Spending Time

The House kicked out its budget early Friday morning after 18 hours of debate; the Senate Finance Committee planned to send its version to the printers a few hours later. Put the Senate plan in play the week after the Easter break, and the conference committee that really writes the budget will get started.

Appropriations Chairman Warren Chisum, R-Pampa, revived an old technique, letting members add stuff on the floor that the conferees will prune later on. But some additions will be hard to shake, including a pay raise for teachers and a ban on spending for private school vouchers.

The frame they started with was a $150.1 billion two-year budget with more money for doctors, dentists and other health and welfare providers, for the Children's Health Insurance Program, for homeland security, the Teacher Retirement System, and so on.

The budget replaces some of the health and human service workers who lost their jobs after job cuts in 2003. In fiscal 2002, the state had 9,142 employees in its integrated eligibility programs. That fell steadily, to 5,975 in fiscal 2006. The House's budget would increase the numbers back to 7,500.

Most of the new money in education goes to enrollment growth and to catching up with an old accounting trick, when lawmakers delayed a $1.1 billion payment by one day to make a tight budget balance. Higher education gets 9.2 percent more, or did before the floor debate (new totals aren't available yet). It leaves $4.2 billion available and unspent, and the rules of engagement for the budget kept that money out of reach. The Senate plan, about two weeks behind the House version, spends a little more and saves a little less, but still leaves substantial amounts unspent. Some of the budget wizards think the money will be needed in a couple of years when the property tax cuts the state promised come fully due.

During the budget debate, the House voted overwhelmingly (129-8) for an amendment by Rep. Joe Heflin, D-Crosbyton, that would prevent any of the state's money from being spent on private school vouchers for grades K-12. That could short-circuit legislation by Sen. Florence Shapiro, R-Plano, that would allow vouchers for kids in autism programs, and another general voucher bill authored by Sen. Kyle Janek, R-Houston. Her bill's on the way to the full Senate; his awaits a committee vote.

Rep. Rick Noriega, D-Houston, managed to move $583 million from an incentive pay program for teachers into a straight across-the-board teacher pay raise. That survived two votes: one to kill it and the next to adopt it. If it survives the House-Senate conference committee next month, it would add $800 to $1,000 to the annual pay for educators and some staffers: librarians and nurses and counselors.

House Democrats had more than a dozen amendments designed to raid the governor's economic development cache for CHIP, teacher pay, and a mess of other things. But that money isn't in the general revenue pot, and couldn't be moved, according to House Speaker Tom Craddick. Since the House preceded the budget fight by adopting a special rule limiting changes to the money inside the budget, the ruling killed all of those pre-filed amendments.

After hours and hours of debate that were remarkably well-mannered, legislators did their version of Kumbaya (It goes: You're great. No, YOU're great. And so on.), and then voted 113-16 for the spending plan. The Senate's version should be printed in a week-and-a-half, and once it's through committee and the full Senate, the real negotiations can begin.

Unhatched Chickens, Counted

Comptroller Susan Combs lowered her estimate of what the state's new business tax will bring in during the next two years by as much as 15 percent.

The newly pessimistic outlook won't affect the amount of money available to budget-writers right now, however, because of skyrocketing sales tax revenues and better-than-expected revenue from cigarette and other taxes.

But they raise concerns about the second half of the two-year budget being written now, and about what'll happen to the next two-year budget lawmakers will write after the new business tax replaces the current franchise tax.

Combs had said — publicly and more than once — that she intended to leave that estimate alone. The new tax — a levy on adjusted gross margins — was cooked up a year ago when lawmakers were digging their way out of the latest school finance judgment against the state. It's intended to raise enough money to cover a 50-cent cut in local school property taxes, shifting some of the costs of public schools from local districts back to the state.

The new business tax will replace the existing corporate franchise tax. When it was created, then-Comptroller Carole Keeton Strayhorn said it would raise about $6.8 billion in 2008-09. She also said it would bring in far less than what will be needed to cover the Legislature's school finance promises.

