April 4, 2004

Different Strokes

Fragile Alliance Between State's Top Two Republican Leaders Could Be Threatened by Different Approaches to Public School Finance

By MIKE HAILEY

The Texas Capitol has been the scene of a spirited game of one upsmanship ever since Governor Rick Perry suggested last year that Lieutenant Governor David Dewhurst didn't have the experience necessary to take on the politically complex issue of public school finance.

As one of the state's most successful businessmen with four years in elected statewide office under his belt, Dewhurst took the appraisal s a personal challenge. He not only showed the governor and any other doubters that he could hold his own on school finance, he made it look easy as he developed a major plan and passed it in the Senate with unanimous support.

The press was dazzling but Perry and House leaders were not impressed. The House had expected to take the lead on school finance - and its leaders viewed the events in the upper chamber as a showy, almost theatrical display of gamesmanship. Perry fortified the House's territorial posture by agreeing to call a special session in the fall or the following spring - and that was a green light to junk the Senate plan and create an interim committee study instead. With Perry and Dewhurst also at odds last year on the state budget, the cold shoulder that the Senate got on school finance fueled the friction that had been building between the state's top two Republican leaders all session. Congressional redistricting gave them a reason to be allies again a few months later - and while Dewhurst may not have been the most enthusiastic remap advocate around - he did what he had to do to ensure that the GOP got its new U.S. House map.

But now with the long-promised special session on school finance looming perilously, the fragile alliance between Perry and Dewhurst appears to be threatened once again. There is little they seem to agree on - and until that changes the prospects for disaster in a special session are huge.

Dewhurst still thinks the Senate plan offers the best roadmap to a viable solution to the problem of how to fund public education in the state. But Perry has barely acknowledged the existence of a Senate plan - much less endorse any of its key elements for use in the unofficial plans that he and his staff have rolled out in recent weeks. Dewhurst has been prepared for more than a year to pass an all-encompasing plan that cuts local school property taxes, ends the Robin Hood recapture system and provides a revenue stream to fund the changes. But now - with everyone short of Perry talking publicly about a special session starting sometime between April 12 and April 19 - the governor has thrown a new twist into the mix by indicating that he doesn't think a full-scale overhaul of the school funding system is doable in a special session or in a single calendar year. He'd rather patch the problem with a band aid to buy some time and then phase in a new school finance system over several years. According to a pair of newspaper reports at the end of last week, Perry's latest plan would chip a quarter off the maximum tax rate to get it down to $1.25 for every $100 that a home is alleged to be worth on property tax rolls that local districts would continue to supervise. Commercial property would be taxed by the state at a rate no higher than $1.40 - a ten-cent break compared to what business pay now. After several years all property would be taxed at a maximum rate of 75 cents - and school funds would be replenished with money the state would have to figure a way to come up with in the next few years. The state would divvy up payments to school districts to make sure they're equitable without Robin Hood around to do that. The first wave of property tax cuts would cost the state about $3 billion, which it would pay with a cigarette tax increase and money from slot machines at racetracks and maybe some plugged-up tax exemptions. All of this would be wrapped up into a warranty with a constitutional amendment requiring future legislators to make the changes set forth in the phase-in bill.

Dewhurst seems confounded over Perry's newfound pragmatism - and he doesn't appear to like the piecemeal approach one bit. He's seen how difficult it is to forecast state budget needs two years out. Phasing in a school finance over five years as Perry has suggested would require assumptions based on uncertainty and thus be vulnerable to unforeseen circumstances and changes.

Dewhurst says there's support in the House and Senate for sales tax hikes and expansions as contained in the original Senate proposal and possibly for an overhauled franchise tax. A business activity tax, which could be structured to work much like the franchise tax, has some support as well. But Dewhurst doesn't see anybody saluting Perry's split tax roll proposal - and there's reason to think he's getting aggravated with the governor for continuing to push that idea when it's been snubbed by legislators and business lobbyists alike. Outside of the Texas Apartment Association, which endorsed Perry's plan after he told the group that their property would be treated as residential, businesses who back split tax rolls have been few and far between.

School finance isn't the source of potential contention between the two leading Republicans officials in Texas. Dewhurst asked the Senate Finance Committee to take a look at Perry's prized Texas Enterprise Fund - and senators from both parties raised questions about the possible need for more controls over the use of the funds remaining from an initial deposit by the Legislature of $295 million e a year ago.

One recent deal raised some eyebrows among senators when they discovered that Vought Aircraft Industries had been given $35 million from the Enterprise Fund to expand its parts manufacturing operation in Texas when some of the jobs the firm has promised won't have to be created until 2009. If the Vought jobs failed to materialize, the most the company would have to repay the state would be $30 million. The company probably thinks it got a pretty good deal from the state - especially after posting losses of $70 million last year and $79 million the year before.

The Enterprise Funds probably means as much or more to Perry as the Senate school finance bill means to Dewhurst. Senators raising doubts about the governor's pet project in an open forum won't smooth the ruffles that seem to be increasing exponentially as the year progresses.

Mike Hailey's column appears every week or two in the Viewpoints section