On May 3 the House Committee on Ways & Means heard invited testimony on the following interim charges:
- Evaluate whether current property tax notice requirements effectively serve the intended “truth-in-taxation” purpose of informing taxpayers about the property taxes they pay and who is responsible for deciding how much they pay.
- Examination of the rate and amount of the sales and use taxes imposed on certain equipment sold, leased, or used by certain data centers.
- Examine alternatives to the current system of taxation.
To begin the hearing the Committee heard testimony on alternatives to the current system of taxation from Debra Medina – former GOP gubernatorial candidate – of We Texans, Peggy Venable of Americans for Prosperity, and Talmadge Heflin of the Texas Public Policy Foundation.
Medina testified as a proponent of eliminating the property tax entirely, and suggested the state adopt a two-tier system. Calling the tax too broken to be fixed, Medina said lawmakers next session should consider replacing the property tax with a combination of a consumption sales tax and a “fair tax” for business.
Rep. Otto pointed out the value of the property tax in regards to the state’s credit rating – it is seen as a stable tax while the sales tax is fluctuating; if the state tries to change its structure then Otto cautions there needs to be further discussion on how that could impact future interest rates and bond ratings.
Medina referred to “Texas’ schools, cities, counties and special purposes districts wallowing in debt” noting that debt by local governments in Texas has increased 36% over the past 5 years and that Texas local government currently carries a debt load approaching $200 billion. The concern of local debt was also brought up in the April 16 Joint Appropriations Subcommittee and Ways and Means hearing. However, some insiders have pointed that local debt can be tied to a decrease in funding from the state government in tandem with federal aid shrinking. If local governments must continue to pay for facilities and services (schools, financial contributions to the state highway system, local public safety) and state and federal funding continues to decrease, then local governments have two primary options: to raise funds with current dollars which would mean raising property taxes or, the more preferred option, seeking voter approval of bonds.
Venable’s testimony continued the dialogue on local government debt, which encompasses 85% of Texas’ debt burden, and argued of possible abuse of bond initiatives by school districts. She recommended: putting taxpayer protections in place, but did not recommend eliminating the property tax; more voter participation in bond initiatives and tax increases; and making sure that when bond initiatives are considered, current debt load information is provided.
Venable did generate conversation in the hearing room, and around Texas, when she stated that Texas has the second highest local debt burden in the country and that some school districts actually owe more in interest debt than they owe in principal. Various educational officials have stated the figure Venable citied was flawed.
It remains evident after hearing from the invited witnesses that there will be more discussion needed on local debt burden, the causes and possible options for relief.
Heflin, proposing 10 tax reforms, testified that while Texas is generally well-regarded in the area of taxation, there is still opportunity for the state to enhance the state’s competitiveness and attractiveness to business and entrepreneurship.
The second charge the committee addressed was whether current property tax notice requirements effectively serve the intended “truth-in-taxation” purpose of informing taxpayers about the property taxes they pay and who is responsible for deciding how much they pay. Testimony on this charge was overwhelmingly supportive of simplifying valuation notices to allow taxpayers the opportunity to understand them and participate in the rate setting process.
Final testimony addressed the examination of the rate and amount of the sales and use taxes imposed on certain equipment sold, leased, or used by certain data centers. Representatives of the data center community testified on the positives and negatives Texas has in attracting and retaining the industry, where Texas falls in comparison to other leading data center states, and what types of policies are ideal for data centers to thrive.