Monday, November 21, 2005

Panel on education, taxes is all business

School finance is back in the news with the Texas Supreme Court making a decision on school finance shortly. Stay tuned. -Angela

Critics note slant, but leader says members can make finances work

12:00 AM CST on Monday, November 21, 2005

By TERRENCE STUTZ / The Dallas Morning News

AUSTIN – Awaiting only final marching orders from the Texas Supreme Court, a high-profile committee of business leaders headed by a prominent Democrat is poised to tackle the divisive issues that roiled three sessions of the Legislature this year:

John Sharp rejects criticism that his business-based panel would favor consumer taxes. 'We'll try to develop something that produces a long-term, stable and fair tax system,' he said.

The 24-member Texas Tax Reform Commission, appointed by Gov. Rick Perry and led by his one-time political rival, Democrat John Sharp, will begin work today on recommendations for cutting school property taxes and raising new revenue for education through higher business and consumer taxes.

The issues dominated Austin while lawmakers struggled and squabbled, but they have receded as policymakers await the high court's ruling on a lawsuit by school districts over the state's funding system. But they are no less divisive, as shown by an outcry over the Sharp panel's lack of labor, education or consumer representatives.

Mr. Sharp said the panel would examine potential increases in sales taxes, higher cigarette and alcohol taxes, along with a redesigned state business tax.

"We are open to everything except an income tax," the former state comptroller said, adding that even expansion of gambling in Texas, which failed to pass the Legislature, will be on the table.

At the same time, Mr. Sharp said, the panel will respond to calls from state leaders and taxpayers to significantly cut back school property taxes.

"I take 'significant' to be at least a third," Mr. Sharp said. The current maximum school property tax rate is $1.50 per $100 assessed value. Cutting the rate to $1 would save property taxpayers about $5.5 billion a year.

"If you go less than a third, it becomes hard for homeowners and businesses to see any real relief," he said.

Three failures
It's too early to tell whether the Legislature will accept any recommendations the committee may make or what effect the proposals would have on individual taxpayers.

Disagreement between the House and Senate, along with strong opposition from school districts and business groups, derailed the Legislature's efforts to overhaul the state's school finance system in a regular session and two overtime sessions called by Mr. Perry. Proposals offered by Republican leaders would have decreased local property taxes and boosted consumer taxes and some business levies to compensate.

Meanwhile, the state Supreme Court is expected to rule any day on the state's appeal of a lower court decision that found the $33 billion-a-year school finance system unconstitutional. If the justices agree, they could set a deadline for the Legislature to change it, which could prompt Mr. Perry to call another session next year.

Mr. Sharp said his commission will scrutinize the tax legislation drafted this year and look elsewhere, even other states, in the search for tax alternatives.

"We'll try to develop something that produces a long-term, stable and fair tax system," he said. There will be an emphasis on changes in the state's main tax on businesses – the corporate franchise tax – now avoided by five of six businesses because of loopholes in the law.

Mr. Sharp said having so many business leaders on the panel will make it easier to find a replacement for the franchise tax. But critics see no voice for consumers and average Texans on the commission. Some noted that several members of the panel made big campaign contributions to Mr. Perry in the past.

"Where is the mother working two jobs to provide for her family? Who represents the family that is trying to pay one of the highest property taxes and the third-highest sales tax rate in the country?" asked Sen. Eliot Shap- leigh, D-El Paso.

Mr. Shapleigh predicted the commission would resort to the same approach that was popular among legislative leaders, particularly in the House: heavy on consumer taxes that would raise the overall tax burden for all but the wealthiest Texans, according to state research.

Mr. Sharp rejected the criticism, saying his panel is similar to those appointed by past Democratic and Republican governors, including Ann Richards, Bill Clements and Mark White.

He also insisted the commission will have an open mind and try to be fair to consumers and businesses alike.

Another panel
Any recommendations face the legislative gantlet, though, and reaction among lawmakers has been polite if not enthusiastic.

Lt. Gov. David Dewhurst and House Speaker Tom Craddick have already agreed to appoint seven members from each chamber to seek a compromise once the Supreme Court has ruled. Unlike the Sharp panel, the House-Senate committee will look at not just taxes, but also school reforms and new funding rules for education.

Asked if the legislative committee might duplicate the work of the tax reform commission, Mr. Dewhurst said: "If the commission comes up with a concept that we haven't considered in the past, then we will be pleased to consider it." He added, though, that there is only a "finite" number of ways to attack the problem.

'Fresh eyes'
Rep. Dan Branch, R-Dallas, said having a panel of business leaders endorse a new package of business and consumer taxes could make it easier for the Legislature to reach agreement next time around.

"We have been looking at this for quite a while, but it's always good to have fresh eyes look at an old problem," he said.

"Their work could lead to broader support from the business community in Texas, something we didn't have before," he added.

Today's hearing will include testimony from experts on the state tax system and a briefing on the legislation considered by the House and Senate earlier this year. They will also set a schedule to develop recommendations for the Legislature.

Mr. Sharp said his panel could ultimately help legislators with public support.

"We will go from one end of the state to the other, educating the public, including business leaders, on what is in the tax code and what the unfairness in the tax code is, and try to build support from there so it will be easier for members of the Legislature to come to a consensus," he said.


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