Folks back home really have final say on schools, taxes

This is one of the better political analyses of the politics on school funding than I have read in awhile. -Angela

7/24/2005 12:00 AM CDT

Peggy Fikac and Gary Scharrer
Express-News Austin Bureau

AUSTIN — It was a classic back-hall moment that underscored the bruising battle to change the state's education and tax policy.

A top aide to Gov. Rick Perry buttonholed Sen. John Whitmire as the Houston Democrat prepared to kill a school funding bill championed by the governor in the closing hours of this summer's first special session.

Dan Shelley, a former senator well liked by the lawmakers he seeks to influence, was uncharacteristically stern-faced as he spoke in low tones, but with little apparent impact. Whitmire's answer to the GOP governor's emissary was unyielding: "I'm representing my district."

And that's why state leaders are having a tough time arm-twisting lawmakers to vote for school and tax reform bills that don't enjoy overwhelming support back home.

The Legislature's fourth failure in two years to restructure school funding and taxes shouldn't surprise anyone, said Sen. Ken Armbrister, D-Victoria, a 22-year veteran of the Legislature.

"There are two things generally that no speaker, no lieutenant governor, can get between his members (and their constituents) on, and that's schools and taxes. This has both," Armbrister said of the twin struggles over House Bills 2 and 3.

Changing the way Texans pay taxes while also reforming public schools invites a tricky balancing act in which lawmakers weigh the benefit or loss to the people and schools in their districts against state policy and political considerations that also affect their constituents.

"I don't know that you can even separate the two. Obviously, the district is where I live. I sure want to make sure that we do no harm there. And if that's good there, you would hope that in the bigger picture of the state, it's the same way," said Rep. Jim Keffer, R-Eastland. "It's so complex because Texas is so diverse."

Keffer carries the tax measure in the House as Ways and Means Committee chairman. But he is disappointed that the bill takes only an "incremental step" in reforming the business tax.

"It's a tough vote," he said, "because I don't have everything in it that I think ought to be in it."

The difficulty of this balancing act never has been more evident than this year.

State leaders have found it hard to completely agree among themselves about bills even some supporters say are, at best, a first step. And the critics — including educator groups, consumer advocates and some businesses — complain bitterly that the school and tax bills will hurt more Texans than they help.

Supporters of the tax measure, HB 3, emphasize it will save billions of dollars in school property taxes. But opponents hammer at the inequity in a plan that would only benefit households making more than $100,000 a year, according to an analysis by the nonpartisan Legislative Budget Board.

That's because higher sales and other consumption taxes would pay for school property tax cuts. Households earning less than $100,000 will end up paying more after the tax swap, according to the analysis.

The debate is driven by a judge's ruling that the school funding system is unconstitutional, in part because of its reliance on local school property taxes and because the judge found the state's education funding inadequate. The tax measure is meant to address the first part of the judge's ruling.

"This is not really a tax-cut bill. It's a tax-shift bill," said Sen. Steve Ogden, R-Bryan, who, as Senate Finance Committee chairman, is carrying the measure in his chamber and who, like Keffer, has expressed disappointment that it doesn't include broader reform of the business tax.

"It's hard to build a solid constituency ... because for every person that gets a break, another one has to pay a higher tax," Ogden said.

"Every time you make somebody happy, you make somebody else mad."

Lawmakers started out with broader tax reform ideas that would have involved more businesses, but the House and Senate couldn't agree. Perry suggested simply plugging loopholes in the franchise tax on corporations as an achievable goal.

But doing so has provoked opposition from affected businesses that don't want to be singled out.

An estimated 10,000 Texas companies use those legal loopholes to escape business taxes, including the San Antonio Express-News.

Express-News Publisher Lawrence Walker Jr. said executives of Texas daily newspapers agreed last year not to oppose efforts to close the corporate franchise loophole under one condition: "Everybody gets taxed."

"To put a bill in, which still exempts the law firms and the real estate firms and the oil and gas partnerships and the medical doctors, is just egregious," Walker said.

Closing the franchise tax loopholes would cost the Express-News "several million" dollars a year, he said.

Portions of the business lobby would retreat from its opposition to the proposed tax bill after all businesses are treated the same, Walker said.

"It's just about fairness and equity," he said.

Walker recently expressed his opposition to Sen. Jeff Wentworth, R-San Antonio, who voted for the bill to close the franchise tax loopholes without expanding the tax to business partnerships.

Wentworth said he agrees with Walker and favors a low-rate business tax applied to all but sole proprietor, or "mom and pop"-type businesses.

But Wentworth said the "speculation around here is that there's a lot of limited liability partnerships — oil and gas partnerships in Midland, Texas — and the speaker is not going to allow them to be taxed."

