Chairman Dennis Bonnen said during the May 12 Ways & Means Committee that if they send SB 1 and SJR 1 to the floor, they will not include removing tax cuts from counting against the spending limit. Bonnen also noted that he would be supportive of a measure that did not include property or sales tax cuts but instead focused all of the tax relief this session on the franchise tax. The report below covers testimony provided during the House Committee on Way and Means on various tax relief bills including the Senate tax package (SB 1, SJR 1, and SB 7) as well as SB 1760.
 
SJR 1 and SB 1 (Nelson), relating to certain restrictions on the imposition of ad valorem taxes and to the duty of the state to reimburse certain political subdivisions for certain revenue loss.

  • Chair Bonnen laid out bills
  • Increase homestead exemption
  • Homestead exemption will increase/decrease as property value increases or decreases
  • Holds school districts harmless
  • Chair Bonnen called SJR 1 a gimmick to go over the spending limit as it would exclude appropriations associated with tax relief from counting against the limit
  • SJR 1 Prohibits tax on transfer of real estate

 
Wayne Pulver, LBB, Resource Witness

  • Costs will change as property value increases and as people move into the state
  • Chair Bonnen asked Pulver to explain historical tax levies for all jurisdictions – what has happened historically when we did similar measures to raise homestead exemption and has been the cost to the state
    • 1997 there was increase in homestead exemption to $10,000 which was estimated at $511 million/year to the state but is now at $600. Levies on property taxes across the board were increased
  • Rep. Darby asked if $10,000 homestead exemption a continuing cost every year. This would mean $1.2 billion cost each biennium?
    • That is correct
  • Chair Bonnen said that the entire benefit would not be received because of increase across the board
    • In 1999 the legislature increased guaranteed yield to FSP and the EDA was rolled into FSP with intent that contribution would be equalized with incentive to reduce INS taxes going forward – this was estimated to cost $1.8 billion in biennium.
    • EDA was estimated at $930 million for biennium, but cost has been around $500 million. Change in levies was increased by 11.02 % in subsequent biennium on all property taxes
  • Chair Bonnen again stated that taxpayers did not receive full benefit if any benefit of the relief
    • In 2006 – legislation compressed school district rates by 17 cents and then 33 cents. Buy down was $14.2 billion and that cost remains today.
  • Chair Bonnen noted that we are paying $8.4 billion every year for these property tax reliefs that have not been fully realized by tax payers if realized at all
  • Rep. Bohac said there is money that would have been paid by taxpayers that is not being paid because of these past strategies. As appraisals rise, we can slow the growth in what taxpayers can pay, but we could not lower the amount paid for taxpayers
  • Chair Bonnen said that suggesting we are lowering property taxes is giving false impression. The best we can give is the fact that they are not increasing as much as they could be
  • Chair Bonnen noted that school revenues are outpacing the property tax relief that we are providing
  • Rep. Martinez Fischer – property tax relief has glitter on it, but is not gold. Appraisals are going up, so reducing taxes will not be realized, but property value is going up which is good. You cannot have appraisal rates go up without the taxes also going up
  • Rep. Martinez Fischer asked how much it would cost over 10 years for tax payers to actually realize a tax savings through homestead exemptions
    • This has not been done and does not know if it is possible
  • Rep. Bohac said consumers are not happy about appraisals because the working poor and elderly (people with fixed income) have taxes going up because Federal Reserve is giving out money and demand of houses goes up
  • Rep. Bohac wants voters to be able to see what they would have paid prior to changes vs. what they are actually paying
  • Rep. Murphy said property tax relief is not actually tax relief. It is a tax shift.
  • Rep. Turner asked what the spending cap is and how long we have had it
    • Spending cap is a limitation on the rate of growth of appropriations not dedicated by constitution set by the LBB
    • Current statutory construct is that rate of growth can’t exceed growth of income.
    • Developed in the late 1970s
    • Under SJR 1, appropriations associated with tax relief (school district payments in this situation) would be exempt
  • Rep. Turner asked if there is another mechanism to go over the spending limit besides a joint resolution. Is there precedent?
    • Majority vote in both chambers allows to legislature to go over spending limit
    • This happened in 2007
  • Rep. Turner asked why we would have a joint resolution instead. Is there precedent?
    • Joint resolution avoids the vote to go over spending limit
    • There is no precedent for going over the spending limit in this way
  • Rep. Springer asked if taxes are reduced overall in both local and state by passing this bill or if the taxes are just shifting
    • Understanding is that state spending to school districts would increase
    • Total state and local spending would equal out
  • Rep. Springer wants to shrink size of government, but we provide relief in one spot where we ask for more in another spot
  • Rep. Martinez Fischer mentioned that when the LBB picked the spending cap in December, they chose the lowest cap available. There were three other options and he believes there was a $3.4 billion difference in the cap they chose and the highest possible cap.
    • Pulver said the difference was significant, but he does not remember the exact number
  • Rep. Martinez Fischer asked if the cost of the proposed tax cuts would fit in the budget if the highest cap had been chosen
    • Can’t say for certain but if $3.4 billion was in fact the range difference, this would be the case

