if you hear an announcement from Comptroller Carole Keeton Strayhorn in the next couple of weeks raising that number by up to $2.5 billion. Most estimators have it at about $2 billion, but only one number counts, and that's whatever number the comptroller puts in her official estimate for the upcoming special session.

Dewhurst and Perry both talked to the new Texas Association of Manufacturers (which all but endorsed the not-quite-complete work of the governor's tax reform commission headed by John Sharp). Perry is building a case for the panel's work. Dewhurst gave it a flat reception, saying he understands that it's a gross receipts tax with deductions and that he's willing to look at it.

Democratic gubernatorial candidate Chris Bell actually sounds more receptive to the new business tax than Dewhurst, but he would raise more than is needed for property tax reform so he could give teachers an across-the-board $6,000 raise. That's both a plan and a way to pay for it — he's pre-answering the squawk from Perry's political office — but it's also a tax increase, which gives them something else to squawk about. Like Perry and Dewhurst, Bell thinks using the surplus is a bad idea; he calls it a "fiscal sugar rush."

Strayhorn wants teachers to get a $4,000 across-the-board pay raise and wants teachers at low-performing schools that improve to get $2,500 bonuses. She'd restore the $1,000 stipend given to teachers for healthcare and wants a study of the differences between the retirement fund for state employees and the one for teachers. The state puts up 6.4 percent of pay for the ERS and 6.0 percent for the TRS. Strayhorn wouldn't say what she wants the study to do, but did say she doesn't want the state to lower what it puts into the employee fund. She says all that would cost $1.7 billion annually. She didn't present a new way to pay for it, but referred reporters to go back to her proposals for gambling and other revenues and to look at growth in the state economy — and the state's related tax revenues — for funding.

Less Than Half Full

We don't generally make predictions here, but we'll make this one: If Kinky Friedman and Carole Keeton Strayhorn get enough signatures to get on the ballot, the next governor of Texas will creep into office with less than 50 percent of the vote, and possible with less than 40 percent.

The two independents have until May 12 to get 45,540 signatures each, and Secretary of State Roger Williams has said it will take him as long to validate them as it's taking the candidates to collect them. We'll know what's what by mid-summer or so.

In the meantime, Democrat Chris Bell is doing some positioning work, telling reporters, financiers and opinion leaders that the real race is between him and Republican Rick Perry and that the two independents will finish out of the money. It's similar — to a point — to the thinking of the number folk in Perry's camp. The major party campaigns think both the Republicans and the Democrats will get their base votes and that the fight is over the rest.

Republicans will tell you their base vote is between 40 and 45 percent of the voting public and that Democrats can expect 35 percent, more or less. Pull a number out of the hat: John Kerry got 38.2 percent against George W. Bush two years ago in Texas.

Perry's reelect numbers — the percentage he gets when pollsters ask whether they want him reelected or want an unnamed someone to replace him — are in the high 30s to mid-40s, depending on the pollster, the headlines, and the atmospheric conditions. A recent poll for The Dallas Morning News, for instance, had Perry at 36 percent. Those are relatively low reelection numbers and they're one reason so many people are taking a crack at the incumbent.

Perry's camp is betting their guy will get 40 percent or more, that Bell will get 25 to 30 percent, that Strayhorn will come in at 15 to 20 percent, and that Friedman will split the remainder with a Libertarian to be named later, after their political convention.

Bell's betting he'll do better than that, that neither Republicans nor Democrats will follow Strayhorn or Friedman and that he — Bell — will be the beneficiary of voters' sour feelings about Perry. Bell thinks the winner will have 37 to 40 percent, and that he's got a good shot. The Democratic Party's grassroots are worth something, he says, and that organization will offset Strayhorn's funding advantage.

Strayhorn's logic is similar to Bell's, with a different outcome. In her version, Republicans unhappy with Perry will land in her camp, along with Democrats who don't think Bell can win. Where Bell talks about party infrastructure, Strayhorn's camp points to its huge financial edge over the Democrat and says voters will only be seeing two candidates on TV in the weeks leading up to the election — her and Perry.

As it develops, watch who's getting lashed. Bell, Friedman, and Strayhorn are battling to win the "alternative to Perry" vote; the leader will be shooting at Perry and ignoring the other two, hoping the crowded field doesn't spoil a shot to get over the 35 percent it will take to be a serious threat. Perry will be working to solidify the GOP base, on the theory that the first contestant to claim 40 percent will get to live in the Governor's Mansion for four years.

Closed Spigot

The Washington, D.C., lobsters hired by the state to work on federal government issues is off the payroll, at least for now: Comptroller Carole Keeton Strayhorn put a hold on future payments to Cassidy & Associates while she's doing an audit of their contract.

