Big Mo and Little Mo

Gov. Rick Perry's appraisal reforms don't have nearly the momentum of last year's school finance package, though both came out of task forces headed by political figures and comprised of business folks. School finance was hard to crack, but the Legislature wasn't split on the need to do something. This time, you'll find disagreement on the nature of the problem and the proposed solutions. This package will be harder to pass.

• No court has ordered lawmakers to work on property appraisals. School finance had a deadline and the threat that the courts would step in if the Legislature didn't.

• This is a regular legislative session, with plenty of competing issues, and not a one-issue special session.

• The business community isn't as deeply involved in these changes. Companies have less at stake and it's hard to put dollar numbers to it this time.

• The members of the task force on taxes had more clout than the appraisal bunch. The tax task force was populated with big taxpayers and their ilk, the better to reach a consensus. The appraisal panel has more advocates of reform, and didn't include obvious opponents who might have been able to work compromises. Where the tax bills began their legislative ride with few (openly) mortal enemies, cities and counties, among others, have been attacking the appraisal package for months.

• The chair of the tax panel, former Comptroller John Sharp, has been around the Texas Legislature all his adult life, as an LBB analyst, a member of both the House and the Senate, a railroad commissioner and state comptroller. Tom Pauken, who headed the appraisal group, has long experience in politics, but little in working the gears of Texas government — or of the lobby.

• Last year's tax overhaul came pre-sold to most of the groups that might have been expected to oppose it. While the governor and Pauken were officially unveiling their report to reporters and others, opponents were outside the press conference passing out scads of paper in opposition.

• The benefits are obscure and indirect. The story of the business tax often ran second to the story of cuts in school property taxes. Elected officials were talking about the new tax, but they were yelling about the property tax cuts. Voters, if they wanted to, could actually calculate the effect of the cuts on their own housing costs. This time, the benefits are fuzzier. Local government spending would be curtailed, but it's hard to put a dollar amount on it. The recommendations include a potentially lower property tax, but only at the expense of higher sales taxes. And local officials are on TV talking about state efforts to cut city and county services. It's noisier out there, and harder to sell.

• It's easier to take credit for cutting taxes than for limiting growth of a part of the budgets — albeit, a big part — of city and county governments. A tax cut can be reduced to an actual dollar amount for each taxpayer. The latter requires the taxpayer to imagine what might have happened with no limits. The stakes appear different to voters, and thus to the people they elect.

Pauken's Report

Gov. Rick Perry's Task Force on Appraisal Reform is done; he and Tom Pauken, who chaired that panel, unveiled a package without any (new) surprises.

The task force would allow counties to add a half-cent to their sales taxes if the money was used to directly cut county property taxes. That would bring the sales tax rates up to as much as 8.75 percent — the current maximum is 8.25 percent — but it would lower property taxes at the same time. The discount would depend on the value of the property and the local tax rate. If you know what a county can raise with a one-half cent sales tax, and how much it gets through property taxes, you can back into a rough estimate for a given property.

Task force members were slightly in favor of requiring disclosures of sales prices. Some real estate people don't want to give up that information (though doing so is common in other states), and there's some fear that disclosing prices without any other controls would simply contribute to inflation in the property tax rolls, a phenomenon called sales chasing. But with everything else in the mix, sales price disclosure is in.

The state comptroller's leash on local values would have more slack in it. Right now, the state does a "property value study" to see whether local property appraisals are where they should be. If they're off by more than five percent — low or high — the comptroller makes the local appraisers adjust them. The task force wants to increase the allowed variance to 10 percent and wants the comptroller to check values every three years instead of every year.

Cities and counties wouldn't be able to increase their incomes from property taxes by more than five percent per year without approval from their voters (there's a barb in the hook, too; the task force is recommending the tax election be held in conjunction with the elections of the local officials who want more money).

They'd ban unfunded mandates from the state, where officials in Austin require locals to run programs without sending the money to cover the costs. The attorney general would decide whether something is a state mandate. The comptroller would determine the cost. And the Legislature could then either pay the price or turn the required program into a suggested one.

Associations representing city and county governments are out to kill provisions that would impose state limits on their budgets. The protection against state mandates is in there for their benefit, but they're hardly mollified. Here's a taste, from the legislative newsletter of the Texas Municipal League, which represents city governments: "While the report contains several constructive ideas, its primary focus is a new, extremely stringent limitation on local property tax revenue. The report also takes several backhanded swipes at local officials and their 'powerful lobbying organizations in Austin,' and is filled with misleading statistics and inflammatory prose."

