80th Legislature: HB 2 On Third Reading, SCR 20 Before House Today

The Texas House of Representatives today will consider HB 2 on third reading and SCR 20, the resolution to bust the constitutional spending cap.

As it ocurred to me that some readers may not understand the events that led up to the faux necessity of HB 2, which appropriates money for property tax reductions and SCR 20, which allows for busting the spending cap by exempting money for property tax cuts from the spending cap, I thought I’d start with a little background this morning, and also answer the question of how this could be taken care of without the necessity of HB 2.

 

First off, this all goes back to the Third Called Session of the 79th Legislature from last spring. That was the session that enacted the programs of the Texas Tax Reform Commission and formulated a “solution” to school finance woes then under litigation.

HB1 of that package, mandated a one-third reduction in public school M&O tax rates by 2007. As you’ll recall from that session, the goal was to get school districts at the M&O cap of $1.50 down to a dollar in the 2007 tax year. The legislature also enacted a stiffer tobacco tax, franchise taxes and more, but these taxes alone do not generate enough revenue to cover the shift of the tax burden. Thus, the need for HB 2, to transfer money from general revenue to fund the tax cut.

And, this begs the question, “is this all necessary?” The answer? No, it is not. This could be done by “paying as we go.”
The Property Tax Reduction Fund that was created in the special session to be funded with money from the various and sundry new taxes and tax shifts presently has $8.1 billion.

If the legislature used that money now, as opposed to the mechanisms favored by HB 2, property taxes for districts previously at $1.50 could be “bought down” to about $1.20 for this tax year. Then, if the franchise and other taxes grow as expected, by next session there would be enough revenue to take that down all the way to $1.00.

Of course, the tax-phobic Republican Majority wants tax cuts to be drastic now, not next session. Thus, they want to pay for the cuts from general revenue. And, without HB 2, there would be an additional $6 billion in general revenue to be spent where it is really needed.
Consider a couple of “pros and cons” on HB 2 from the House Research Organization:

[Pro] The bill would increase significantly the state’s share of education funding, reversing a trend in which t he state has depended more and more on increases in local property values to fund public education while reducing the state’s share of financial support. The state’s share would increase from about 40 percent to about 50 percent of total funding, reducing the burden on local taxpayers and creating a more equitable system for funding public education.
This shift in public education funding has created an unusual situation in which state spending will exceed the growth in personal income, the basis on which the constitutional spending cap is determined. This special situation justifies exceeding the spending cap. Spending for other state needs, such as health care or prisons, while important, should not be considered a factor in this unusual situation in which state spending is being used for school property tax reduction.

And:

[Con] HB 2 would commit the state to spending more general revenue for property tax relief than is necessary. The $14.1 billion appropriated in HB 2 only would be necessary to make up for lost local tax revenue if 2007 property tax revenue is reduced by one-third of 2005 tax revenues. If the tax changes enacted during the 2006 special session do not generate sufficient revenue to “buy down” property taxes to $1.00 per $100 of valuation, the Legislature should enact a more limited school tax cut.
Reducing property taxes by a smaller amount, such as to $1.13 per $100 of valuation, would provide significant tax relief and still meet the constitutional requirement that school districts have “meaningful discretion” in setting local tax rates. While property tax reduction is a worthy goal, the state should have to live within its means in providing this tax relief.
A more modest property tax cut would allow the state to stay below the spending cap and contain state spending now and in the future. If the cap is exceeded for this fiscal biennium, the Legislature will be allowed to  spend more in the future because subsequent spending caps would be
determined based on this year’s higher budget amount. The more the state spends in one biennium, the higher the allowable spending cap will be in a subsequent biennium.
With so many other pressing state needs, it would be premature to devote more than $6 billion in general revenue, as HB 2 would, to property tax relief before the Legislature has a better idea of how much money will be generated by the revised franchise tax and other taxes adopted in 2006.

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