A Critical Weekend

If the Senate Finance Committee can make it to Monday or Tuesday of next week with four or five of the school finance components intact, there's a good chance Texans will see a new business tax, a cut in school property taxes, teacher pay raises and a bag full of other legislative wonders. But it's gonna be a long weekend.

If the upper chamber makes big changes in the business tax bill, in school "reforms," in legislation restricting the use of new tax money to property tax relief, for instance, people in the Pink Building won't be so optimistic next week.

We're not seers by any stretch, but lawmakers have been plotting, and some of the possible plays are visible. The Senate will almost certainly add some or all of Sen. Florence Shapiro's SB 1 into HB 1, where there's a nice slot for it. The Plano Republican's bill includes a laundry list of education-related items, including a teacher pay raise and restoration of the $1,000 health care stipend for educators that was revoked and then half-replaced by earlier legislators.

There's been talk of passing HB 3 as is — that's the big tax bill — and sending it straight to Gov. Rick Perry without shooting it back to the House. And there's been talk — probably less reliable but still out there — of gutting it and replacing this business tax with something else. That scenario sets up a long siege; the first might be the way to a quick finish.

HB 2 — a must-have for some Republicans and a must-not-have for some Democrats — could get passed or ignored altogether, depending on which war-gamer you're hearing. It was created to force new tax money into tax relief and provides cover for Republicans who swore to their voters they hate, hate, hate taxes. The GOP is in charge and that's why it's gone this far. But Democrats want to use some of the new money for education and HB 2 forecloses the possibility. Leave it out of the package, and both groups would be a little less certain; lawmakers could direct all of the new money to tax relief for now and decide later whether to use the money for tax cuts or whatever else. It's not what he asked for, exactly, but Perry wouldn't want to veto his own tax bill, the reasoning goes, just because the lockbox didn't pass.

Round One

You just have to write this down to believe it: The Republican Texas House voted for the biggest tax bill in state history — and the biggest property tax cut — while sitting on the biggest surplus of taxpayer money ever piled up in Texas. It's just unusual, is all.

Get out of Dodge? Check. Dedicate new tax money solely to property tax relief? Check. Send the Perry-Sharp tax bill to the Senate? Check. More money from car sales taxes? Check. A higher tax on smokes? After a three-day case of hiccups, check.

The House started the second week of the session by spending enough of the state surplus to lower local school property taxes by as much as 17 cents, by setting up a mechanism that sends any new state taxes raised during this session to property tax relief. And then they spent hours debating changes to the tax bill proposed by the Texas Tax Reform Commission that was appointed by Gov. Rick Perry and headed by former Comptroller John Sharp.

The first 17 cents of a proposed school property tax cut — funded with $2.37 billion from the state's $8.2 billion surplus — got out of the Texas House with nary a scratch. Lawmakers changed the bill to keep rich school districts from leaving poor school districts behind — an amendment by Rep. Charlie Geren, R-Fort Worth — and then approved the bill 139-5 (the Nopes came from Reps. Lon Burnam, D-Fort Worth; Garnet Coleman, D-Houston; Harold Dutton, D-Houston; Jim Jackson, R-Carrollton; and Pete Laney, D-Hale Center).

They approved legislation dedicating the money from any new state taxes levied during the special session to school property tax relief. That was a closer vote: 82-66. That was nearly a party-line vote. One Democrat —Patrick Rose of Dripping Springs — voted for it. Four Republicans joined the rest of the Democrats in opposition: Carter Casteel of New Braunfels, Toby Goodman of Arlington, Pat Haggerty of El Paso, and Mike "Tuffy" Hamilton of Mauriceville.

The big tax bill — HB 3 — was argued for hours and ended up being a net tax increase of $3.445 billion. That's the amount of money the Legislative Budget Board says it would raise after taking into account the repeal of the current corporate franchise tax. The 38 amendments adopted during the House's floor debate cut about $58 million from the original bill, and it's on its way to the Texas Senate for further tinkering. The vote went largely along party lines, but with big exceptions. Of the 80 votes in favor, 10 came from Democrats; of the 69 votes against, 16 came from Republicans. House Speaker Tom Craddick voted for the bill — he usually doesn't vote — and only one member was absent. The mother of Rep. Roberto Alonzo, D-Dallas, died before the debate began and he was with his family.