Texas House Democrats tried to stop the contract last year but didn't have the votes to kill it. Strayhorn says the contract with the firm is "a wholly inappropriate and unwise use of public money," but hasn't pointed to any law that's being broken. She noted in a press release on the subject that state law prohibits the use of public money to lobby the Texas Legislature or on behalf of candidates at any level. The Washington firm doesn't lobby in Texas. But the company's contributions to candidates have been questioned by Strayhorn and others, though state money, once paid to the firm, is no longer restricted by Texas law.

Democrats said Strayhorn is welcome, but late to the game. Gov. Rick Perry, through a press release, dismissed her stop payment order as a publicity stunt. His office and the Office of State-Federal Relations authorized the payments to Cassidy & Associates.

A day later, the Democrats came back at Strayhorn, demanding to know why she didn't cut off payments to the Federalist Group, another lobby firm on the state payroll and one whose principals have contributed to the comptroller. A spokesman says those lobbyists haven't requested a payment since October, but will be denied if they do ask during the audit.

Two Cages Full of Party Animals

Texas GOP Chair Tina Benkiser says she has the support of most of the State Republican Executive Committee in her bid for reelection as head of the Party. But 26 of that body's 62 members didn't sign for her. She's got one remaining potential challenger in the wings: Gina Parker of Waco, who lost to Benkiser two years ago. Former Dallas County GOP Chair Nate Crain, who'd been considering a run, decided not to go through with it.

Benkiser issued a press release announcing the support of "77 current and former SREC members," but more than half the people on the list are no longer on the GOP's governing board. She's got 36 of the current members (as with the Democrats, a woman and a man from each of the state's 31 state Senate districts is elected to the board).

That's more than half, but it shows some vulnerability. But that wasn't enough to keep Crain interested. Instead, he says he will help U.S. Rep. Pete Sessions, who's running for a national party post. Sessions wants to head the National Republican Congressional Committee.

Over in Democrat Land, Boyd Richie is stacking up endorsements to replace Charles Soechting as chair. Soechting, who'd already said this would be his last term, decided to quit early, leaving the choice of his successor to the State Democratic Executive Committee. That prompted an angry reaction from former state Rep. Glen Maxey of Austin, who also wants the job. Maxey won't run for the interim job, but still wants to run for the two-year term at the party convention in June. Richie, if he's elected interim chair, will be holding the gavel at that convention. Charlie Urbina Jones of San Antonio is also seeking the seat.

Jones and Maxey have some catching up to do. Richie has bagged endorsements from two of the leading Democrats in the House — Garnet Coleman of Houston and Jim Dunnam of Waco — from gubernatorial candidate Chris Bell, state Sen. Gonzalo Barrientos of Austin, and from Democratic National Committee member Sue Lovell of Houston, who like Maxey has been involved in gay and lesbian rights issues for years. Former Democratic Party chairs Bob Slagle and Molly Beth Malcolm also joined Richie's list of endorsees.

Flotsam & Jetsam

Kirk England, the newest Republican in the Texas House (he won a special election to replace Ray Allen, R-Grand Prairie) got better committee assignments than the newest Democrat. House Speaker Tom Craddick, a Republican, put England on Corrections and County Affairs. Donna Howard, who won a special election to replace Republican Todd Baxter of Austin, will be serving on Judiciary and Culture, Recreation, and Tourism.

• Bill Lawrence, who finished fourth in the GOP primary in HD-63, endorsed Tan Parker, who's in a runoff for that spot against Anne Lakusta. Both candidates are from Flower Mound. Rep. Mary Denny, R-Aubrey, didn't seek reelection. Parker finished first — by 79 votes — in round one. Ricky Grunden, who finished third, also endorsed Parker, after sitting down with both of the runoff candidates. What won it? He says he likes both of them but agrees with Parker on merit-based pay for teachers and allowing vouchers for public schools.

• State Rep. Jim Dunnam of Waco wanted Bob Gammage for governor, but now that Chris Bell is the Democratic nominee, he's officially with Bell.

• With the blessing of his Democratic opponent and the Federal Communications Commission, Republican Senate nominee Dan Patrick is back on the air in Houston. He was off during the primary fight for Jon Lindsay's seat in the state Senate and now, having won the first round easily, he's back on KSEV-AM from 4 to 6 every afternoon. You can listen online at www.ksev.com if you're into talk radio, or if you're a lobbyist trying to figure out or suck up to the new guy. Patrick faces Democrat Michael Kubosh in November. Voters in the district gave Republicans in contested races in 2004 72 to 73 percent of their support.

• David Van Os, a Democrat running for attorney general, plans a 24-hour "filibuster" on the steps of the state Capitol, starting at noon on Monday, April 17, the first day of the special session.

• The Young Conservatives of Texas went out of their way to say they don't like the choices in the GOP runoff in HD-72, where Rep. Scott Campbell faces Drew Darby. The third-place finisher, Kevin Housley, endorsed Darby (who finished first) over the incumbent. The YCT sent out press releases noting their endorsements and included this district, followed by a blank where the name of a favorite would appear. If they had one, that is.