When Combs took office at the first of the year, she decided to stick with Strayhorn's estimate on the new margins tax. She boosted the estimated revenue from the franchise tax, though, and nobody but budgeteers paid attention: She was shrinking the benefit of the new tax over the old one. Now she's shrinking the difference again. Knocking $500 to $900 million per year off the business tax is a serious change — in the 8 percent to 15 percent range.

Lawmakers built a test into the new tax, asking up to 4,000 businesses that pay the old tax to file a dummy return on the new one, saying what they think they'd remit. The idea was to give the comptroller a benchmark to compare real numbers from the old tax to numbers from the new one. Before the results were in, Combs was throwing ice water on that. She said not all of the taxpayers would play — that's apparently turned out to be true — and she said there was no penalty for filing bogus numbers. In short, she said, the information in the dummy returns wouldn't be reliable enough to justify a change in the estimate.

She's apparently changed her mind.

In a letter to lawmakers, Combs said the agency got responses from 2,500 of the 3,404 business entities they contacted. Those businesses will pay $1.3 billion in franchise tax for 2006, and said they'd have paid $1.9 billion if the new tax had been in place. And Combs notes that she doesn't have reports from a lot of taxpayers who'll be paying a business tax for the first time. In spite of the increases, Combs is pessimistic, leading to speculation that there was something scary in the dummy returns, and something that made them more credible than Combs had anticipated.

But nobody will know for a year. The new tax isn't due for the first time until May 2008, and many of the businesses that will be paying it haven't really tuned in yet to see what they'll owe.

Some quick analysis:

• Lowering the business tax estimate makes it easier to hide blossoming sales tax revenues. House budgeteers are already leaving $4.2 billion of what's available to them out of the budget; the Senate's budget is bigger by about $1 billion, and it's unspent pile is smaller by the same amount. The sales numbers, added to that, could be even more irresistible.

• Lots of the state's businesses want to make "technical adjustments" to the new business tax — they're trying to get out of some or all of what it would make them pay. With Combs portraying the new tax as a sickly baby, it's harder for lawmakers to tamper, especially if it would cut revenue. There are some pending changes that might get a boost, though: A mistake in the tax bill hit some businesses on their net margins instead of their gross margins, and fixing that could bring in, we're told, another $200 million.

• The new tax, levied against activity in the 2007 business year, isn't due until May 2008. Combs has one more official pronouncement on state revenue due between now and then — the one she'll turn in at the end of the legislative session. But a surprise, up or down, next spring could put lawmakers in a box. That's one reason they're leaving so much money unspent (or trying to — it's still early). They're also worried about numbers from Strayhorn and from the Legislative Budget Board last year: both said the tax would produce $23 billion to $25 billion less over five years than legislators agreed to spend on school finance.

A Commissioner, for a Conservator

The Texas Youth Commission, a state agency with the distinction of employing at least 100 felons while overseeing a prison system for the state's youngest criminals, is getting a conservator.

Gov. Rick Perry, who'd been avoiding legislative pressure to put TYC into conservatorship, changed tack and agreed to declare "gross fiscal mismanagement" and appoint a conservator. It'll be Jay Kimbrough, a former Perry aide who's been running the investigation of the scandalized agency. Kimbrough won't be permanent, and Perry hopes to name as his successor someone who'll take over the agency when it's out of conservatorship.

But Kimbrough will likely be in charge while the Legislature is in session.

Perry got something in trade; he had proposed naming a single commissioner to run the agency, instead of the part-time appointed board like the one that was in charge when complaints of sexual abuse of inmates by TYC officials were ignored. Lawmakers initially resisted that, as Perry resisted naming a conservator. An advisory board will still be in the mix, but won't have authority over the commissioner. That's part of SB 103, a remake of the agency authored by Sen. Juan "Chuy" Hinojosa, D-McAllen.

Sound and Fury y Nada Mas

Here's something: A joint committee hearing featuring nearly 40 experts talking over 11 hours about more than three dozen bills — most of which won't ever come to a vote in the Texas House.

Rep. David Swinford, R-Dumas, has made it clear that his committee won't hear most of the bills, following counsel from Attorney General Greg Abbott, whose staff told Swinford that immigration falls into federal jurisdiction and is not the responsibility of the state. A plethora of the bills are contrary to the U.S. Constitution or federal law, and Swinford doesn't want a federal case being made out of any bills passed by his committee.