The health of the tax package was in question, particularly after a weekend barrage of criticism from conservatives who wanted the Lege to use the surplus and leave new taxes alone. In rallies, through websites, and in volleys of email, they implored Republican lawmakers to leave new and higher taxes alone and to instead use the surplus to cut property taxes and mend the constitutional problems in school finance found by the Texas Supreme Court.

Democrats didn't like the idea of raising new money for school finance without using any of it for education, and many of them complained about vague promises of goodies like teacher pay raises and money for textbooks being added to the agenda after approval of property tax cuts.

Two small bills provided the anti-climax. Lawmakers voted 77-65 to force buyers and sellers of used cars to use blue-book values instead of filing what are known as "liar's affidavits" setting the taxable sales prices at whatever the signers say they were. Nobody's pointing at anyone in particular, but lawmakers think using the published prices will bring in another $41 million to $56 million in taxes every year.

And what started as the least controversial of the tax bills — a $1 addition to the state's tax on a pack of cigarettes — drew some arrows because of the bonding program we scribbled about last week. What came to the floor was a 55-cent increase in taxes, followed by two increases of 25 cents each in later years, and coupled with a bond program that would be paid off by the new taxes. Proponents said the state would have more to spend if it borrowed money through bonds and used the increase in taxes on smoking to pay off the debt. Higher tax increases, they argue, would accelerate the decline of smoking in Texas. "More people would quit [and] our revenue would drop quicker," said Rep. Peggy Hamric, R-Houston, the bill's sponsor.

The House stripped the bonding idea from the bill and reinstated the $1 increase in cigarette taxes, by an overwhelming margin. And then, Rep. Garnet Coleman, D-Houston, called a point of order on the bill and killed it. That's worth about $700 million a year out of the tax relief package — enough for a $2,000 teacher pay raise, or for 6 to 7 cents in local property tax relief. But fear not: The Ways & Means Committee put it back in its original form and the House passed it that way.

• The House agreed with Rep. Rafael Anchia, D-Dallas, and added an amendment that prevents businesses from deducting the salaries and wages of illegal immigrants on their payrolls.

• They also adopted one from Joaquin Castro, D-San Antonio, that would wipe out deductions for workers who are on Medicaid. That's a shot at Wal-Mart and other companies that have wages low enough to allow workers to qualify for poverty programs.

• The minimum for a "meaningful" pay raise for educators, according to the Texas Federation of Teachers, is $3,000 a year and full restoration of the health care stipend. The union has some sympathetic lawmakers on both sides of the partisan canyon, but the amounts, like the mileage in your car, may vary according to who is at the wheel. The range in most conversations is $2,000 to $4,000 per teacher per year. And the back-of-the-envelope cost is that every $1,000 increase in pay costs the state about $300 million a year.

A Matter of Interpretation

And then there's the question of what was added in HB 3 — the business tax bill. You can argue — and we've heard some of the amateur parliamentarians do it — that the House added enough stuff to that to make it an "omnibus" tax bill. If that's right, the Senate can do any tax work it pleases, from sales to VATs to BATs to income to you-make-something-up.

A tax bill with only one tax in it can be amended, but only with provisions related to that one tax. You can't put oil taxes in a sales tax bill, for instance. A tax bill with more taxes — usually, that means at least three different levies, but it can mean only two — is considered an omnibus bill that can be amended to include anything related to any sort of taxes. The House put the tax bills together so they'd only have one tax each — smokes here, used cars there, and business franchise taxes in the big bill. But when they were amending the bidness bill, they stuck on amendments relating to other sections of the tax code.

Suppose you were mischievous and you wanted to go into areas of taxation where the House did not go. You could — hypothetically, anyway — decide the House's work allows major changes in direction. Some senators have talked about bagging the Perry-Sharp bill and raising the money by extending sales taxes to services, like those provided by lawyers and architects and other professionals, for instance. And Lt. Gov. David Dewhurst has, in the past, been partial to variants of business activity taxes.