 
Kerry Barton, Comptroller’s office, resource witness

  • Chair Bonnen asked Barton to you explain comptroller’s issue with section 2 of SJR 1
    • SJR 1 has language that would prohibit imposition of real estate transfer tax, but it could have impact on taxes we currently have in place – specifically the hotel tax
    • Comptroller’s office is working on language to clarify this
  • Chair Bonnen asked if there any proposals to add this type of tax or if there have been any in the last few sessions?
    • Not one currently
    • At one point senate passed a bill that had some impact on it a very long time ago
  • Chair Bonnen asked how we paid for the $7 billion property tax reduction in 2006
    • Franchise tax, cigarette tax, motor vehicles tax covered the cost
  • Rep. Martinez Fischer asked if hotel tax issue is shared by people renting their homes
    • It is a possibility
  • Chair Bonnen said it sounds like this may be creating bigger problems than it solves. Are you aware of any efforts to increase real estate taxes?
    • No

 
Ro’Vin Garrett, Tax Assessor-Collectors Association of Texas, Either On or Against – Does not mention

  • It is up to county tax collectors to collect taxes regardless of what legislators choose to do
  • Concerned about 2015 date of bill regarding the collecting of taxes by counties
  • Timing to have election in September or November would be difficult, expensive, and require overtime
  • Chair Bonnen asks if this could be considered an unfunded mandate
    • Yes
  • Rep. Murphy asks if Garrett offered testimony in Senate Finance Committee
    • No
  • Rep. Bonnen says that this bill did not stay in committee for long in the Senate
  • Rep. Turner wants committee to hear from Secretary of State Office regarding deadlines of having elections

 
SB 1 and SJR 1 withdrawn
 
Committee adjourned at 9:59am and reconvened at 8:41pm
SB 1 and SJR 1 were laid out
 
Ashley Fischer, Secretary Of State, testified on SJR 1  

  • September 12 – amendment election is called for in bill
  • Handouts were given to committee on timeline to prepare for September 12 election
  • First deadline July 14 – applications of ballot by mail and July 14-24 need to publish ballot 
  • Cost of elections will vary
  • Chair Bonnen asked when is last date can begin process to make September election
    • Not sure but if it goes past regular session it would be very difficult to hold election
    • Bonnen speculated on June 2 Special Session – would mean September election would be impossible?
    • Not sure but make it really difficult – thinks could be in August and still make the November election
  • Rep. Martinez Fischer – thinks if there was a special session it would be because of the budget so if in a special session there would be a potential revision to the revenue estimate, after June 15 odds it’s not going to happen
    • Fair statement
    • In 2007 did reimburse counties for elections – approx. $5 million for the entire state but does not have an estimate of what it would cost now
    • There is not a uniform date for Sep. 12 – possible schools may have tax ratification elections
    • Believes there may be a constitutional amendment election in November based on legislation from the 84th
    • Counties concerned they would have to incur cost and workload to run two elections so close together