• Will Wilson's runoff opponent, Bill Davidson, has been slinging hash about Wilson's use of the word "judge" in his campaign materials, but that stuff apparently doesn't bug a couple of former judges. Joe Greenhill and Tom Phillips, two former chief justices of the Texas Supreme Court, endorsed Wilson. Williamson County DA John Bradley's on Wilson's list, too. Wilson and Davidson are vying for a spot on the 3rd Court of Appeals.

• Rep. Pat Haggerty, R-El Paso, was still the winner of the GOP primary (against challenger Lorraine O'Donnell) after a recount. No votes changed. Haggerty got out of election night with a 106-vote lead that was later revised to 105 votes. That held up in the recount, and he'll face a Democratic attorney — Leon Schydlower — in November. That's HD-78 if you're keeping score.

Political People and Their Moves

Walter Hinojosa is retiring as political and legislative director of the Texas AFL-CIO, but not until after the special session(s) on school finance that start next month. His announcement includes a new spin on a tired line, noting that his reason for leaving after ten years is "really and truly to spend more time with his family." Hinojosa is a former schoolteacher turned organizer; he worked at the Texas Federation of Teachers before joining the AFL-CIO.

Gov. Rick Perry named J.P. "Pat" McDaniel, director of the Haley Memorial Library and History Center in Midland, to the Texas Historical Records Advisory Board. He named Sharon Carr of El Paso and Sally Reynolds of Rockport to the Texas State Library and Archives Commission. Carr's a librarian with the El Paso ISD; Reynolds is the retired director of the Texas Legislative Reference Library.

Perry appointed Austin banker Kerry Hall to the Texas Economic Development Corporation.

The governor named Dr. Charles Mitchell of Dallas, Al Silva of San Antonio, COO of Labatt Food Service, and C. Dan Smith of Plano, president and owner of Smith Exploration, to the board of regents at the University of North Texas. Mitchell and Smith are alums of the school.

Perry named Nancy Cain Marcus, Virginia Dudley of Comanche, Robert Kruckmeyer of Spring, and Linda Valdez of Rockport to Humanities Texas, which administers grants. All but Marcus are reappointments.

Araminta Everton, until now the legislative director for Rep. Corbin Van Arsdale, R-Tomball, is leaving to become executive assistant to Milton Rister, the new director of the Texas Legislative Council. Van Arsdale hasn't replaced her yet.

Kevin Cooper — half of Austin knows him as Trooper Cooper — is joining the Ratliff Co. as a lobster. He was most recently a regional director for U.S. Sen. Kay Bailey Hutchison, and before that worked for the Department of Public Safety, where he got that nickname.

Deaths: Bill Hale, a civil rights advocate whose four decades of public service included stops at VISTA, the Fort Worth Human Relations Commission, and the Texas Human Rights Commission. He was 70. Fred Bonavita, a favorite of his colleagues and competitors in journalism, worked for several papers including the Houston Post and the San Antonio Express-News. He was a veteran of the U.S. Air Force and of the Austin and Washington press corps. He was 70.

Quotes of the Week

Kinky Friedman, from his novel, A Case of Lone Star: "As a general rule of thumb, however, if you thought of New York as a Negro talking to himself and of California as a VCR with nothing to put in, you wouldn't be too far off the mark."

Friedman again, after that line was read back to him on CNBC's The Big Idea with Donny Deutsch, asked what he would do with sexual predators: "Throw them in prison and throw away the key, and make them listen to a Negro talking to himself."

Scott McCown, who heads the Center for Public Policy Priorities, in the Houston Chronicle, on talk of using a state budget surplus to help pay for public schools: "The idea that you can dramatically lower property taxes without any kind of significant new tax is a fantasy. If people want significant property tax reduction, it's going to require a new business tax."

Gov. Rick Perry, on that same subject: "There are some folks who view our $4 billion-plus budget surplus as money that can be used to buy tickets for the fast train out of town. We need to look at the long-term solution here, not just a short-term, quick fix."

Rep. Carter Casteel, R-New Braunfels, talking the amount of money James Leininger spent to defeat her, in the Texas Observer: "Are we all supposed to think alike? I quit drinking Kool-Aid after that James Jones massacre. You know, I've got a brain. I may not always use it the right way, but it's there, and I'm going to use it."

Former House Speaker Pete Laney, asked by Texas Monthly about Republicans who say the Democrats won't work with them: "There's a difference between working together and succumbing."

Former Alabama Gov. Donald Siegelman, quoted in The New York Times about indictments on racketeering and conspiracy charges and how they'll affect his bid for a return to office: "I'm not the slightest bit concerned. We'll blow the doors off the barn with a high-profile acquittal. I'll take a week off with my family and then come back, campaign for a week, and win."

Texas Weekly: Volume 22, Issue 38, 27 March 2006. Ross Ramsey, Editor. George Phenix, Publisher. Copyright 2006 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 info@texasweekly.com. For news, email ramsey@texasweekly.com, or call (512) 288-6598.