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Texas Agriculture Archive

June 4, 2004

Legislature reaches no
consensus on Robin Hood...

Both Houses concluded a heated session on the reduction of property taxes and overhaul of public education finance. The House and Senate worked tirelessly to revive many measures experts touted as the best means to rid the state of "Robin Hood." At the close of the session, no consensus was reached. Each legislative chamber had a different approach on the major mechanism to generate new money for education while reducing the reliance on local property taxes to fund schools..

House members passed a bill from committee that added some $1.5 billion in new revenue to the public education system. The bill took a two prong approach to allocating new revenue. One was to create new funding formulas for students while creating new incentive programs for teachers. To pay for these new revenue needs the House bill added money from legalizing Video Lottery Terminals (VLTs), and an increased and expanded sales tax. The other major revenue generator was a payroll tax. According to this plan, businesses would pay a 1 percent tax on their payroll or $500 per employee, whichever was less. Just hours before the vote Speaker Craddick announced that the VLTs and the payroll tax provisions would be removed from the bill. That effectively killed the bill's ability to raise significant new tax dollars. As a final result of the House action, the crippled bill passed by a narrow margin. To complicate matters further, the accompanying House Joint Resolution, which contained the constitutional amendment portion of the bill, was defeated by more than a hundred votes. Both measures needed to pass in order for the Senate to have the best opportunity to pass some significant educational reform.

The Senate plan relied on a restructuring of the current franchise tax system as the main vehicle to raise new tax dollars. Their goal was to close the loopholes in the tax and broaden the base by taxing more businesses. The details for the franchise tax rewrite were stalled while Senators wrestled with the viability of passing a plan without a constitutional amendment. According to the Texas Constitution, all bills that generate revenue must originate in the House. Therefore the constitutional question arises, "Can the Senate be the first to pass a constitutional amendment which caps property taxes, raises the state sales tax rate, and taxes new sectors of the economy?" This question was not clearly answered before both Houses adjourned sine die.

While no exact date has been set for another special session, Governor Perry has stated publicly he would call another to fix the challenges of "Robin Hood." The Senate and House have formed two joint working groups to try and reach consensus on a single plan. The progress of these groups may very well dictate the fate of any future special sessions. Since it is commonly accepted that a constitutional amendment will be needed to implement the major new tax initiatives, timing is critical. The legislature must pass something before the end of August for a constitutional amendment to be placed on the ballot in November. We could be looking at our second long Summer in Austin.