Refund, Rebuke, Rebuttal

A huge tax refund to Texas Instruments has rekindled questions about the conflicts that arise when tax consultants make political contributions to the tax collectors who decide their cases.

Four local governments are on the hook for a total of $31.3 million in taxes overpaid by the Dallas-based tech company, according to state records and to the company. That's their share of a refund from state Comptroller Carole Keeton Strayhorn's agency to the company that, when the state's share is added in, totaled at least $128 million.

Ryan & Company, a Dallas-based tax consultancy, represents Texas Instruments in tax matters in Austin, according to a TI spokeswoman. Ryan is politically hooked up: Its Austin office is headed by former Comptroller John Sharp, who helped Gov. Rick Perry design and enact a new business tax earlier this year. And the company is one of Strayhorn's biggest contributors.

Perry's campaign — while stopping short of saying TI wasn't due the refund it received — says the relationship between Strayhorn and the tax consultants "reeks of corruption." Citing a state auditor's report that was critical of the appearance of such conflicts, a Perry spokesman said Strayhorn should be looking for political support elsewhere.

"There's a close enough connection that Texans should be deeply concerned about the comptroller specifically, and certainly about her relationship with her number one contributor," said Ted Royer, a spokesman for Perry's campaign.

Mark Sanders, a spokesman for Strayhorn, said there's no connection. The company overpaid its taxes and was due a refund, he said. Strayhorn "didn't even know about the refund until she read about it." He said the TI case was decided "at the staff level," that it never reached Strayhorn — in spite of the dollar amount, the prominence of the company, and the fact that four local governments were in the crossfire.

He added that, because tax matters are confidential, it's tough to avoid the appearance of a conflict. "The comptroller is always going to be an elected official. They're always going to have opposition, and all the opponents have to do is raise questions about impropriety."

The TI case flared up after the comptroller's office sent letters to the cities of Dallas, Sherman, and Stafford, and to the Dallas Area Rapid Transit Authority in June and July, notifying them that "a large direct pay taxpayer" overpaid its taxes between 1995 and 2003. The letters didn't name the taxpayer. But Texas Instruments disclosed the tax refund in its quarterly financial statements filed with the U.S. Securities and Exchange Commission. Company spokespeople later identified Texas as the source of the sales tax refund.

The $77 million reported in those filings, according to a spokeswoman, is a "net benefit to the company." The amount actually returned to TI by Strayhorn's office was much larger, though the exact amount wasn't revealed by either the company, the comptroller's office, or any of the cities involved. [Editor's note: The company reported $57 million in refunds attributable to taxes on semiconductor sales and another $20 million that was booked to Other Income; we reported the lower number as the total last week, and should have reported the full $77 million.]

When you do the math yourself, though, you'll discover the state refunded Texas Instruments at least $128 million and probably more (we backed into that number, and we'll show our work — just like we did for Mr. Sherwood in 8th grade math — in the sidebar titled Where Our Numbers Came From).

The difference — at least $51 million — covered the company's costs of getting the refund. That would include money paid to tax consultants, lawyers and other professionals who helped the company obtain the refund.

Execs with Ryan & Co. — and the political action committee affiliated with the company — gave Strayhorn a total of $225,000 during the first six months of this year, according to campaign finance reports she filed with the Texas Ethics Commission. Her gubernatorial campaign booked all of those donations on June 27, except for $50,000 from the PAC that came in four days earlier. Another $150,000 was donated by Amanda Ryan — wife of company head G. Brint Ryan — also on June 27. That brought the total to $375,000. The campaign reporting period ended on June 30, and Strayhorn reported total contributions of $3,108,451.

The PAC and the same group of execs — give or take a couple — contributed $401,000 to Strayhorn in the last days of December. All but $1,000 of that came into the campaign on December 29, a couple of days before the end of that campaign reporting period and in about the same time frame that she and other candidates were filing papers to run for office.

Ryan, the company's chief, didn't return calls seeking comment on how and why he and other execs support Strayhorn, or about his views on the "appearance of conflict" problems identified by Perry's campaign or the auditor's report.

