July 21, 2004

Perry Keeping Open Mind on Taxes
and Possible Session in Late 2004

By Mike Hailey
Capitol Inside Editor

There are increasing indications that Governor Rick Perry might be amenable to the new school finance plan that State Senator Florence Shapiro has crafted and that he might consider calling a special session later this year if an agreement hasn't been negotiated before the end of August.

State leaders have been suggesting that the Legislature will be forced to wait until next year to tackle school finance again if a consensus plan isn't passed by late August with constitutional amendments ready for voter scutiny on the November ballot. The Shapiro plan had appeared to represent the last hope for that. But while Lieutenant Governor David Dewhurst and some senators have been eager to take another shot at school funding and property tax relief this year, House leaders led by Speaker Tom Craddick haven't shown much interest in debating the issue until they have the guidance of a court order expected later this year.

Perry said earlier this week that there's still time for a special session this summer but that the issue might have to wait until the regular session in 2005. After a two-hour meeting with Craddick on Tuesday, however, Perry appears to be more open-minded about the possibility of calling a special session at some point this fall. A statewide vote on proposed constitutional changes would have to be postponed until February if a plan clears the Legislature in a special session during the final four months of the year.

Key House members probably won't be willing to cast any more votes on tax measures until they have reasonable assurances from Perry and the Senate that they are voting on proposals that wont be rejected later in the process. The House passed a watered-down school tax bill in May after removing a proposed business payroll that Perry threatened to veto. Senators never took a vote on the House measure.

While Perry still opposes any new taxes that he says will hurt job growth in Texas, he has apparently left the door open on the "cafeteria-style" approach to business taxation that's contained in Shapiro's new plan. Dewhurst had reportedly made strides in his attempt to sell Perry on the merits of a business activity tax as a fair and stable source of public school funds. Shapiro, with help from Dewhurst, devised the optional business tax proposal as a compromise capable of winning support in the House as well as the Senate. The cafeteria plan was been the subject of staff-level discussions during the spring special session.

Shapiro, the co-chair of a working group that's been holding informal meetings on the subject for several weeks, unveiled her newest proposal last week. She presented it to Perry and said that he appeared to be generally receptive to it . The plan would rely on a series of tax changes to raise $5 billion including $3.5 billion for property tax relief and the remainder for educational initiatives. Sales taxes, cigarette taxes and taxes on car and truck sales would all go up to help fund a 20 percent reduction in local property taxes. Businesses would be able to choose from a list of tax options in determining which levy was best suited for each of them. Hoping to avoid controversy that could undermine her plan's potential survival, Shapiro is not proposing to raise money for schools from video lottery terminals at racetracks like the governor and legislative leaders favored during the initial special session on school finance. .

The prevailing sentiment at the Capitol is that many House members don't want to vote again this year on higher taxes and other volatile issues before the November general election. About half of the House's 150 members have November opponents while only a few senators face token opposition this fall. Craddick appears to be taking the heat while providing members with cover until the elections are over and the Legislature convenes in regular session in January.

State Rep. Talmadge Heflin, the House Appropriations Committee chairman, told the Associated Press this week that some members prefer to wait until the regular session so school funding can be considered at the same time other state funding needs are being debated. But Dewhurst and his Senate allies have warned that the politically complicated issue of how to fund public schools would be all the more difficult to resolve with all the distractions and competing needs of a regular legislative session.