May 11, 2003
n/a
See separate email for detailed report about your bills.
Brinkmanship

NOTE: A previous email with the title "Brinkmanship" had last week's text. This text is the current version. Sorry for the confusion.

With only two weeks left to write a budget, House-Senate conferees on the appropriations bill are still billions of dollars short of either chamber’s proposed spending plan. The problem is, no one seems to know how to get from the current revenue of about $54 billion to the $58 or $59 billion the Legislature wants to spend. And there are ominous rumblings that Comptroller Carole Strayhorn may cut the revenue estimate even further on Thursday, when franchise tax returns come in.

What is a Legislature bolted down to a “no new taxes” philosophy to do? At one point, gambling seemed to offer an alternative. Proposals to expand the lottery to video terminals in convenience stores, restaurants, and racetracks, dormant throughout the session, seemed to spring to life in the last two weeks. Rep. Ron Wilson, chair of the House Ways and Means Committee and video lottery proponent, appeared ready to attach the measure to the Lottery Sunset legislation in the House. More than $1 billion in revenue was in sight, at least until Attorney General Greg Abbott ruled that video lottery required a constitutional amendment and Governor Perry sent the word to Wilson that he would veto the lottery bill if video were in it. So much for Texas slot machines, even though they could come back if things get desperate enough.

Another big money raiser, HB 2, fell apart over the weekend as school districts, which were penalized in the bill for “excessive” administrative costs, lowered the boom and killed that part of the massive government reorganization scheme. HB 2 will still get to the House floor on Tuesday (a point of order knocked it off Saturday’s calendar), but it has morphed from a $600 million bill into a $200 billion shadow of its former self. Even this rump legislation is in trouble, as Lieutenant Governor Dewhurst and the Senate are none to eager to expand the Governor’s power at their expense.

Franchise tax reform, which last week appeared ready to leave the launching pad, went badly awry when Chairman Wilson’s committee substitute taxed everyone but an eclectic mix of white collar professionals and a few massively wealthy family partnerships. The Ways and Means Committee revolted against what was clearly a tax bill, and a highly selective one at that, before agreeing to report out HB 450, another franchise tax measure that institutes a $100 minimum tax. That bill raises on the order of $70 million, a speck of spittle in the proverbial bucket, but could suddenly grow into a $500 million (or more) monster if Speaker Craddick ever decided to pull the trigger. Franchise tax expansion is also at the very top of Governor Perry’s (and the Lieutenant Governor’s) list, so despite the House’s aversion to new taxes, this bill could get legs in a hurry in the next week.

Complicating the revenue picture are deteriorating House-Senate relations. Earlier in the week the Senate unanimously approved an $8 billion tax-swap for financing public schools, substituting an expanded sales tax at a higher rate for about 75 cents worth of school property taxes. The House signaled its displeasure at the Senate plan by simply refusing to concur in Senate amendments to HB 5, the House’s school finance bill used as a vehicle by the Senate, and declining to appoint a conference committee. Instead, House Public Education Chair Kent Grusendorf amended the House plan (a 2005 sunset date for the current system, coupled with $1.2 billion in additional funding for the next biennium) onto another fiscal bill, putting it right back in the Senate’s lap. Not a pretty picture when you’re trying to piece together a multi-billion piece jigsaw puzzle under severe time pressure.

Can the regular session be saved, or will the Legislature be back in July and August to try once again to cobble together a budget? Odds are about even on that question. If the Comptroller, instead of tightening the noose even further, gives the Legislature a little slack on the revenue estimate, and various non-revenue options are taken, there may be a chance to avoid a broiling summer vacation in Austin. However, a lot of things have to happen in a short period of time, and they have to happen in the midst of a lot of contentious issues that are still on the table, such as congressional redistricting, tort reform, and insurance reform. Who will blink first? We’ll know in about a week.