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So here's a question: Does the huge budget surplus make it harder or easier to pass the governor's proposed tax bill? Comptroller Carole Keeton Strayhorn added $3.9 billion to the $4.3 billion that was already in the surplus — and those numbers don't include about $1 billion that's already in the state's Rainy Day Fund.

So here's a question: Does the huge budget surplus make it harder or easier to pass the governor's proposed tax bill? Comptroller Carole Keeton Strayhorn added $3.9 billion to the $4.3 billion that was already in the surplus — and those numbers don't include about $1 billion that's already in the state's Rainy Day Fund.

Legislators generally don't approve new taxes except in times of fiscal crisis. If you're inclined to stick with historical examples, you'll probably conclude the flood of cash will wash away chances for a new business tax that would be used to offset cuts in local school property taxes. That's getting a boost from conservatives and conservative groups outside the capitol who view the surplus as money that ought to be refunded to taxpayers.

But $8.2 billion is enough money — if you're of another mindset — to bribe lawmakers to do almost anything (we're using the word bribe to mean an inducement that's not of interest to prosecutors). It's enough money to pay for a substantial teacher pay raise, for instance. Increasing teacher pay is a big deal for a lot of lawmakers from both parties, including some Democrats who aren't inclined to help Gov. Rick Perry and the Republicans do a finance deal that doesn't include new money for schools.

Straight, No Chaser (At First)

House leaders are making their first run at this without sweeteners. Gov. Rick Perry has said he might add new items to the special session agenda if lawmakers solve the courts' problems with school finance. That could come in one bill — a measure that lowers school taxes by 17 cents using money from the state surplus. Tax bills would come next, if lawmakers think they need to do more. Some argue that a 17-cent cut would satisfy court orders to give school districts "meaningful discretion" over their tax rates and that the Lege could do that one bill and quit.

House Speaker Tom Craddick says you'll see tax bills on the floor of the House early next week, starting with that tax cut funded solely by the state's huge budget surplus. And while this sounds a little contradictory, he also says he'll support Perry's tax proposal.

The first bill on the floor would lower school property taxes by 17 cents, funded with the budget surplus. That's the idea that's been touted for weeks by Rep. Warren Chisum, R-Pampa. He says his bill would lower taxes enough to satisfy the courts, while spending just little enough — about $2.37 billion — to avoid hitting a cap on growth in state spending. And when that's done, he says he, like Craddick, will vote for the Perry plan.

Next comes a handful of single-shot tax bills, each addressing a piece of the tax proposal forwarded by Perry's Texas Tax Reform Commission. One would raise cigarette taxes by $1 per pack. Another requires people selling and buying used cars to use blue-book values for tax purposes, replacing something now known as the "liar's affidavit," where they simply sign a form noting the price. The big one would replace the current corporate franchise tax with a new tax on adjusted gross receipts.

Putting the taxes in single-shot bills limits what can happen to them if they make it all the way to the Senate. A tax bill with three taxes in it is classified as a general tax bill, and it can be amended with any other tax — even one not included in the original bill. The Senate could take a bill like that and send back a completely different tax bill and still be operating within the rules. But a bill with only one tax included is only open to that one tax. The Senate could change the rate or any other aspect of it, but they wouldn't be able to jump in with another levy.

Perry didn't include anything but school finance in the official agenda for the legislative session, but Craddick and Lt. Gov. David Dewhurst have been meeting to work on an education reform bill that includes the reforms the two houses had in common. There's already some argument about what ought to be in there, but this is the Texas Legislature, right?

Bug Report

The tax apple has (at least) two big worms in it, one named Robin Hood and one that could keep the local school taxes from being cut to $1. As it stands, the tax package in the House lowers school taxes without touching school finance formulas and without leveling out what schools can raise in local "enrichment" taxes.

If taxes are lowered to $1.33 and districts are allowed to raise rates a bit to get some local projects going, the amount of money raised with a one-cent tax increase varies widely from district to district, a situation that sets off alarms with poorer schools, education groups, and others. The Center for Public Policy Priorities did an analysis: The average district gets $27.14 per student for every penny increase in taxes. A really wealthy district — Highland Park ISD — can raise $127 per student with a 1-cent tax increase. They get more for their schools and don't have to "recapture" any of that money to share with poorer districts, leveling things out.

The rich districts like it, but it's a deal-breaker for everybody else.

