Senator Carona's Email Update
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EMAIL UPDATE

April 7, 2006

What's new . . .

On March 17, Governor Perry announced that the Texas Legislature will convene in the Third Called Special Session of the 79th Texas Legislature at 2 pm on Monday, April 17. The Focus below reviews what we know so far about the agenda of the upcoming special session.

Interim committee hearings in the House and Senate are in full swing. Committees are taking advantage of the special session when legislators will already be in Austin and scheduling their hearings for that time. Here are links with a complete list of hearings in the House and Senate.

I have scheduled two hearings for the Senate Committee on Transportation and Homeland Security during the special session as well. At theses hearings, we will examine the Texas Department of Transportation's (TxDOT) role in the proposed relocation of rail facilities, TxDOT's transportation safety programs, our state's homeland security measures, and a host of other issues. Click here for complete agendas of the two hearings.

The Senate Select Committee on Education Reform and Public School Finance met Monday, April 3. Former Comptroller and current chair of the Texas Tax Reform Commission (TTRC), John Sharp, answered the committee's questions regarding the TTRC's proposed changes to the state's tax structure. Additionally, the committee heard testimony relating to the state's current tax structure and how it compares to other states, how to increase equity among school districts, and how to increase college preparedness and success. For more information on the TTRC's recommendations, see this month's Focus.

Early in March, Governor Perry testified before the United States Senate Appropriations Committee, seeking increased federal reimbursement for costs associated with Hurricanes Katrina and Rita. Of the $2.2 billion the Governor is requesting, nearly $500 million would be used to assist local governments with post-Rita repair costs, $412.6 million would be used for educating Hurricane Katrina evacuees and rebuilding schools damaged by Hurricane Rita, $367 million would be used for housing assistance for displaced Hurricane Katrina and Rita evacuees, just over $126 million would be used for health care of Hurricane Katrina evacuees, and $18.7 million would be used to assist local governments.

The Texas Department of Transportation (TxDOT) released the Draft Environmental Impact Statement for the Trans-Texas Corridor (TTC-35) on Tuesday, April 4. This 4000-page document narrows down the potential route of TTC-35, which will run to the east of I-35 from San Antonio to Gainesville. As proposed, TTC-35 will not go through Dallas and Ft. Worth, as some local officials had hoped, but will skirt to the east of Dallas as it approaches the Metroplex, although TxDOT separately announced that some railroad lines may run in the urban areas. TxDOT will hold public hearings on its findings. The entire document is available on the Internet at http://www.keeptexasmoving.com/.

Focus . . .

Governor Perry recently announced that he will call the Legislature back to Austin for a special session on April 17 to address the Supreme Court's ruling that the state's property tax cap is a de facto statewide property tax cap, which is unconstitutional. Following the Court's November ruling, Governor Perry created the Texas Tax Reform Commission (TTRC), headed by former Comptroller John Sharp and made up of business leaders from across the state. He charged the group with studying Texas' tax structure and recommending changes that would more accurately reflect the state's economy and allow for significant property tax reduction. Last week, Governor Perry released the TTRC's recommendations. I would like to take this opportunity to explain the details of the TTRC's recommendations and the Legislature's options in complying with the Supreme Court's ruling, as well as give you an insight into what factors could influence the coming special session.

The TTRC plan relies on three components to finance property tax relief. The primary component of their plan is a reformed franchise tax. Currently only 1 in 16 businesses pay the franchise tax. It was the TTRC's goal to develop a broad based, low rate business tax that would provide a steady revenue stream for our schools. Under their plan, the new tax would be based on a business's margin and the rate would be 1 percent, except for retailers and wholesalers who would pay .5 percent. To determine a business's margin, one deducts either the costs of goods sold or employee compensation, including health insurance and other benefits, from its total revenue. If a business chooses the employee compensation deduction, that business would be able to deduct up to $300,000 in cash compensation per employee. Sole proprietorships, general partnerships owned by natural persons, and non-profit organizations would be exempt from the tax, as well as businesses with total revenue less than $300,000. One benefit of the proposed tax is that it would encourage businesses to provide health insurance and other benefits for their employees, since this would lower their overall tax. For more details on the proposal, please review the TTRC Section by Section Analysis of their draft bill. The second component of the plan calls for increasing the cigarette tax by $1.00 per pack and by 13.6 percent on other tobacco products. The final component calls for using approximately $1.4 billion of the state's budget surplus (current estimate is $4.3 billion) to finance the remainder of school property tax relief.

