Fun With Fiscal Notes & Committee Reports

Skip to the Article ↓

Just for fun (what else to do on a Saturday Night, eh?) I decided to take a look at the fiscal notes and committee reports for HBs 1 through 5.

It’s pretty long but important. Note a lot of things the MSM isn’t telling us and a possible new “slush fund” being set up in the committee substitute of HB 5.

HB 1

Some interesting notes from the Fiscal Note: (the one on the committee version) [All emphasis mine]

The bill requires school districts, starting in the 2006 tax year (2006-07 school year), to reduce their nominal maintenance and operations (M&O) tax rate to the lesser of $1.33 per $100 of valuation, or 88.67 percent of the M&O rate adopted for the 2005 tax year - hereafter referred to as the “buydown” rate.

Ah Ha! Where’s that promised specific tax rate? It does not exist. Note that it requires the districts to go to $1.33 per $100 valuation or 88.67 percent of the M&O rate they used during the 2005 tax year.

So, if your M&O tax rate is presently $1.50 you’re stuck with $1.33, since 88.67 percent of $1.50 is $1.33005. If your M&O tax rate is $1.40, though, you have a choice, $1.33 or $1.24 (1.24138 is actually how it calculates, though). It doesn’t take an idiot to realize which one local school boards will pick, either.

My question is, how does this improve equity and how does it make the system constitutional? If you were maxed out, you’re still maxed out. Worse yet, any school district below $1.50 in M&O has two choices on where to go: the higher ($1.33) or lower (88.67 percent of the ‘05 rate). I fail to see how this would be interpreted as being constitutional.

Still more…

The bill then entitles districts to state aid sufficient to guarantee state and local revenue per student in weighted average daily attendance (WADA) in an amount equal to the greater of (1) what the district would be entitled to in the 2006-07 school year under current law, or (2) 2006 revenue per WADA, including state aid districts received for property value decline and wealth-sharing arrangements.  For a district subject to recapture, the additional revenue it is entitled to receive to maintain this revenue target may be received as an downward adjustment to its recapture payment.

What the hey? I interpret this as (a) the state’s going to pick up the difference between the new tax rate local ISDs will adopt and what they get (state aid plus local tax dollars) now. Second, though, you’ll note this additional state revenue will result in a downward adjustment to recapture payments. I’m assuming they’re meaning schools subject to recapture as so-called “donor” schools under share-the-wealth as opposed to recipient schools. Either way, though, this doesn’t sound like the death of Robin Hood. Maybe an emasculation, but not the death.

Here’s where the all important “six cents” that is supposed to give local taxing authorities more flexibility comes in:

Beginning in the 2006 tax year (2006-07 school year), districts have the ability to levy pennies of tax effort above the buydown rate.  For the 2006 tax year, for districts “bought down” below $1.33, the district may levy up to 6 pennies above the buydown rate, but not to exceed a total M&O rate of $1.33, without a rollback election.

Then why bother? Essentially, if you came in anywhere under $1.33, you can add up to six cents as long as you don’t go over $1.33. BUT, you still can go over $1.33, it’s just subject to rollback.

For any district (excepting districts who are allowed under current law to tax above the $1.50 cap), accessing pennies above $1.33 requires a rollback election.  For the 2006 tax year, districts may levy up to $1.38 with a simple majority approval by voters, and up to $1.48 with a 2/3 majority.

You’ve got to be kidding me. I mean, honest to God, who’s ever going to get a 2/3 majority on a tax roll back? If you’ve got to go above $1.33, there will be tremendous expense associated with rollback elections, to boot!

For the 2007 and 2008 tax years, districts may levy up to $1.43 with a simple majority, and $1.48 with a 2/3 majority.  For the 2009 and 2010 tax years, districts may levy up to $1.48 with a simple majority, and $1.50 with a 2/3 majority.

Ok, here you go. Up and Up and UP! If there was true equity in this plan, none of this would be necessary!

However, for districts subject to Chapter 41 recapture, the bill excludes M&O tax revenue generated on pennies above $1.33 from the calculation of their recapture payments.

Ok. So, if you’re a “donor” school, you can tax up those extra six cents and they’re not subject to “recapture.” Again, I’m just wondering, where’s the equity? Is it hiding under the rug? It still does NOTHING WHATSOEVER to help relieve the burden on the poor districts, but lets the rich ones tax more without that being subject to use to equilize what’s going on in the poor districts. NOT EQUITABLE!

And, you’re going to love this:

The bill makes an appropriation of an unspecified amount to the Texas Education Agency for distribution to school districts to satisfy the requirements of the bill.