Next is a bug in the way the legislation dedicates revenue from new taxes to property tax relief. It puts it in a separate account, but doesn't add in any other funds. But the new taxes don't cover all of the costs of the lower property taxes. In the first year, the Perry-Sharp plan requires $1.4 billion in money from the surplus. Strayhorn contends that gap grows every year; Sharp says economic growth will cover it. But the school finance package doesn't force legislators to close the gap if it exists. That $1.4 billion could go missing in the first round, meaning what started as a $1 target tax rate could end up at $1.10 or $1.15. Nothing in the bill forces lawmakers to contribute more than is raised by the new taxes. 

Reading the Instructions

The first fight in the tax debate will be over the rules of the fight. The House Calendars Committee has asked members about a number of possibilities that would limit the debate on school finance. They hadn't voted on one when we went to press, but the Pink Building was buzzing with plots and counterplots. The polling sheet used to test support for various rules — and tax plans — had several proposed limits:

• Forcing tax amendments to be revenue neutral, an idea stolen from budget debates, where amendments that increase spending without cutting a like or greater amount are often prohibited.

• One that would require all amendments to stick to the property taxes line. Amendments spending money on anything else, in other words, would be disqualified.

Democrats, who are pushing a package of education measures including teacher pay raises, health insurance and funding for textbooks, are miffed about the possible restrictions, but Calendar rules can't take effect without approval from the full House. Expect that vote to get spun as the pro- or anti-education vote, particularly if the House approves a limiting rule. This isn't just a Democrats' thing — though that's who's pushing in the House. Lt. Gov. David Dewhurst is running TV spots promoting a bunch of stuff — teacher pay raises, and health insurance, and textbooks, for instance — that wouldn't be allowed under the proposed House rules.

You can argue that same point the other way: Gov. Rick Perry left everything but property taxes and school finance out of the official agenda for the Legislature, and adding them to the bills would flout the Guv's instructions.

Members were also polled (we saw the questions but not the answers) on their support for:

• 17 cents in school property tax cuts funded with the budget surplus.

• Prevention of "appraisal tax creep" — when property taxes increase not because rates went up but because property values rose.

• Dedicating all new revenues — presumably from the new tax bill — to property tax relief and not to spending on education or anything else.

• The three major taxes the governor wants to create or increase: A levy on adjusted gross receipts of companies, an end to the "liars affidavit" that lets car buyers and sellers to understate sales prices, and increases in cigarette taxes.

A spokesman for House Speaker Tom Craddick, asked about the proposed calendar rules, said they hadn't been voted on yet, and said his office didn't know what the committee would be considering or what had been proposed.

Strayhorn: Who Needs Taxes?

Lawmakers looking for a way to cut school property taxes got a gift from Comptroller Carole Keeton Strayhorn on the first day of their special session: They can spend $8.2 billion without new taxes. There's even more if you count the $1 billion balance in the state's Rainy Day Fund.

And Strayhorn, who's also running for governor (not that that has anything to do with it), says the state could raise up to $7.7 billion more for education and other state programs with a combination of relatively small taxes, video lotteries at race tracks and reinstatement of a government efficiency program in her office.

Gov. Rick Perry wants lawmakers to approve a new $5.9 billion tax on businesses that would replace the current corporate franchise tax and generate $4 billion or so in new money. That new money would be used to cut local school property taxes by up to 50 cents over the next two years (he suggested some of the Strayhorn money could finance even bigger school tax cuts).

The gross receipts tax worked up by a 24-member commission — headed by former comptroller and Perry rival John Sharp — has survived in the open field for weeks without a fatal blow. That's some sort of a record for a tax bill, and some businesses have gone past neutrality on the thing and said they'll actively support it. Weirder still.

Lawmakers have held their cards close, however, and it's not clear how that big money will affect the debate. Outside groups fired up websites and demonstrations to push against any new taxes; they want the Legislature to work with the surplus and go home. You can see some of their handiwork on websites, like www.bigpileofmoney.com, www.texansforlimitedgovernment.com, and www.texasfornonewtaxes.com.

That was enough of a problem a week ago, when the budget surplus was — officially, anyhow — only $4.3 billion. Strayhorn, citing growth in the economy, a boom in taxable sales and in taxable energy prices, added $3.9 billion to that number. You can get a copy of her revenue estimate on the comptroller's website, but the short version is that she added $1.7 billion to her estimate for sales tax revenues, $719 million to her estimate on franchise taxes, and $2.5 billion to what she thinks will come into state coffers as a result of high oil and gas prices, and the taxes based on them.

Strayhorn didn't come out and say lawmakers ought to use the surplus on school finance — she listed some suggestions she says would raise $7.7 billion every two years. But she said they don't need a new business tax like the one the governor is proposing. She'd use some of the surplus, but would increase the amount going into the state's rainy day fund, to $2.4 billion. Using all of the surplus, she said, would set the table for a "massive tax increase" later.