But that's precisely what Wayne Christian, R-Center, wants to do with HB 28, which would deny state services to U.S.-born children of illegal immigrants in Texas. That appears to fly in the face of the 14th amendment to the U.S. Constitution, which guarantees birthright citizenship. Christian wants the bill passed, then argued up to the Supreme Court, allowing the justices to rule on how that part of the constitution is interpreted.

"It's intended to be carried and challenged in court," Christian said. "It's not intended for law. I know it's unconstitutional."

But it doesn't look like Chairman Swinford wants to play. He told reporters that he doesn't want his committee putting bills on the floor "that divide the House for no purpose."

Instead, he proposed that committee members draft a House Concurrent Resolution with a list of grievances to be sent to Washington. Swinford compared it to the Declaration of Independence, though an HCR has about the same weight as an angry letter to an opinion page editor.

Swinford did say, however, that he might consider voting for a potentially unconstitutional bill if it was attached as a rider to a larger bill not to be considered by his committee, say, something related to appropriations.

"That's not my committee. I don't care what they do," he said.

On the other hand, bills that probably will pass Swinford's "five-point test" (U.S. Constitution, state Constitution, federal law, state law and court precedents) and will be heard by his committee include legislation designed to deny in-state tuition rates to illegal immigrants who graduate from Texas high schools, to require law enforcement to inquire about the citizenship status of people they stop, and to align Texas identification cards with the standards set by the 2005 federal REAL ID act.

The invited witnesses talked to the Border and International Affairs and State Affairs panels. An aide said Swinford's State Affairs panel plans to hear immigration-related bills sometime after the Easter break.

The committee also might consider Gov. Rick Perry's proposed $100 million in funds to beef up border security. Right now that's part of Swinford's HB 13 (and in the budget approved by House Appropriations). However, even that amount of dough might not do much to help out immigration control, if you listen to Rep. Juan Escobar, D-Kingsville. The former border patrol official said, "$102 million is not going to help the matter."

(Editor's note: In a quick measure of House sentiment on immigration issues, Swinford's take was clearly in the majority. A budget amendment by Rep. Linda Harper-Brown, R-Irving would have denied CHIP benefits to children of legal immigrants who haven't yet been in the U.S. for five years. It fell hard, 136-5.)

—by Patrick Brendel

Tomorrow Never Knows

The company that manages investments for the Texas Tomorrow Fund says a recent "advisory group" report prepared for Comptroller Susan Combs had some flawed assumptions. And they complain that one of the advisors on that panel works for one of their biggest competitors in the college tuition investment business.

A rep for Boston-based New England Pension Consultants told the TTF board that their return on investments last year was 12 percent and that it was 10.5 percent over the last three years. They assume they'll be able to bring in 8.25 percent per year in investments.

Combs brought in a group of advisors who, for free, did a short and gloomy report on the prepaid tuition program's prospects. The short version: Where the TTF folks estimate a shortfall of $683 million by 2029, the advisory board said that hole could be between $1.7 and $3.3 billion 22 years from now. That shortfall, whatever the amount, is the difference between what the program will pay colleges on behalf of contract holders and the amount it'll generate in investments from those contract proceeds.

Those advisors said, among other things, that the return on investment would probably fall in the 6 percent to 7 percent range over time, partly because the need to pay off maturing tuition contracts will change the investment mix over time. Those advisors "strong recommend" against reopening TTF to new participants, saying the program is structured for financial failure.

In his presentation to the board — related to us by folks who were there — Dick Charlton of NEPC said one of the advisors who put that report together works for Milliman, a company that competes with NEPC for college tuition investment business.

The board hasn't decided whether to reopen the fund. And the Legislature is looking at several bills that would do that, some by redesigning the way TTF would work for future enrollees.

Unanimous, with an Asterisk

Omnibus water legislation, including the designation of 19 reservoir sites in Texas, is headed to the House. SB 3 by Sen. Kip Averitt, R-Waco, cleared the Senate on a unanimous vote, though some senators still have some reservations about it. The House already passed Rep. Robert Puente's HB 3, which mirrors certain portions of SB 3 but doesn't include anything about reservoirs.