The auditor's report, issued almost a year ago, recommended a cleanup while saying it found no dirt: "We are not implying any wrongdoing on the part of any individual or group associated with the information in this report." The recommendations were nevertheless strong: a ban on campaign contributions from taxpayer representatives; required registration for those reps and lawyers; moving the state's tax courts out of the comptroller's office; limits on "management halts," where top tax officials put cases on hold; and reports from the comptroller on the tax assessment numbers at various stages in administrative cases.

Sidebar: Where Our Tax Numbers Came From

An open records request sent to the comptroller's office turned up four letters, among other things, that went to the local government entities mentioned in our tax story: Dallas Area Rapid Transit, and the cities of Dallas, Sherman, and Stafford. Each included a line about "a large direct pay taxpayer," the amount in question, and a couple of boilerplate paragraphs about setting up payment schedules for the refunds (the state generally gives local governments a number of years — at no interest — to pay these things back).

Dallas' letter put the locally owed refund at $13.8 million. DART's was $13.2 million. Stafford, as we reported last week, is on the hook for $2.6 million, and the state wants the City of Sherman to repay $1.8 million. Those obligations total $31.3 million.

Their tax rates vary. Dallas and DART each levy a 1-cent tax. Stafford's local sales tax rate is 2 cents. Sherman's is 1.75 cents. In all cases, the state's rate is 6.25 cents. If you back out the numbers, using the local tax refund due and the local and state tax rates, you can figure out what the state got back, based on what it's demanding from the locals.

For instance, if Stafford, with a 2-cent sales tax, owes $2,557,340, then the state, with a 6.25-cent rate, over-collected $7,991,690. Texas Instruments' refund from that piece of this tax case, including the state and local sales taxes, was $10,549,031. The total for Sherman, figured up the same way, is $6,297,627. Dallas and DART present a particular problem: They overlap. Figured separately, the Dallas number would be $99.8 million and the DART number would be $95.6 million. Not all of DART is in Dallas, and vice-versa, and the comptroller's office didn't have those numbers handy when we called (they're working on it).

In the interest of caution, we kept the local sales tax number for the City of Dallas in our totals, but tossed the state sales tax number for the moment. Just assume, for now, that the DART collections for the state involved the same dollars collected for the city, and only count them once.

Without that Dallas number, the state owed Texas Instruments $96.7 million, in addition to the $31.3 million owed the company by the cities and DART. That means the state refunded TI at least $128.0 million, then went to the four local governments to get their share of the refund.

Going Over the Lines

Sometimes you luck out. It happened to us in late June, when we pointed out a handful of congressional districts likely to change as a result of the U.S. Supreme Court's decision on Texas congressional maps.

Our luck was borrowed — we conferred with smart people before writing "Five to Watch." In that article, we said the districts occupied by U.S. Reps. Henry Bonilla, R-San Antonio, Henry Cuellar, D-Laredo, Lloyd Doggett, D-Austin, Ruben Hinojosa, D-Mercedes, and Lamar Smith, R-San Antonio, were most likely to be redrawn in the courts. That turned out to be on the mark.

The judges' order says candidates can file by August 25 to run in special elections in those five districts that'll be held on November 7, along with the general elections already set for that date. Those are open elections, with the possibility that more than one candidate from each party will show up, along with independents and third-party folk. Runoffs, if needed, would follow a month or so later.

• Of the five, Bonilla, in CD-23, is most threatened by the map that came from a three-judge federal panel, but it would go too far to say he's cooked. It'll depend on the opponent, money, etc.

His new district has a higher percentage of voting age Latinos, which answers the specific issue raised by the U.S. Supreme Court when they said the old map was illegal. It's also less Republican. In the 2002 gubernatorial year, Republicans got an average of 56.8 percent of the vote in his old district. Those same candidates in that same year got 49.3 percent of the votes in his new district. He added voters in his home of Bexar County, but lost Bandera, Kendall, Kerr, Real, and Webb counties.

• Cuellar's CD-28 now includes all of Webb County, less of Bexar County, loses Comal and Hays, and adds Jim Hogg, Starr and part of Hidalgo counties. His territory is slightly more Democratic in gubernatorial years; his old district voted 58.9 percent Democratic in 2002 statewide races and the new one voted 63.4 percent.

