The Texas Legislature handles tax bills like a finicky relative working the line at Luby's. First they have to look at everything. Then they have to talk about all the things they're allergic to. Then they go on about the things they like and don't like and repeat all the stories about the good times and bad times with food. Then they go indecisive on you. Sometimes their hungers overcome their anxieties and they fill up their tray and move out. Sometimes they don't eat.
The finicky Texas Senate is in the cafeteria, trying to pick food for themselves that'll also suit their cranky relatives in the House. And senators — all but two of them on record voting for huge sales tax increases a year ago — don't seem particularly anxious to vote again on school finance without first seeing what the House is willing to do. Twenty of the 31 members of the Senate were in the House before they moved to the upper chamber, and they're well aware of the ambitions in the lower chamber. Taking the lead on a tax bill is risky when your potential rivals are close by and attentive.
Time expires on Wednesday, May 19, and Gov. Rick Perry is poised to call another special session, possibly starting the next day, possibly with a little breathing room stuck in between. As we've noted, a new session moves the tax bill back to the House, where these things have to start. The Senate's advantage is twofold: Senators can simply hold hearings until the session is over, leaving it to the House to start again if the governor calls another session. Or senators, if they've got some positive sign from the lower chamber, could pass a bill on the assurance or suspicion that this might get solved by next week. One's the way to hope, the other is the way to bet.
In the meantime, the Senate is acting as if it wasn't aware of the House's mood on slot machines and property taxes, among other things. Video lottery terminals are still under consideration. Look: They would raise as much as $1.5 billion a year without a tax bill, lots of money with low political risk. There were a couple of votes on the issue in the House; supporters of slot machines need to find at least 16 votes and as many as 20 to pass a constitutional amendment on that issue. That's not the only gambling issue still alive, either. Senators have looked at lottery at the pump, which would let you buy lottery tickets with your gas and a carwash, and allow you to put it all on your credit card.
Local school districts aren't crazy about state property taxes, and the House killed the idea after hearing those people complain. Senators weren't listening, and have the state property tax on the table again. That would require a constitutional amendment, since such taxes are barred now, but the Senate plan would cut school property taxes to $1 from a state average of $1.47, and that might be enough for the average homeowner/voter to vote Yes.
It wouldn't take a constitutional amendment to lower the state's property tax rate, but some legislators want a cap in the constitution, so as to hold off future court problems and to require future lawmakers to leave the rate in place unless the public votes to change it. A vote on a statewide property tax would have the advantage of also capping the rate, if lawmakers choose to include the rate in the amendment.
In last year's regular session, more than 100 House members voted to cap increases in taxable property values at five percent per year, meaning the taxable part of your home value would rise slowly even if the real value was going through the roof. That's part of the Perry plan, and it hasn't seen a clean vote in the House this year. But it's still in the mix, and it's on the list of constitutional amendments still on the legislative menu.
Pick Your Poison
Senators shuttling in and out of the conference room next to Lt. Gov. David Dewhurst's office — the House is basically out of the game for the moment — have been getting new looks at taxes that have been on the table for some time, with some mutations and variations. We have no idea what'll finally come out, but we have heard about some of the things they're looking at, and as long as they're working, we're assuming everything on the menu could make it to the plate.
For instance: The "pick your poison" option for business. In this scheme, the state would create a payroll tax — like the one the House stripped from its bill — that would amount to 1.25 percent of payroll with a cap of $500 per employee. The state would also broaden the corporate franchise tax to bring in other forms of businesses — partnerships, mainly, and proprietorships. Businesses could pay whichever tax they hated least, so capital-intensive companies could go with the payroll tax, and labor-intensive outfits could opt for the franchise tax, which relies more heavily on capital than on payrolls.
