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The Senate Committee on Finance met on May 13, 2019. This report covers all bills taken up by the Committee, including HB 2358 (Guillen), HB 3386 (Geren), HJR 151 (Huberty), HB 4611 (Huberty), HB 2256 (Sanford), HB 2545 (Guillen), HB 3475 (Guillen), HB 4614 (Guillen), HB 2065 (Lucio III), HB 1243 (Ashby), and HJR 5 (Thompson, Senfronia).

 

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. It is not a verbatim transcript of the hearing but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

HB 2358 (Guillen, SP: Paxton) (Committee Sub) – Relating to the administration and collection of sales and use taxes applicable to certain sales.

  • Tax Code prohibits retailers from stating that they will not add any part of the sales tax onto an item. This means that retailers cannot advertise that they will cover the cost of a tax.
  • Bill will allow retailers to advertise that they will cover the cost of a tax.
  • Passed 10-0.

 

HB 3386 (Geren, SP: Nelson) – Relating to the sales and use tax exemption for certain amusement services.

  • Cleanup to SB 748 from the 83rd
  • Clarifies that tickets sold at a designated facility for a non-profit qualifies for sales tax exemption.
  • Passed unanimously out of Ways and Means and 139-1 out of the House local and consent calendar.
  • Passed 10-0.

 

HJR 151 (Huberty, SP: Taylor) – Proposing a constitutional amendment allowing increased distributions to the available school fund.

HB 4611 (Huberty, SP: Taylor) – Relating to certain distributions to the available school fund.

Campbell lay out

  • SBOE will have authority over new revenues, which should allow more funding as returns are expected to be higher than the $300m they are currently at.

 

Public testimony

Tom Larder, Chairman of the Committee on the Permanent School Fund for the SBOE – For

  • SBOE has not received oil and gas revenues since 2005 when the revenues were bifurcated.
  • If the SBOE is authorized to do additional distributions, there is a chance that there can be increased distributions to the available school fund, which is what the bill is trying to do.

Both HJR 151 and HB 4611 passed 10-0.

 

HB 2256 (Sanford, SP: Perry) – Relating to procedures for tax auditing, determining amounts of overpayments, and obtaining reimbursements of overpayments of gas production taxes.

  • Seeks to amend the tax code to allow the Comptroller to enter into an agreement with a taxpayer to perform a managed audit of natural gas severance returns.
  • This will allow both Comptroller and the taxpayer to agree on a sampling technique rather than going through every transaction line-by-line. This will save the state and the taxpayer resources.

 

Public testimony

James Holzer, Ryan LLC – For

  • Bill will deal with a procedural limitation in severance tax.
  • Have worked with the Comptroller’s audit staff on the bill and language. Language in the bill has been reviewed and agreed to by the Comptroller’s office.
  • Bill will allow both parties to use the old method if they choose to do so.
  • Bill is revenue neutral as it will only make procedural changes to make audits more efficient.
  • West – If there was no managed audit would the interest be waived?
    • Perry – Believe that is already included in the sales and use tax. Discretionary capacity is given to the Comptroller.
    • West – If you do an audit for severance tax this procedure is already available?
    • Perry – This would go to a sampling method, which was agreed to on the front end of that.
    • West – Is it wise to waive the interest?
    • Perry – I believe it was negotiated through the Comptroller’s office, they can probably answer that question.
    • West – Would like the Comptroller to make sure the Committee knows how much interest is being waived.
    • Nelson – There is not a resource from the Comptroller’s office on this bill.
    • Perry – Is there a resource from the Comptroller that can say whether the Comptroller can currently waive interest on a sales and use tax audit.
    • West – This may be miniscule, just what to know how much it is. Could be used for school finance reform if it is significant.
    • Perry – If what is lost on interests can be offset by the efficiencies gained from a sampling audit, then that would be the proper comparison. They would probably not be able to come up with that number.
    • West – It may be miniscule, but I would like to know the number.
  • Perry – To the witness, as a private sector representative do you have a perspective on how much severance tax audits in general last and the resources expended on those?
    • Holzer – There was one client that took 4-5 years to get an audit closed out with the Comptroller’s office. Did a test of the sampling method and it was closed out within one year. Cannot put an exact amount of savings in dollars and resources, but in terms of time a reduction from five years to one year is significant.
    • Perry – Does the state pay interest on those refunds?
    • Holzer – They can depending on the timing and if anything is extended past the time allotted.
  • Nelson – Was going to suggest leaving this pending until we could get a number from the Comptroller, but I do not know how you could get that number.
    • Perry – It is changing internal procedure.
  • Passed 9-0.

