Legislative update May 3

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May 03, 2019
Budget comparisons
 
Two budget conference committees, groups of appointees from both chambers for a specific bill, have been negotiating budget proposals for the 2020-21 biennium (HB 1) and the current biennium (SB 500). In January, Texas Comptroller Glenn Hegar announced the budget would increase by nearly $9 billion and the Economic Stabilization Fund, or rainy day fund, would swell to $15 billion. Now, lawmakers must decide how that surplus is spent to pass an appropriations bill, the only legislation they are constitutionally required to pass.
 
Major differences remain between the House and Senate proposals:
  • Both proposals for the 2020-21 budget dedicate about $116 billion from the state’s general revenue (GR) account.
  • The House version would withdrawal an additional $2.3 billion from the Economic Stabilization Fund (ESF), while the Senate would not use any rainy day funds.
  • Both versions of HB 1 would increase appropriations to the Foundation School Program (FSP), state public schools’ funding account, by $9 billion. $6.3 billion would go directly to increasing the per-student allotment, teacher raises and other programs, and $2.7 billion would replaces school funding lost to property tax cuts.
  • The Senate has proposed $4 billion for $5,000 raises to teachers and librarians. The House would require schools to dedicate 25 percent of increases in the per-student allotment to raises for school district employees.
Both chambers would dedicate $15.6 billion to state colleges and universities over the next biennium.
 
Both versions of the supplemental bill, SB 500, would withdrawal about $4 billion from the rainy day fund. The House version of SB 500 would provide $169.8 million to pay off the backlog of matching funds mandated by the Texas Research Incentive Program (TRIP) for research at qualifying state colleges and universities. The Senate would not dedicate any funding to TRIP.
 
House passes property tax reform bill
 
Senate Bill 2, the major property tax reform bill, was passed by the full House after six hours of debate on Tuesday. The House version of SB 2 would trigger an automatic election if local revenue from property taxes grew by more than 3.5 percent, whereas the current rollback rate is 8 percent. SB 2 passed despite significant concerns from Texas cities about cuts to public safety funding, which makes up the majority of city budgets.
 
The House version of SB 2 would override any standing revenue caps in cities and counties. The bill would also allow cities and counties to include losses from homestead exemptions and providing indigent healthcare in revenue calculations. Taxing units could increase their property tax revenue by $500,000 per year without triggering an automatic election. Their revenue growth could also exceed the rollback rate some years if the average revenue growth over the last five years was 3.5 percent or less. Hospitals and community colleges would remain exempt from the changes, and therefore retain their 8-percent election trigger. An attempt by Rep. Eric Johnson (D-Dallas) to exempt public safety funding from the revenue calculation was tabled.
 
Finally, House members made SB 2 contingent on the passage of major school finance reform, HB 3. The new provision would require passage of HB 3 for SB 2 to go into effect.
 
School finance reform advances to Senate floor
 
The Senate Education Committee reluctantly approved their substitute for House Bill 3 on Wednesday. With only three weeks remaining in the 86th session, senators rushed to approved HB 3 so that the full Senate could vote on the bill soon. Once the upper chamber has passed the bill, a conference committee can be appointed to work out the details. House Bill 3 is scheduled for debate Monday on the Senate floor.
 
The committee substitute would provide $5,000 across-the-board raises for state teachers and librarians, in line with Senate Bill 3 passed by the upper chamber in March. The pay increases would cost $4 billion over the next biennium. The bill would also allow for merit pay raises, fund pre-K funding for low-income students, increase the homestead exemption from $25,000 to $35,000, and provide outcomes-based funding bonuses to high-achieving school districts.
 
The Senate version of HB 3 replaced the original 4-cent property tax cut per $100 valuation with an 8-cent cut the first year, and 15-cent cut in subsequent years. Together with teacher pay raises, the steep tax cuts would require a new source of revenue not specified in the bill.
 
Recently, lawmakers have discussed increasing the sales and use tax by one cent to pay for the large property tax cuts proposed in the Senate version of HB 3. The House Ways & Means Committee passed substituted versions House Joint Resolution 3 and House Bill 4621 this week, which would dedicate 100 percent of the new sales tax revenue to property tax relief. The initial HJR 3 proposal would have dedicated 80 percent of the new revenue to property tax relief and 20 percent to school funding. The one-cent increase is estimated to raise $5 billion toward lowering property tax rates.
 
Joint resolutions require two-thirds approval by both chambers since they go to the voters as constitutional amendments. If every House Republican voted for HJR 3, the bill would still need 18 House Democrats to pass. Many Democrats are opposing any sales tax increases as a regressive tax that shift costs from higher-income homeowners to low-income consumers.
 
In the Senate Education Committee on Wednesday, Chairman Larry Taylor (R-Friendswood) expressed regret at bringing HB 3 to a vote without a clear source of funding or an official analysis of how the bill would impact their districts. Three members – Sen. Paul Bettencourt (R-Houston), Sen. Angela Paxton (R-McKinney) and Sen. Bob Hall (R-Edgewood) – voted Present Not Voting due to significant concerns about funding the bill. Sen. Taylor reassured committee members that once HB 3 was passed, its details would be negotiated in conference committee
 
Other updates
 
House Bill 3143, which would extend the expiration date of Chapter 312 tax abatements from cities to new or expanding businesses, was passed by the House and referred to the Senate Natural Resources & Economic Development Committee.