*Editor's note: This story has been updated throughout.
Attorney General Ken Paxton sided with the Texas Senate Friday in a dispute among legislative budget-writers over an accounting trick using state transportation funds.
The Senate wants to delay a payment from sales tax proceeds to the state’s highway fund from August 2019 to September 2019 — an accounting stunt that would push the payment from the last month of the next budget cycle to the first month of the one that follows and allow the Senate to spend $2.5 billion more in the next budget.
House leaders raised objections to the transfer, calling it Enron-style accounting, and argued against it after the Senate asked Paxton for his legal opinion.
The state’s top lawyer, in a non-binding opinion, said he thinks a court that heard the issue would side with the Senate.
After noting that the Texas Constitution requires the comptroller to put up to $2.5 billion from sales taxes into the state highway fund, Paxton suggested a judge would overlook a small delay in that transfer.
“If the comptroller is unable to calculate the specific amount of the required deposit before the end of the fiscal year, a court would likely conclude that doing so as soon as possible thereafter would result in acceptable, substantial compliance with the constitution provision,” he wrote.
"This Attorney General opinion confirms that the Proposition 7 transfer considered in the Senate is constitutional,” said Sen. Jane Nelson, a Flower Mound Republican who chairs the Senate Finance Committee. “Now the conferees on Senate Bill 1 can begin working to balance this budget with full confidence that this option is on the table."
Lt. Gov. Dan Patrick, the Senate's presiding officer, is "pleased that the attorney general has confirmed the constitutionality of the Proposition 7 proposal," Patrick spokesman Alejandro Garcia said in a statement Friday evening. "He was confident when the comptroller presented the plan to him, the governor and the speaker that he would not have put it forward if it was unconstitutional."
Earlier in the week, an attorney for House Speaker Joe Straus argued that the Senate's transfer was “clearly and unambiguously” contradictory to the state constitution. The constitution says the money from sales taxes must be transferred to the highway fund in the same fiscal year it's collected; the House argued that that made a delay from one budget to the next illegal.
The dispute is one of several issues Senate and House negotiators will be working on as they resolve the differences between their proposed budgets. The Senate is less willing to tap the state's bulging $10.2 billion Rainy Day Fund — money the House is willing to use. The House doesn't like the transportation transfer, but relies on an accounting trick of its own by delaying $1.9 billion in payments from the state to local schools from one budget to the next.
The House still has issues with the Senate scheme because while the highway funds are moved out of one budget to the next, the state's transportation agency is still allowed to spend them in the first budget. "None of this changes the fact that the Senate is attempting to spend the same dollars twice," said Jason Embry, a spokesman for Straus.
Both houses of the Legislature are trying to write balanced budgets in the face of lower expected income from taxes and fees outlined at the beginning of the year by Comptroller Glenn Hegar. Hegar's office has been working with lawmaker on the transportation transfer and other financial details, but Hegar was not available for comment on Paxton's opinion late Friday afternoon.
Paxton's opinion does not carry force of law, and the issue could still be litigated. In his letter on Straus' behalf, attorney Frank Battle suggested two other obstacles for the Senate's proposed transfer: that it might be subject to a procedural ruling that would derail the budget altogether, and that any Texas taxpayer might have standing to sue over what Battle argued is an unconstitutional use of state funds.
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