Some things in government, as at the pharmacy, are contraindicated. For instance, you can say INCOME or PAYROLL or GROSS RECEIPTS, but you can't use any of those terms in close proximity to the word TAX. Just look at what happened to John Sharp, head of the governor's tax reform panel, who had to back out of too close an encounter between TAX and GROSS RECEIPTS in his comments after a speech to a trade group.
Sharp sent an email to reporters after the first couple of stories just to make sure they didn't put all those dangerous things too close to each other. "That particular option can no more be called a gross receipts tax than a sales tax can be called an income tax," he wrote. "Although they use similar basis, a gross receipts tax to business connotes a tax on the entire gross receipts of a company. That is far from the case with this option. It is accurate at this stage to say... it is a revision of the state’s franchise tax and some people have referred to it as a tax dealing with margins, but it is not and never will be a gross receipts tax."
The next day's headline in the Houston Chronicle indicated there might still be a problem: "Commission's Chief Backs Gross Receipts Tax."
Something similar happened to lawmakers who devised the current corporate franchise tax in 1991. It's based partly on "earned surplus," a term that corresponds to a word in our own language: income. Republicans called it an income tax, but it passed and has never been successfully attacked in court. A tax on gross receipts isn't illegal, but might as well be: It wouldn't pass political muster.
Whatever they finally call it, the scheme Sharp and his committee are talking about is one we outlined broadly back before Christmas.
Advisory commissions like this one don't have to post their meetings or even allow the public to watch, but they've been working behind the scenes on ways to raise enough state money to finance a cut in local school property taxes. They want $5.5 billion to $6 billion, which would knock as much as 50 cents off of local taxes.
In what looks like their favorite proposal of the moment, a company would start with its gross receipts. It would have the choice of subtracting Costs of Goods Sold, or its payroll and benefits, and it would pay a one percent tax on what's left. Capital-intensive companies would probably opt to subtract the costs of the things they're selling, so they wouldn't pay taxes on car parts or computer parts or whatever they're making. Labor-intensive outfits, where people are the highest cost items, would subtract payroll and benefits.
Companies would be allowed to "apportion" their revenues and costs so they wouldn't be paying state taxes on business that's done elsewhere. They're still fiddling with the details, talking to big taxpayers, key legislators and anyone whose opposition could feasibly break the deal. But some details are ripening.
Sole proprietorships probably wouldn't be included in the new tax base, since there is almost no way to tax them without violating the state's ban on personal income taxes. Taxes would be aimed away from partners and toward their partnerships to avoid similar problems. Small businesses — those with gross receipts of less than $300,000 — probably would pay no tax at all.
There would probably be a cap on the amount of income for one person that a company is allowed to subtract from gross receipts; some of the discussions have put that at $300,000. People could still have higher salaries than that, but the higher amounts wouldn't be deducted from a company's tax base.
State leaders near and far from that panel are also talking about putting more money into education, but they're playing with the wording. They want to limit the number of things that can go wrong in a special session by ignoring what's not absolutely needed. But they have to have enough sweeteners in the package to attract enough votes to get a solution through both houses.
The state has $3 billion to $4 billion in the till — money that wasn't budgeted and money that's pouring in unexpectedly because of things like high oil prices. Some of that could be spent on education without raising state taxes above what's needed to replace local tax cuts. Those who feel the need would get to call the tax plan a shift instead of an increase. Those who want more money in the schools would have cover, too. Republicans who want education reform in return for new money might be convinced to wait for the regular session, and Democrats who want more money into the schools would have to wait to get a permanent fix.
Ted's Five Ways Out
The state's solicitor general says there are five ways to get the Texas Supreme Court out of the school finance business. Ted Cruz — who argued the school finance case in court — is telling lawmakers and tax panels and anyone who wants to know just what'll get the judges out of the school finance business. What he says is important because it rules out other arguments. Once lawmakers pick from Cruz's list, they'll have four fewer things over which to disagree.