• Doggett, who would have been paired with Smith in the state's map, has his own district and it no longer connects Austin with the U.S.-Mexico border. It's significantly less Hispanic, and less Democratic than his current district. Democrats in statewide contests got 52.9 percent of the votes in 2002 in his new district, as against 69.8 percent in the old one. We've already heard speculation about whether a more conservative Democrat could mount a credible challenge in 2008. He lost the southern end of his district and got more of Travis County and some counties west of it. Drop Duval, Hidalgo, Jim Hogg, Karnes, Live Oak, and Starr. Add some or all of Bastrop, Colorado, Fayette, Hays, and Lavaca.

• Hinojosa, in CD-15, won't visit four counties in his old district: Bastrop, Colorado, Fayette, and Lavaca. And he'll be adding three: Duval, Karnes, and Live Oak. The percentage of Latino voters in his district rises to 73 percent, and the new map is more Democratic than the old one; in the last gubernatorial election year, 2002, statewide Democrats got an average of 55.7 percent in his old district. In the new map, the Democratic percentage that year was 61.3.

• Smith's district no longer will include Hays County, and has less of Travis. But he adds turf in Bexar and Comal, and picks up Bandera, Kendall, Kerr, and Real counties.

Prefer a graphic look? See our Files section.

Writers Wanted

Nick Lampson's political life has gotten a lot easier this summer.

At the beginning of the year, the former congressman was girding for a run against Republican House Majority Leader Tom DeLay. Today, his opposition consists of a couple of Republicans whose names won't be on the ballot in November. They'll be seeking write-in votes.

The courts are all done with DeLay's efforts to get off the ballot in a way that allowed the GOP to replace him on the ballot. If he had decided to quit politics a few weeks earlier, no problem would exist. But he doesn't want to remain on the ballot as a placeholder. He's out, and other Republicans (and others who aren't Republicans, come to think of it) are putting together campaigns to run as sanctioned write-in candidates. 

Sugar Land Mayor David Wallace is in. So is Houston City Council member Shelley Sekula-Gibbs, who announced she'll also pursue a write-in effort.

Republicans hope to knock Lampson out of the way and hang onto the seat held so far by the GOP. Short of that, they'd like to deplete the Democrat's campaign accounts — he reported more than $2 million on hand at mid-year — so that if Lampson prevails this time he'll have less in his financial armory to defend the seat in two years. Their theory is that it's a Republican district that a Democrat can't win in a normal election year.

The process is daunting, to say the least. They must to file with the Texas Secretary of State by August 29, either paying a $3,125 filing fee or submitting the signatures of 500 bona fide registered voters in the district on petitions by that same date. The names of eligible write-in candidates are posted at polling places and in the booths where people vote. As for misspellings and such, the election judges count anything if the voter's intention in clear. "M. Mouse" would likely count as a vote for Mickey Mouse, if he'd paid his fee, and so on.  

The write-in door is open to almost anyone. It's not open, however, to candidates who ran in the primaries and lost. That rules out three Republicans who ran against DeLay in March.

Steve Stockman, a former congressman who tried to get enough signatures to get on the ballot as an independent earlier this year — when DeLay was still in the hunt — apparently remains eligible as a write-in candidate. If he can get the signatures or the money together by August 29, he can get on the ballot.

Two House members — Reps. Charlie Howard, R-Sugar Land, and Robert Talton, R-Pasadena — were interested in taking DeLay's spot on the ballot. A spokesman for Texas Secretary of State Roger Williams said initially that candidates on the ballot for other offices would have to drop out of those races to file as write-in candidates in CD-22.

But lawyers for the SOS are taking another look at that issue.

If the SOS says so, they'll be able to run as write-ins while also seeking reelection to the jobs they have now. Otherwise, they'll have to give up their reelection races to get into the congressional contest. Doing that for a spot on the ballot is one thing; doing it to appear as a write-in is risky, even if it does help set up a candidacy for two years from now.

All About the Money

Republican legislative candidates had more money on hand at mid-year than their Democratic counterparts, according to a compilation of campaign finance reports done by Republican consultant John Doner.

By his tally, 239 legislative candidates in Texas — that's just statehouse wannabes and not statewide or congressional or judicial aspirants — had $23,713,525 in the bank at mid-year. Within that group is a smaller group with opponents: 159 candidates who will face someone in November had $11,312,774 on hand at mid-year. That last number is another way of saying that candidates without November opponents are sitting on $12.4 million; unopposed candidates have more money in the bank than their colleagues who actually have contests.