They've also talked about the hypocrisy of a state government proposing a financial leash law on locals while its own spending runs free. Perry's not being specific yet — his State of the State speech, and some details of what he wants — is set for the first full week of February. But he wants limits on the state: "To those who suggest the state should be doing this, I say, 'Stay tuned.'"

Poof!

The Legislature's starting budget totals $147.6 billion, and the budgeteers started by talking away all but $2.5 billion of the $14.3 billion in new revenue.  Legislative leaders unveiled their starting budget, a record-setter (each new one is) that proposes spending $147.6 billion over the next two years, and increases general revenue spending by $4.6 billion over the current budget.

But the first news is that they want to take $11.8 billion off the table. Comptroller Susan Combs opened the money talk by saying the state would have $14.3 billion in new revenue. That got people drooling about how that might be used, and it made budgeteers nervous about the prospect of spending more than some of them want to spend.

So they've whittled, saying $3.9 billion should be set aside to pay for local school property tax cuts in this budget and another $3 billion should be stowed for the same purpose in the 2010-11 budget (that's a tacit admission that the previous comptroller — Carole Keeton Strayhorn — was correct when she said last spring that the school finance package was way out of balance).

"When people say, 'Give the surplus back,' that's exactly what we're doing... we're giving it back in the form of a local property tax cut," said Lt. Gov. David Dewhurst, apparently trying to quell a new push for a tax rebate coming from the middle office — that's the Guv — and from outside groups that have started peppering legislative districts with mail on the subject.

Another $1.4 billion comes off the table as a result of moving some spending from one account to another, and a one-time payment of $1.4 billion undoes an accounting trick used last time the budget was out of whack (legislators moved payments from one fiscal year to the next to balance a budget that spent more than available and now they're moving it back).

Reforms from the school finance bill will cost $1 billion, and expected population growth in Medicaid and public education and other programs will eat another $1.1 billion.

Thought you were flush? That leaves $2.5 billion for a variety of things on the list, like prisons, the governor's border security plan, higher education and on and on and on.

Dewhurst is predicting the budget will go on like this for a while, partly because of a continuing mismatch between the school tax cut the state agreed to pay for and the revenue stream it created for that purpose. He said the new business tax doesn't raise nearly enough to cover the full cost of the local school tax cut: "That's a shortfall of $6.8 billion and that number increases each biennium... that's why I'm recommending that we set some money aside."

The starting budget is available on the Legislative Budget Board's website.

Big Idea

State officials, spurred by folks outside government, are putting together a fund to invest $3 billion fighting cancer over the next ten years. They hope to make serious progress against the disease while also drawing experts and their programs and making Texas the epicenter of cancer research in the U.S.

It's similar in some ways to California's effort to become a center of stem cell research (and a more recently announced stem cell fund in New York). The Texas plan would focus on cancer and not stem cells. And in other ways, it's akin to existing state funds set up to encourage development of new technologies and businesses.

The effort began with Cathy Bonner of Austin and now includes a mess of people inside and outside government: Gov. Rick Perry, athlete and cancer survivor Lance Armstrong and his eponymous foundation, the Susan G. Komen Cancer Foundation, former Texas Comptroller John Sharp, and Dr. John Mendelsohn, the president of the University of Texas M.D. Anderson Cancer Center in Houston, and the guy who inspired Bonner to get it going with a speech he gave some time ago in New York.

They're in the early stages but have already signed up sponsors in the House and Senate, including Sens. Kirk Watson, D-Austin, Jane Nelson, R-Lewisville, and Florence Shapiro, R-Plano, and Reps. Jim Keffer, R-Eastland and Patrick Rose, D-Dripping Springs.

Most of those people were in the crowd at a lunch held in Austin to get the idea rolling (though they weren't doing a full unveiling for the public and didn't invite press).

The idea is to raise $3 billion, investing $300 million annually for ten years into research programs approved, probably, by both a committee of scientific experts and then a board with financial responsibilities for the fund. Details are unsettled, but here are some high points made, in each case, by more than one of the people we've talked with.

Projects would get multi-year funding up front, which gets them past an obstacle with other government programs that can pull out the rug in mid-project.