1. A constitutional amendment allowing a statewide property tax. Cruz says that would be the easiest and simplest legal way out of the court case. When he told a Senate about it recently, he added that he wasn't talking about politics and popularity. Just law.
2. A reform in the state system that ends reliance on property taxes. The legal trouble is that the courts think the state is forcing school districts to set property tax rates at or near a particular rate. That's an illegal state property tax. Taking property taxes out of the system might create other problems, but it would solve this one.
3. Raise the state's cap on local property taxes. That would make the legal claims disappear, at least for a while. Several lawmakers point out that it would cause other disruptions in the school finance formulas, but Cruz is talking only about the current school finance case. Raising the cap by 15 or 20 cents — to $1.65 or $1.70 — would kill the argument that the state has stolen "meaningful discretion" over tax rates from local officials.
4. Reduce the requirements the state puts on districts, by lowering what they're required to do, and thus reducing the price of doing it and the pressure to set higher local property tax rates. We understood it this way: If you want to buy a car and you don't want to spend more money, you have to settle for less car.
5. Give the districts more money without lowering the state cap on property taxes. This appears to be the most likely political solution. If lawmakers can agree on a big, new business tax and to use the money to raise state spending on schools and to ease pressure on local school spending, school districts will regain their discretion over property tax rates. Cruz and other state lawyers say the state's probably on safe ground if most districts have tax rates 20 cents or so below a state property tax cap.
State leaders are starting to talk like they're willing to limit what's up for discussion in a special session. House Speaker Tom Craddick said this week that education reforms could come up during a special session or later, in next year's regular session of the Legislature. Up to now, he's been saying education reform ought to be part of the package when school finance comes up. Sen. Florence Shapiro, R-Plano, started off a session of her school finance committee by saying last year's efforts failed because lawmakers "tried to be too broad and tried to do too much."
Maybe they'll shrink the battlefield this time.
Voters partaking of the special election to replace Rep.-turned-lobster Ray Allen, R-Grand Prairie, will see three names in the hat. Republican Kirk England, Libertarian Gene Freeman and Democrat Katy Hubener will all be on the ballot on February 28. Edward Smith, who's still on the GOP primary ballot, didn't sign up for the special, and England and Hubener and Freeman will go another round in November. There's some question about whether voters will see Smith's name when they vote in the GOP primary in HD-106; the address he listed when he signed up is represented by Toby Goodman, R-Arlington, and a Dallas judge ordered him off the ballot. But the GOP still has him on their "final" list. Whether he's there or not, he's ineligible for the post. The special election arsenals start small. England had $1,550 in the bank at the first of the year and Hubener had $8,345. The Texas Ethics Commission didn't list a report for Freeman. One of Hubener's contributors, for $1,000, is Rep. Lon Burnam, D-Fort Worth. The election is on February 28, and early voting starts February 13.
In the runoff for HD-48 in Austin, Republicans are trying to double-down and defeat Democrat Donna Howard, who surprised almost everybody by nearing winning outright in the first round. As with the HD-106 race, the contestants will meet again in November for the benefit of the same voters. Republican Ben Bentzin is getting daily help from elected officials like Susan Combs, and both she and John Cornyn have signed off on written appeals on his behalf. Bentzin was already winning the finance war, for what that's worth. Reports on file with the Texas Ethics Commission have him spending $262,708 getting his 5,125 votes (that's $51.26/vote), while she spent $69,982 getting 6,705 votes ($10.43/vote). Early voting starts February 6.
Dorothy Olmos, who lost in the first round of the special election to replace the late Rep. Joe Moreno, turned up on the payroll of Laura Salinas, who lost in the runoff to Ana Hernandez. Olmos and Charles George were knocked out in the first round of that race (both are running in the regular election as Republicans, though they were in the first round as Democrats), and both endorsed Salinas in Round Two. One of her expenses in that runoff was $1,000 to Olmos for "field campaign work." One more item of note from Salinas' last report. Texans for Lawsuit Reform stayed with her, to the tune of $20,000 for the runoff. But they weren't the biggest contributor. That designation falls on former state Rep. Roman Martinez of Houston, who contributed $68,278.13. His wife, former Rep. Diana Davila Martinez, was Salinas' campaign treasurer. Salinas is her niece. None of this will be on the test at the end of the semester.