It's entirely possible that the big bank accounts are what scares off the opposition. But a few candidate/officeholders have big accounts that skews the numbers a bit. Only three, for instance, were over the million-dollar mark, by Doner's count: House Speaker Tom Craddick, with $3 million in the bank, and Democratic Houston Sens. John Whitmire, at $2.5 million, and Rodney Ellis, at $1.5 million. Only seven have more than a half-million in the bank, including those three, Republican Sens. Jane Nelson of Lewisville, at $722,875, and Steve Ogden of Bryan, at $694,306, and Reps. Burt Solomons, R-Carrollton, at $630,450, and Patrick Rose, D-Dripping Springs, at $528,328. (Doner didn't rank them by balances, but we pulled those from his charts.)

Within those numbers, as you can see in Doner's introductory memo, Republicans have more money than Democrats, both in aggregate and on average. The biggest difference is found in the accounts of candidates with no opposition, as you'll see in his numbers.

Doner's stuff — which lists all the major-party candidates for the state Legislature, opposed and unopposed, is in an Adobe Acrobat (.pdf) file.

Read with Caution: Spin Ahead

We have hold of a pollster's memo from Democrat Chris Bell's campaign and we'll start this by sharing two rules we like to follow when we get our mitts on such a thing, for whatever reason and from whatever source.

Body:

1. Take it with a grain of salt.

2. Hurry up and read it.

Bell's pollsters have Gov. Rick Perry at 38 percent, Bell at 18, Carole Keeton Strayhorn at 16, Kinky Friedman at 11 percent, and libertarian James Werner at one percent. What's more, they say everybody but Bell (and Werner) is dropping.

Strayhorn dropped in every demographic, they say, "including her vaunted 'Grandma' demographic." She's running fourth in Austin, according to the Democrat's pollsters.

Voters who've seen Bell's ads have him in a tie with Perry. Almost three in five give Perry a negative rating. Two in five, they say, give Friedman a negative rating.

And they have some grains of salt of their own, pointing out that liberals and some Democrats are "tossing wasted votes to Strayhorn and Friedman." Perry himself, the pollsters say, "wins 17 percent of Anglo liberals."

They close with a variation on what Bell's been telling Democrats since their state convention — that if they stick together and vote, they'll have the numbers to beat Perry.

There's a money pitch in there, too, which addresses Bell's biggest hurdle at the moment. That campaign is running well behind Perry and Strayhorn in the finance department. The memo notes the "discouraged Democrats" in the donor community and suggests they're ignoring a change to knock off the incumbent.

Debates and Other Politics

Kay Bailey Hutchison told a couple of reporters in Austin that she'll debate Barbara Ann Radnofsky, but only once.

That's a mirror of Gov. Rick Perry's acceptance of a debate in Dallas set for several weeks from now. He'll do it, but that's it. Perry's got the easier gig: More candidates on the dais means the time will fly. In an hour, each of the four candidates will get 15 minutes or less, and that'll be that. Three Senate candidates given an hour would split the clock into 20-minute segments.

No date has been set for the Senate candidates. The gubernatorial candidates will meet on October 6 in Dallas — that's the Friday night before the Texas-OU game, if you haven't got your calendar handy. Libertarian James Werner won't get in; the debate supervisors apparently think his visible support is too small to merit including him. The challengers in both races want more than one debate; the incumbents want to limit their exposure.

• The Financial Accounting Standards Board says the state's new business tax is, as far as accounting is concerned, an income tax. That's maddening to state officeholders who got it passed earlier in the year, which is fun, and it continues a war of definitions that began in the early 1990s when the current state franchise tax was enacted. It has an income component, too. This is safe: Neither is a tax on bottom-line income, and both can be owed by companies that have net losses in a given year. But the FASB pronouncement opens the door for political shots at the new tax.

• Kinky Friedman wants Travis County prosecutors to investigate whether Comptroller Carole Keeton Strayhorn has used state employees or equipment to generate materials for her campaign. The official answer to these things is generally, "After the elections." Friedman's letter to District Attorney Ronnie Earle followed news reports about state-generated work finding its way into Strayhorn's political talks.