Video Lottery Terminals, called VLTs by the industry and slot machines by civilians, don't appear to have the support they need in the House. But there's always an angle on these things. The House did a straight-up vote on slots and came up short by a dozen-and-a-half votes, give or take. They weren't presented with an alternative, though. What, some senators wonder, would the House do if everything was in place for a school finance bill except for the last $1.2 billion per year? And what if one choice was to expand gambling in the state and the other choice was to raise taxes? Would they bite? Maybe, and maybe not, but it's too early to count anything out. Lottery, you might remember, failed on its first trip through the House but passed with exactly 100 votes — the minimum needed — when they reconsidered their vote in the face of a $3 billion-plus tax bill. The widely heard cover line was "I didn't vote for the lottery, but I voted to give that choice to Texans." Some voted for the amendment while voting against the enabling legislation — thus giving themselves the ability to say they had voted against it, but wanted their voters to have a choice.
Sales tax variants are back, and there are 57 ways to slice this. The Senate voted for a wide-ranging tax bill a year ago, and 29 of the current 31 senators voted for it. What would happen, some of them are wondering, if they passed the same bill, but without some of the politically ugly elements? They wouldn't increase their political exposure by voting for a new tax in addition to the taxes they already supported. And the sales taxes they talked about last year raised a boodle of money.
Already on the Record
Refresh your memory: The Senate's plan last year was to raise the sales tax rate to 7.25 percent from the current 6.25 percent. Car and truck sales taxes would have gone up. Senators a year ago wanted to apply the sales tax to newspaper advertising, construction labor (residential and commercial properties), day care services, lawyers, auto maintenance and repairs, accounting and audit services, architectural and engineering services, public relations and management consulting, contract computer programmers, financial services brokerage, real estate brokerage and agency, freight haulers, barbers, beauticians, employment agencies, veterinarians, funeral homes, car washes and interior designers. The 2003 Senate version would have created a 75-cent state property tax in place of the current local property tax (which averages about $1.47), and local voters would have been allowed to tax themselves up to 10 cents for local enrichment of their schools. With the exception of that last dime, all of the money to operate public schools in Texas would have come from the state (including federal dollars already distributed by the state).
A fair number of senators now say that bill had some good elements but isn't something they want to see in law. But it had the advantage of killing Robin Hood, of halving property tax rates, and of putting the state fully in charge of funding the school system the state requires. Some senators now say that if you pick through the sales tax exemptions proposed last year, pruning the taxes that cause lurid headlines or waves of lobbyists to appear, you can raise enough money to replace what would be lost if slot machines or another big tax fell out of the current proposal.
Taming a Job Killer
Lt. Gov. David Dewhurst and his band of senators have been tinkering with a business activity tax for weeks, and it might or might not turn up on the floor for a vote. In simple terms, the version they're messing with would work like this: A business would take its net federal taxable income, add back compensation it pays employees, and prorate the numbers to take out non-Texas receipts. They'd get a deduction for employees. In one version, they'd subtract $30,000 per employee, or $250,000, whichever is greater, then pay a 3.75 percent tax on whatever is left. In another, they'd get $20,000 per worker, or $250,000, and the rate would be lower, at 2.5 percent. With only the $250,000 deduction, the rate could be lowered to 1.9 percent, but that would be harder on employers with lots of employees. A side note: The $30,000 per employee deduction would apply even if the employee made less that that amount. The deduction based on the number of workers might get around opponents, like Gov. Rick Perry, who have stuck the Job Killer label on the business activity tax and other broad-based business taxes. The tax, designed to replace the current corporate franchise tax, would apply to corporations, limited partnerships, business trusts, and most variants of those business forms.
Partnerships and Other Zoo Animals
Legislators and tax wonks have struggled for years to patch holes in the state's corporate franchise tax, and the latest numbers from the comptroller point to a couple of patches that could raise $1.2 billion over three years. These things are so institutionalized they have names: The Delaware Sub and the Geoffrey loophole. Carole Keeton Strayhorn says the state would gain $130 million a year by closing the Geoffrey loophole, named for the giraffe logo at Toys R Us. Companies set up their operations so that they lose money or break even after paying their out-of-state parent company — Geoffrey in this case — for the use of the name, logo, trademarks and other intellectual properties. The Delaware sub is worth $281 million a year, Strayhorn says. Texas companies reorganize as partnerships with Delaware-chartered corporations at the head, ducking most of their Texas franchise taxes by "moving" (on paper) out of state.