She agreed with Perry and others that lowering local school property taxes would keep the courts at bay in the short term, but still wants a $4,000 across-the-board pay raise for teachers as part of a $1.7 billion annual increase in spending she would add to the state's education budget.

She continued her assault — begun last week — on Perry's business tax. She says it runs up a deficit, since it relies on the budget surplus in the first year and then correct that imbalance in later years when there might or might not be extra money (Sharp contends growth in the state economy will fill the gap).

Give at the Office? The Track?

The comptroller and the governor disagree on how to pay for cuts in local school property taxes in the years to come. He'd do it with a new business tax, an increase in the tax on smokes, and by using some of the state surplus. Comptroller Carole Keeton Strayhorn would do it with efficient government, legalized slot machines, smoke taxes and revisions to the existing business tax. Neither included any changes to state sales taxes in their plans.

His has been out for weeks; Strayhorn's list looks like this:

• Strayhorn said budgeteers could get $3 billion if they'd reinstate the e-Texas program (it was previously called the Texas Performance Review). That's like leaving a baby on the doorstep for the next comptroller. Strayhorn leaves office at the end of this year either to become governor or a retiree and her successor would be in the position of actually coming up with those dollars. It's possible, but it's not exactly ready to be counted.

• She reiterated her call for video lottery terminals at racetracks, where "voters have already approved gambling," saying that would raise at least $2 billion every two years.

• Perry and Strayhorn agree on a $1-per-pack increase in cigarette taxes, but not on how to use the money. He'd apply it to tax relief; she wants the $1.4 billion to go to the health programs, including the Children's Health Insurance Program, or CHIP.

• Instead of a new business tax, Strayhorn wants to keep the current corporate franchise tax, closing loopholes that allow businesses to avoid $1 billion in taxes every two years (several independent number-crunchers have said her numbers are conservative, and that closing the so-called Delaware Sub and the Geoffrey's loopholes would bring in much more than that).

• She included a swipe at Perry, saying the state ought to save the $300 million now going into two funds used by the governor to spur economic development.

Dewhurst TV

Lt. Gov. David Dewhurst launched a television ad campaign on school finance, saying the state should use part of the surplus, ought to lower local school property taxes, give teachers a raise, install some education reforms. He says the state should close the loopholes in its business taxes. Gov. Perry's plan doesn't rate a mention.

You can watch the ad at this link — www.texasweekly.com/documents/Join.wmv — or dig it out of our Files section if you want to download a copy.

Aides said the ads will run for at least two weeks, and that they started in three markets: Austin, Dallas-Fort Worth, and Houston. San Antonio is apparently going to be added later. The ads are running on broadcast and cable channels, and aren't targeted just at Republicans; Dewhurst bought CNN time as well as Fox News.

If you take apart the content, Dewhurst doesn't sound far off the plans that Comptroller Carole Keeton Strayhorn laid out earlier in the week. Like her, he wants a pay raise for teachers. Both would use part of the budget surplus. Both want to close loopholes in the existing business tax. Both want property tax relief. That said, he's putting more emphasis on education reforms. And he's not on the gambling bandwagon she's driving.

What do the ads accomplish? Hard to say. But they put Dewhurst in the public eye pushing education and asking for a pay raise for teachers, which could position him to take some credit — if there's credit to be had — when something finally passes. And if the public feels prompted to phone in any requests of legislators, the ads could drive that agenda, possibly moving education reform or teacher pay raises higher on the list of legislative priorities.

Buffalo Nickel

Lawmakers, faced with a record state surplus and a governor-backed business tax, also a record, are now thinking about borrowing money to pay for state operations.

That would slow down the drop in cigarette sales and let the state enjoy the taxes a little longer. It would also help the tobacco companies who would still lose customers to higher prices, but more slowly than if the tax is raised by $1 per pack.

Moments like this are why we have never turned our pens to fiction.

The governor's tax reformers didn't buy the idea, but the House Ways & Means Committee approved a plan to cut a proposed cigarette tax in half, to 50 cents, and then to add on a nickel. The 50 cents would go to property tax relief. That nickel would be used to pay off new bonds, and the money borrowed through those bonds would be used for property tax relief.

The rest of what started as a $1 tax would be phased in, 25 cents at a time, until the additional tax on smokes reached $1.05. The Coalition for Tobacco-free Kids, which has been lobbying for the $1 increase, says a phase-in would kill 9,800 people — the number they figured would be saved from premature death if the prices went up more quickly and that many people quit. By their math, the higher prices would keep 20,500 kids from taking up smoking.