Party Animal No More
The Texas Legislative Council ignored noise from Democrats and voted — with only one dissent and from a Republican at that— to make Milton Rister the new director of that agency.
Two long-serving legislators wrote to the committee and to House Speaker Tom Craddick and Lt. Gov. David Dewhurst to back away from plans to hire Rister — who made his name in Republican electoral politics — as head of the nonpartisan and nonpolitical TLC. It's a legislative agency that does everything from bill drafting to computer tech work for lawmakers of both parties in both the House and the Senate.
TLC went without a permanent director for two years. But on the eve of the vote on a new director, Reps. Paul Moreno, D-El Paso, and Senfronia Thompson, D-Houston, said it won't do to have a legislative agency headed by a guy who spent the last 20 years trying to knock Democrats out of the Legislature. But several lawmakers, including a couple of Democrats, said they were satisfied that Rister play fair and that he'll stay out of politics while he's got this job. And when it came time to vote, all of the Democrats and all but one of the Republicans were with him.
Sen. Jeff Wentworth, R-San Antonio, said he was voting against the hire because Rister, as a campaign operative, helped Free PAC when that group targeted Wentworth and several other moderate Republicans a couple of election cycles ago.
Another Suitor Visits Texas Democrats
Former state Rep. Glen Maxey of Austin, a political and policy consultant and the only openly gay lawmaker in state history, might run for chairman of the Texas Democratic Party.
He says he's thinking about it and wants to hear from other Democrats. In the meantime, one of the bloggers with the Burnt Orange Report — Karl-Thomas Musselman of Austin — has registered and fired up a website to promote Maxey's candidacy (www.draftmaxey.com). Maxey says Texas Democrats need to work on grassroots organizing and local JP and constable and county commissioner races. He's also interested in putting new technologies into the mix. But, he says, it's early and he's not sure he'll jump in.
Current TDP Chairman Charles Soechting has said he won't seek another term at the state convention in June. Boyd Ritchie, an attorney from Graham, Charlie Urbina Jones, an attorney from San Antonio, and Sherry Boyles, who recently left Annie's List and moved to Dallas, have all indicated some interest in the job.
In the Money
A half-dozen members, past and present, of the Texas congressional delegation are in the million-dollar-club. In incomplete returns (the Federal Election Commission doesn't have all the year-end reports online yet), these Texans had at least $1 million cash in their political accounts: U.S. Reps. Henry Bonilla, R-San Antonio, $2.1 million; Lloyd Doggett, D-Austin, $1.8 million; Joe Barton, R-Ennis, $1.7 million; Jeb Hensarling, R-Dallas, $1.1 million; Lamar Smith, R-San Antonio, $1.1 million; and former U.S. Rep. Jim Turner, D-Crockett, $1 million.
• U.S. Rep. Henry Cuellar, D-Laredo, got to the end of the year with $293,833 on hand. One opponent in the Democratic primary, Ciro Rodriguez, had $43,070 in the bank. The other, Victor Morales, had $11,126.
• Two Republicans want to challenge U.S. Rep. Chet Edwards, D-Waco, in November. Van Taylor had $628,698 on hand at year-end; Tucker Anderson had $66,391.
• It didn't show up in his report, but the Texas Club for Growth did a $12,000 poll for former state Rep. Wayne Christian, R-Center, in late November. They said in their report that it was an in-kind contribution and that he wasn't a candidate at the time. He wants his seat back from Rep. Roy Blake Jr., R-Nacogdoches, who won it while Christian was trying for a spot in Congress. The Club listed only three contributors in the second half of 2005: James or Cecilia Leininger (the "or" is listed in the report), $13,000; and $7,500 each from Al Hartman Partnership LLP of Houston and Michael Boylan of Houston, both of whom listed their occupations as real estate. James Cardle, the treasurer, was paid $10,000 for four months of consulting. They're building a website.
