The Agony of Relief

State spending on school tax relief could force legislators to trample constitutional limits on budget growth next year, vexing conservatives who want both tax relief and limits on government growth.

The school tax relief package approved last spring increases state spending to take some pressure off local school spending. But the new state spending — in the neighborhood of $4 billion annually — will probably force budgeteers to choose between program cuts and a vote to increase spending faster than the state economy is growing.

"If you add the tax cuts to the state budget, it's almost certain we will have to deal with the cap," says Senate Finance Chairman Steve Ogden, R-Bryan. He and others in the budget business are still wrestling with it.

It's a weird deal, more a problem of politics than of arithmetic.

The state's running a budget surplus and will likely have all the money it needs to maintain programs and accommodate the new responsibilities for public schools. It's not like Texas government is broke. And the cap on spending doesn't make exceptions for this kind of load-shifting from local to state governments. The increase in spending isn't due to wild program growth, but to the state's decision to pay a larger share for a public school system that's already in place.

Conservatives have pushed for years to get a cap on government spending. In fact, proposed state-imposed caps on local government spending will be one of the main events in next year's legislative session. The state has never been successfully fenced in by the limits, and lawmakers haven't been forced to cut the fences.

This time, there may be no way around it. And in spite of Democratic gains on Election Day, this is still a Republican Legislature. And Republicans have, for the most part, fueled the push for caps (Rep. Carl Isett, R-Lubbock, has filed a constitutional amendment that would impose a spending cap on every state dollar in the budget — not just the discretionary spending).

The Legislative Budget Board will meet after Thanksgiving to set two figures. First, they'll choose from five estimates of the expected growth in personal income over the next two years. That'll be the constitutional limit on increases in discretionary state spending. Then they'll peg the discretionary number from the current budget, setting a base for the calculation. Multiply the two numbers and you'll get the dollar limit for discretionary spending in the next budget.

Usually at a moment like this, the Legislature can pick a big growth number and easily stay under the cap when they fold in things like increases in public school attendance, health and human service caseloads, prison populations, and all that jazz.

This time, they spent almost all of the growth money on school finance. That bill brought them to within $80 million of the cap last spring. In a $138.2 billion two-year state budget, that's pocket change. The same sort of math will prevail in the next two-year budget. When they add regular growth — prisons, kids, health and welfare — to their commitment to spend state money for local school tax relief, budgeteers think they'll have to bust the cap.

One idea under consideration: Voting out a two-year state budget that doesn't include the new spending for school tax relief, then voting on a separate bill that includes both that spending and legislative permission to bust the cap. Lawmakers would be able to defend the high growth rate as a consequence of lowering local school tax rates.

Another one: Finding a new definition of "discretionary spending" that meets the constitutional requirements and that doesn't include the school finance money in the calculation. Budget folk and lawyers we've talked with are skeptical on this one.

Armistice at the LBJ Building

Comptroller Carole Keeton Strayhorn and Comptroller-elect Susan Combs have smoked the peace pipe, and Combs will have a transition office in the agency's headquarters in early December, according to folks on both sides. She's already at work on revenue estimates, taxes, and the transfer of the agency's tax courts to another agency.

Strayhorn's run for governor and Combs' early entry into the comptroller race (and her endorsement of another term for Gov. Rick Perry) strained relations until after the election. Strayhorn's predecessor, John Sharp, made his staff available to Strayhorn and her opponent, Democrat Paul Hobby, for agency info during the 1998 race and then let Strayhorn's crew in right after the elections. The going was a little weird this time, but everybody's settled in.

Combs doesn't plan an overhaul of the agency, but admits "everybody makes changes" and she'll make some. She's reading up on the revenue estimate — delivering her official guess about state income will be one of her first official acts when the Lege gets started in January.

She's preparing an interagency agreement that'll move the hearings division — which decides tax cases — to the State Offices of Administrative Hearings and out of the comptroller's office. She says it's a conflict of interest to have a tax collector who also judges tax cases. The State Auditor's Office came to that conclusion in a report that was also critical of Strayhorn's acceptance of campaign contributions from people with tax business before her agency. (Rep. John Otto, R-Dayton, says he'll file legislation that'll make the transfer a matter of law and not just a contract deal.)

And she's preparing for a school finance relapse as lawmakers tinker with the business tax bill they passed last spring under pressure from the Texas Supreme Court.

The comptroller's office is mailing out tax surveys to 4,000 businesses; they expect around 3,400 to come back. Those are fake tax returns; the companies are being asked to fill them out but not to pay any taxes this time, just to give the state a feel for whether its new tax bill will bring in the amount of money it's supposed to. Those make-believe returns are due in mid-February, and Combs and staff will have to turn out a report for lawmakers before April 1 (If you want to make an April Fools joke, now's the time.) And she'll wait for legislative signals before she makes final decisions about the rules that describe how taxpayers should figure their new taxes.

