March 21, 2005

Senate Republicans Deluged
with Complaints about HB 3

Public Outcry over House Bill a Far Cry
from Lack of Reaction to Bush 1997 Plan

By Mike Hailey
Capitol Inside Editor

Eight years ago then-Governor George W. Bush warned the Capitol press about "storm clouds on the horizon" as he tried to sell a property tax reform plan to a reluctant Texas Legislature. The state's most popular governor ever declared that he was trying to help Texas avert a major crisis by calling for a revised state business tax along with other revenue measures to pay for billions of dollars worth of property tax relief. Bush rolled out his plan amid maximum fanfare at the end of a yearlong study by a select committee made up of business and political leaders appointed by the governor and the legislative leadership.

Senate Finance Chair Steve Ogden, right, touts budget plan

What seemed like public indifference about the Bush proposal - especially when compared to the vociferous outpouring of opinion and concern about the tax plan that cleared the House last week - was probably due in part to a lack of advanced technology that's revolutionized rapid response in the political spectrum over the past decade. But this time around Texans have PDAs, smartphones, high-speed Internet and other ways to stir up grassroots activists who can communicate opinions immediately to legislators with minimal inconvenience at little or no extra cost. And based on email that's been flooding computers on the east wing of the Capitol, the storm clouds that Texans are finally starting to see aren't so much high property taxes as they are the state revenue sources that are proposed in the tax plan known as House Bill 3.

One week after the Texas House approved the tax legislation, the offices of Senate Republicans are being inundated with calls and correspondence from constituents and others who are overwhelmingly opposed to it despite the local tax breaks that homeowners and businesses would receive. Few issues in recent memory have sparked as much obvious interest and attention from the people back home in GOP-leaning Senate districts than the tax overhaul proposed in HB 3. While the Bush plan encountered opposition from activists like Tom Pauken, the state Republican chairman at the time, grassroots supporters didn't have a way to get the word out on a wholesale basis in a matter of minutes in order to try to stop legislation before it was too late like they do today.

The intense public reaction to the House plan, which was approved on a close party line vote, is focused for the most part on a cornerstone proposal that would give businesses the option of paying the current franchise tax on net worth or profits or a new tax on wages paid to employees. Businesses under the House proposal could pay a new state tax on 1.15 percent of base payroll or the current franchise tax on 4.5 percent of earned surplus, another way of saying income, or .25 percent of their capital inventory. More than 80 percent of Texas corporations that have found ways to dodge the franchise tax would be required to choose between the tax based on compensation to employees or the current tax they've been avoiding. Businesses with gross receipts under $150,000 would remain exempt. Republican House leaders initially planned to replace the franchise tax entirely with the proposed payroll measure. But they delayed debate on HB 3 in order to incorporate the optional business tax provision into the legislation to beef up support. The bill also calls for a penny hike in the state sales tax, a $1.01 increase in the cigarette tax, a 3 percent tax on snack foods and an extension of sales taxes to car repairs and washes, bottled water and billboard advertising. The state tax changes would be designed to raise $10.8 billion for property tax relief, which would be achieved through a drop in the school tax rate from $1.50 to $1 per $100 valuation.

The payroll tax provision that threatened to undermine the bill's chances of passing in the lower chamber is now sparking the most complaints from the public even though it is optional in the House plan. The most common beef that people opposed to a payroll tax seem to share is their belief that it's really an income tax in disguise.

Lieutenant Governor David Dewhurst indicated last week that he is no fan of the payroll tax proposal in the House plan as well. The Republican Senate leader predicted that senators would scrap the tax on wages and replace with a broad based business tax that most companies would have to pay at a rate that's less than half the amount of the current franchise tax. Dewhurst and State Senator Florence Shapiro, the school finance sponsor as the Education Committee chair, have suggested that the proposed taxes on snacks and auto repairs would come out of the plan when senators rewrite it. But the proposed car sales tax hike will likely remain in the bill when it's debated in the Senate, which expects to limit a general sales tax hike proposal to half of one cent, pushing the levy to 7.25 percent with the ability of local governments to add a couple of pennies more to it.

The House sent the bill across the rotunda on a 73-68 vote with the support of only one of the chamber's 63 Democrats. Constituents who've been complaining to senators are effectively taking sides with the 58 Democrats and 10 House Republicans who voted no on final approval for HB 3.

But House members who cast votes for the tax bill believe that they can bring the public around to their way of thinking once they have an opportunity to explain why they backed the plan. Some Republican House members who supported the plan argue that a business activity tax that Dewhurst and senators have considered would be based essentially on both income and wages as opposed to offering an option between them as proposed in HB 3. Beyond that, GOP members who voted aye on HB 3 say it's strikingly similar to the Senate's draft plan even though it might not have been packaged in rhetoric as marketable as the upper chamber proposal.

The feedback from constituents that senators are getting is almost unanimous in opposition to the tax plan.that cleared the House before members had a chance to sell it back home. Republican grassroots base supporters are solidly against the House tax bill - and groups that are usually allies such as the Young Conservatives of Texas, the Texas Public Policy Foundation and the Texas Eagle Forum have voiced opposition to the measure that passed the House. Activists on the State Republican Executive Committee had planned to protest the tax bill with a resolution at a meeting earlier this month but backed off after Speaker Tom Craddick appeared before the governing board to explain the the bill's details and the reasoning behind it.

Craddick and the House leadership have admitted that they don't necessarily see HB 3 as a perfect solution, but they insist that it was the only way they had to keep the legislative process moving in the debate on school finance.

Unlike this year's vote on taxes, the House wasn't split along partisan lines during the 1997 debate on property tax reform. After Democratic leaders tossed out the Bush plan and started over from scratch, House Republicans were equally divided when they voted on the measure by then-State Rep. Paul Sadler that surfaced in its place. Bush endorsed the Sadler plan but the Senate replaced it with a scaled down version then essentially let the clock run out while taking its time in conference committee.

In addition to high-tech advances, part of the reason for the dramatic difference in the public response to Bush's property tax program and the plan in the mill now could be due in part to the fact that the 1997 debate followed an extensive public education and awareness effort provided by the select tax committee. It also has to do with the fact that the current debate is unfolding amid a constitutional crisis with a court hanging over the Legislature's head.

After falling short on major property tax reform as Texas governor, Bush conceded that the issue had been simply too tough to tackle in the absence of a crisis. Now legislators are getting another chance with storm clouds fueled by the winds of a court order hovering perilously above while criticism from outside the Capitol is starting to rain in from Blackberries, Palm/Pilot fax programs and email outboxes in a flood of opposition to HB 3.