 
Dick Lavine, CPPP, testified on SJR 1

  • Does not think they should cut taxes, there are better ways to use money
  • Clearly some areas have underinvestment and neglect in some areas – ie transportation
  • But if feel need to cut taxes then SJR 1 would be the best way to go
  • Increasing homestead exemptions has similar impact as sales tax reduction but increase in homestead exemption goes to individual where sales tax reductions goes to businesses
    • Depends on kind of businesses
  • Chair Bonnen – do you think motive of Lt. Gov is to get more money in school districts?
    • Problem is that it is increasing state cost without increasing revenue to the schools
    • Increasing state share of public education funding and the lack of that has caused a number education lawsuits
  • Rep. Martinez Fischer – you have to own the home in order to reap the benefit so he sees more benefit in the sales tax vs the property tax – see sales tax reduction every time person goes to counter
    • Will have to think about the benefit of property tax for renter– ancillary benefit
    • Bottom line not trying to choose which tax relief is best – but his understanding is that sales tax amounts are in pennies where property tax is a larger amount so people would notice the cut in property tax more
  • Sales tax is largest source of tax for the state but for Texans property tax is the largest tax Texans pay each year
  • In regards to question on models of which reduction creates jobs – do not have knowledge on this and there are models that are based on assumptions and property tax is seen as important lever on economic growth
  • Rep. Turner asked about busting the spending cap
    • Last time they had property tax cut it was necessary to bust spending cap
    • Agreed appropriation is needed to make districts whole
    • Does not think there is logic to spending cap  

 
Christy Rome, Texas School Coalition, On SB 1 and SJR 1

  • 2006 reduction came with promise to hold schools harmless but in tight budget the promise was broken – ASATR cliff impending and school districts are leery of this new promise

 
Individual, Texas Tea Party

  • Nearing retirement and appraisal increases are hurting
  • House is only capital investment that he must pay increase value of before he reaps a profit
  • Increases in property taxes – and would like to keep home
  • Chair Bonnen asked him if he is familiar with Denton County and percent increase is 13.3% for county and under this bill a $200k home would see taxes going up by $297 and asked how is that a tax cut?
    • He calls any reduction a tax cut – he will be out there telling citizens that any reduction in increase is a reduction
  • Witness says indexing is absolutely necessary for the future
    • Bonnen – will be making people pay $2 for $1 of relief
    • Bonnen – this is guaranteeing you pay for it twice at state and local level
  • Rep. Martinez Fischer ask what are you going to do for renters?
    • Help them with their decision not to rent
    • Can’t tell his district that he gave property owners a discount but nothing for the 50% of his district that are renters
    • Witness said would spilt the relief as long as they indexed the property tax reduction
  • Witness said school taxes going up by $500
    • Rep. Bohac – then school board did that
    • Bohac – Appraisals are not raising taxes – saying it is the local officials
    • Bohac said it is all based on what the local officials want to set rate at
    • Turner – asked about school debt and if it was approved in bond elections
      • There were some bond elections that failed across the state and he has been very busy to help impact this

 
Dale Craymer, Texas Taxpayer and Researcher Association, Against SJR 1

  • Spending limit carve out causes concern – agrees spending limit is incredibly complex and would encourage revisit the limits
  • Note on tax prohibition, one time they prohibited tax in 1980s and over years and now courts have applied it to the school tax so would caution against law of unintended consequences
  • Would pay for it double – pay for existing tax base of homes and additional new homes so there is an escalating factor over time so it will draw down cost to state
  • Do not oppose reasonable increase in homestead exemption provided state is on course to fund certain critical state needs and that the relief does not come at expenses of other tax payers
  • SJR 1 may create unrealistic expectations – not really cutting taxes but cutting the growth – so just reducing the rate of increase
  • Already have system of property taxation that is not very well balanced
  • History of property tax buy downs by state were reviewed – but challenge is cannot control local school district decision making
  • Not getting full dollar of relief with current method of property tax relief
  • Rep. Bohac – how is best way to give tax relief?
    • Ultimate key is keeping control of tax
  • In current law a local taxing jurisdiction, takes effective tax rate
  • Rep. Bohac – should Legislature remove statement that Tx Legislature tax burden is set by local officials or add statement to call local legislator because they control locals?
    • You do not control tax rates but rather are controlling the process  

 
Chris Frandsen, League of Women Voters of Texas, Oppose SB 1 and SJR 1 

  • Supports equitable system of taxation
  • Believes both House and Senate proposals are insufficient

 
Record shows: 19 for SB 1 and 10 against, 17 for SJR 1 and 9 against
 
Chair Bonnen, Closes

  • Will not be leaving language in requesting to bust spending cap if the bills move forward

 
SB 7 (Nelson) – relating to the computation of and to decreasing the rates of the franchise tax.