Dewhurst, asked by Sen. Royce West, D-Dallas, wouldn't say whether he thinks — officially — that HB 3 is an omnibus tax bill. It's a fielder's choice call, as we've said: He's probably got enough arguing room there to rule either way. West directed his question to Sen. Steve Ogden, R-Bryan, the head of the Senate Finance Committee, for his opinion. Ogden said he didn't think so, but he's not the guy who'll make the final call.  Analyze it this way: If the Senate decides to cut its own path on the tax bill, separate from the House and the governor, they'll call that an omnibus bill and replace it with their own preferences. If they're sticking to the play called by Gov. Rick Perry, they'll keep the bill pretty close to what it is now.

Rules of Engagement

The House can adopt calendar rules to limit debate, and they did so on the tax bills. The Senate doesn't. But they've got their own tricks: To amend a tax bill while the full Senate is debating it, a senator has to have brought up the amendment when the bill was still in committee. What you'll see when these bills hit the floor, in other words, you'll have already seen in committee.

Sens. Eliot Shapleigh, D-El Paso, and Royce West, D-Dallas, prodded Lt. Gov. David Dewhurst for some pre-interpretation on that rule, with this result: Dewhurst says the rule doesn't apply to two of the bills passed by the House. HB 1, which uses surplus money to lower local property taxes (and which is the likely vehicle for changes in education regs, school teacher raises, and such) isn't a tax bill, he says.

Neither, he says, is HB 2, which sets up the lockbox for new taxes and forces those funds into property tax relief. It doesn't raise any taxes itself, and the rule won't apply to it. And that means anybody with a surprise can hold it till the bills are in front of the whole Senate.

Year Two is a Little Hazy

Two numbers disappeared somewhere between the proposal of the Texas Tax Reform Commission and the bills passed by the House. One is $1.30, which was proposed as the new cap for local school property taxes after rate reductions are in effect. It's no longer in any of the bills that were passed this week by the House. The other is 33 cents — the amount those local taxes were supposed to drop in Year Two of the Perry-Sharp proposal.

The TTRC proposal used a combination of new taxes and state surpluses to lower local property taxes by 17 cents one year and 33 cents the next, bringing districts to a maintenance and operations tax rate of $1. The districts would be allowed to raise taxes themselves, but to constrain them, the commission would have lowered the state cap on school taxes to $1.30 from $1.50.

If you look at the whole bundle of bills, the House voted to use surplus state funds to lower school property taxes in year one by as much as 17 cents (it's actually a percentage now — 11.3 percent — and the drop depends on each district's current tax rate). A district with a $1.50 tax rate now would drop rates to $1.33. One with a rate of, say, 1.20 right now, would drop rates to $1.06. Most districts are within spitting distance of $1.50.

They voted to create a lockbox: All the money raised by these new state taxes would go into the box, and the money in the box could only be used for local property tax relief.

Lawmakers didn't obligate themselves to cut the local property tax rate to $1, and they didn't promise to supplement the tax proceeds with general revenue if more money is needed to hit the property tax targets. No second-year cut is specified; the amount would be set by the amount of taxes coming in. If it's greater than expected, rates would be lowered more; less than expected state revenues would lead to higher than promised school taxes.

Puffin' for the Kids

Got any idea how many cigarettes it takes to raise $700 million a year in new taxes?

It's easy to figure, since the big number is the comptroller's estimate of what a $1 per pack increase would bring in. There are 20 cigarettes in a pack, so you're talking a nickel per smoke. Divide $700 million by five cents: 14 billion cigarettes. Per year. That's just a fraction more than 26,636 cigarettes per minute every minute of every day of the year. If each of the 22,490,022 million people in the state chipped in, we'd each be on the line for 622 cigarettes per year, or 31 packs.

