May 18, 2006

House Decision to Break Bill into Parts
Might Have Saved the Special Session

By Mike Hailey
Capitol Inside Editor

Speaker Tom Craddick's decision to break a school tax plan into five parts reportedly infuriated Governor Rick Perry, but it might have been the single most important key to success in a special session that ended in victory for the state's top leaders and lawmakers who approved the package.

The special tax commission that Perry created and appointed his chief adversary to lead proved to be a masterful stroke that established the framework for a bipartisan agreement after three years of debate and failure on the most complex and politically-charged issue that legislators ever tackle. A looming June 1 deadline and threat of a court-ordered public school shutdown forced legislative leaders and lawmakers to try harder to find a middle ground. But even with the tax commission recommendations as bipartisan cover and the court breathing down the Legislature's neck, Texas House leaders believe the special session would have been doomed had they tried to pass the entire package in a single piece of legislation as initially planned this spring.

A singular approach would have given Democrats a bigger target to try to shoot down amid their concerns that the leadership was putting high-dollar homeowners over schools and doing public education a major disservice by dedicating most of the state's new tax revenue to property tax relief. Conservatives who opposed a new business tax would have had a better chance to kill it if the levy had not been isolated from other revenue-raising measures and new spending initiatives that haven't been historical high priorities for Republicans in the majority in Austin and around the state. The leadership's claims about the largest tax cut in history would have been more suspect if fiscal notes on the expanded business tax and property tax cuts had been combined on to a single balance sheet. Senators had an opportunity to add public school reforms to the mix in a way that would ensure they would pass without jeopardizing the rest of the package. An all-or-nothing approach would have probably delayed a final reckoning until the end of a special session that would expire after 30 days, giving opponents attacking the plan from various angles more fodder and additional time to make their pitches against it.

Beginning with Perry's stunning announcement that he'd asked former Comptroller John Sharp to help the Legislature find a way out of the school finance mess, the process that unfolded over the next few months is a fascinating study in the art of creative governing, compromise and political survival in an election year when voters seemed more frustrated and impatient than ever. The Sharp commission with its pro-business complexion got the ball rolling and gave legislators on both sides of the aisle cover at a time when support from some Democrats would be needed to offset opposition from a group of Republicans who wanted to use an $8.2 billion surplus to cut taxes without raising taxes on anyone. And the decision to split up the package paved the way for success from there.

Craddick revealed his idea about breaking up the bill into five parts at a meeting with a dozen special lieutenants he'd assembled to help enforce unity within the GOP majority and to help shepherd the leadership's agenda through the special session behind the scenes and on the House floor. But Craddick was initially inclined to run with the cafeteria-style tax plan that the House approved last year instead of the business margins tax recommenced by Perry's select tax commission.

Republican State Rep. Jim Keffer - an Eastland Republican who sponsored the business tax bill as the House Ways and Means chairman - was reportedly the most reluctant member of the group to switch from a plan he'd developed in 2005 to a gross receipts tax pushed by the Sharp commission. But other members of the special group seemed to like the Sharp plan - and they were concerned that the re-election of Republicans and Craddick's future as speaker could be in serious jeopardy if they didn't pass something at a time when voters were fed up with gridlock and failure.

State Rep. Warren Chisum, a Pampa Republican who carries substantial weight with House conservatives, was the Sharp plan's number one fan among the team of special lieutenants - and the speaker appeared willing at that point to go along with the will of the House members he trusted most. Until that point, Craddick had viewed the Sharp plan as a backup measure to turn to if the original House tax bill failed.

The news that the bill would be split into parts reportedly caused Craddick and Perry to clash, but the two leaders managed to keep their sharp disagreements on the strategy under wraps for the most part. But the ball was in the House's court - and Perry at that point could do nothing about the strategy but wait and hope that it worked. It appeared to be working when the business tax overhaul contained in HB 3 landed on the governor's desk faster than anyone could have imagined at the special session's outset.

Throughout the process Sharp was careful not to overly meddle in the work of lawmakers who were considering a plan that he'd played a lead role in developing. The former Democratic statewide official wasn't as active in the actual mechanics of the special session as some might have thought - although he did spend some time twisting the arms of some Democrats whose support was imperative for a successful finish. Sharp focused on Democrats who are engaged in tough re-election races this fall. After the session came to a close a day early this week, Craddick said everyone had lined up to kiss Sharp's Texas Aggie ring. He was only half-joking.

Lieutenant Governor David Dewhurst took a pragmatic approach to the five-part strategy - partly because the Senate couldn't stop it from starting out that way with the constitutional mandate for tax bills to originate in the lower chamber. Plus, Dewhurst and other senators saw House Bill 1 as an ideal vehicle for education spending they favored including a teacher pay raise, incentive pay and other public school improvements. Lawmakers who voted against the school reforms would be going on record against tax cuts as well - especially after they'd already sent the business tax plan to the governor.

The Republican lieutenant governor - at the same time - had the additional task of trying to hold an upper chamber together amid sharp differences over recapture and equity funding for poor school districts. Despite some critics' claims that senators rolled over Dewhurst after a blowup in committee that had the potential to turn into a full-fledged meltdown, the lieutenant governor remained determined to keep the plan alive and optimistic that he would turn enough votes to pass it. And he did.

Craddick was concerned about busting the constitutional spending cap that made about half of the surplus off limits in the special session that ended on Monday after 29 days. The Republican speaker believed the debate on HB 1 would have erupted into a bitter battle similar to the fights over general appropriation bills if the House had included education measures in it before sending the plan across the rotunda. So Craddick and other House leaders decided to send HB 1 to the Senate as a straight-forward property tax measure. When it returned with $1.4 billion in new public school spending, House leaders asked their colleagues to concur with the Senate's changes and forwarded the bill to Perry's desk.

As a result of the Legislature's actions this spring, Democrats who opposed the plan that their colleagues passed warn that the state will face a major revenue shortfall when lawmakers go to work on a new budget next year. They argue that school districts will be forced to raise taxes with new revenues being used to fund property tax cuts instead of local education budgets - and they say that tens of thousands of small businesses will be hit with a net tax hike while a few big corporations enjoy tax breaks. While the Democrats take credit for leading the push for higher teacher salaries, they've declared that the special session ended without the long-term school finance solution that had been promised.

But Republicans and Democrats who backed the special session package are relieved that it passed and think they're safer now politically as a result. While those who opposed the school tax plan say that's because the majority put politics first in the special session, the package's supporters say it's because they did what the voters wanted. They did something besides fail.