Lt. Gov. David Dewhurst also favored bigger reform of the business tax system, although he recently broke a rare tie vote in the Senate against doing just that. Dewhurst blamed the House and Perry for the scaled-back effort.

However, House Speaker Tom Craddick, R-Midland, does favor "a more reformed business franchise tax that would bring everyone under the umbrella," Craddick spokeswoman Alexis DeLee said.

She noted the House passed a bill this spring that would have taxed partnerships.

"Now the House and the Senate have agreed upon the governor's plan, and that is what we are moving forward with," she said.

Lawmakers have targeted a new school property tax rate of about $1.20 per $100 valuation to operate public schools — down from the current $1.50. Such a rate would deliver only modest tax savings for most homeowners. Half of all Bexar County homeowners, for example, would save less than $17.75 a month at a $1.20 rate. Most school districts now levy a rate of $1.50 per $100 property valuation.

The median home value of $86,000 in Bexar County translates into a $213-a-year tax savings at the $1.20 rate. A $500,000 home would get a $1,455 tax savings.

State and legislative leaders wanted to deliver a bigger property tax break than what lawmakers settled for, Craddick said.

"Whatever we do is a start. Everybody wants (larger cuts), but they don't want to look at the hard facts of what it takes to get there," Craddick said.

Democrats criticize not only any tax shift from the wealthy to middle- and lower-income Texans but slam the approach of GOP House leaders in crafting a new tax bill.

The public won't get an opportunity to participate, and five Anglo House members will write the bill. All are male.

"Every woman in Texas should be offended," said Rep. Pete Gallego, D-Alpine. "The average every-day person isn't represented — no Latinos, no people of color."

Craddick's spokeswoman defended the tax bill writers as experienced lawmakers with an extensive background on tax policy.

"The speaker wanted people who were most familiar with the issue," DeLee said.

Some GOP lawmakers, meanwhile, are skittish about voting for any tax increase.

"If you have a Republican who has a record of voting for a new tax or an increased tax — even though it may have been to offset a reduction in property taxes — the opponent (in a GOP primary) won't ever talk about that," Wentworth said. "They just talk about you raising taxes, so that makes everybody a little gun-shy."

Approving a new school reform plan also has proven difficult. The bill that died last week attracted plenty of critics for multiple reasons.

Teacher groups attacked it because the touted $1,500 pay raise shrunk to $500 by their measurement of new money. School officials criticized it for leaving schools short of money needed to pay for mandates in the bill. And others said the bill would widen the equity gap between poor and rich school districts instead of closing the existing disparity.

The proposed plan helped property-wealthy districts more than it did poor schools, according to an analysis by the Legislative Budget Board.

Bexar County's Alamo Heights School District, for example, would get $315 more per student, according to the analysis, which made adjustments for special student populations. The Eanes district west of Austin stood to get $441 more per student, while Highland Park, a wealthy enclave of Dallas, would have received $447 more per student, according to the analysis.

But the Edgewood School District, lead plaintiff in a landmark 1994 lawsuit against Texas that improved equity between rich and poor schools, only would get $170 more per student.

The same analysis showed the San Antonio School District getting $183 more per student; the South San Antonio district would get $189 more.

Rep. Fred Hill, R-Richardson, said of HB 2, "You could probably make a case to vote against it. But it's better than what we've got now. It's a step in the right direction."

He said setting policy to benefit all Texans, including disadvantaged students, is good for his district and the whole state.

"I'm talking about the next generation, basically. If we do not do something to educate the people in this state right now who are amongst those that you would call disadvantaged and poor, we're going to pay for it in the long run. It's going to affect Texas," he said.

Education groups' opposition to the proposed school reform bill doesn't appear to bother Dewhurst, Craddick or Perry

"I don't know any school finance bill in the past that the superintendents have gotten behind," Dewhurst said. "This (HB 2) is a significant improvement on what we were working on (at the end of the regular session in late May). We have made a lot of progress since May 28th. This is a better bill for schoolchildren, for superintendents, for our teachers."

Perry said, "For the life of me, I can't understand why someone would walk away from the opportunity to put additional dollars into these schools, to put that money into our teachers' pockets that they need and that they deserve, to get those schoolbooks into the classrooms and to get property tax relief."

The Legislature's inability to agree on school and tax bills during two regular and two special sessions is not testing Texans' patience, Dewhurst said.

"Voters want improvement in our school finance system. They don't care whether it takes four weeks, six weeks or seven weeks," he said. "This is too important not to get it right."

Changing the tax structure always means raising taxes for some or imposing new taxes on those who aren't paying. Doing so is politically risky with the next election lurking less than a year away, said Armbrister, the veteran senator from Victoria.

And changing the education code is inherently difficult because all 181 members of the Legislature are familiar with schools.

"Everybody's an expert," Armbrister said, "because everybody went to school."

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