More goofy numbers: If you got the Legislature to go out and lay the cigarettes end to end, and if we use the standard 80-millimeter smoke (we'll ignore 100s for this silliness), the number of cigarettes smoked in Texas every year is enough to go around the world at the equator almost 28 times (27.946 times, if you're doing the math at home). And the state would get a nickel for about every three inches of that long trip. At five minutes per, that's 133,181 smoker-years.

Dip Ahead

An old fight over smokeless tobacco taxes might be the biggest lobby deal going right now, even with big ol' tax and school and teacher issues in front of lawmakers. A proposed change in the levy on snuff has become a lobby full-employment act, and the topic of a disproportionate part of the conversation over school taxes.

The companies that dominate the more expensive end of the smokeless business want to switch the existing price-based tobacco tax with one based on weight. Brands on the high-priced end of the deal would pay more taxes under the proposal, but the brands on the lower end of the market would see a much bigger hike in their taxes and, because of that, in their price. The net effect would be to narrow the price gap between cheap and premium snuffs. For the state, the net effect would be an additional $32 million a year in the treasury.

The tax on snuff accounts for about $1.06 on premium brands, and is in the 25-cent to 30-cent range on cheaper brands. Basing the tax on weight — a $1 per ounce tax is what US Tobacco and others suggest — would move everybody to a $1.20 tax (sales taxes are added to the final price at the checkout stand). They couldn't get their version into the House's tobacco tax bill, but they're hopeful the Senate will do it for them.

This issue flared in 2001, when Comptroller Carole Keeton Strayhorn was pushing it. Legislators then took a pass on it, and Strayhorn shot back by lowering her estimate of state revenue by $18 million — the amount it would have raised. She said then that it would be easier for the tax agency to administer than the price-based tax.

One argument when this came up five years ago — and which still has some currency — was that a price-based tax would rise with prices. That makes for nice politics: Lawmakers would get increased revenues into the treasury without having to vote to raise tax rates. A tax based on weight wouldn't act that way. The counterpoint: Low taxes on cheap brands encourage customers to avoid the high-priced ones, which put more money in the state's purse. A weight-based tax would kill that advantage.

Air Wars Underway in Houston

Texans for Taxpayer Relief — the organization promoting Gov. Rick Perry's tax plan, has its first $220,000 and it's going on the radio in Houston.

The group was formed under federal laws that don't require disclosure of who's giving or how much (unless their activities require reporting under Texas laws), but they say these groups have given these amounts so far: Maxxam, $50,000; Texas Motor Transportation Association, $50,000; Texas Apartment Association, $30,000; Texas Beer Alliance, $30,000; Texas Association of Builders, $25,000; Texas Credit Union League, $25,000; and the Texas Restaurant Association, $10,000. They list more backers on their website — www.taxpayerrelief.com — under "Supporters." The groups listed above are apparently the only ones that have contributed to the campaign.

The ads say it's time for "strong conservative leadership" and go on to say taxes on the average Houston home would drop $2,000 over three years under the proposal. You can listen to the audio in the Files section of our website, at www.texasweekly.com/documents.

The ties between Perry and the group agitated Democratic gubernatorial nominee Chris Bell, who sent a complaint letter to Travis County District Attorney Ronnie Earle suggesting an investigation of whether Perry is getting illegal corporate help with his campaign. Bell said it ought to start after the elections are over in November. And some lawyers contend the group has to stay out of campaign politics whether it takes corporate money or not. It's a corporation itself.

Some Houston conservatives — led by KSEV-AM and talk-show-host and GOP Senate nominee Dan Patrick — have been working to kill the proposed tax bill. But that didn't stop TTR from buying airtime on Patrick's station — or the station from taking their money.

Flotsam & Jetsam

Voters are catching up with heath care experts: 86 percent fear losing their health benefits and say health insurance ought to be more accessible and affordable, according to a survey done for the Texas Hospital Association. THA contends the average family spends an extra $1,551 on health care premiums every year because of uncompensated care by docs and hospitals. You'll hear more about this later; they're gearing up their legislative campaign for next year's regular session and will be pushing ideas like health insurance subsidies for small businesses, multi-county hospital districts, and tax incentives for employers that provide health insurance.