  • 15% rate reduction but otherwise comparable to House version
  • Would like to create a 45% rate reduction and send back over

 
Dale Craymer, Texas Taxpayer and Researcher Association

  • Support concept and prefer approach House is taking
  • Prefer overall package House has passed and if just taking franchise tax also prefer House
  • Rep. Martinez Fischer asked if that sentiment was relayed to the Senate
    • Yes and they are on record that they prefer the House approach
  • Bonnen said in 2006 they had to expand franchise tax to do property tax reduction, so doesn’t it make sense to address franchise tax first
    • Franchise tax is reasonable alternative but property tax is the most harmful to the business climate
    • Bonnen we increase burden on business with tax, should we not take that burden back
      • Yes
    • 2006 package was broader relief so net benefit was more towards home owners

 
James LeBas, Texas Association of Man, TXOGA, Texas Chemical Council

  • Better bill is HB 32 and they support that bill

 
Peggy Venable – Americans for Prosperity

  • Love the 45% cut and want to work to eliminate franchise tax
  • Franchise tax provides for a system of tax pyramid and products are taxes all during the process

 
Vance Guillen, Texas Public Policy Foundation, Support SB 7

  • Would like to see overall elimination of margin tax and that is where state will get largest economic boost
  • Would be 1 of only 4 states in nation without income tax and business tax
  • Individuals are hurt by having high business taxes because the tax is passed onto them
  • Rep. Bonnen said down to making this work – maybe put whatever dollars they have towards moving towards eliminating the franchise tax
  • Rep. Martinez Fischer asked if the organization had similar passion against margin tax when it was passed in the past
    • Was against it then and still against it today and would like to see it eliminated
  • Rep. Turner – if we get towards eventually eliminating the margin tax, how do we fund the state obligations?
    • Turner – legislature responded to school court decision by cutting property taxes and then did a tax swap and worked on margin tax we have today
    • Turner – still have not restored budget cuts from 2011, back in courts again so how do we fund state obligations
    • Believes there are areas to cut and areas to look for efficiencies
    • Turner – so government has been spending irresponsibly? But there are parents who will disagree that state is taking care of priorities and people sitting in traffic may disagree state is taking care of priorities
  • Rep. Bonnen – busting the spending cap?
    • Against busting the spending cap

 
Bonnen closed

  • Sen. Nelson has been very respectful and very cooperative and a very good leader and wants to work with her moving forward
  • SB 7 left pending  

 
SB 1760 (Creighton) – relating to the transparent and equitable application of ad valorem taxation procedures.

  • Bonnen laid out bill
  • City councils, local governments, will now be required to have a 60% vote for property tax increase

 
Dan Casey, Texas School Alliance, against the bill

  • School districts operate under different statute than cities and counties
  • Operate under different section but there is also a separate notice in education code and still provide notice like other taxing units
  • Concern with shift to 60% will take 5 out of 7 members of school board to approve and may put district in a “serious ditch”
  • Could be risk of loss of state aid – requires local tax effort
  • If higher value growth then state aid will be reduced under equalized funding
  • Rep. Bonnen – move it from local pool and take trigger to entire pool?
  • Concern is 26.05 effective rate – operate under different statutes

 
Dale Craymer, Texas Taxpayer and Researcher Association

  • Support bill
  • It is not as far reaching as it could be but it is a step in the right direction
  • Rep. Turner do you know where 3/5 majority came in?
    • It is in the Senate
    • Thinks alternatives were explored

 
Peggy Venable – Americans for Prosperity

  • Supports bill
  • Thinks this bill is appropriate but does not think it is monumental, it is incremental
  • Chair Bonnen said bill does good things but does NOT see it as a monumental reform on property taxes
    • It will NOT solve the problem, it addresses it
    • Lowering roll back rate would make a tremendous different

 
Witnesses: 23 for and 12 against not wishing to testify
 
Bonnen thinks bill may need some work but it is a positive step and have been reasoned in expectations
Bill should not be delivered as solution to the problem, just a nice step in the right direction.