SB3 provides for mandatory guidelines to be imposed on cities that currently do not have such guidelines. Kel Seliger, R-Amarillo, added a change to grandfather cities with pre-existing, voluntary water conservation guidelines. The new guidelines won't apply to them.

And Sen. Kevin Eltife, R-Tyler, reinserted into the bill the Marvin Nichols reservoir in Eltife's district in northeast Texas. Eltife strongly opposed the designation of reservoir sites, especially Marvin Nichols, and especially if there would be no local input in the creation of the reservoirs.

But he added an amendment that brought him on board. Most of the water from Marvin Nichols would go to the neighboring Dallas-Fort Worth area, not to the more rural region that surrounds the reservoir. Eltife's change gives at least 20 percent of the water to the local area and requires the DFW users to pay for the reservoir's construction, operation and maintenance, so long as they use most of the water. Also, each water district will appoint three people to a special study commission to study possible alternatives to the Marvin Nichols site, including raising the level of the existing Lake Wright Patman.

That commission will consider "water royalties" for landowners whose property is flooded when the reservoir is created. The commission's report to the Legislature would be due in December 2010 — in time for the session after next.

Eltife and Sen. Glenn Hegar, R-Katy, are still worried about the rights of property owners being impinged upon by the legislation; Averitt has promised more legislation to address those concerns.

At least one more senator — Bob Deuell, R-Greenville — and the Sierra Club are on the same page on the bill: They're for everything but the 19 designated reservoir sites.

—by Patrick Brendel

Earlier Voting, and other Election Notes

Ask them in another context and a lot of politicians and their support groups will tell you the election cycle is too long, that shortening it would lessen dependence on money and might even increase voter turnout.

But that's policy. Here's politics: If Texas wants to be a factor in the choosing of presidential candidates, it'll have to move up its primary.

And the House has made the first move, with a committee there approving HB 2017 by Rep. Helen Giddings, D-Dallas, that would move the party primaries from the first Tuesday in March to the first Tuesday in February. Primary runoffs would move up a month, too. Some alternatives would have moved the presidential primaries and left the general primaries in place; this one, endorsed by the state Democratic and Republican parties, moves both.

• While the House Elections Committee was having that bipartisan dance, they also approved two voter ID bills loved by Republicans and loathed by Democrats. The two bills, by Reps. Betty Brown, R-Terrell, and Phil King, R-Weatherford, require voters to present photo identification along with voter registration cards to vote. King's bill adds a requirement for proof of citizenship.

• The "Keep Your Powder Dry" caucus only lasted a week. Texas Land Commissioner Jerry Patterson and Railroad Commissioner Victor Carrillo started that entirely non-serious enterprise as a shield against pleas to support this candidate or that one for president. Now, though, they're coming out. Patterson says the two are joining folks who are trying to draft former actor and U.S. Sen. Fred Thompson, R-Tennessee, to run for president. "We lasted a week. There was too much internal tension," Patterson joked. They're not ready to name others who are with them, but Patterson expects more Texas Republicans to surface if the Thompson effort gains steam.

Flotsam & Jetsam

If a Texas sheriff — or any other law enforcement official — confiscates an illegal gambling machine, what can they do with it? They can sell it, according to Attorney General Greg Abbott, so long as they sell it in a place where gambling is allowed. Cameron County officials wanted to know if they could sell confiscated eight-liners to private investors instead of at public auction. Their theory: They'd get more money and they'd have a better chance of selling to someone who wouldn't turn around and use the machines for illegal gambling. They have to sell through competitive bids or auctions, but they can require the buyers to take the machines elsewhere.

• In a good case of bad timing, Dallas-based TXU now faces proposed fines and forced refunds totaling $210 million from state regulators who say the utility manipulated electric markets to jack up rates. The company disputes that and will go before the Public Utility Commission to make its case. The fines were recommended by the staff at that agency, which said it should refund $70 million to customers and to pay twice that amount in fines.