Tax Shorts

• The Texas Medical Association, which was initially chilly about the tax plan, endorsed it after the deal for doctors was sweetened. Doctors will be allowed to deduct an extra 50 cents for every dollar in Medicaid and Children's Health Insurance Program services they provide, on the theory that they do that amount of charity medicine without getting paid.

• After thinking it over for a few days, the leaders of a group promoting the Perry-Sharp tax bill say they'll report the names of contributors to their group. Texans for Taxpayer Relief doesn't have to do that reporting, under the law, but say they'll do it anyhow. They hope to raise as much as $6 million to run television, radio and print ads pushing the new business tax now under legislative consideration. Perry's three gubernatorial opponents question whether the group is promoting his candidacy — not his tax bill.

Fun Facts: Texas has 22,490,022 people, according to the Census Bureau's 2004 estimate. And the comptroller says the budget surplus — the amount of officially uncommitted money that will be available during the current two-year budget cycle — is $8.2 billion. That's $361.64 for every human in the state.

• Whatever you call that tax cooked up by Perry's tax reformers, it's constitutional, according to the attorney general's staff. In a letter to Perry's chief of staff, First Assistant Attorney General Barry McBee (Perry's former chief of staff), says the proposed tax isn't an income tax. In particular, he writes, it's not a tax on the income of the people in partnerships. Instead, it's a tax on the partnership, which is legal. Taxing the individuals wouldn't be copacetic under what's known as the Bullock Amendment to the state constitution.

Early Exit

Lame duck state Sen. Frank Madla, D-San Antonio, won't serve out his full term, but will be around for school finance. In a letter to Gov. Rick Perry, Madla said he intends to resign May 31, the day before the courts say the school finance knot must be untangled. Madla, who was seeking another term in the Legislature, lost the Democratic primary to Rep. Carlos Uresti, another San Antonio Democrat. Leaving seven months early probably won't cost his district a vote on school finance, and frees Madla to start collecting a legislative pension and starting something new.

From his resignation letter, dated on the opening day of the special session: "It has been my greatest honor and pleasure to serve the citizens of this great state as both a member of the House of Representatives and a state senator, and making the decision to depart at this time was not easy. However, after many hours of thoughtful consideration and reflection, I ultimately decided that after 33 years of prioritizing public service, it was time to put my family first."

Roll Call

Tax bills and education reforms can induce ulcers in legislators who will soon face voters. But some of the people in Austin for the special session are at their last rodeo and could — theoretically, anyway — relax.

Five state senators and 19 members of the Texas House are serving now but won't be back for more of this fun come January, either because they gave up their seats or lost them. (Three House seats already turned over in special elections to replace two Republicans who resigned and joined the lobby — Reps. Ray Allen of Grand Prairie and Todd Baxter of Austin — and one Democrat who died near the end of last year's regular session, Joe Moreno of Houston.) And some number of current lawmakers don't know they're almost finished: The November elections are still ahead. The first votes taken by their successors — in order, Republican Kirk England, Democrat Donna Howard, and Democrat Ana Hernandez — will be on tax bills.

The senators in office now but already studying political retirement include three who didn't seek office, one who lost a primary and one who's reaching for higher office. They are Ken Armbrister, D-Victoria, SD-18; Gonzalo Barrientos, D-Austin, SD-14; and Jon Lindsay, R-Houston, SD-7, who all retired. Frank Madla, D-San Antonio, SD-19, lost his reelection bid in the primary, and Todd Staples, R-Palestine, SD-3, won the GOP's nomination to be Texas Agriculture Commissioner.

State representatives who find themselves in that situation include six who didn't seek reelection: Mary Denny, R-Aubrey, HD-63; Bob Griggs, R-North Richland Hills, HD-91; Bob Hunter, R-Abilene, HD-71; Suzanna Gratia Hupp, R-Lampasas, HD-54; Pete Laney, D-Hale Center, HD-85; and Jim Solis, D-Harlingen, HD-38.

Eleven state reps lost primaries, either for reelection or for higher offices they were seeking: Roy Blake Jr., R-Nacogdoches, HD-9; Scott Campbell, R-San Angelo, HD-72; Carter Casteel, R-New Braunfels, HD-73; Al Edwards, D-Houston, HD-146; Kent Grusendorf, R-Arlington, HD-94; Peggy Hamric, R-Houston, HD-126, lost Senate primary; Ruben Hope Jr., R-Conroe, HD-16, lost district judge primary; Jesse Jones, D-Dallas, HD-110; Terry Keel, R-Austin, HD-47, lost Texas Court of Criminal Appeals primary; Joe Nixon, R-Houston, HD-133, lost Senate primary; and Elvira Reyna, R-Mesquite, HD-101.