Gov. Rick Perry is still talking about limits on revenue growth at the city and county level, but his promise to take care of unfunded mandates isn't in his "call" for the special session. In special sessions, legislators can only consider topics included in the letter from the governor calling the Legislature to Austin. A cap on property tax appraisals is in there, and a cap on growth in local government spending from property tax revenues is there. Protection for those local governments from unfunded state mandates — though it's part of Perry's speeches — isn't part of the agenda he presented to the Legislature. Aides say he can add it at any time.
If you want to finish this thing by Wednesday — when the clock runs out — you have to have a Senate bill in front of the House on Monday and the wheels greased for a conference committee. If the House likes what the Senate offers, no such committee would be needed. If they don't, the conferees would need some time and then would have to send legislation back to the House and Senate for concurrence. One plan has the Senate trying to get a bill out by Saturday and sending it to the House for consideration by Monday. As the clock runs down, it becomes easier for senators to filibuster, or for opponents in the House to run down the clock by stretching out the debate. Sen. Jane Nelson, R-Lewisville, has threatened a filibuster to block slot machines, for instance — she also tagged the video lottery amendment to prevent its consideration for 48 hours — and others have talked about trying to block votes on higher sales taxes. Anything is possible, but that proposed schedule is, um, ambitious.
The Voters Speak: They Want Gambling
A pollster hired by the horse tracks says 83 percent of Texas voters want the chance to vote on video lottery terminals at horse and dog tracks, and that 62 percent of voters would vote yes if that question makes it to the ballot (which apparently means that 21 percent of voters think they deserve the right to say No to slot machines). Baselice & Associates, which also does polling for Gov. Rick Perry, among others, talked to 600 voters on May 10-11 and popped out a poll that has a 4.1 percent margin of error.
They didn't share everything, but did say they preferred locating VLTs "at race tracks where gaming is already legal," 61 percent, over "located throughout the state," 30 percent. For an even more loaded result, try this: "operated by the in-state owners of the race tracks who current manage them," 75 percent, versus "operated by out-of-state casino companies," 7 percent.
They polled the voters on preferences from the revenue menu, and VLTs, with 24 percent, came in second to cigarette taxes, the top choice of 32 percent of voters. Increasing sales taxes was next, at 11 percent, followed by increasing business taxes (7 percent), creating a state income tax (5 percent) and expanding sales taxes to food and beverages (5 percent).
The pollsters framed all of their questions using "video lottery terminals" instead of "slot machines" or any other phrase, but they contend people knew what they were talking about. Only 10 percent of the respondents landed in the don't know/no opinion column when asked how they'd vote if the question was on the ballot.
The Voters Also Like Some Taxes, if Only to Lower Taxes
Dallas businessman Albert Huddleston, who's been working on school finance for a long time, commissioned a poll to see what Texans would tolerate in return for an end to the Robin Hood funding system. According to his survey, which was also done by Baselice & Associates, they'd tolerate a small increase in sales taxes and an across-the-board business activity tax. The pollsters talked to 1,002 Texas voters at the end of March, and their margin of error was 3.1 percent.
When asked, 57 percent of those people said they'd vote for a constitutional amendment that replaced the current school finance system with a 1-cent increase in sales taxes and a three percent tax on payroll and employee compensation. The question also said property owners would get school tax rates cut by 50 percent, and that local school districts would be allowed to keep all property taxes they raised locally. Other stuff in that poll:
• 81 percent said property taxes shouldn't be the main source of school funding.
• 87 percent support property tax rate caps that could be lifted only with voter approval.
• 58 percent ranked their local school districts as excellent or good.
• 74 percent said any school finance plan should increase the amount the state spends on schools.
• 59 percent said the plans should include school choice, or vouchers, that would allow parents to pull their kids out of "poorly performing urban public schools" and use public school money to pay for private schooling.
• 59 percent said they oppose personal state income taxes, and that same number say they oppose expanding sales taxes to include "accountants, hairdressers, lawyers, auto repairs, car washes and funeral services."
