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Wednesday, May 25, 2005

Progress Slow on School Finance

With days left in session, sticking points are sales, business taxes

11:38 AM CDT on Wednesday, May 25, 2005

By TERRENCE STUTZ and CHRISTY HOPPE / The Dallas Morning News

AUSTIN – House and Senate leaders declared Tuesday that they were making progress toward a school finance overhaul and tax-swap plan, but with just days left, they still face major roadblocks over business taxes and a sales tax increase.

Lt. Gov. David Dewhurst and House Speaker Tom Craddick met for nearly 1 1⁄2 hours Tuesday. Mr. Dewhurst said the pace of negotiations "absolutely" will have to pick up for an agreement to be reached before the legislative session ends Monday. And he signaled that the Senate is waiting for the House to fully engage.

"All I can do is make sure the Senate is prepared to reach an agreement," he said. "We know where we are."
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Still, he added, the differences between the two are not great. Mr. Craddick declined to comment on their discussions.

After two weeks of canceled meetings and little public movement on the biggest issue before lawmakers, negotiators outlined several areas in which they had made progress, such as a deal on how much to cut property taxes. But on major school reforms, a half-dozen key issues remain to be resolved.

Among those are student testing in high schools and teacher compensation – including competing plans that would institute a massive incentive pay program for the state's 300,000 classroom teachers.

"We are close enough where we can come to an agreement," said Senate Education Committee chairwoman Florence Shapiro, R-Plano. "We've come a long way in the last few days, and I hope we can do something by tomorrow."

Her House counterpart, Rep. Kent Grusendorf, R-Arlington, agreed that the two sides "are a lot closer than we were last week. Hopefully we can put the final touches on this in the next few days."

Ms. Shapiro cautioned that the school finance and tax plans are linked, and agreement must be reached on everything for any deal to apply. Top staffers to Gov. Rick Perry were also involved in the discussions.

Sticking points

The five senators and five House members working on property tax relief and new taxes to compensate for it said their talks are down to two big sticking points – how much more consumers should pay in sales taxes and how much businesses should pay in a revamped business franchise tax.

They are close to an agreement on the size of the property tax cuts: probably a 23 percent reduction in the maximum school property tax rate this fall, from $1.50 per $100 assessed valuation to $1.15. It would fall to $1.10 in2006.

On a home taxed at a value of $100,000 – after homestead exemptions and other items are deducted – the savings would be about $350 this fall.

Jim Keffer, the lead House negotiator on the tax bill, said the House is dropping its proposed 3 percent snack tax, which he said caused a lot of potential collection problems that "we didn't want to deal with."

Other expansions of the sales tax – such as to bottled water and car repairs – are still on the table, although one Senate negotiator said: "That junk's gone."

Mr. Keffer, Sen. Kim Brimer and other lawmakers on the tax bill committee said that an agreement hinges on whether lawmakers can compromise on the proposed sales tax increase and restructuring the state's business franchise tax.

House members want a higher sales tax – an increase of a penny to 7.25 percent – and a lower business tax. Senators are pushing for a lower sales tax – a half-cent increase – and a business tax that would raise about three times as much revenue as the House plan.

"If we can get the sales tax and business tax handled, we can make everything else fit it," said Mr. Keffer, R-Eastland. "It's a balancing act."

Mr. Brimer, R-Fort Worth, said that Senate leaders have already agreed to reduce their proposed tax increase on alcoholic beverages from 25 percent to 13 percent and are willing to accept a slightly higher sales tax increase if the House will agree to a business tax that raises more revenue.

"We can make an adjustment, but we're not willing to go to a full penny on the sales tax," Mr. Brimer said. "If we do that, we would have the highest state sales tax in the country."

House leaders have countered that when local sales taxes are figured in – an extra 2 cents in Dallas and many other areas – Texas would still have a lower overall rate than all surrounding states except New Mexico.

Business franchise tax

Just as big an obstacle to an agreement is the structure of the revamped business franchise tax that would be a centerpiece of the tax-swap plan. Each chamber has passed its own version of the new tax – and the differences are substantial.

The House plan would raise about $650 million a year in additional revenue to offset the property tax cuts, while the current Senate plan would generate nearly $2 billion – a figure that is $500 million less than the proposal endorsed by the Senate this month.

"We're giving businesses $2.6 billion in property tax cuts, and they're only going to charge them an extra $650 million in franchise taxes," Mr. Brimer said, calling on House leaders to provide better "balance" between consumers and businesses in their tax-swap plan.

Mr. Keffer pointed out that businesses also pay substantial sales taxes, which must be considered when trying to offset $4 billion in property tax reductions.

Despite the differences, Sen. Troy Fraser, R-Horseshoe Bay, said there is still time to strike a compromise.

"We're not that far apart where a decision can't be made," said Mr. Fraser, a member of the tax bill committee. "We just have to find the right balance between what businesses pay and what consumers pay."

Mr. Dewhurst said senators are motivated to reach a deal. But in the House, he said, "they've been distracted on a number of different legislative issues, and my whole purpose of going over to see the speaker this afternoon was to share with him that I felt was the urgency for both he and I to reach an agreement and for our conferees to meet and reach an agreement."

He said he believes Mr. Craddick also understands the urgency: "The speaker understands that time is passing."

E-mail tstutz@dallasnews.com and choppe@dallasnews.com
WHERE THEY STAND

House members and senators negotiating a school finance and tax overhaul have reached agreements on a few major provisions ...

SCHOOL FUNDING: Both sides want to put about $3 billion more into the system during the next two years.

PROPERTY TAXES: They are close to a deal to cut the maximum school property tax rate from $1.50 per $100 assessed valuation to $1.15 this fall. It would fall again next year, to $1.10.

SNACK SURCHARGE: The House had wanted a 3 percent tax on snack foods but has agreed to drop it.

CIGARETTE TAXES: Both sides are pushing for a significant increase, but a final amount hasn't been settled.

... but are still far apart on others:

BUSINESS TAXES: The Senate wants a broader tax that hits more businesses and takes in about $2 billion in revenue. The House's version would collect about $650 million.

SALES TAXES: The House is sticking to a penny increase. The Senate is willing to move up a bit from its half-cent increase, but not all the way to a full cent.

ALCOHOL TAXES: The Senate has cut what it sought roughly in half, from a 25 percent across-the-board hike to 13 percent. The House is still wary of any increase.

TESTING: The House wants to give end-of-course tests to high school students. The Senate wants to leave the current Texas Assessment of Knowledge and Skills in place.

TEACHER PAY: The details of how to increase salaries and create an incentive-pay system are still being discussed.

SPECIAL AND BILINGUAL EDUCATION: The Senate wants to continue allocating funds under a formula weighted for how much assistance a student needs. The House wants to provide a set amount per student.

SCHOOL BOARD ELECTIONS: The House wants them held only in the fall; the Senate wants to let districts decide.

Terrence Stutz
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