There's clearly going to be a hole in the budget that the next legislative session is going to have to address. A higher (and regressive) sales tax along with cutting other social services will end up making up for the shortfall. It's going to be hard just to buy down the promised property tax cuts. Also, Recapture (or "Robin Hood") is effectively "reigned in," meaning that the 10% of existing wealthy districts get to hold on to more of their money. This is a decision that this top 10 percent has made on behalf of the remaining 90%.
The editors of the Austin American-Statesman today expressed their on-going support for a state income tax. Click here.
Without this, we will keep relying on property and sales taxes to the detriment of the middle- and low-income families. -Angela
79th LEGISLATURE: SPECIAL SESSION
Bills for schools may slow spending
Newest tax cuts could force Legislature to trim Texas' finances
By Jason Embry, Laylan Copelin
Sunday, May 14, 2006
A school finance proposal poised to emerge from the Legislature cuts more in taxes than it raises and restricts the use of some new dollars coming into the state, setting up a slowdown in government spending that many Republicans have long sought.
The plan has been criticized by some fiscally conservative Republicans because it raises taxes on many businesses. But the legislation may actually do as much to implement their vision of a slimmer state government as anything in years, starting with the need to reduce spending to pay for the property tax cuts. As it's gained momentum, talk of cutting services has returned in force to the halls of the Capitol, even as the state enjoys an $8.2 billion surplus and prepares to spend some of that on schools.
"It is almost as if the majority of the Legislature has mass anorexia," said Sen. Eliot Shapleigh, D-El Paso. "They look in the mirror and think they're too fat, when in fact Texas has enormous challenges in education and health that are being unmet every day."
Texas already spends less money per capita than most other states on services, including public education and health care.
The plan also limits growth in local tax bills caused by rising home appraisals and scales back the amount of tax revenue that property-wealthy districts must share with the rest of the state.
Sen. Tommy Williams, R-The Woodlands, predicts that the tax cuts will spur economic growth, and he said it's appropriate to be cutting taxes when there is surplus money available.
"I think it's an important commitment that we're not just going to increase spending as a result of this, that we're going to use the money for what we said we were — a tax cut," Williams said.
As for paying for the state budget in the future, "I have no doubt that we're going to be able to meet our essential services," he said.
Tuesday is the last day of the Legislature's 30-day special session that was called to respond to the Texas Supreme Court's order that lawmakers give local school boards more room to change their tax rates.
Gov. Rick Perry and lawmakers have set out to address the issue by cutting school property tax rates by one-third over two years and replacing that money with an expanded business tax, higher tobacco taxes, a revamped method of reporting sales taxes on used cars and money from the state's surplus. Most of those measures have been sent to Perry, and lawmakers are working out final differences on the others.
An overall tax cut
Though the business tax expansion was the most politically delicate piece of the puzzle coming into the session, it's House Bills 1 and 2 that could most affect how government operates.
House Bill 1 supplies the property tax cuts and boosts education spending by almost $1.5 billion per year, including a $2,000 teacher pay raise.
House Bill 2, which has been passed in similar form by each side, says money raised from the new taxes must go toward replacing lost property tax revenue until the one-third cut is achieved.
On the whole, the Legislature's plan is expected to cut taxes by $6 billion over the first three years, according to Perry's office. Once the tax cuts are fully phased in, the new taxes will raise about $2.5 billion less each year than what's needed to pay for the property tax cut, officials with the Legislative Budget Board told senators at a recent committee meeting. The state will rely heavily on surplus funds to implement the plan in the first year, before the tax increases take full effect.
Because the Legislature is cutting more taxes than it's raising, there may never be enough money from the tax increases to pay for the full one-third cut, which means the Legislature will have to use other state revenues to get there — or cut from other areas of the state's two-year budget, which includes $72 billion in state funds.
Some Democrats have warned that the only place lawmakers will be able to turn for new money is higher sales taxes, which they say disproportionately hurt the poor.
Dick Lavine with Center for Public Policy Priorities, which advocates more government spending on programs that aim to help low- and middle-income families, said supporters of smaller government will use deficits created by the plan as an argument to cut state services.
"The likely losers won't be just the usual victims — poor children who need health insurance," Lavine said. "It's going to run throughout state government. We could see more tuition increases, an inability to house prisoners, less money for higher education."
Before senators voted to cut taxes by a full one-third, Lt. Gov. David Dewhurst expressed concerns about how quickly the state could pay for a reduction of that size.
"That's something we're going to be monitoring very, very closely, at the same time looking for any area in state government that's fat and that we can eliminate to go ahead and fund our priorities, which obviously include public education," Dewhurst said.
Even as the proposal seeks to limit taxes, it contains one costly provision that was key to drawing support from Democrats and some Republicans in the Senate.
House Bill 1 increases the minimum amount of money that each district is guaranteed for each penny in its tax rate, and it increases the number of school districts that will receive the same funding.The Legislative Budget Board estimates that it could cost the state $940 million per year by 2009 to make sure districts have largely the same per-student funding when their tax rates begin to inch back up.
"When I voted for that bill, I recognized that there could be some problems in the future beyond 2008," Senate Finance Committee Chairman Steve Ogden said. "But I thought that they would all be manageable in some way, and so I said, 'Let's go.' "
Giving voters power
Ogden touted three aspects of the bill: It shifts some of the burden of funding education from local school districts to the state; it cuts property taxes more than ever before; and it increases equity among schools.
Specifically, the legislation cuts school district tax rates for operations from $1.50 to $1.33 this fall and to $1 in fall 2007. School boards will be able to tack about 4 cents back onto their tax rates, and they can go higher than that with voter approval.
Local school boards have, for all practical purposes, been handcuffed in their ability to raise money for several years because they've had tax rates at or near the state's maximum rate. The Legislature's plan gives them more room to raise money by putting their tax rates well below the maximum.
But they'll need voter approval to access most of that money, which reflects an effort by lawmakers to prevent property taxes from shooting back up with rising appraisals.
"A lot of the Republican members of the Legislature — not all of them, but a lot of them — are truly committed to lasting property tax relief," said William Lutz, managing editor of the Lone Star Report, a newsletter that champions smaller government. "They believe that government should not grow faster than the economy grows, unless the voters give their permission for that growth."
House Bill 1 also reduces from about $1.8 billion per year to $1.1 billion the amount of money that districts with high property values per student must share with the rest of the state. The amount of money the Austin school district must share will decrease from $154 million per year to $66 million.
"Everything I campaigned on — reining in 'Robin Hood,' less reliance on property taxes, more money for schools — is happening," said Rep. Dan Branch, R-Dallas. "We've gotten into the red zone before, but we'd never crossed the end line."
Additional material from W. Gardner Selby