Results that produce income through licensing or patents or whatever could be tied to paying the state back for its original investment.

Universities and other institutions that could participate in the projects might get non-voting spots on the panels, but wouldn't be allowed decision-making power. That's apparently hindered the rollout of the California project on stem cells.

The fund would be able to "force collaborations" — to make otherwise competitive researchers who want funding to work together when that makes sense.

Funding could come from general obligation bonds, which would require approval from two-thirds of the House and Senate and then from the public. It could come from the currently swollen Rainy Day Fund, or from the state's tobacco settlement money, or from other unnamed sources. Bonds backed by tuition were approved by lawmakers last year, and the Rainy Day Fund has been tapped for other programs, like the state's Emerging Technology Fund.

Bonner said the idea came from California's stem cell fund and from a speech she heard Mendelsohn give. Both of her parents were cancer victims. She was a pal of former Gov. Ann Richards and said the two of them talked about public policy and cancer while Richards, who died last year, was fighting that disease. Bonner became convinced the disease needed a "Manhattan Project" approach, and met with Mendelsohn and Sharp and Armstrong (she was once a member of his foundation's board) to get it going. Everyone else joined in quickly, she said, and now it'll go to the Legislature, where the details can be decided.

Unhidden Charges

State officials are agitated about a new line on Sprint and Nextel bills telling customers of that phone company that a new charge has been added to cover the costs of the state's new business tax. The language from the bill goes like this:

"Texas Margin Fee Reimbursement. Effective January 2007, Sprint will begin charging Texas customers a 1% Texas Margin Fee Reimbursement in the Additional Sprint Charges section of the invoice. For details on fees, see the Subscriber Agreement..."

That has won the attention of legislative leaders, the attorney general and comptroller, who are digging around to see whether the pass-through is legal. The company says it's doing with this tax what it does with an array of other fees added by various governments

Lt. Gov. David Dewhurst raised the issue, without naming the company, at a press conference, protesting that the tax isn't even due until 2008. Texas businesses that owe the tax won't pay it until May 2008, but the amount they owe will be based on their 2007 business year. That'd be the business reason to pass it along to customers now.

But no business in the state will owe tax collectors 1 percent. The tax maxes out at 0.7 percent, and that's where the state lawyers and tax experts are focusing their attention. It might be okay to pass along the tax, but not to over-collect and blame it on the state.

The company says it has the right to add a surcharge to phone bills to cover the cost of the new tax, and that the surcharge doesn't have to exactly match the tax as long as the company doesn't collect more than it'll eventually owe.

The surcharge on wireless bills is higher than the maximum rate of the new business tax. But the surcharge on bills for wired phone services is lower.

They added a one percent fee on wireless bills for Sprint and Nextel customers (the companies are in the middle of a merger) and a 0.6 percent fee on "wire-line" bills (long distance and other services involving phones that actually plug into the wall). When it nets out, a spokesman said, the company will have collected in surcharges about what it will owe for the state's new margin tax next year. No matter which calculation the company uses, the maximum margin tax is 0.7 percent of its gross revenues in Texas.

Put another way: The company will owe a maximum of $0.70 on every $100 in revenues. It added a $1 surcharge for every $100 it gets from mobile customers and $0.60 for every $100 it gets from wired customers.

The bill for the margin tax isn't due until next year, but businesses are being taxes on their activities in fiscal 2007. For many companies, like Sprint, the fiscal year matches the calendar year. They're collecting the taxes along with the business being taxed, and they'll pay up on the due date in May 2008.

"The average Texan pays nearing 18 percent of their wireless invoice in taxes, surcharges and fees," said Sprint spokesman John Taylor of Reston, Virginia (An industry group, CTIA, puts the Texas number at 19.7 percent). He said the company "considers it good business" to tell customers which part of their bill is for the phone and which part is for various taxes, and said only six states (Illinois, Florida, Nebraska, New York, Rhode Island, and Washington) hang more charges on cell phones than Texas. "What we decided to do was to pass on that tax to our customers in the form of a surcharge," he said.

He said the company never added a surcharge to bills for the current corporate franchise tax, and so won't be giving a rebate when that one expires and is replaced by the new margins tax.

