CPPP Blogger Conference Call

I got off the phone not long ago from the Center for Public Policy Priorities blogger conference call to discuss the Texas Tax Reform Commission/Sharp/Perry tax plan. It was actually the first blogger conference call I’ve participated in and, true to form, I buzzed in late. But, it was very informative listening to and asking questions of Scott McCown and Dick Lavine with the CCCP.

Before getting to some of the details of the call, I do want to point out a couple things from their website which will be very useful to all of us in understanding the tax plan and its impct (and lack thereof) on Texas. The CCCP’s “Texas Trilogy” includes three important documents: The Public Education Challenge, The Best Choice For A Prosperous Texas: A Texas-Style Personal Income Tax, and a position paper entitled How To Reduce Property Taxes.

One thing I feel it is important to point out, and something I took away from the call in particular, is that the TTRC/Perry/Sharp Plan, in its present form, doesn’t address the real issues the Texas Supreme Court said must be dealt with by the Lege: equalizing school funding. Further, it is a very common misconception among members of the public that the SCOTX mandated property tax relief. What they actually said was that the $1.50 M/O property tax cap was an unconstitutional income tax and that the Legislature must do something to equalize funding of public schools.

Although I couldn’t positively ID whether it was McCown or Lavine that said this, but it was noted that, if the plan passes in its present form both the West Orange Cove intervenors and Edgewood plaintiffs could basically go to court the next morning arguing that the plan doesn’t change a thing.

Worse than that, it’s a band-aid: A big, big, band-aid. The Lege will still have to deal with education reform, not to mention actually reconciling this tax plan with the state budget for the next biennium in January. And, the CPPP folks said, by 2009 we could be right back where we started from.

In terms of the cigarette tax, it was noted that founding public policy and public funding for anything based off “sin taxes” is not a good idea. It was noted that it is fine for such a tax to be the icing on the cake, but when it is part of the cake itself (as it is in the TTRC/Sharp/Perry plan), you’ve got problems.

Another big problem is that the shifting of funding to pay for the TTRC/Sharp/Perry plan could lead to another 2003-style budget cutting marathon which will further diminish health and human service funding and higher education funding.

And, while I’ve realized from the outset that the plan is formulated so schools will receive an amount equal to what they receive now from property taxes with a combination of lower property taxes and additional state funding, as I was listening to McCown and Lavine talk about this, it started to sound like a shell game of sorts. Local ISDs aren’t going to lose money, but rather the state is shifting the burden around from the local property tax payer to the state.

I asked how this plan would impact two programs of particular importance to rural schools (but also important statewide), the Instructional Facilities Allotment and the Existing Debt Allotment, which are used to help local school districts offset some of the costs and higher property taxes associated with issuing revenue bonds to fund new facilities.

While they aren’t specifically addressed in the plan, they will be harmed because they’ll get less money. This also prompted the CPPP folks to note that over the next few years, the student population in Texas’ public schools is going to increase–significantly, and that the state and local ISDs will have massive expenditures coming down the pike for facilities to house all of these new students.

Finally, I want to address a proposal called the “Circuit Breaker,” which is a plan that is in place in numerous other states. It’s designed to protect taxpayers from “tax overload” by reducing property taxes that exceed a certain percentage of a taxpayer’s income.

The third report of the Texas Trilogy mentioned above addresses the Circuit Breaker proposal in detail (emphasis added within is mine):

Just as an electric circuit breaker protects wiring from an electric overload, a property tax circuit breaker protects a taxpayer from tax overload by reducing property taxes that exceed a certain percentage of a taxpayer’s income. Unlike a homestead exemption, the amount of reduction depends on both income and the property tax bill. This allows states to target benefits to homeowners having the greatest difficulty paying property taxes, such as elderly homeowners on a fixed income, not wealthy retirees. A common formula would rebate to taxpayers one-half of their property taxes in excess of 5% of family income, with benefits phased out as income rises.
A total of 33 states and the District of Columbia currently have circuit breaker programs. Many programs are targeted at the elderly, but seven allow all households to participate without regard for age, while five others cover all households but provide more generous benefits to the elderly. Family income limits can be as high as $82,650 for joint filers, averaging about $30,000 among participating states, with maximum annual benefits reaching $1,530, with an average of $750.
A unique feature of circuit breakers is the ability to benefit renters, who are assumed to pay property taxes indirectly through higher rents rather than directly to local governments. Twenty-six states and the District of Columbia provide relief to both renters and homeowners, while two states have circuit breaker programs for renters only.
These states make some assumptions about how much of a rent payment represents property taxes, which can vary among regions and by local market conditions. Property tax rent equivalents vary from 6% to 35% of rent, with most states in the 15 to 20% range. Benefits can be as high as $2,100 per year and average nearly $1,100.
Although benefits are linked to household income, it is not necessary for a state to have a state personal income tax in order to successfully operate a circuit breaker program. Five of the nine states lacking a state income tax – Alaska, Nevada, South Dakota, Washington, and Wyoming – have adopted circuit breakers.
Other benefits for renters: Another approach to directing the benefits of property tax reductions to renters was adopted by the House in its school-finance and tax bill in 1997. The House version of HB 4 would have required landlords who rent four or more residential units to register and report property tax savings to the state comptroller. A landlord would have had to pay a fee to the comptroller equal to the difference between the amount of property taxes paid for each year from 1997 to 1999 and the amount that would have been collected at the property tax rate in effect in 1996. A landlord would, however, have been entitled to a credit against this fee for any rent reduction given to tenants for each tax year – creating a strong incentive to pass property tax savings through to tenants.
This rebate program was thought to be more administratively efficient than a circuit breaker, since the costs of running the program would be covered by fees paid by the landlords. Renters would have gotten tax savings proportional to the savings on the property they rented, rather than according to their income or family size, as under a circuit breaker.

While I do need to study this plan in more detail, I think it is well worth considering as part of the overall solution to relieving the “tax burden.” And, it seems far more equitable for those who need relief the most (low and middle income persons and families, as opposed to the wealthy) than what has been proposed by the TTRC.

No doubt you’ll be hearing more from me on this in the next couple of days as I digest the CPPP’s reports. In the meantime, read the reports yourself, and check out the CPPP’s website for lots of good information.

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