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Senate Finance met on March 17 to consider SB 9 and SJR 2 and to also take up pending business.

SB 9 & SJR 2 (Hancock) – Relating to the constitutional limit on the rate of growth of appropriations.

  • Sen. Hancock laid out the bill and joint resolution
    • Sen. West and Hancock discuss methodology and current methodology
    • Hancock – bill is starting point and intends to make adjustments as they hear testimony
  • Sen. Whitmire what do you mean when you say modern ideology
    • Hancock said things established over thirty years ago are worth looking at
  • Whitmire – will this factor in tremendous growth
    • Yes for growth and potential slowdown
  • Sen. Watson – modern can sometimes mean moment we are in but curious about different biennium’s and how those numbers would work
    • Hancock conservative policies adoptive before were helpful and believes this would be helpful as well but will get Watson those numbers
    • Watson by applying the spending limit to all Funds – it would be under the bill – so does that mean in regards to recent transportation package would limit those funds
    • Hancock said it would limit all funds and went back to look at 78 and 79 – it is not transportation that will cause the problem but the problem is in Medicaid growth
  • West what impact in the future will a less educated workforce have
    • Hancock said that question will go to Education rather than Finance
    • Just trying to understand how it all impacts – how does that impact either approach
    • Hancock said he does not think the bill addresses what type of educated workforce we have
  • Sen. Schwertner – budget actually growing faster and FMAP percentage is slowly decreasing
  • Schwertner – will have a 57% FMAP in 2019 which is very significant and Texas will have to make up in GR for diminished funding being send down from the federal government
    • Discussion on state determining how to administer Medicaid/health care fund

Ursula Parks with LBB & Staff and Comptroller Office as resource witness were invited up

  • Watson asked Parks if CPI is accurate picture of goods and services
    • CPI is not perfect match to kind of expenses State is engaged in
  • Watson – if we use population + inflation is it more accurate to multiply than add
    • When you add you lose effects of them so you need to compound them
  • Watson – is it still opinion that CPI is not accurate indicator of costs for next biennium
    • Population and inflation are factors of growth but not economic activity and thinks bill is moving away from current system
  • Watson – to sum up Parks testimony  – it should be based on estimates and forecasts of where you are going as opposed to current snapshots of population inflation
    • At relatively modest population growth and inflation and thinks if it is adopted it needs to be forward looking rather than backward looking
  • Sen. Huffman – how do we factor in needs of increased population and concerned about ability to be flexible to address needs
  • Sen. Nichols – Population growth makes sense since that is increasing there will be need for added services so his question focuses on inflation (CPI focuses on household goods)
    • There are ways to look at inflation by sector and there are ways they could be examined
    • Nichols – how can you measure inflation on Medicaid? Education?
    • Parks – Can measure medical costs inflation, in regards to education much is about personnel? Currently have many entitlement programs and will probably continue
  • Nelson – two fastest growing population are the very young and the very old
  • Hancock – there is not CPI in the legislation and notes legislative language in bill which says it provides flexibility to the LBB so if CPI is not a good number, then don’t use it

Public Testimony
Talmadge Heflin, Texas Public Policy Foundation

  • Supportive of legislation and like look back instead of looking forward since it gives you good budget, that it takes all of the budget into account and that it takes 3/5th to change it
  • Sen. Bettencourt – 45% population and inflation growth over last ten years
  • Nichols said he was assuming consumer price index as the inflation number but Hancock pointed out the LBB would establish the rate, what inflation factor is in your mind
    • We use the CPI because it is the most commonly known and used  

Peggy Venable, Americans for Prosperity

  • Want to focus on citizens availability to pay and it is reflected in proposed spending limit in the legislation
  • Believes government can tighten its belt –  at one point enrollment grew 19% and education spending grew over 93% and when students and teaching grew modestly, non-teaching staff grew over 100%
  • In response to Bettencourt, notes Colorado has a ratchet down in times of poor economy whereas Venable believes spending should remain constant and voters have voted to spend over limit

Eva DeLuna-Castro, Center for Public Policy Priorities

  • Not in support of looking back and handed historical analysis on what would have happened if the proposed limit was in place
  • Would be trying to cut $19 billion today if this limit were in place
  • Watson – in regards to timeline of where we have seen growth in state spending and would like to know about role of property tax cuts in 2006 and what role it played
  • It brought growth to state spending, had to vote to bust cap
  • Sen. Taylor – do you think peoples income went up on handout
    • There are stagnating wages
    • Taylor – need to compare also with needs of individual and the tax burden they bear

Patty Quinzi, Tx-American Federation of Teachers

  • Texas already has pay-as-you-go system
  • Legislature should consider to go in opposite direction for example, keep education funding to match student population plus inflation and meeting mandates
  • Inflation does not contemplate cost of goods state much purchase
  • Legislation is partially mirrored in Taxpayers Bill of Rights and has been rejected or we can learn from negative effects when put in place such as in Colorado
  • Rise in unisured, parents held fundraisers for textbooks, emergency response impacted, fees raised 200-400%
  • Became instead a tax cut but actually a tax shift

Stuart Greenfield, Professor

  • Provided historical analysis of how the current proposed language would have impacted appropriated
  • 2014-2015 would have had to cut over $14 billion  

Bills left pending

Bills voted out of committee:
SB 1 and SJR 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.

