June 2 , 2006
By Billy Howe, Warren Mayberry & Regan Beck
With less than 48 hours left in the fifth special session of the past two years, the Texas Legislature finally passed legislation to lower property taxes and address school finance. Five separate bills were filed to reach the mandates of the Supreme Court regarding education funding and meet the cries of Texans for relief from high property taxes.
HB 1TAX RELIEF and SCHOOL REFORM: Replaces some school property taxes with $2.4 billion in budget surplus money and allots additional money for education. The measure includes:
A reduction in property taxes to $1.33 in the 2007 and down to $1 in 2008.
A $2,000 pay raise for teachers, counselors, librarians and school nurses; other support staff will also receive a salary increase, except administrators, $500 for full-time employees and $250 for part-time employees.
A later school start date of the fourth Monday in August beginning with the 2007-08 school year.
A merit pay program giving school districts money to pay bonuses to teachers for improving student academic performance.
A new high school allotment that gives districts an extra $275 for every high school student.
Four years of math and science in the college readiness curriculum.
Changed elections for school board members to the same date as municipal elections.
Allows Commissioner of Education to accredit schools based on academic and financial accountability systems. Districts that are not accredited will not receive state funding. The Commissioner may appoint an intervention team to help an unacceptable district develop a school improvement plan and to monitor the progress of the school.
Directs the State Board of Education not to issue any more textbook proclamations.
Increases school equity to 88 percent versus 75 percent.
School districts, according to the legislation, are allowed to raise additional revenue by increasing the local tax rate by 4 cents of enrichment without sharing the revenue through the Robin Hood system. However, the state will provide funds to ensure equity for property poor school districts. Those districts will receive state funding to ensure they have 94 percent of what is raised by property rich school districts through enrichment.
HB 2PROPERTY TAX RELIEF FUND: Dedicates all the new revenue raised by the other school finance tax bills (HB's 1, 3-5) to the Property Tax Relief Fund.
HB 3BUSINESS TAX (Margins Tax): Changes the state's business tax to a broader base, smaller rate system. The $4.1 billion tax expansion will be used to offset a reduction in property taxes. The margins tax is levied on 1 percent of a company's gross receipts, with deductions for either the cost of goods or employee benefits such as salary and health care. Retailers would pay at a rate of 0.5 percent.
The margins tax is a very simple concept. Businesses will pay a rate of 1 percent on their margin. The margin is calculated on gross receipts with a deduction for the cost of producing goods sold or employee salary and benefits. Businesses must choose to deduct their salaries and benefits expenses or their manufacturing and production costs. Sole proprietors, general partnerships and entities with gross receipts less than $300,000 are exempt from paying the tax. If the tax liability is less than $1,000, they are exempt.
Most agricultural producers would see the greatest tax benefit by choosing the "cost of goods sold" option for calculating their tax liability. Producers can deduct an extensive list of essential inputs from their gross receipts. Labor, utilities, water for production, fertilizer, hay for grazing, fuel associated with production, equipment depreciation, and rent paid for land leases are among the allowable deductibles in the margins tax.
According to data provided by the Texas Cooperative Extension Service, the average agricultural operation should realize an estimated $700 in combined tax savings.
HB 4 USED VEHICLE SALES TAX: Taxes the sale of used cars on a standard value rather than trusting sellers to report the true sales price. Used car purchasers will pay tax on 80 percent of the "blue book" value. There are two exceptions. One is a bill of sale from an authorized auto dealer. The other is a written vehicle estimate from a licensed insurance appraiser. The measure is expected to generate an extra $70 million in the next two years for property tax relief.
HB 5CIGARETTE TAX: Raises the tax on cigarettes from 41 cents per pack to $1. The tax is expected to generate approximately $700 million in 2007 for property tax decreases.
In the waning days of the Special Session, the Legislature was able to act quickly on other matters of the state left undone during previous special and regularly-called sessions.
TUITION REVENUE BONDS (TRBs) HB 143: Perhaps the largest and most pressing legislative issue added to the special session is that of TRB's. HB 143, authored by Rep. Geanie Morrison, ( R-Victoria), allows Texas universities to fund $1.8 billion in new classrooms, research, medical and performing arts centers by issuing bonds to be repaid with future tuition.
The Legislature has attempted to pass similar legislation numerous times during the past four years, including many times during previous special sessions. The importance of this legislation is to ensure that Texas academic institutions are on par with national accreditation standards.
FUTURE GENERATION PLANT (HB 149): Allows the state to take title to carbon dioxide emissions from the $1 billion, near-zero emissions coal-powered plant Texas would like to host as part of an initiative led by the U.S. Department of Energy and a consortium of nine companies. The state would inject the carbon dioxide into oil and gas formations for energy production. Warren Chisum (R-Pampa) authored the legislation.
HURRICANE RITA DAMAGE (HB 163 and 63): HB 163 by Rep. King helps power providers recover reconstruction costs faced after Hurricane Rita struck southeast Texas in September. Another measure, HB 63 by Rep. Pitts, provides Lamar University $34 million from the state to help repair hurricane damage to buildings on campus.