Cuellar beats Rodriguez, Again
U.S. Rep. Ciro Rodriguez, D-San Antonio, lost another round to former state Rep. and Texas Secretary of State Henry Cuellar, and is now planning an appeal to the 4th Court of Appeals to try to keep his post. Cuellar lost on Election Night. A recount flipped the results and gave him a 203-vote lead. After court-sponsored checking in Webb County, that fell to 58 votes, but Cuellar is still ahead. On Tuesday, state district Judge Joseph Hart ruled in Cuellar's favor on the election contest filed by Rodriguez. Lawyers for the incumbent say they'll try to get a different result from an appeals court.
The House Wins Every Time
The state would get 60 percent of the take from slot machines at racetracks and 75 percent from machines on Indian reservations, but that's not the same as 60 cents on the dollar. It's more like six cents on the dime. Slot machines pay 88 cents to 94 cents back to players in the form of winnings. The "take" is the 6 cents to 12 cents left in the machine, and the state would split that with the operators
The comptroller of public accounts says VLTs would bring in $972.4 million a year by the fifth year of operations. They based that on an average of $250 left in each machine each day, and say 27,000 machines would be the optimal number, given the state's population. Put another way: adding more machines would make the average take per machine drop. This is a point of contention: The House wanted 40,000 machines and sponsors claimed their proposal would pull in $1.5 billion each year.
Another legend floating around is that the machines would pull a huge amount of money out of the state economy. Go backwards, using the House's $1.5 billion: $1.5 billion is 60 percent of $2.5 billion. If state machines paid 90 cents in winnings for every dollar wagered, then $25 billion would have to go into the machines to produce the revenue the state is looking for.
That's true, but it leaves out a step. The other 90 cents would come back out of the machine and back into some player's pocket [often not the same pocket where they started, but to another pocket in the same economy. The dollar in would kick out 90 cents for winners, 4 cents for the operator, and 6 cents for the state. The comptroller's estimators assumed the annual take when all the machines are up and running would be about $2 billion; the House version would require $2.5 billion.
State Rep. David Swinford, R-Dumas, says he'll run for Texas Agriculture Commissioner in 2006, giving up the seat he's held in the Texas House since 1991. Agriculture Commissioner Susan Combs has said she'll be running for comptroller in 2006 (she doesn't expect Carole Keeton Strayhorn, who's been making gubernatorial sounds, to run for reelection). Combs, to make sure people knew she's serious, cleared the way for anyone who wants to succeed her at Ag. Swinford is the first kid in the pool, and has more than two years to get known outside of his district and agriculture circles. It's possible to get elected after a stint in the House — Combs did it, but only after taking a couple of years to work parts of the state where she wasn't known. Former Reps. Pete Patterson and Tom Ramsay, both of them Democrats from East Texas, tried and failed. Swinford has been in the Texas House since 1991, and was vice chairman of the GOP Caucus before Republicans took over the House. He says he was going to hang up his House spurs at the end of his next term anyway, and says he'll do it by running for statewide office. Another potential isn't ready to talk: Sen. Todd Staples, R-Palestine, says it's too early to worry about the 2006 elections. He's not saying no and he's not saying yes.
Scott Brister, a Houston-area judge appointed to the Texas Supreme Court by Gov. Rick Perry, won the consent of the Texas Senate by the narrowest margin, 19-9. Confirmation requires approval from two-thirds of the senators in the room. Brister is a conservative judge who attracted headlines when he posted the Ten Commandments in his courtroom (a lawyer who didn't like it sued him; Brister won a summary judgment). He drew some dissent from the nominations committee last week after telling the panel that whether church and state should be separated "depends on the circumstances," but the Senate's Republicans stuck with him and he'll serve the rest of the year on the high court. Brister, named to the job by Perry when Craig Enoch left the court last year, is on the ballot this year. He's the only justice with a Democratic opponent, too: David Van Os of San Antonio. Brister, who's from Hockley, was chief justice of the state's 14th Court of Appeals, and before that, a justice on the 1st Court of Appeals and a state district judge in Harris County. He won strong backing from conservatives when he was appointed to the last two jobs (Perry put him on the 14th court), partly for his pro-bono work for anti-abortion groups before he was a judge.