In January, the Senate Select Committee on Education Reform and Public School Finance heard testimony from Ted Cruz, the Solicitor General in the Attorney General's Office, who argued the school finance case before the Texas Supreme Court. He outlined five options for addressing the court's ruling. Mr. Cruz said the simplest solution would be to pass a constitutional amendment, which would have to be approved by voters, to allow a statewide property tax. The second option would be a fundamental reform of our state's tax structure that would reduce schools' reliance on local property taxes. The third option would be to raise the current $1.50 cap to allow for more local discretion. The fourth option would be to, as Mr. Cruz said, "lower the floor" by reducing state mandates on school districts, again giving them more local discretion. Finally, Mr. Cruz stated that the fifth option would be to "buy down" the local property tax rate by increasing state aid to school districts without lowering the cap.

It is important to note that these options, in Mr. Cruz's opinion, would allow the state to comply with the Supreme Court's ruling, and they were presented to the committee without regard to their political viability. At this time, there does not seem to be any interest in creating a statewide property tax, increasing the $1.50 cap or lowering our public school's educational standards (mandates). Rather, Governor Perry and the Legislature are focused on reducing local school property taxes by increasing state funding for public schools. How this goal can be accomplished is the great debate on the eve of the special session.

Some members of the House would like to use the budget surplus to buy down property taxes, allowing the state to comply with the Supreme Court's June 1 deadline without changing Texas' tax structure. They pose the question, "Why should the state raise taxes when there is a significant budget surplus?" While any tax bill will more than likely be revenue neutral, meaning the funds generated by any new tax would be offset by a reduction in local school property taxes, the fact remains that numerous entities would face a tax increase under the TTRC proposal. Although using the current surplus to buy down local school property taxes would be a short term solution and the Legislature would still need to enact tax reform at a later date, this option will likely receive some consideration during the special session.

Other members of the Legislature support a revision of the state's business tax, but do not agree with all of the TTRC proposal. Still others would prefer to increase and/or broaden the base of the sales tax. In fact, I expect to see a wide variety of other tax reform proposals offered during the special session just as we have seen in previous tax reform sessions.

Education reform, which proved to be very divisive during previous sessions, is another issue that could impact the special session. Previously, the Legislature was unable to reach consensus on adopting merit pay programs for teachers, establishing a mandatory school start date after Labor Day, creating a private school voucher program, and requiring November school board elections. Lt. Governor Dewhurst has indicated that the Senate will address education reform, regardless of whether or not the Governor places it on the call. The Lt. Governor created the Select Committee on Education Reform and Public School Finance, which has been meeting regularly to address these two issues and has recently said he expects the Senate to pass a bill that raises teacher pay, improves college readiness, and restructures failing schools. In response, Governor Perry has said if the House and Senate can send him an education reform bill he would sign it.

Governor Perry has not announced the call for the special session, but has said he will likely keep it focused on lowering local school property taxes and giving the local school districts meaningful discretion in setting property tax rates. (The call lists the issues that the Legislature may consider during a special session.) He has also indicated that he would like to see the Legislature pass a tax reform bill before addressing education reform or any other issue.

As we have seen during the previous attempts to reform our state's tax structure and enact public education reform, these are two of the more challenging issues facing the Legislature. I cannot say which proposal will pass the Legislature, but I am committed to delivering meaningful local school property tax relief to Texans and ensuring a steady revenue stream for our public schools.

Did You Know . . . ?

The Texas Adopt-A-Beach Program will be hosting its 20th Annual Spring Cleanup on Saturday, April 29. The Spring Cleanup is a volunteer effort to remove trash from our beaches and highlight the problems of marine debris and beach litter. Since the program began in 1986, over 335,000 volunteers have removed more than 6,350 tons of trash from our beaches. For more information about the cleanup, call 1-877-TXCOAST or go to www.texasadoptabeach.org.

Student Opportunities . . .

The Texas Department of Transportation is accepting applications for summer jobs for high school and college students. This program provides valuable work experience prior to graduation. To find out more information and to apply on-line go to http://www.dot.state.tx.us/employment/summeremployment.htm.

In Closing . . .

Don't forget about the primary runoff elections this month. As always, I appreciate hearing from you.

Sincerely,

John Carona
State Senator - District 16
http://www.carona.senate.state.tx.us/

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