• Watching that Tom DeLay replacement game in suburban Houston? Harris County Judge Robert Eckels and Tax Assessor-Collector Paul Bettencourt are off the list. Still on: Houston City Councilwoman Shelley Sekula-Gibbs, Sugar Land Mayor David Wallace, Houston lawyer Tom Campbell, who came in second to DeLay in the GOP primary in March, and state Reps. Charlie Howard, R-Sugar Land, and Robert Talton, R-Pasadena. Four precinct chairs — one from each county with a part of the district — will pick a DeLay ballot replacement.

• Department of Corrections: We left Rep. Glenn Hegar Jr., R-Katy, off our list of House members who won't be back next session, in some editions. Hegar won the GOP primary to succeed Sen. Ken Armbrister, D-Victoria, and then his Democratic opponent dropped out. Barring something really strange, he'll be in the Senate in January instead of the House.

Political People and Their Moves

Boyd Richie, who wants to be the next chairman of the Texas Democratic Party, will hold the job until the party's June convention; the State Democratic Executive Committee named Boyd to serve the remainder of Charles Soechting's term. Soechting says he wants to spend more time with his family and on his law practice. Boyd, who's also the Young County Attorney, will face former lawmaker Glen Maxey of Austin and San Antonio attorney Charlie Urbina Jones in the election at the June convention.

MacGregor Stephenson is the new associate vice chancellor for academic and student affairs at the Texas A&M University System. Up till now, he's been a higher education budget and policy wonk for Gov. Rick Perry.

The U.S. Senate confirmed Houston attorney Gray Miller's nomination for a federal judgeship. He is — or was — a partner at Fulbright & Jaworski and will fill the spot opened when U.S. District Judge Ewing Werlein took senior status.

Press corps moves: Dallas Morning News reporter Dave Michaels is leaving Austin and that paper for a gig with the Bergen (NJ) Record, where he'll be covering transportation issues.

Deaths: HaroldDudley, campaign manager and executive assistant to former Gov. Preston Smith and a veteran of several state agencies, after a nine-year bout with Alzheimer's Disease. He was 82.

Quotes of the Week

Rep. Jim Keffer, R-Eastland, the author of the tax bill, after Rep. Bill Keffer, R-Dallas, spoke in opposition to it: "I love my brother. We disagree on this. But I certainly love him."

Rep. Scott Hochberg, D-Houston, against the bill: "This is not about our schools, it's not about our teachers, it's not about our kids. It's school finance without the schools and I'm voting no."

Angleton's representative, describing his amendment to cut small business taxes by substituting a quarter-cent sales tax hike: "This is Dennis Bonnen's Fairytale Land in terms of how we're going to pay for it."

Rep. Pete Gallego, D-Alpine, questioning promises that education reforms and spending proposals could come up later, after tax reform has been passed: "Around here, mañana seems to be the busiest day of the week. We never get there."

Lt. Gov. David Dewhurst, quoted in the San Antonio Express-News on a former opponent's estimation that it's safe to use some budget surpluses to balance a school finance bill: "John Sharp also was telling everyone that he felt comfortable he was going to win by 10 points in 2002."

Gov. Rick Perry, quoted by the Associated Press on a proposed $1-per-pack tax increase on smokes: "If the choice is between taxing property or taxing poison, then I say let's tax cigarettes.''

Rep. Debbie Riddle, R-Tomball, in The Dallas Morning News: "My constituents are well-informed. They pay the taxes. They've been demanding property tax relief. And they carry guns."

Chris Bell spokesman Jason Stanford, popping off in The Daily Texan about online polls where Kinky Friedman showed well: "Pac-Man requires more skill, and he has a better education plan than Kinky. Five-year-olds could come home after kindergarten and vote in this poll."

Former Rep. Ray Allen, R-Grand Prairie, talking to the Fort Worth Star-Telegram about why the fancy state furniture in his office was replaced by lesser stuff when his replacement, Kirk England, R-Grand Prairie, took over: "That's what happens. As you gain seniority, you get access to more impressive furniture. Then they take it all back."

Texas Weekly: Volume 22, Issue 43, 1 May 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.