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At the same time Texas Governor Rick Perry is circulating ads promoting property tax cuts (“Homeowners and businesses will save $15.7 billion on school property taxes”) achieved during the 79th Legislature’s third special session, called specifically to solve problems with constitutionality and funding in paying for Texas public schools, just emerging is that the special session actually created a $6.1 billion shortfall* for which there is no fix save an unrealistic forecast of an unprecedented ten-year cycle of boom–or the more realistic and plebian fixes, trimming government spending and increasing sales taxes.

Because Texas has no state income tax, schools are funded far less by the state (the Texas Permanent School Fund’s disbursements are currently at $765 million) and much more by local property taxes ($18.6 billion). Under 1993’s Robin Hood, many districts are approaching the $1.50 M&O and $0.50 I&S cap per $100 valuation, which scheme the Texas Supremes found unconstitutional as it amounted to an illegal state property tax, and gave the Legislature a June 1, 2006 deadline to find a cure; hence this last special session.

So the Lege has just passed a series of bills which will lower the maximum property tax to $1.00 in two years for districts already at $1.50 M&O, and make up the difference with a revised business franchise tax meant to close the business-friendly Delaware Sub loophole, with an additional $1.00 cigarette tax along with a new used car tax, all projected to yield a $4.2 billion revenue stream by fiscal year 2009.

But at the same time, Lege appropriations are projected at $10.3 billion by FY 2009 and include a $2.4 billion across-the-board teacher pay increase over the next three years, $600 million in teacher awards, and $275 per high schooler for reducing dropout rates and college prep.

Robbing Peter to pay the piper

When questioned yesterday about the $6.1 billion shortfall, the governor’s spokesperson Kathy Walt said, “The revenue sources you cite [above] represent only those bills passed during the special session. They do not reflect the surplus, nor do they take into account new revenue estimates that will be generated prior to the start of the 2007 regular session. The tax measures passed by the legislature will go into a property tax reduction fund to pay for future reductions of property taxes. Should additional revenues be needed beyond what these taxes generate and is available from surplus, general revenue (GR) funds could be used. The new tax measures represent only a small portion of revenue that flows into GR.”

Huh? Public education to be funded by a $23 billion ‘hot check’?

Comptroller Carole Keeton Strayhorn, who is running as an independent against Perry in this November’s gubernatorial election, said in certifying HB 1, the largest single piece of legislation this session, “Perry’s entire plan is a massive increase in business taxes that will increase the state’s budget by $6 billion a year [and] leave a $23 billion hot check.”

Another state official, speaking on condition of anonymity, said yesterday, “All of this money, this surplus the governor’s talking about, is already dedicated. And a $6.1 billion income spike is unrealistic, unless it comes from a combination of further cutting state government expenses and increasing the sales tax. The problem there is that you only get $2 billion per penny of tax, and our sales tax is already one of the highest in the nation. So the 10% budget cut the governor announced yesterday afternoon represents the first element of what we knew had to come in order to fund this boondoggle, and the next will be an increased sales tax. Even though right now we’re awash in fuels tax money, how long will this continue? The governor’s saying we’ve got to boom like this for the next ten years.”

War of the Worlds

Put simply, while a major conservative premise is that cutting taxes will boost the economy, the corresponding liberal premise is that more money needs to be spent on governmental services. Perry’s 79th Legislature’s third special called session delivered both a tax cut and increased spending which appears to not even pass the constitutionality threshold. While according to Governor Perry’s press release “this is one of the most significant legislative accomplishments for Texas in a generation, because it is one of the most significant steps we have ever taken to improve opportunity for the next generation” and “because of House Bill 1, school finance is now out of the courthouse, and back on constitutional footing,” constitutional law experts such as Charles Rhodes of South Texas College of Law are expressing their reservations. “I have questions as to how long the new financing scheme is going to be considered to be constitutional. I think it’s another short-term fix.”

(NOTE: This is a condensed version of Wolcott’s in-depth report, which can be found here.) 

Peyton Wolcott’s school reform website has recently been named “The Smoking Gun of American education.”  She lives in Horseshoe Bay, Texas.  (This entry ©Peyton Wolcott 2006; used with permission.)