  • Substitute laid out for SB 1 which does the following: Moves date for state aid from Jan 1 to Sep 1. Median values from prior year each year. Moves dates that median value is set from July until February. Clarifies INS hold harmless apply to debt that may be excluded receiving existing debt allotment state aid. Homestead exemption amounts will fluctuate and current amount was stated.
  • Substitute laid out for SJR 1 which does the following: state appropriations made to reimburse school districts are constitutionally dedicated and therefore do not count against the spending limit. Would start applying in 2016.
  • Sen. Watson – asked if SJR 2 passed, would it contradict SJR 1? Does one overrule the other?
    • Parks – there is a way to construct it so this SJR would not be subject even in the context of Sen. Hancock’s bill, may need a slightly different revision because this language applies to current spending limit
    • Nelson said no matter what this language would apply
  • Sen. Eltife said cannot vote for the bills because still not sure how 84th is going to meet the needs of the state, still finds voting out this bill as premature
  • Sen. West said he thought they would see the budget before voting on this bill
    • Nelson wanted the committee to have a better feel of where we are going before voting and thinks committee has much better feel   
    • West feels SJR is offering a solution to a problem that does not exist so cannot vote for SJR but will vote for SB 1
  • Sen. Kolkhorst asked if SJR were to pass, it would be constitutionally dedicated and not go against spending cap
    • Not in SJR, just funding in SB 1
  • Sen. Whitmire said revenue stream has remained constant and has gotten a better feeling for needs in the state – offers examples of needs for facility funding – would prefer to return taxpayer monies in better services
    • Nelson said they will not be able to grant all $25 billion in exceptional requests from state agencies BUT does believe they can meet needs within spending constraints and given back funding to taxpayers
    • Nelson said not expecting to address all facility needs in one session
    • Whitmire said population going from 26 million to 56 million and need to improve services (infrastructure, education, facilities, etc)
  • Sen. Seliger said bill is definitively conservative but concerned by substitute language to exempt from spending limit
    • To implement a device to allow spending more money and should not be piggy backed on the bill
    • Nelson said this is taxpayers dollars and wants to give back and does not believe it should count
  • Sen. Bettencourt – this have been a very debated issue over Texas and giving this back to the taxpayers is good for the hard pressed taxpayers
  • Sen. Kolkhorst – is there any dynamic fiscal note on tax relief and Comptroller would say that is for the LBB
    • Parks said couple of different analysis and can make available to the members
  • Nichols – confirms Nelson statements that tax reductions should not count to cap and thinks language is very conservative

Committee Substitutes passed:
SB 1 – 13 ayes and 2 nays
SJR 1 – 11 ayes and 4 nays
 
SB 7 (Nelson) Relating to decreasing the rates of the franchise tax.

  • Nelson laid out the bill
  • Hancock laid out an amendment – it would provide an EZ form which would take gross receipts x .331 and believes reduce rate will encourage more filers and increase threshold from $10 million to $20 million
  • Amendment is acceptable to the author – vote on amendment b/c of objections – 13 ayes and 2 nays
  • This reduces franchise tax collections by about $143 million per year which Nelson said is accounted for in base budget
  • Committee substitute of SB 7 passed with 13 ayes and 2 nays

 
SB 8 (Schwertner) Relating to the total revenue exemption for the franchise tax. 13 ayes and 2 nays.

SB 31 (Zaffirini) – Relating to the authority of certain volunteer firefighter and emergency services organizations to hold tax-free sales or auctions. 15 ayes and 0 nays.

SB 140 (Perry) – Relating to a sales and use tax exemption for telecommunications services used for the navigation of certain farm and ranch machinery and equipment. 15 ayes and 0 nays. Bill will go to local and uncontested.

SB 752 (Bettencourt) – Relating to the repeal of the inheritance tax and the tax on combative sports events. 15 ayes and 0 nays.  

SB 757 (Perry) – Relating to the repeal of the production taxes on crude petroleum and sulphur. 12 ayes and 2 nays.

SB 759 (Kolkhorst) – Relating to the repeal of certain state taxes. 14 ayes and 0 nays.

SB 761 (Creighton) – Relating to the taxation of fireworks.14 ayes and 0 nays.