 

HB 2545 (Guillen, SP: Hinojosa) – Relating to franchise tax, oil production tax, and gas production tax incentives for certain desalination facility operations.

  • Many aquifers and much of Texas’ surface water is at risk of being overused.
  • Bill will provide severance tax incentives for desalination operations. Would include brackish water and other kinds of water in order to make new sources of water available for use.

 

Public testimony

John Tintera, Texas Alliance of Energy Producers – For

  • This is a tax incentive bill, not a technical bill.
  • This is not confined to one region or method of production, every area of the state with oil production could benefit from this.

Stephen Walden, self – For

  • Has worked in the water field for over 30 years. Water supply is slowly reducing and will become a real problem if it is not addressed.

 

Mark Ellison, IDE Americas – For

  • Bill will have a positive economic impact.
  • Texas does not have the ability to guarantee an uninterruptable, drought-proof water supply. This bill would help solve some of those issues.

 

Cyrus Reed, Sierra Club – Against

  • Texas does not have the regulatory framework needed for this.
  • Concerned about how broadly the bill is written and that there is no definition of fresh water.
  • Would suggest taking the incentives for saline water out and only incentivizing brackish water.

 

Colin Laden, Environmental Defense Fund – Against

  • Caption implies this bill is targeted specifically for desalination, but the language clearly also targets oil and gas wastewater.
  • Goal to find alternative uses for oil and gas wastewater is good, but without adequate oversight over the quality of treated water there cannot be certainty that desalination plants will be beneficial.
  • There is no standard in place in Texas to define freshwater and there are no standards or procedures in place for necessary oversight.
  • Would cost about 17 times the market rate for the highest levels of treated water.

 

Dr. Zachariah Hildebrand, CLEAR at UT Arlington – For

  • Organization has been analyzing produced water for around 10 years, it is well known what is in the water and how to treat it.
  • Seawater, brackish water, and produced water can fill the gaps created by the limited water resources in Texas.
  • This will reduce the reliance on freshwater for injection wells and reduce the number of seismic events.

 

Joshua Grimes, self – For

  • Technologies such as direct potable reuse can help lower the cost of desalination.
  • Bill will help to provide water security.

 

Dick Lavine, Center for Public Policy Priorities – Against

  • Question is not whether or not this is beneficial, the question is whether or not it should be subsidized.
  • This is so beneficial that there could be market incentives to do it without a subsidy or tax incentive from the government.

Hinojosa closing comments

  • Perry – Am 100% supportive of trying to figure out how to use the water byproducts of oil and gas. These are huge policy moves, and when throwing in the consideration of who owns the brackish, who has the production, etc. it becomes a complex issue. This needs to be done but needs to be done carefully. Whether this bill is the way to do this has not been studied or proven. Will vote no on the bill because it has not been studied. Will request an interim study.
  • Hancock – What is the Sunset date?
    • Hinojosa – 2024.
    • Hancock – Does the bill provide the data needed to analyze it as a fiscal impact to the state?
    • Hinojosa – Yes.
  • Nelson – There are some issues with this bill, so will leave it pending.
  • Left pending.

 

HB 3475 (Guillen, SP: Hinojosa) – Relating to the cigarette tax and the tax on cigars and other tobacco products.

  • Request of the Comptroller, improves statutes regarding the tobacco tax.
  • Passed 9-0.

HB 4614 (Guillen, SP: Hinojosa) – Relating to the administration, collection and remittance of cigarette tax

  • Request of the Comptroller, modernizes certain statutes regarding the cigarette tax.
  • Has worked with the industry on these changes.

 

Kevin Koch, McLane Company – On

  • Good bill except for one section.
  • McLane Company is the largest affixer of tax stamps in the US.
  • Stamps are designed so they are damaged so they cannot be peeled off and placed on a new package. The language saying “undamaged” would be a problem.
  • Nelson – How would you change the language?
    • Koch – “Not damaged beyond recognition.” Other states have used “undamaged” and it has resulted in tens of thousands of packages being pulled off the shelves.
    • Hinojosa – Do not have a problem with making that change.
  • Nelson – To Hinojosa, do you want to keep it moving and make the change on the floor?
    • Hinojosa – Yes.
  • Passed 10-0.

 

HB 2065 (Lucio III, SP: Lucio Jr.) – Relating to the use of general revenue appropriations for the artificial reef program.