Appropriation=Unspecified. That’s beautiful budget writing right there.
Here’s the cost:

In fiscal year 2007, this bill results in a total net state cost estimated to be $2,372 million.  Of this amount, approximately $2,148 million represents the equivalent of a dollar-for-dollar replacement of state aid for local revenue in the school finance system.

Ok. So, total cost: $2.3 billion. Of that, $2.1 billion is ‘new’ state aid to offset what local ISDs are losing in property taxes.

‘Fixing’ School Finance: $2.3 billion. Adopting a system with no equity that will have to be fixed in three years: priceless.

Now, check this out:

The provision allowing districts to access pennies above their buydown rate results in additional local revenue and state costs.  For fiscal year 2007, it is assumed that districts, on a statewide average basis, access the equivalent of four pennies above their buydown rate.  The state guaranteed yield on these four pennies results in a state cost of $159 million, and an increase to retained local revenue of $474 million.

Ok. So, the six cents is going to cost the state, too. That’s nice.

The bill’s reduction in district local revenue, combined with the effect of netting out a district’s recapture payments against its hold harmless revenue guarantee, reduces recapture payments statewide from an estimated $1.8 billion to approximately $1.2 billion in 2007.

“Netting out recapture payments?” Doesn’t sound like they’re
being “netted out” to me.

Still more:

School districts would see a decrease in local revenue due to the bill’s tax rate reduction and an increase to state aid due to the bill’s revenue guarantee provision.

Districts’ local revenue loss from an 11.33 percent tax rate reduction is estimated to be $2,148 million in 2007, increasing by 4-5 percent each year thereafter.  However, for the purposes of the fiscal note it is assumed that districts would access, on a statewide average basis, the equivalent of four pennies above their buydown rate in 2007, which would generate an estimated $474 million in retained local revenue, resulting in a net local revenue loss of approximately $1,673 million.

I thought the “six cents” was kind of a worst-case scinario thing that ISDs were supposed to do as a last resort under the new plan. Yet, the fiscal note expects that most districts would tax an average of four cents into that already? What the Deuce?

Here are the primary differences between the introduced version and the Committee Substitute:

The substitute removes language from the original bill which required districts seeking M&O tax rate increases at a certain higher amount to receive voter approval by a two-thirds majority of the voters voting in the election held for that purpose. The bill increases the rollback tax rate from $1.33 to $1.36 of taxable value for certain school districts.

The substitute also includes the rate of $0.03 per $100 of taxable value in the formula for determining the 2006 tax rate for school districts permitted by special law to tax at a rate greater than $1.50 per $100 of taxable value.

The substitute repeals Rider 97 as referenced in new SECTION 2.02 and clarifies the amount of the appropriation to TEA for FY 2007 to be $2,385,800,000.

For fun, here’s the witness list of those who testified before Ways and Means on HB 1: two for, six against, four “on.”

HB2

[Introduced: Text, Fiscal Note] [Substitute: Text, Fiscal Note (none yet), Analysis, Witness List]

Here’s what HB2 does (from the fiscal note):

The bill would amend Chapter 403 of the Government Code to create the Property Tax Relief Fund, contingent upon the passage of other, yet unspecified conforming legislation. The fund would be exempt from statutory funds consolidation legislation, and it could only be used for the purposes that resulted in the reduction of school district maintenance and operations tax rates from those in effect on January 1, 2006. The bill would require that interest and investment income be allocated on a monthly basis to the fund.

The bill would amend Chapter 171 of the Tax Code to require the Comptroller to deposit certain franchise tax revenues to the Property Tax Relief Fund, contingent upon the passage of other, yet unspecified conforming legislation. The bill would require that taxes received in excess of revenues predicated on the franchise tax structure in place on August 31, 2007 be deposited to the fund. This section would take effect September 1, 2007.

The bill would amend Chapter 152 of the Tax Code to require the Comptroller to deposit certain motor vehicle sales and use tax revenues to the Property Tax Relief Fund, contingent upon the passage of other, yet unspecified conforming legislation. The bill would require that taxes received as a result of a “presumptive value” standard be deposited to the fund. This section would take effect October 1, 2006.

The bill would amend Chapter 154 of the Tax Code to require the Comptroller to deposit certain cigarette tax revenues to the Property Tax Relief Fund, contingent upon the passage of other yet unspecified conforming legislation. The bill would require that the taxes received in excess of the revenue generated by the tax rate of $20.50 per thousand cigarettes be deposited to the fund. This section would take effect September 1, 2006.

The bill would amend Chapter 155 of the Tax Code to require the Comptroller to deposit certain cigar and tobacco products tax revenues to the Property Tax Relief Fund, contingent upon the passage of other, yet unspecified conforming legislation. The bill would require that the taxes received in excess of the revenue generated by the tax rate of 35.213 percent on a manufacturer’s list price for other tobacco products, excluding cigars, be deposited to the fund. This section would take effect September 1, 2006.