Carlos Uresti, D-San Antonio, HD-118, beat Madla in the Democratic primary for Senate. And Glenn Hegar, R-Katy, won the GOP nomination to succeed Armbrister (since the Democrat dropped out after winning the primary, Hegar can safely measure the curtains for his new Senate office). Those are the only guys on the list with a chance of returning to the Legislature — albeit in another chamber — unless the unexpected happens in November.

DeLay Wins a Round

U.S. Rep. Tom DeLay and two others won't face charges that they conspired to violate state election laws governing political contributions, but other charges against the three men will proceed. The state's Third Court of Appeals said the state Legislature made conspiracy an offense in 2003, but that was after DeLay, John Colyandro and, James Ellis put together the operation that won a Republican majority in the Texas Legislature in 2002.

The 3rd Court went along with state District Judge Pat Priest, who'd tossed the conspiracy charge. Travis County District Attorney Ronnie Earle appealed that, and his appeal resulted in this new ruling. He's still got the option to appeal to a higher court, and said in a statement after the ruling that he's thinking about it.

Prosecutors said conspiracy was already against the law in 2002 and that all the Lege did the next year was make the law more clear. The appeals judges seemed open to that argument, but said in the ruling that they're bound to follow a higher court precedent. They even said, more or less, that they disagreed with the precedent, but they followed it.

That sends the case back to Priest (unless Earle decides to ask the Texas Court of Criminal Appeals for another shot). In an email to reporters covering the case, he said Earle has 30 days to make that decision and that he himself will be on vacation in Europe in June ("there are some benefits to being semi-retired," he wrote), so the earliest he'll be back on the case is probably around July 1.

Political People and Their Moves

Scott McClellan, spokesman for President George W. Bush and son of state Comptroller Carole Keeton Strayhorn, is leaving his post behind the podium in the White House press room after two years and nine months as the nation's most prominent tackling dummy. He didn't announce his next step, but he's run statewide campaigns in Texas for his mom in the past.

Sworn in: Republicans Valerie Corte and Cheri Isett, the brides, respectively, of Reps. Frank Corte of San Antonio and Carl Isett of Lubbock. Both legislators are military reservists called to duty in the Middle East. And both appointed their wives to fill in during the special session.

Michael Schneider Jr. won the GOP primary against Beverly Malazzo, but he won't have to wait until the end of the year to replace state District Judge Kent Ellis. Ellis quit early, and Gov. Rick Perry appointed Schneider to fill the spot on the 315th District Court. A few years earlier, Perry appointed Michael Schneider Sr., now a federal judge, to the Texas Supreme Court.

The governor appointed Robert "Bobby" Bland IV of Odessa to be Ector County's District Attorney until the November elections. He's a former assistant DA there, now in private practice.

Gov. Perry appointed Lana Edwards of Hunt, Mike Boyd McKenzie of Kerrville and Karol Schreiner of Hunt to the Upper Guadalupe River Authority. Edwards runs a bed & breakfast; McKenzie is retired; and Schreiner owns a ranch and serves on the Divide ISD.

Deaths: Billy Goldberg, former head of the Texas Democratic Party, a banker, attorney, and real estate investor. He was 90.

Quotes of the Week

Maine campaign consultant Roy Lenardson, quoted in the San Antonio Express-News on public financing for campaigns: "Taxpayer dollars are being used to buy balloons, bumper stickers and tulips... It's cold here. People can't heat their homes. And we're handing out tulips."

Lt. Gov. David Dewhurst, when his gavel fell apart on Day One: "I hope that's not a reflection on the session."

Former House Speaker Pete Laney, quoted in The Dallas Morning News on reports that allies to the governor are trying to raise $6 million to promote his tax plan: "If you have to spend $6 million to sell it, it means that this is not going to be easy."

Republican political consultant Royal Masset, in The Dallas Morning News on the tension of other state officials waiting to see what Comptroller Carole Keeton Strayhorn would say about the state's accounts: "They're like monkeys that can't do anything in the shock experiment. All they can do is wait for the shocks and hope they don't hurt too much."

House Ways & Means Chairman Jim Keffer, R-Eastland, in the Austin American-Statesman after Strayhorn said Gov. Rick Perry's tax proposal won't work: "If people are looking for a reason not to be positive, that's a dang good reason right there."


Texas Weekly: Volume 22, Issue 42, 24 April 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.

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