Combs wants to beef up electronic reporting at the agency, so taxpayers can file more returns by computer. She thinks that'll be more efficient, but she also plans to ask lawmakers not to impose a 10 percent cut on the budget before she gets started and knows what's going on there. "I'm asking them not to start us out with a haircut . . . not to decimate us next year," she says.

She's not in a hurry to ask for reinstatement of the performance reviews that were taken from the agency last session and moved to the Legislative Budget Board: "I think they're pretty happy with it there." She wants to expand the agency's analysis of spending in state government and on economic development issues.

Combs opened her own agriculture department to Commissioner-elect Todd Staples this week. She said then-Commissioner Rick Perry did that for her when she won in 1998, even adding her top-aides-to-be to his payroll. She'll do the same for Staples if he asks.

Visions of Sugar Plums

Here's the thing: If you elect them, they'll start doing that government stuff. Most bills don't pass, but they're all alive at the start of things, and members have started the biennial filing of ideas they hope will become state law. A sampling:

• From Rep. Frank Corte, R-San Antonio, comes proposed laws that would allow military personnel to receive absentee ballots by email; allow vouchers in large school districts in Texas; limit governments' eminent domain rights; and require pharmacies to warn women via large public signs that "morning after" drugs designed to end pregnancies will do what they're designed to do and then to keep records of the customers' names and dates they bought the drugs.

• Rep. Richard Raymond, D-Laredo, proposed a constitutional amendment that would bar the use of public money for private school vouchers. He'd leave the matter to voters.

• Sen. Juan "Chuy" Hinojosa, D-McAllen, wants to require defibrillators at high school athletic events. Rep. Hubert Vo, D-Houston, filed similar legislation.

• El Paso Rep. Joe Pickett, who's been warring with the state's highway agency, filed legislation that would abolish the appointed Texas Transportation Commission and replace it with an elected Transportation Commissioner. Industry people and their representatives would be ineligible to run.

• State Rep. Debbie Riddle, R-Tomball, and Sen. Bob Deuell, R-Greenville, were among several lawmakers who raced to file versions of "Jessica's law," which opens sex offenders to the threat of the death penalty (Riddle) or to longer prison terms (Deuell) and tracks some of them with GPS devices that broadcast their whereabouts. Sen. Florence Shapiro, R-Plano, filed a package of six bills aimed at sex offenders. It includes a 25-year prison term for "continuous sexual abuse of a child," and requires high-risk offenders who've served their time to wear GPS monitors.

• Immigration legislation got the headlines on Day One and though it's a hot talking issue, we're not aware of any legislative elections that turned on it. Maybe in two years. Burt Solomons, R-Carrollton, wants proof of citizenship before the state grants licenses or permits. Rep. Dianne White Delisi, R-Temple, wants state agencies to report what they spend on "unlawful immigrants." Leo Berman, R-Tyler, wants to deny state benefits to U.S.-born children of illegal immigrants, a position that tracks the Texas GOP platform, which recommends denying citizenship to those kids.

• Solomons also would create a state task force to look at various taxes to make sure they're being used for what they were intended to be used for.

• Raising the minimum wage in Texas by $2 (to $7.15) in two steps and then allowing four increases tied to inflation. That's authored by Sen. Rodney Ellis, D-Houston.

• Rep. Elliott Naishtat, D-Austin, would extend the school property tax cuts to elderly Texans whose taxes were already frozen (and who weren't included in the cuts). Another of his bills would require all substantive votes on legislation be recorded and posted on the Internet. And he'd allow people denied Medicaid or Food Stamp benefits to go to court for "judicial review" of those decisions.

• Rep. Dan Branch, R-Dallas, would limit the number of students admitted to colleges for being in the top ten percent of their high school classes, freeing the schools to admit more students who don't make that mark.

• Sen. Judith Zaffirini, D-Laredo, would make textbooks tax-free at the beginnings of school semesters. She's got an election law change that would require political action committees to disclose contributions of $1,000 or more during the last week before elections.

• Rep. Aaron Peña, D-Edinburg, filed legislation that would require auditable paper records wherever electronic voting machines are used. There's another version of the same thing from Rep. David Leibowitz, D-San Antonio.

• Rep. Mark Strama, D-Austin, proposed a constitutional amendment creating a redistricting commission that would consist of appointed non-officeholders who'd draw the lines for congressional and legislative districts after the next U.S. census.

• Rep. Rafael Anchia, D-Dallas, wants to legalize same-day voter registration in Texas, allowing Texas adults to register to vote on their way into the booths on Election Day. So does another Dallas Democrat, Robert Alonzo, who filed a similar bill.

Two Little Problems

With just one more hearing ahead of them, Tom Pauken and his group of Rick Perry-appointed property tax crusaders are getting ready to hash out recommendations for a report they'll give to the governor and the Legislature sometime next month.