That’s all fairly straight-forward, basically tellins us where what monies are going to be deposited.  Supposedly, it will have no “fiscal impact” to local governments. And, the amount of revenue it would generate can’t be determined at this time. Hummm…I thought the TTRC had made some estimations on that, but I guess they weren’t up to snuff with the LBB.

HB3 (Franchise Tax Bill)

[Introduced: Text, Fiscal Note] [Substitute: Text, Fiscal Note, Analysis, Witness List (not online)]

Here’s how the substitute differs from the introduced version:

makes changes in relation to the definition of passive entity in Section 171.0003, Tax Code; adds a new Section 171.1011(n-1), Tax Code, requiring the comptroller of public accounts to adopt rules relating to the computation and requirements of certain health care costs that are subtracted from a health care provider’s total revenue; makes clarifying changes in Section 171.1012(i), Tax Code, in relation to the computation of certain cost  of goods sold; makes clarifying changes in relation to the definition of “wages and cash compensation” in Section 171.1013(a), Tax Code; makes changes in relation to apportioning margin for receipts derived from transactions between individual members of a combined group in Section 171.1055(b), Tax Code; provides that the written agreement referenced in Section 16 of the bill is an agreement between the taxpayer and the Texas Department of Economic Development or its successor; makes changes in relation to the exclusion of certain flow-through funds from total revenue in Section   171.1011(f). adds a new Section 171.1011(g-3) to specify the funds which a taxable entity that provides legal services is required to exclude from its revenue; and makes grammatical and citation corrections throughout the original bill.

Clarifying changes, in my experience, usually aren’t that major. I’ve bolded the changes above which are major changes.  The “passive entity” changes and computation of healthcare cost changes (which have to do with providers being able to be taxed less because they treat Medicare/Medicaid patients) are the big ones here.
Reading the Fiscal Notes are where your eyes will gloss over. But, I’ll try to make my excerpt-commentary as exciting as possible.

In a nutshell, here’s what the bill does:

(1) Modify the Franchise Tax Rate and Base
(2) Make an Appropriation.

Here’s how it does this:

(a) extend tax responsibility to certian partnerships and business entities not presently subject to the tax. It would, however, exempt:

…sole proprietorships and general partnerships directly owned by natural persons…

and

…the term “taxable entity” would exclude businesses meeting the bill’s definition of a passive entity or those currently exempt under Subchapter B of Chapter 171…

and…

A taxable entity with total gross receipts of less than $300,000, or an annual tax liability of less than $100…

(b) Replace the current franchise tax base of “taxable capital” and “taxable earned surplus” with a new base, called “taxable margin.”
To determine “taxable margin,” a business must:

…first have to calculate its “total margin” as the minimum of three values: 1) 70 percent of total revenue, 2) total revenue minus cost of goods sold, and 3) total revenue minus total compensation and benefits. “Taxable margin” would be total margin apportioned to Texas using a gross receipts ratio similar to the current franchise tax plus any margin allocated to this state.

Here’s how the “taxable margin” would be subject to taxation:

The tax rate on taxable margin would be 1.0 percent for taxable entities not primarily engaged in wholesale or retail trade, as defined in the bill. For taxable entities primarily engaged in wholesale or retail trade, the tax rate would be 0.5 percent.

And, why Doctors are warming up to this bill:

Taxable entities that qualified as “health care providers,” other than “health care institutions” under this bill would be allowed to deduct from total revenue all payments received from certain health insurance programs, plus their actual costs of uncompensated care.

And, there are lu-lus for hospitals, too:

Those taxable entities that qualified as “health care institutions” under the bill would be allowed to deduct 50 percent of their payments from qualifying health insurance program payments and uncompensated care costs. The health insurance program payments that could be deducted would include those from Medicare, Medicaid, the Children’s Health Insurance Program, workers’ compensation, and the TRICARE military system.

(c) Alter the manner in which certain members of an “affiliated group” (partnership?) report franchise taxes as follows:

Under this bill, a group of two or more taxpayers would have to report as a single taxable entity if two conditions applied: 1) the entities were in an affiliated group defined by a common ownership test, and 2) the entities were engaged in a unitary business, as defined in the bill. The bill specifies the methods such a taxable entity would employ to calculate total revenue, cost of goods sold, and total compensation. The bill would allow a combined group to include an exempt entity in the group report if the entity would have been in the combined group were it not exempt.

The bill also provides for a “transition” from the existing franchise tax to new tax rates:

The bill would transition existing franchise taxpayers to the new base and tax rates beginning with the franchise tax report due in May 2008. A taxpayer’s liability would be based on the taxpayer’s taxable margin during the accounting year that ended in calendar 2007.