Gov. Rick Perry's campaign, meanwhile, generated a video that attacks Strayhorn for some of the same things, adding an allegation that she took a ride in a state vehicle to a campaign event. You can view it at www.rickperry.org/cks/OfficialBusiness.wmv. The comptroller's campaign, in response, said she hasn't abused state resources. They're not sure she took a state vehicle to the event in question, but say that if she did, "it's because she was doing state business on the way." That's known as spin, friends.

The two-and-a-half minute video itself is a curiosity; in showing that Strayhorn was making a political speech, the Perry camp left in a lot of her words. Blasting the Perry campaign.

• Here's a rule of thumb from the world of political spin: If it's good news, it comes from the officeholder/candidate. If not, not. Attorney General Greg Abbott's office argued for bigger redistricting changes that the federal panel was willing to draw. They didn't lose, exactly, but didn't win, either. And when it was over, the final statement came from... Jerry Strickland, who works in Abbott's press office.

• The newest Rasmussen poll has Gov. Rick Perry at 35 percent — that's apparently a low point in that particular survey — followed by Chris Bell, Carole Keeton Strayhorn, and Kinky Friedman all at 18 percent. That's a five-point gain for Bell, a small slip for the others, and a continuation of the trend in most of these polls; the three challengers are still splitting the anti-Perry vote into more or less equal shares.

• Karl Rove is the draw for a funder for the Associated Republicans of Texas, a group that knew him when. And the names on the invitations include all but a couple of the state's non-judicial statewide officeholders. The cheap seats are $200; tables go all the way up to $25,000 for ten. That's a Saturday night deal.

• From a Republican whose name you know comes an idea to get Tom DeLay off the ballot in a way that Republicans could replace him: Get Gov. Rick Perry to nominate him to a state office that disqualifies him as a congressional candidate. A Democrat whose name you know has a different way to the same end: DeLay would be disqualified and could be replaced by another Republican on the ballot if he would plead guilty to a pending felony indictment in Travis County.

Political People and Their Moves

David Weber, until now the special counsel for policy development at the Texas Department of Insurance and before than an aide to House Speaker Tom Craddick, signed on with Gardere Wynne Sewell in that firm's legislative and regulatory affairs shop.

Brian Todd Hoyle of Longview will join the 12th Court of Appeals for the rest of the year (until the elections). He was in private practice until Gov. Rick Perry tapped him for that spot. Diane DeVasto left the court to go into private practice, and Hoyle's got her spot.

The Texas Apartment Association named Wendy Wilson their new general counsel; she's been general counsel for state Sen. John Carona, R-Dallas. And David Mintz, the outfit's chief lobbyist, will remain there but is also taking on new clients, starting with the Texas Institute of Building Design.

John O'Brien, the acting head of the Legislative Budget Board, is the new president of the National Association of Legislative Fiscal Officers, or will be next week when that group convenes.

Sen. Jeff Wentworth, R-San Antonio, is the new vice chairman of the Southern Legislative Conference, a group of lawmakers from 16 southern states.

Quotes of the Week

Rep. Scott Campbell, R-San Angelo, quoted in the San Angelo Standard-Times about his GOP primary loss in March: ''We were doing some good stuff, but (voters) didn't want us.''

Thelma Arnold, an AOL user identified through her Internet searches after the company published search records of 657,000 users online, in The New York Times: "My goodness, it’s my whole personal life. I had no idea somebody was looking over my shoulder."

Political consultant Bill Miller, quoted in the Houston Chronicle on GOP efforts to back a write-in candidate when Tom DeLay drops out of his race: "The whole write-in theory is ludicrous. It is handing the seat to the Democrats. Republicans cannot win this seat with a write-in candidate, I don't care what name they write in."

Jason Stanford of Chris Bell's campaign, on gubernatorial debates in the Fort Worth Star-Telegram: "We want no rules. We just want a no-holds-barred debate. We're looking forward to a big crazy scene."

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Texas Weekly: Volume 23, Issue 8, 14 August 2006. Ross Ramsey, Editor. 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 (512) 302-5703 or email biz@texasweekly.com. For news, email ramsey@texasweekly.com, or call (512) 288-6598.