Their sticking points have been set for some time. First are the splits inside and outside the Task Force on Appraisal Reform over whether to impose caps on increases in property appraisals or, alternatively, on growth in revenue at the local government level. Councils and boards and commissions could exceed the caps only with voter approval. Pauken is talking (a bit vaguely) about caps based on a fixed percentage, or indexed to some less arbitrary numbers, like population and consumer prices. Secondly, there are strong feelings each way about whether to disclose the sales prices of properties.

(A footnote from the past: The federal agency regulating savings and loans in the 1980s concluded that one reason the S&L mess was worst in Texas was because sales prices weren't disclosed here and it was easier for everybody to lie about what their deals were worth.)

Pauken still likes an idea — floated several weeks ago at a Realtor convention — of coupling a local option increases in sales taxes to cuts in local property taxes. A half-cent increase in the tax — the state would have to give cities the right to add it — would offset increases in homestead exemptions and lower property tax rates.

He implies there's some agreement on including that one, though he says the task force members haven't voted yet. They'll likely include changes in county appraisal boards, adding some elected folks to make them more accountable and "broadening" them to include more outsiders. Cities and counties have made their point about unfunded mandates from the state, and Pauken's group might take their side in that fight. They'll loosen the state's control over local appraisals, and they want to split the "prosecutor and jury" functions in county appraisal districts.

He says voters and property owners don't know who to blame when things are awry with their property taxes, and he hopes to clear that up. He wants reforms that'll make it more difficult for local officials to hide tax or spending increases in the algebraic muck of the appraisal system.

The biggest opponents are — and have been — local governments. They say the state is violating the idea of local control, and is trying to leash cities and counties in ways it won't leash state government itself. And they say the state is trying to squeeze them, imposing new costs and new limits on revenue at the same time.

Pauken agrees to some extent. He doesn't thing the state mandates are fair, but he thinks caps could force some "self-imposed discipline" on government officials. "It definitely would impact local government spending decisions," he says. "I don't think they're hurting, though. It would impose greater discipline on local governments and force them to prioritize." Local officials would still be able to argue for higher spending, but they'd have to convince voters.

Pauken is relying in part on ideas from two legislators elected on promises to cut property taxes. The local option sales tax came from Sen. Kevin Eltife, R-Tyler. The changes to the comptroller's property tax apparatus are from Rep. John Otto, R-Dayton.

Eltife says he started with the idea that the first round of tax relief was too small to give voters the warm fuzzies, and he didn't think appraisal caps as proposed would do it, either.

His idea was to tie in local options, sales taxes, and homestead exemptions. He thinks sales taxes are fairer as long as they don't apply to essential goods and services. Homestead exemptions irritate businesses because they give relief to homeowners at the expense of commercial property owners. If they're balanced, though, Eltife sees it as a better way to get relief to homeowners. "My concern about the tax bill was that most people in my district did not get relief... you've got to drive the rate down low enough for them to feel it, and this found didn't do that," Eltife says.

Eltife, one of the new Senate's five former mayors (Robert Nichols, Kel Seliger, Florence Shapiro, and Kirk Watson), says appraisal caps will become a floor for some local governments, who'll raise taxes in years when they don't have to so they won't be shorted in years when they need more than the caps allow. He's an advocate of sales price disclosure and suggests tying property values to the actual sales price plus some factor for inflation.

But the sales tax swap is his centerpiece. He thinks it would speed up tax relief. "I thought we needed to cut the [school property] tax in half and in an immediate manner..." he says. "By the time we're three years out, they're not going to have much relief left."

Otto used to be on his county appraisal board and says the current setup with the state forces local appraisers to overestimate the value of their properties. The state comptroller does studies on local property values around the state and orders corrections when their numbers are more than five percent different from what's on the local books. That margin of error is too tight, Otto says, and forces local appraisers to err on the high side. That costs local school districts under school finance formulas (it saves the state money, though) and can cost appraisers their jobs. He'd increase the allowable difference to +/- 10 percent.

Otto's not crazy about sale price disclosure, saying it could take homeowners "from leap to creep" — replacing incremental increases with sudden ones in areas where values jump. "I don't care how fair it is — they're not going to be happy," he says of homeowners. He just wants to get "a level of trust and care" that's not in the current system.

The last hearing is in Austin next week. Pauken says he'll ask the panel to vote on recommendations next month, with a report to follow.

Political Shuffling

Former U.S. Rep. Ciro Rodriguez, D-San Antonio, got labor's endorsement for his runoff against U.S. Rep. Henry Bonilla, R-San Antonio, in CD-23. Rodriguez booted it the first time, telling a labor gathering he was getting out of the race. The AFL-CIO endorsed Albert Uresti, and then Rodriguez got back in. Uresti was culled in the first round and now labor's back with Rodriguez. The election date isn't set yet, but pencil in December 12. (That's also a likely date for the HD-29 race to replace the late Rep. Glenda Dawson, R-Pearland.)