Taxpayers becoming subject to the franchise tax because of this bill would have to file an initial information report. Such an entity doing business in Texas before January 1, 2008 would have to file an annual report on May 15, 2008, based on a period specified in the bill.

Taxpayers subject to the franchise tax in its current form at any time after December 31, 2006, but not subject to the franchise tax on January 1, 2008, would have to file a final report based on a period specified in the bill.

The appropriation is $2 million for the Comptroller’s Office to implement the bill, for audit and enforcement.

Starting in ‘08, the provisions will (allegedly) result in the generation of between three and four billion in new revenue.

HB4 (The Motor Vehicle Tax Bill)

This bill is pretty nuts and bolts, so I’m not going to dwell on it. In short, it  establishes:

a presumptive value for determining the proper amount of motor vehicle sales tax due on certain motor vehicle sales transactions.

presumptive value for all motor vehicles as the average retail value of a motor vehicle for motor vehicle sales tax computation purposes. The Texas Department of Transportation (TxDOT) would determine the presumptive value of a motor vehicle based on a nationally recognized motor vehicle industry reporting service.

This bill will generate about $40 million in revenue during the biennium ending in 2007.  Again,  this bill is the one that closes up some of the loopholes in motor vehicle valuations for sales. And, it’s not exactly an “out of the park” revenue generator, either.

HB 5 (cigarette tax)

[Introduced: Text, Fiscal Note] [Substitute: Text, Fiscal Note, Analysis, Witness List (not online)]

Estimated revenue generation is about $600 million. MASSIVE change from original to Committee Substitute:

The substitute differs from the original by incrementally increasing the tax rate from $20.50 per thousand on  cigarettes weighing three pounds or less per thousand to $48 per thousand effective January 1, 2007, $60.50  per thousand effective January 1, 2008, and $73 per thousand effective January 1, 2009.  Whereas, the original bill increased the tax rate to $70.50 per thousand.  The substitute further modifies the original by creating an anti-bootleg fee and by requiring the Texas Economic Development Bank to issue bonds.

Note, though, that the Mainstream Media has failed to report that the tax increase on cigarettes is a staged increase:

The bill would increase the cigarette tax rate in three stages over the period 2007-09.

In the first year, the rate would increase from $20.50 to $48.00 per thousand cigarettes weighing three pounds or less per thousand, equivalent to an increase from 41 cents to 96 cents per pack of 20 cigarettes. This rate would take effect January 1, 2007.

In the second year, the cigarette tax rate would increase to $60.50 per thousand cigarettes weighing three pounds or less per thousand, or $1.21 per pack. This rate change would take effect January 1, 2008.

In the third year, the cigarette tax rate would increase to $73.00 per thousand cigarettes weighing three pounds or less per thousand, or $1.46 per pack. This rate change would take effect January 1, 2009.

So, we’ve gone from a $1.00 per pack increase all the way up to $1.46. And, as that tax goes up, less cigarettes will be sold, meaning the resulting revenue will be less even though the tax is higher. Sounds like bad Republican economics to me, as is balencing any fiscal reforms on a declining, unstable tax.
Though the cigarette tax portion of the bill is fairly straightforward, note that the committee substitute includes a whopper of a change:

The bill would amend the Government Code to require the Texas Economic Development Bank (bank) to issue bonds in an amount not to exceed $400 million. The proceeds of the bonds would be deposited outside of the State Treasury with a trustee chosen by the bank and would be used to pay the bank’s costs of issuing and administering the bonds, and to finance other requirements of this state.

ALL WE KNOW about these bonds is that they would be for “economic and educational” needs:

finance the economic and educational requirements of this state and the political subdivisions of this state.

I’m scared to death because this almost smells of setting up a funding mechanism for vouchers? If you know what the hell this is, tell me in the comments.

What the HELL does that language mean? Are we starting another Rick Perry Slush Fund here? They’re clearly establishing the provisions for a future appropriation, but what the bond money will be appropriated for in the end, I haven’t got a clue.

And, how are the bonds funded? More cig fees:

In addition to the taxes imposed under Chapter 154, Tax Code, and fees imposed in accordance with the tobacco settlement agreement, as that term is defined by Section 161.602, Health and Safety Code, an anti-bootleg fee is imposed on a person who uses or disposes of cigarettes in
this state.  The fee is imposed at a rate of $.05 on each package of cigarettes and is imposed and becomes due and payable when a person in this state receives cigarettes to make a first sale.

Popularity: 9% [?]

Vince Leibowitz posted this article under Texas Legislature on Saturday, April 22nd, 2006 at 6:42 pm You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a comment. Pinging is currently not allowed. View Technorati Linkbacks.