Texas Budget Players in Race to Find New Revenue

The most popular students in the school known as the Texas Legislature these days are a select group of men who chair important committees tied to revenue and taxes. They're the Big Men on Campus because it's their job is to seek out hidden pockets of money that might alleviate the massive cuts outlined in House Bill 1, the general appropriations bill for the next biennium.

The process can be confusing for the average citizen, but here’s what you need to know: HB 1 is currently being reviewed by the Senate before it heads to conference committee. From there, 10 other selected lawmakers will attempt to split the differences and develop a final budget than can pass a majority in both chambers (We're following the budget cycle here.) For now, HB 1 remains a bare-bones, $164.5 billion budget that whacks $23 billion from the current biennium’s spending levels. As the Senate mulls possible changes, everyone is looking for revenue sources.

So who are the BMOC and how much money do they think they can put back in the budget?

The most visible member of this budget fraternity is state Rep. Jim Pitts, R-Waxahachie. As the chairman of the House Appropriations Committee and the main author of HB 1, Pitts is the chief negotiator of the bill. He is rarely alone on the floor of the House. During session, lawmakers surround his desk in effort to bend his ear. Anywhere he walks, someone is waiting to talk to him.

As of Tuesday, Pitts says his committee has identified about $3.7 billion in additional revenue. Last week, state Rep. Rob Orr, R-Burleson, introduced legislation in committee that would allow voters to decide whether about $500 million should be directed to schools from an obscure trust fund. This week, lawmakers will consider bills to speed up franchise tax payments to the state — generating about $1 billion — and to defer more than $2.2 billion worth of school and Medicaid payments. 

Asked how he is keeping track of all the bills in the House, Pitts slyly replied, “In my head ... and I have good staff.”

Over in the Senate, all eyes are on two individuals. In March, state Sen. Robert Duncan, R-Lubbock, was charged with the unenviable task of finding at least $5 billion in non-tax revenue. A list of ideas he and his allies are considering was recently leaked to the public. Duncan has yet to call his subcommittee together to review final recommendations for the Senate Finance Committee. State Sen. Steve Ogden, R-Bryan, the Senate Finance chairman, has repeatedly said he is not ready to discuss his side’s version of the bill because they haven’t figured out a way to pay for everything. Already, though, members of the Senate have distanced themselves from HB 1 because they believe the cuts are too deep. 

Of course, it doesn’t matter how much money the Senate thinks it can raise. Revenue-raising bills have to start in the House Ways & Means Committee. State Rep. Harvey Hilderbran, R-Kerrville, told the Tribune he has scrubbed the leaked version of Duncan’s revenue list. So far, he says it contains about $1.8 billion worth of revenue that he believes should go through his committee. However, he warned many of the ideas in that report have either passed or are pending. 

Bills that have been voted out of committee include: 

HB 658: repeals a state refund to business that receive exemptions from local school property taxes and saves the state approximately approximately $6.7 million annually. 

HB 257: raises $78 million by reducing the unclaimed property dormancy period to transfer more funds to the comptrollers office quickly.

HB 2403: taxes e-retailers with a physical nexus to Texas to generate $16 million.

Ideas Hilderbran may try to amend to other bills:

— Shortening the 18-month period to 12 months for unclaimed securities or money, which would raise $38 million. 

— “Speed up” the transfer of unclaimed properties to raise $216 million by adding a second deadline. Currently, businesses are required to transfer any unclaimed properties to the state by Nov. 1. 

Ideas that would generate money and are pending in Hildebran’s committee, although he does not support them all and is not sure whether they can all pass:

— Strengthening sales tax enforcement related to custom brokers, $6.3 million.

— Repealing the sales tax holiday, $111 million (“We’re definitely interested in that bill,” he said.)

— Re-instating a tax amnesty program, $50 million. 

— Speeding up motor fuel tax collections, $267 million (Note: “speed-up” means the state will collect taxes earlier or in increments.)

— Speeding up alcohol tax collections, $66.6 million (Hilderbran said this issue may have already been addressed in HB 11 in State Affairs. See below.)

— Small cigars tax fee, $12 million (Note: Estimates vary)

— Repealing a Blue Cross sales tax exemption which has reimbursed the insurance provider for taxable items purchased to fulfill federal contracts, $200 million

Hilderbran says there are two additional ideas on Duncan’s revenue list that may gain some traction in the coming weeks in Ways & Means, including getting rid of sales tax exemptions for “contract computer programming” ($324.8 million) and data processing services ($59.6 million). 

After breaking down the figures, Hilderbran tells the Tribune he thinks he only has enough committee support to pass a total of about $792 million in new revenue. And despite calls to review the unpopular franchise tax — which is now costing the state more than it brings in — Hilderbran said he does not plan to make significant changes this session. 

“This is not the session where you’re going to pass a lot of those bills because of our revenue situation,” he said. “We’re going to hear them, but they’re going to be more of a prelude to the interim study (on the franchise tax).”

Another player in the budget game is House State Affairs Committee Chairman Byron Cook, R-Corsicana, who says his committee has passed at least one major revenue bill with more on the way. HB 11 tightens reporting of alcoholic beverage taxes, closes a loophole and is expected to bring in $25 million over the next two years, according to Legislative Budget Board estimates. Cook says he believes that figure will be closer to $50 million. Other possible legislation includes a “parity” bill that would require satellite providers to pay the same franchise taxes charged to cable companies. If that measure passes, the chairman said it could generate more than $100 million.

These lawmakers are walking a fine line because they are concerned about bills being perceived as fee or tax increases. Instead, Cook and Hilderbran both say they support any legislation that makes the tax code more fair.

“We have a certain constituency that doesn’t want any tax increase, so figuring out a way to balance these bills and have them be viewed in a positive way — that’s the challenge,” Cook said. “There’s a lot of work that needs to happen to get buy-in and support.”

While they work within their committees, the chairs will eventually need to come together to reconcile their bills. As legislation moves to the floor of the House and Senate, they will need to track how much more money state agencies can expect to spend — or cut — over the next two years. 

“We’re starting to talk. Me and Pitts are talking. I’m informing them of when bills pass out of committee,” Hilderbran said.

It’s still not clear how and how often the lawmakers are communicating with each other. All five of the chairmen are frequently seen conversing and negotiating with their fellow legislators in their respective chambers. But that doesn't mean they keep the same score sheet. For instance, Pitts told the Tribune he was not aware the House State Affairs Committee had passed HB 11, which could add tens of millions back into the budget. He says he plans to learn more about it. 

Nearly 90 days into the session, it appears lawmakers are playing a sometimes unorganized political game where the stakes are high and changes can happen quickly. In the end, Pitts says some lawmakers may be more inclined to support bills that contain a sunset clause, meaning they are temporary. Then, there’s the question of whether they can pass enough revenue bills to make a substantial difference in the final budget. 

“Balancing services and revenues? That’s a real delicate balance because there is always an expectation,” Cook said. “People come to my office and say, ‘Hold the line. Hold the line. Hold the line. But don’t cut my program.’ So everybody has a program that is special to them, and that’s what makes it so challenging.” 

Pitts admits the process of defending HB 1 and trying to find elusive revenue sources has consumed his life.

“It’s my full-time job,” he said. “I don’t think anyone will tell you for sure (how much we can put back in the budget), because it’s a work in progress.”

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