Tax break deal needed or lawmakers may spend August in Austin

09:54 PM CDT on Sunday, July 17, 2005

By ROBERT T. GARRETT and TERRENCE STUTZ / The Dallas Morning News

AUSTIN – With little time left to make a deal, lawmakers struggled Sunday to resolve differences on a scaled-back school finance and tax swap package.

House and Senate rivalries and lingering disagreements over sales and property taxes threatened to bring a special legislative session to an end without any significant legislation being passed.

The session can run until Wednesday, but because of legislative rules and the threat of a filibuster, lawmakers needed to strike a deal Sunday or today to have time to pass legislation.

Plus, any deal would provide property-tax relief far short of the ambitious plans lawmakers have touted all year – and give Texas school districts a small amount of new state money, educators say.

"This airplane's flying on empty right now," said Sen. Steve Ogden, R-Bryan, the Senate's lead negotiator on the legislation that would trade school property tax cuts for higher state sales, cigarette and business taxes.

On Sunday evening, House negotiators were preparing their latest offer on the tax swap – including a sales tax increase of three-quarters of a cent – to 7 percent – to help offset a 17 percent cut in the maximum school property tax rate this fall.

That is down a quarter of a cent from the previous House proposal, but it would leave Texas tied with three other states for the highest state sales tax in the country. The Senate's latest plan calls for increasing the sales tax to 6.95 percent.

"We feel this is what we can pass in the House," said Rep. Jim Keffer, R-Eastland, the chamber's top negotiator. "We've got a one-vote margin in the House, and if you keep on messing with something, you're going to cause problems."

Both chambers also indicated they would back an increase in the minimum homestead exemption on school property taxes from $15,000 to $22,500, an increase of $7,500. That would take a constitutional amendment approved by two-thirds of each house and voters in a statewide election.

Both would put about $2.4 billion in new money into schools over the next two years – an increase of 3.5 percent. Both are also close to agreeing on a 17 percent reduction in the top property tax rate, from $1.50 per $100 valuation to $1.25 this fall.

There were other differences on taxes, including the Senate's proposed 10 percent increase in state taxes on alcoholic beverages.

Disputes remained, too, over proposed limits on "Robin Hood" sharing by property-rich school districts and proposed changes in business and consumption taxes.

Also complicating the negotiations were long-standing frictions between Lt. Gov. David Dewhurst, the Senate's presiding officer, and House Speaker Tom Craddick, R-Midland. The pair, who have squabbled over legislation in several sessions since both took over their chambers in 2003, have leveled criticism at each other's chambers over their negotiating tactics.

While few lawmakers wanted to have the special session, many fear that Gov. Rick Perry will immediately order another if they don't pass the two bills by Wednesday.

Mr. Dewhurst was expected to use Mr. Perry's threat of a prolonged stay in Austin to try to persuade Democratic senators not to filibuster any compromise. But Sen. Gonzalo Barrientos, D-Austin, warned that he and three Democratic colleagues stand ready to try to talk the tax bill to death because, they say, it would benefit only the rich.

Nonpartisan legislative analysts have found that proposals to cut property taxes and raise sales and business taxes generally would reduce the tax burden only for Texans making about $140,000 or more. The rest would generally pay more.

House Education Committee Chairman Kent Grusendorf, R-Arlington, said the main hang-up on the school finance bill was how to limit the amount of property tax revenue that wealthy districts must share with lower wealth districts to equalize spending on students – the system commonly known as Robin Hood.

"It's taken us a lot of effort just to get back where we were at the end of the regular session," Mr. Grusendorf said.

"But there's still time," he added. "We really don't want to be here during the month of August. We spent most of our summer in Austin, and most of my colleagues would like to go home."

Rep. Dan Branch, R-Dallas, one of the House negotiators, said his chamber is trying to bring property tax sharing by high-wealth districts down to a "reasonable realm." He noted that the Highland Park school district, which he represents, gives up more than 70 percent of its property tax revenue to other districts.

"This was supposed to be a Band-Aid solution when it was passed 12 years ago," he said. "No one thought it would last this long."

While the House proposed capping tax revenue sharing at 35 percent, Senate leaders have resisted that figure, saying it would be unfair to give those districts a financial advantage over others. The bulk of Texas districts benefit from the wealth-sharing.

On the tax-swap bill, Senate negotiators want to avoid going to a 7 percent sales tax because that would put Texas in a four-way tie for the highest rate with Mississippi, Rhode Island and Tennessee.

Rep. Warren Chisum, R-Pampa, one of House tax negotiators, complained that senators were proposing measures that would cut in half the revenue the bill generates by closing loopholes in the state's main business tax, the franchise tax.

Also, he said, the Senate has balked at applying the sales tax to car repairs, which the House believes is necessary to pay for property tax cuts, while the House rejects the Senate's proposed increase in alcohol taxes.

In addition to the property-tax rate cut, a $7,500 increase in homestead exemptions would be equivalent to an additional nickel decrease in the property tax rate in 2006.

However, because the school finance and tax legislation would allow local voters to approve as much as a 15-cent increase in property taxes for local school programs over the next six years, some lawmakers fear there won't be much tax relief in the end.

Rep. Dennis Bonnen, R-Angleton, said petrochemical industries in his district fear a net increase. They already pay the franchise tax, he said, and some are in school districts that are well below the $1.50 cap on school property taxes, so they wouldn't see much in cuts.

"They actually could end up with a tax increase," Mr. Bonnen said.

Staff writer Christy Hoppe contributed to this report.