Flotsam & Jetsam

Lt. Gov. David Dewhurst backed away from news reports that he thinks the state needs to build more prison beds. He told reporters that it makes sense that a state that's growing in population will also have more criminals than before, but he said he couldn't put a number to the need for more prison space. Some lawmakers want more prison space; others think the state should ease up, promoting probation, parole and rehabilitation for nonviolent offenders. The budget request from the prison system calls for 5,000 new beds, but doesn't contemplate any change in those other programs. The chairmen of the House and Senate committees that deal with prisons are finishing a report expected to call for alternatives to prison.

• Rep. Charles "Doc" Anderson, R-Waco, joined the call for a six-month moratorium on new coal-powered electric plants. He's not saying no at this point, but wants to slow efforts to fast-track approval of the new plants. His allies in that line include the Sierra Club, Public Citizen, and Texas Impact. The utilities say the plants are among the cleanest they've proposed; environmental groups say there are cleaner and better technologies available. An industry-backed group called Texans for Affordable and Reliable Power pushed a study from the "Clean Coal Technology Foundation" showing delays in plant construction could cause brownouts and blackouts. That group has several city officials among its membership and says it's allied with TXU — the company that wants the plants — and the foundation whose report it's touting. Here's another angle: Power Across Texas is a new non-profit headed by former PUC Chairman Rebecca Klein. They say they want to be a "portal of information" on the subject and in their inaugural press release, they say they're concerned about brownouts and the environment.

• A bipartisan group of lawmakers and other public officials wants the state's big funds to spurn investments in companies doing business with Sudan. The divestments would be targeted to hit the Sudanese government while minimizing the effect on Sudanese people. The backers include Railroad Commissioner Michael Williams, state Sens. Rodney Ellis, D-Houston, and Florence Shapiro, R-Plano; and Reps. Helen Giddings, D-Dallas; Ruth Jones McClendon, D-San Antonio; and Corbin Van Arsdale, R-Tomball.

• Rep. Buddy West, R-Odessa, is already looking over his shoulder for the 2008 elections. There are stirrings in his part of the country after he voted against a procedural proposal favored by House Speaker Tom Craddick. That vote was widely seen (by him and others) as a vote for a change in the chamber's presiding officer. West voted for Craddick, a Midland Republican, and said he always intended to. But he said the other proposal would have given Craddick opponents a little cover for voting their minds, and he wanted to give them that. We've already heard one potential opponent mentioned: Kirk Edwards, who lost the state Senate race a few years ago to Sen. Kel Seliger, R-Amarillo.

• The state no longer requires the services of two Tom DeLay-connected lobbying outfits in Washington. Gov. Rick Perry told Democratic members of the state's congressional delegation that the firms — subjects of much criticism from the left — have been terminated. Democrats contended the contracts were both expensive and useless to the state. And Perry is one of several state officials who have complained about the use of taxpayer money for lobbyists in Austin.

• Media Shrinkage: The Houston Chronicle is shuttering its bureaus in San Antonio and the Valley, leaving that turf to its sibling, the San Antonio Express-News. (The Laredo Morning Times is also a Hearst paper.) And People Magazine is closing its Austin bureau, where the reporter in residence is Bill Minutaglio, formerly of the Dallas Morning News Austin bureau.

Gallegos Recovering After Transplant

Just a week after announcing he was a candidate for a liver transplant, state Sen. Mario Gallegos, D-Houston, got a new organ and is recovering from surgery. A statement issued by his office Monday morning says he had the surgery Friday night and is in good condition.

It included a statement from his doctor, Dr. Joseph Galati:

"After Senator Gallegos' liver transplant was completed late Friday evening, he was making the progress we would have anticipated over the weekend, and this morning is resting comfortably in stable condition. As we had expected, the surgery went well, without complications... Senator Gallegos has not received special treatment, nor did he need any; organs are allocated on rigid criteria based on medical need. He is fortunate that a compatible organ became available."

Gallegos has asked Lt. Gov. David Dewhurst not to schedule close-fought votes while he's out, a request that spurred speculation that his absence could affect Senate business for the entire legislative session. He said in that earlier announcement that his recovery from then-unscheduled surgery would take about three weeks. That could stretch to a couple of months.

But that's not the problem now that it might have been. With his surgery coming so early in the session, it's less likely that he'll have to miss much of importance during the legislative session. Lawmakers can't debate anything but emergency issues during the first 60 days of the 140-day session, and if all goes well, he'll be back at work well before that period is over.