• The federal judges who decided the Texas congressional redistricting cases say the state should pay part of the attorney fees and costs of three of four groups who sued the state. They'll get a total of $762,768.93 — 25 percent of what they sought — for their partial victories in the case. One group of lawyers seeking fees didn't get anything; the three-judge panel said they dropped their appeals and aren't entitled to fees.

• Add Texas Railroad Commission meetings to the list of things you can watch online. The agency will put its twice-monthly conferences on its website — www.rrc.state.tx.us— live and later, in archived form. There's a private company in there: Texas Admin, which is selling sponsorships to pay for the service, which will be free to the public.

• A group formed to put a leash on immigration reform will run commercials statewide talking about the need for workers in construction, restaurants, hotels, agriculture and other businesses. "Texas Employers for Immigration Reform" wants to stop immigration reform from eating up the labor pool in Texas. They're for border security and a guest worker program, among other things. You can see their commercial and a list of their members online, at www.txeir.org.

• Department of Corrections: We made El Paso Republican Pat Haggerty a Democrat in last week's edition. He's an El Paso Republican, which is different from the regular kind. For that goof, we are sorry, sorry, sorry... and for this one, in which we flubbed an explanation of an impenetrable rule for racetrack ownership. Try this: You can less than five percent of a bunch of race tracks in Texas, but if you own more than five percent in two tracks, you can't own more than five percent of another one. Whew! We had the gist right, however: The folks who own large chunks of the Sam Houston Park and the Valley Race Park will have to sell their interest in one of those before they can get a Webb County license. Sorry, sorry, sorry.

Political People and Their Moves

Gov. Rick Perry appointed Mark Alan Calhoon of Palestine as judge of the 3rd Judicial District Court. He's a former assistant district attorney now in private practice, and he's a school board member (or will be until he puts on the robes).

The governor named Thomas Wingate of Mission as judge of the 430th District Court. He's CEO of a title company and legal counsel to Wingate Law Offices.

Luanne Southern will be the new deputy commissioner at the Texas Department of State Health Services. She was most recently at Washington, D.C.-based Mental Health America, an advocacy group. At DSHS, she'll run consumer and external affairs, policy and innovation, and program coordination.

Eldon White will become the new executive vice president of the Texas and Southwestern Cattle Raisers Association in May. He's currently running the National Agri-Marketing Association in Kansas. White will replace Matt Brockman, who retired in November. That group has a new slate of officers: Jon Means of Van Horn, president; G. Dave Scott of Richmond, first vice president; and Joe Parker Jr. of Byers, second vice president and secretary.

Recovering: U.S. Rep. Nick Lampson, D-Stafford, after heart bypass surgery.

Quotes of the Week

Lt. Gov. David Dewhurst, quoted by the Austin American-Statesman on comptroller warnings about revenues from the state's new business tax: "Comptroller Combs' estimate on the revenue generated by the reformed business tax validates the concerns I've had since last spring that it may not meet projections and could make balancing future budgets more difficult."

Democrat John Sharp, who lost to Dewhurst in 2002, then helped Gov. Rick Perry bring the tax into law, in the same paper: "I can't think of anyone who knows less about this tax than David Dewhurst."

Rep. Leo Berman, R-Tyler, quoted in The Dallas Morning News after finding that some of his immigrations bills won't get a hearing: "It's ridiculous that we can't talk about this in committee or on the floor of the House... divisive bills are what Legislatures do."

TYC conservator Jay Kimbrough, addressing fears he has a conflict of interest, in an interview with Texas Monthly: "I was in the AG's office (in March 2005, when a Texas Ranger filed a report detailing abuse at state facilities). I was in Dallas on November 22, 1963, too. In fact, I used to hang out at the Texas Theatre where Oswald was captured. I kid you not. Somebody ought to check into this."

Sen. Rodney Ellis, D-Houston, in the Houston Chronicle: "I'm not casting any aspersions on defeated judges. I mean, if I get defeated, surely it's not my fault."

Rep. Warren Chisum, R-Pampa, in the Austin American-Statesman: "Selling highways is not politically correct in this state. I don't care how much you get for it."

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Texas Weekly: Volume 23, Issue 39, 2 April 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.