• Here's another new-ish group with an influx of money to spend. The Texas Republican Legislative Campaign Committee, formed last year, got $50,000 from Dr. James Leininger and $100 from John Norwood of Midland. Those were their only revenues. The group had two big expenses: They paid $20,000 to Anthem Media of Austin and $15,000 to Keep Texas Strong of Georgetown. Both expenses were for consulting. Anthem is a GOP consulting firm headed by former Midland County Judge Jeff Norwood. The Texas Ethics Commission hasn't posted any reports from Keep Texas Strong on its website, if in fact it has any. The group's post office box in Georgetown is also listed as the box for Williamson County Clerk Nancy Rister's campaign and for Ace Research (listed in other reports as A.C.E. Research and Technology), a firm headed by Milton Rister, her husband. He's the new head of the Texas Legislative Council and is presumably out of the political consulting business. Ace was active less than a month ago, though; Texans for Lawsuit Reform PAC paid them $2,750 for consulting on January 6.
Travis County prosecutors extended their inquiry into the political life of U.S. Rep. Tom DeLay, R-Sugar Land. They sent subpoenas to several people who went on what has become a famous golfing trip to Scotland with DeLay, lobbyist-turned-felon Jack Abramoff and others, and also want records of that trip from airlines and others. Separately, DeLay filed reports of his defense fund spending for the fourth quarter of 2005. It totaled $239,257, according to Political Moneyline, including $150,000 in legal fees to his lead lawyer, Dick DeGuerin, and $45,000 in legal fees to others. He raised $181,851. That trip took place in 2000. The prosecutors started this chase about three years ago with questions about Republicans and conservative groups activities in the 2002 state legislative elections.
• Carole Keeton Strayhorn got a flat response to initiative and referendum when she talked at the GOP's state convention in 2004, but she was already making trouble for Gov. Rick Perry and it's safe to say she was talking to his crowd. But she didn't give up on I&R. Strayhorn, running as an independent, says Texans ought to have a direct say in the laws they follow, and made some suggestions herself. She says I&R might have solved school finance, toughened penalties for crimes against children, stopped illegal immigration, cut property taxes and outlawed toll roads.
• For a minute there, Republican Terry Keel had maneuvered his way out of a three-way primary and into an easy ride to November. But the Texas Supreme Court decided Robert Francis and Charles Holcomb — who filed faulty applications to get on the ballot for the Texas Court of Criminal Appeals — should get a chance to fix their mistakes. That effectively puts the two Republican judges back on the ballot against Keel. Francis didn't say in all of the right blanks on the form just which spot on the court he seeks to fill. And Holcomb didn't have enough valid signatures on the petitions judges must file to run. Keel combed both applications and got the two knocked off the ballot. But they appealed to the Supremes and in a 5-3 ruling, were reinstated.
• Texas Supreme Court Justice Don Willett is getting the lion's share of endorsements in his primary fight against former Justice Steve Smith, but the Young Conservatives of Texas are endorsing Smith. They cite, among other things, his work as a lawyer on the Hopwood case, where four Anglos challenged the University of Texas on minority admissions to its law school.
• Donna Howard picked up an endorsement from the Texas Parent PAC, the first Democrat to get that relatively new group's nod. They previously made endorsements in two Republican primaries, picking an incumbent in one and a challenger in another. Howard's running against Republican Ben Bentzin in the HD-48 special election to succeed Todd Baxter, who resigned.
• Help from above: Rep. Kent Grusendorf's funder in Arlington next week features Gov. Rick Perry and House Speaker Tom Craddick in person, and Lt. Gov. David Dewhurst in name. Grusendorf, chair of the House Education Committee, drew a challenge from fellow Republican Diane Patrick, a former member of the State Board of Education and the Arlington school board.
• Democrat Katy Hubener picked up an endorsement from the Texas State Teachers Association. She's in a special election to replace Rep. Ray Allen, R-Grand Prairie, against Republican Kirk England and Libertarian Gene Freeman.