  • Authorizes appropriation of funds to fund the artificial reef program through other methods than what is currently allowed.
  • Bill will not make any appropriations and does not have a fiscal note.
  • Passed 10-0.

 

HB 1243 (Ashby, SP: Zaffirini) (Committee Sub) – Relating to the allocation of certain revenue from mixed beverage gross receipts and sales taxes.

  • Would dedicate a portion of the state’s mixed beverage taxes to administering drug courts.
  • CS provides that funds would be deposited in a special account.
  • Fiscal note reflects a $24m loss to GR. This is not a loss of revenue, because the revenue is being rededicated away from GR into a specific account.
  • Birdwell – How much money is currently in the drug court? Trying to figure out how large of a percent change this is. Worry that is we start dedicating dollars to specific account it could reduce flexibility.
    • Nelson – There could be someone from public testimony who can answer that.

 

Public testimony

Ray Wheless, Collin County Judge – For

  • This will be money well spent and will give drug courts a predictable revenue stream.
  • Nichols – What is the current funding source for these courts?
    • Wheless – Court costs. Problem is that those are subject to variation, and with decriminalization of many cases court costs have been decreased. Smaller counties do not collect a lot of court costs.

 

Leslie Fitzpatrick, Texas Association of Specialty Courts – On

  • Have worked with the governor and comptroller to create new funding sources.
  • Campbell – How did they arrive at 1%?
    • Fitzpatrick – It was 0.9% and they just rounded up.

 

Mark Loven, Texas Public Policy Foundation – For

  • Drug courts do a good job getting people off drugs and keeping them out of jail. Current funding is inadequate.

Left pending.

 

HJR 5 (Thompson, Senfronia, SP: Kolkhorst) (Committee Sub) – Proposing a constitutional amendment providing for the issuance of general obligation bonds by the Texas Public Finance Authority to fund research, treatment, and access to services in this state for behavioral health, mental

  • Companion to HB 10, which was recently voted out of Senate Health and Human Services.
  • Bill will put Texas at the forefront of mental health research while making sure funding is fiscally responsible.
  • CS does not change the mechanics or dollar amount. Will make sure it does not cost the GR bill this biennium.
  • Perry – Revenue biennium adjustment is above the threshold. Would it make sense to start this in the second year of the biennium?
    • Kolkhorst – The brain institute would start in the second year of the next biennium. Starting it in the second year might make sure it is not wasted.
    • Perry – Do you think it would be a good idea to Sunset that dedication?
    • Kolkhorst – CPRIT is looked at every ten years since it is issuing debt.
    • Perry – AS a state we are recognizing mental health, what if we come back in ten years for example and want to redirect certain funds. It would not be good for the legislature to be restricted from redirecting funds in a sensible way.
    • Kolkhorst – It might be necessary to make some adjustments.
  • Birdwell – Hesitant to think that pain management is a mental health issue. This strikes me as too large and expansive. What is the relationship of pain management to mental health?
    • Kolkhorst – I think we are more concerned about acute pain strategies. We can discuss that to address those concerns.
    • Birdwell – Concerned that inertia behind universities and government agencies might cause some issues in terms of recommending legislation.
    • Kolkhorst – Think it mainly goes to HRIs but can look at the wording regarding institutions.

 

Public testimony

Tom Currah, Comptroller’s Office – On

  • Nichols – Is the Comptroller’s number for the 20-21 biennium $66b or $70b?
    • Currah – $66b is net of the transfers out of sales tax to the state highway fund. Believe the CS is tied to actual collections of sales tax, so once those thresholds are hit, then the $100m would go into this new account.
    • Nichols – So the $66b is a net?
    • Currah – Yes.

 

Consuelo Walls, Texas Medical School – On

  • Creation of this institute will lead to breakthroughs in the field of mental health.
  • Campbell – Could you answer something regarding pain management strategies?
    • Walls – Trying to understand why some people can stop taking opioids and others are not. Want to find out which people are at higher risk of addiction that others.
    • Campbell – Many people need pain management, but there could be some people where the underlying problem is maybe depression, but it is being treated with a pain management strategy.
    • Walls – That’s right.
  • Nelson – This bill would cover Alzheimer’s research and other forms of dementia.
    • Walls – We are covering all mental health disorders including Alzheimer’s.

 

Kolkhorst closing comments

  • Nelson – There were some recommendations for amendments, would you like to do that in a new CS or on the floor?
    • Kolkhorst – Create a new CS to reduce confusion.
  • Left pending.