• Department of Corrections: We spelled Randy Weber's name with an extra B last week (and if you're looking for info about him on the web, do it both ways, because we weren't the first to make the error). He's a former Pearland City Council member and the second Republican to enter the race to replace Rep. Glenda Dawson, who died in September and then won reelection in November. He walks in with endorsements from Rep. Robert Talton, R-Pasadena, and U.S. Rep. Shelley Sekula-Gibbs, R-Houston (she won what's left of Tom DeLay's term). Mike O'Day, who got in last week, has Dawson's family behind him, as well as former Rep. Tom Uher, D-Bay City, who got knocked out by Dawson after redistricting.

• Carlos Uresti, D-San Antonio, is now a state senator. He won the special election to replace Frank Madla — who resigned this summer after losing the primary election to Uresti — and was sworn in over the weekend. Uresti also won the full term. He'll take that oath in January, with just a few weeks seniority over the other four senators in the freshman class.

Political People and Their Moves

Officially, now: Kent Hance is the chancellor of the Texas Tech University System. He's a former congressman, Texas railroad commissioner, lobbyist, and an unsuccessful candidate for U.S. Senate and governor of Texas. He lost the Senate race in a Democratic primary in 1984, then lost Republican gubernatorial primaries in 1986 and 1990. And he's the only guy who ever won an election against George W. Bush. The school will let him maintain his partial ownership of a hazardous waste company in Andrews County, and he'll be allowed to serve on private company boards while he's at Tech.

Phil Gamble, a lawyer who worked for Kent Hance at the Texas Railroad Commission, is joining the law firm Hance just left. Gamble will work on legislative and regulatory issues for Hance Scarborough Wright Woodward & Weisbart. Hance, as you know, will be off running Texas Tech.

The state's two U.S. senators are now in the minority, but they got promotions within the GOP after the elections. Sen. Kay Bailey Hutchison is now chairing the Republican Policy Committee. Sen. John Cornyn will start his fifth year in the Senate as vice chairman of the Republican Conference, a post that was held until now by Hutchison. 

Celinda Provost moves from the House, where she's been chief of staff to Rep. Allan Ritter, D-Nederland, to the Senate, where she'll have that title in the offices of Sen. Kirk Watson, D-Austin.

Jeff Burdette's the new director of government affairs for the Texas Cable and Telecommunications Association. He's most recently been the legislative director for state Sen. Mike Jackson, R-La Porte.

Damon Withrow will be the new government relations director at the Public Utility Commission after four years with Sen. Tommy Williams, R-The Woodlands. He was legislative director for Williams, and moves at the end of the month. Jason Baxter, already with the senator, will take over Withrow's job there.

Tom McCarty is leaving the House Committee on Public Health — he was chief clerk there under Rep. Dianne White Delisi, R-Temple — to head government relations for the Texas Workforce Commission.

Appointments: Gov. Rick Perry named Lyndel Williams of Lexington to his Criminal Justice Advisory Council. Williams is training director for the Texas Association Against Sexual Assault, where he's a co-worker of First Lady Anita Perry... the Guv named Gerardo "Jerry" Garcia, CEO of Hacienda Construction in Corpus Christi, to the Commission on State Emergency Communications, which oversees 9-1-1 and poison control centers in the state.

Quotes of the Week

Ken Hoagland, a spokesman for James Leininger of San Antonio, who personally spent more than $4.4 million on GOP politics this year, asked by the San Antonio Express-News whether the results of the general election were a disappointment to his boss: "He is more determined than ever."

Robert Lauderdale of Arlington, Va., talking to The New York Times about lingering post-election political signs: "They're like pimples on a teenager. It's pretty much impossible to get rid of all of them."

Ron Haskins, a fellow at the Brookings Institution, on the post-election mood, quoted in the Austin American-Statesman: "Both sides have been magnificent so far. Everybody's bipartisan. It's going to last at least another half-hour."

Washington lobbyist Wayne Berman, a Republican, quoted in The New York Times after the elections: "I've told my Democratic partners it's time for them to buy some suits. I went out and bought two new fishing rods and looked into yoga classes."

Rep. Leo Berman, R-Tyler, telling the Rio Grande Guardian that illegal immigrants cost the state $2 billion annually: "They do not pay anything. They come into Texas, they have their anchor babies at no cost and then they are rewarded with U.S. citizenship. This allows them to bring their entire families. It is a total violation of the most basic federal laws of immigration."

Sabrina Farber, co-owner of The Garden Guy, a Houston landscaping company, in a New York Times story on the company's written refusal to work for homosexual clients: "Why can't people handle it when you say the truth?"

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Volume 23, Issue 22, 20 November 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.