Political People and Their Moves
We've been lazy about this one: Ray Ibañez, who was on the Republican side of the ballot in HD-41, officially dropped out. The Democrat in that contest is Veronica Gonzales...
Earl Pearson is the new chief of the Texas Rangers Division at the Texas Department of Public Safety. He's a 28-year veteran of DPS, and he's the first African-American to get the division chief job. He started as a highway trooper in El Paso in 1975 and became a Ranger in 1989...
Public Utility Commissioners Paul Hudson and Barry Smitherman won unanimous confirmation from the Texas Senate, and so did Larry Soward, who'd been appointed commissioner at the Texas Commission on Environmental Quality. Hudson is also the chairman at PUC.
Former state Rep. Randall Riley, R-Round Rock, is going into the car bidness. He's been executive director of the Texas Building and Procurement Commission, and is leaving to sit under a sign that says Randall Riley Dodge, Chrysler, Jeep in Bastrop...
Charles Miller, the Houston investor who chairs the University of Texas Board of Regents, will resign from that post. He was appointed by then-Gov. George W. Bush, and told reporters he wants to let someone new have a crack at it...
Top this: UT Southwestern Medical School's interim dean — Dr. Alfred Gilman — is a Nobel laureate. He's the chairman of pharmacology at the hospital that's attached to the school, and he's taking over for Dr. Robert Alpern, who's leaving to be dean at the Yale University School of Medicine. UT is doing a national search for a permanent dean...
Steve Robinson, retired executive director of the Texas Youth Commission, moves to Strategic Partnerships, an Austin consulting firm. He'll work on criminal justice issues for clients there....
Gov. Rick Perry named three people to the Texas County and District Retirement Systems, including El Paso County Commissioner Dan Haggerty, whose brother is Rep. Pat Haggerty, R-El Paso. Comal County Commissioner Jan Kennady of New Braunfels (she's a former mayor there), and Polk County Commissioner Bob Willis of Livingston will also be on that panel...
Perry put Barbara Rusling of China Spring, Nora Casteneda of Harlingen and J.V. Martin of Sweetwater on the Texas State Technical College System Board of Regents. Rusling is a real estate broker and a former one-term Texas House member. Casteneda is a hospital administrator, and Martin is a banker...
Houston attorney James Sales will head the Access to Justice Commission. Sales, appointed by the Texas Supreme Court, is a former State Bar president, and is now of counsel to Fulbright & Jaworski. He helped set up a volunteer legal services operation in Houston 20 years ago, and the AJC is in the same business. He'll replace John Jones of El Paso, who has headed the panel since 2001...
Judie Zinsser, a teacher at Sharpstown High School in Houston is Perry's newest appointee to the State Board for Educator Certification. She's also a steward for the Houston Federation of Teachers, according to the Guv's office...
Quotes of the Week
Sen. Florence Shapiro, R-Plano, with 10 days left in the special Senate as school finance legislation was taken up by the Senate: "I don't think there is anyone on this floor who is in a hurry."
Sen. Steve Ogden, R-Bryan, telling the Houston Chronicle the Senate is split between faction that want to pass a plan and one that wants to run out the clock: "That's the central issue right now politically... I don't know when we're going to move off the dime."
Anti-tax activist Grover Norquist, quoted in a San Antonio Express-News story on taxes: "These politicians are really like teenage boys on prom night. It doesn't matter what they tell you. They're only interested in one thing."
Texas Land Commissioner Jerry Patterson, fooling around after Agriculture Commissioner Susan Combs said she'll run for comptroller in 2006 instead of seeking reelection: "I've decided to run for Ag Commissioner as well as Land Commissioner. I'll merge the agencies and call it Texas Land and Cattle."
Texas Weekly: Volume 20, Issue 46, 17 May 2004. Ross Ramsey, Editor. George Phenix, Publisher. Copyright 2004 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 (800) 611-4980 or email biz@ texasweekly.com. For news, email ramsey@ texasweekly.com, or call (512) 288-6598.