May 3, 2004

Page From The Past

Legislature Considered Revised Franchise Levy, Cigarette Tax and Gambling Expansion - in 1991 - Does that Ring Any Bells?

By MIKE HAILEY

"Every time you fill up your car, remember you'll be feeling the pain of an extra dollar in taxes because Ann Richards the governor did not keep the promises of Ann Richards the candidate."

Speaker Tom Craddick was the House Republican Caucus chair in 1991 when he sized-up the governor's record on taxes the last time the Texas Legislature passed a major tax bill. That was 13 years ago - and a lot has changed since then - to put it mildly.

By the time Richards took the oath as the state's second female governor she was fresh off a campaign in which she had been hammered for months by critics such as current State Comptroller Carole Keeton Strayhorn, who was still known as Rylander while co-chairing the ill-fated 1990 bid of Republican opponent Claytie Williams. In the summer of 1991, George W. Bush was a private businessman and president's son who a few years later would turn Richards the re-election candidate into Richards the ex-governor. Current Governor Rick Perry was one of the GOP's newest members and just getting his boots wet as state agriculture commissioner.

Richards hadn't signed a pledge to oppose new and higher state taxes like Craddick and 38 other current legislators have in the years since she was ousted by Bush. But she'd vowed verbally to fight a personal income tax while campaigning for governor - and she'd intimated for the most part as a candidate that she was against raising any and all taxes. That made her fair game in a contact sport for the bards she would sustain after signing a $2.7 billion tax bill into law during her first year on the job.

But while the tide has turned dramatically from a partisan perspective, there are still some stark similarities between the tax debate at the Texas Capitol now and the fight over taxes in the last Democratic governor's first year on that particular job.

The biggest issue that year was public education funding - just like it had been the year before when the Legislature tried without success during four special sessions to bring the state's school finance system into compliance with a Supreme Court's decision in the Edgewood lawsuit over inequities between rich and poor districts. Public schools needed more money - and the prison and mental health systems were also under court orders that required the state to spend more in those areas as well.

In order to fund a state budget that was half its current size, the Legislature considered a plan that called for a revised franchise tax, a cigarette tax increase and an expansion of gambling that would be contingent on voter approval later that fall. Does that ring a bell?

When the franchise tax was approved in 1907, it was designed as a levy on a major industrial sector that relied on extensive capital and equipment. The House in 1991 proposed to raise more than $1 billion by extending the franchise tax to the growing service sector, but that plan fizzled amid stiff opposition - much like recent moves to a more broad based business tax system. So the 1991 Legislature settled on a plan devised by Lieutenant Governor Bob Bullock to raise almost $800 million from the franchise tax by adding an income component to it and forcing most corporations to pay the higher between a tax at a lower rate for capital or on income.

The new gambling money wouldn't come in until after a vote could be held in November of 1991 on the creation of a state-sponsored lottery. But the budget depended on it. You had to go to Las Vegas or Reno or Atlantic City if you wanted to play the slots, but the Legislature did vote to allow simulcasting at racetracks for a much-needed boost following a disappointing start after Texans approved pari-mutuel wagering in the late 1980's. Legislators also cut the state's take from the tracks' proceeds in 1991. But the tracks still haven't performed as well as racing advocates long envisioned - and that's why they're eager to install video lottery terminals that Perry has proposed and the House will consider in its school finance bill on the floor starting Tuesday.

The 1991 Legislature - like today's version - also had a cigarette tax increase incorporated into its revenue plan. It was only a nickel a pack - spare change compared to the $1 pack hike the governor, the Senate and the House Select Committee on Public School Finance have proposed. But the tobacco lobby was still peaking in power - and the cigarette tax increase came out of the tax bill at the last minute. While smoking's image has suffered substantially in the past decade, the tobacco lobby this year includes several of the most powerful hired guns in town.

Like the current House school finance committee, legislators planned to tax car washes in 1991. But that too was missing when the final plan surfaced - just like it was when the House committee last week scaled back on a sales tax expansion.

The long shadow of 1991 is still apparent in the debate on personal income taxes, which Bullock had proposed midway through the regular session before abandoning in the face of intense and immediate opposition that year. That set the stage for the 1993 constitutional amendment that requires a vote of the people before the Legislature can pass a personal income tax or a tax that effectively increases the tax liability on an individual's income from unincorporated associations or partnerships. All of the money the state generates from an income tax would be dedicated to education as a result of the 1993 measure - two-thirds to property tax relief and the other as a direct appropriation to schools.

The 1993 amendment was designed to help give cover for senators and others who followed Bullock out on the limb two years before. Bullock years later acknowledged that he thought it would actually make it easier for the Legislature to pass an income tax someday - whenever it's time should come. But the unpopularity of income taxes is the one thing that hasn't changed since 1991.

Mike Hailey's column appears regularly in the Viewpoints section