Political People and Their Moves

Drop the other shoe: Gov. Rick Perry officially announced his expected appointment of H.S. "Buddy" Garcia to the Texas Commission on Environmental Quality. Garcia's a former Senate and Perry staffer who, until now, was the assistant Texas Secretary of State.

Gene Fondren, the former legislator and retired head of the Texas Automobile Dealers Association, will be "of counsel" to the Hilgers Bell & Richards law firm. He'll be working with car dealers around the U.S. on legal needs and regulatory work, when they need it.

Former assistant U.S. Attorney Eric Nichols joins the Texas attorney general's office as deputy AG for criminal justice. He was most recently in private practice at Houston-based Beck Redden & Secrest. The moves are at least partly a response to the departure of Ed Burbach, who left his post as litigation chief for AG Greg Abbott to join the Gardere Wynne Sewell law firm, where he'll head litigation for the Austin office. David Morales was moved into the post of deputy AG for civil litigation, Burbach's job.

And Abbott rearranged his org chart, making Casey Hoffman, who'd been deputy AG for families and children, the executive first assistant AG. Alicia Key got a promotion to deputy AG for child support. Jeff Rose, the deputy first assistant, will add three litigation departments to his portfolio. Abbott left the rest of his top folks in place after starting his second four-year term.

Janelle Collier, general counsel for the Sunset Advisory Commission, is leaving that agency after five years to become committee director and general counsel for the Senate Jurisprudence Committee.

To the governor's press office, add two new deputy press secretaries: Katherine Cesinger, an LSU grad who's been an assistant in that office for two years... And Krista Moody, who worked in Florida for Gov. Jeb Bush and for that state's health and human services agency.

Quotes of the Week

Tom Pauken, on why the Task Force on Appraisal Reform, which he chaired, didn't recommend a cap on growth in property appraisals: "I don't think we stood a chance in getting it passed. The votes aren't there for that."

U.S. Rep. Michael Burgess, R-Lewisville, quoted in the Fort Worth Star-Telegram about being in the congressional minority: "To some degree, it can be liberating. But, all things considered, it's still better to be in the majority."

Gov. Rick Perry, quoted in The Dallas Morning News after a meeting with Democrats in the Texas delegation in Washington, D.C.: "Here's how excited I was about it. I said you get that transportation money up to where we're not a donor state anymore, I'm gonna become a Democrat again."

Lt. Gov. David Dewhurst, on calls for looser eligibility requirements for people in the Children's Health Insurance Program, or CHIP: "I don't think most people in Texas have a lot of sympathy for someone that can't fill out a two-page application every six months."

House Speaker Tom Craddick, quoted in The Dallas Morning News on the unsuccessful challenge to his reelection: "We're going to try to do a better job of listening to what the members are trying to tell us, and communicate both ways. Obviously, we thought we were doing a good job. Some didn't, and that's what it's all about."

Rep. Robert Talton, R-Pasadena, who challenged House Speaker Tom Craddick, talking about Craddick's [then pending] committee appointments with the Austin American-Statesman: "He's not kinder and gentler. He's just trying to be smarter."

Rep. Senfronia Thompson, D-Houston, quoted in The Dallas Morning News on the chance of creating an "innocence commission" to make criminal penalties are fairly administered: "Most people aren't interested in the innocence of people, just the guilt. It's going to take a major embarrassment before Texas resolves these issues."

Rep. Phil King, a Weatherford Republican who chairs the House committee overseeing utilities in Texas, in the Fort Worth Star-Telegram: "I think it's just bad science. I think global warming is bad science."

Sen. Dan Patrick, R-Houston, quoted in the Houston Chronicle after he's seen the committees where he'll serve: "The truth is, after 10 years of talk radio, I am well-versed in these issues."

Rocker Ted Nugent, telling the Fort Worth Star-Telegram that Gov. Rick Perry "called me to tell me, when they attack me for wearing the rebel flag, 'Be sure you tell them that I, as governor, support the waving of the rebel flag at the Laredo airport, alongside with the American, Texas and Mexican flags, and tell them to drop dead.'"

Perry spokesman Robert Black, asked if Perry really said people could drop dead: "No."

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Texas Weekly: Volume 23, Issue 30, 29 January 2007. Ross Ramsey, Editor. Copyright 2007 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.