Political People and Their Moves
Rep. Frank Corte Jr., R-San Antonio, will soon be on his way to Iraq — not on a political junket, but as a member of the Marine Corps Reserve. He's one of a handful of state legislators on part-time military status, and the second called to full-time duty in recent months; Rep. Rick Noriega, D-Houston, returned late last year from a tour with the U.S. Army in Afghanistan. Noriega's wife, Melissa Noriega, served in his place in the House while he was overseas. Corte says he'll name his wife, Valerie Corte, as "temporary acting representative" to hold his spot should there be a special session while he's in the Middle East. That session is expected between now and June 1, the date by which the Texas Supreme Court expects the Legislature to enact a constitutional school finance plan.
Related: Harrison Keller, the director of research and top education wonk for House Speaker Tom Craddick, joined the Navy Reserve and expects to go into Naval Intelligence training. He'll still be around for a special session on school finance (and denies that's why he signed up) and for other momentous events, like the pending birth of his first child.
Mike McCormick, former presiding judge of the Texas Court of Criminal Appeals, was hired by the Employee Retirement System to determine whether Bill Ceverha, a member of the board, had any conflicts of interest between his duties there and his duties as treasurer of the Texans for a Republican Majority PAC. Ceverha declared personal bankruptcy after losing a court fight over corporate contributions to TRMPAC that weren't reported as required. He was also a registered lobbyist but says he ended those duties before joining the board. Democrats complained on both counts, and Ceverha asked ERS to do a due diligence report to see for itself whether there's a problem. McCormick will make $100 an hour, up to a maximum of $20,000.
Former Dallas ISD Superintendent Linus Wright and Phillip Mullins, a utilities station operator at the University of Texas, are Gov. Rick Perry's latest picks for the board of the Teacher Retirement System of Texas. Wright, who's now a consultant, is a reappointee; Mullins is new.
Rep. Wayne Smith, R-Baytown, will chair the House County Affairs Committee. Speaker Tom Craddick named him to replace Rep. Ray Allen, R-Grand Prairie, who resigned. Rep. John Otto, R-Dayton, will take the vice chair spot Smith had held.
Addie Horn is the new commissioner of the Department of Aging and Disability Services, known to state employees as DADS. She had been the deputy commissioner and replaces Jim Hines, who retired.
Deaths: Former state Rep. Vernon Stewart, who represented Wichita Falls from 1952 to 1972 and helped turn Midwestern State University into a publicly funded institution. He was 76.
Quotes of the Week
U.S. Bankruptcy Judge Frank Monroe of Austin, throwing some debtors out of court because of an "inane" requirement in the new federal bankruptcy law that they should have sought credit counseling before asking for relief: "It should be obvious to the reader at this point how truly concerned Congress is for the individual consumers of this country. Apparently, it is not the individual consumers of this country that make the donations to the members of Congress that allow them to be elected and re-elected and re-elected and re-elected. The court's hands are tied... Congress must surely be pleased."
Jason Stanford of the Chris Bell camp, critiquing Bob Gammage's boast of belonging to the "Dirty 30," a group of lawmakers who turned over the Legislature with ethics reform in the early 1970s, in The Dallas Morning News: "It's hard to base a campaign on a history lesson."
GOP House candidate Colby Brown, R-Fort Worth, on tinkering with Texas taxes, in the Fort Worth Star-Telegram: "I don't want to propose anything perverse to the economy."
Nueces County Republican Party Chairman Joel Yowell, telling the Corpus Christi Caller-Times he wasn't spying when he came to the campaign kick-off for Democratic House candidate Juan Garcia III: "I understood there was free food so I came down here for that."
Texas Weekly: Volume 22, Issue 31, 6 February 2006. Ross Ramsey, Editor. George Phenix, Publisher. 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 (800) 611-4980 or email firstname.lastname@example.org. For news, email email@example.com, or call (512) 288-6598.
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