Budget

July 14, 2011

Appropriations

Both the House and Senate were able to come to consensus on the budget, HB1 (82nd R), but it would also require several fiscal matters bills to help the budget balance.

The total $172 billion two-year budget in all funds is $15 billion less, 8 percent, than the 2010-11 budget; in general revenue the total is $80.4 billion, 2 percent less than the current budget.*

The final budget still did not fund Medicaid enrollment growth, did not fund education at the amount previously established by law, and did not access the Rainy Day Fund (RDF).

*source: Legislative Budget Board (LBB) – LBB CCR Summary & HB1 CCR.

Fiscal Matters

In order to achieve the savings and help certify the budget, a crucial fiscal matters bill was needed. SB 1811 (82^nd R), the fiscal matters bill needed to help certify the budget, was filibustered at the eleventh hour in the 82^nd Regular Session. The legislature adjourned Sine Die on May 30, 2011 and Governor Rick Perry issued the call for a special session to begin May 31, the following day – on the call: passing a fiscal matters bill necessary for the implementation of  HB 1 (82^nd R), including measures that will allow school districts to operate more efficiently.

The key fiscal matters bill during the special, SB 1, passed out of the legislature and was sent to the Governor on June 29. Another key bill, the Medicaid cost containment bill, also passed out of the Special Session. SB 7 relating to the administration, quality, and efficiency of health care, health and human services, and health benefits programs in this state was passed out of the legislature and sent to the Governor on June 28, 2011.

Below is a summary of the articles and items covered in SB 1 that is estimated to have a net positive impact of $7,178,958,398 to General Revenue (GR) Funds for the biennium. More details available in the fiscal note.

A summary of SB 7 was published in the HillCo Client News Flash on July 1. 

Summary of SB 1

*Assumed in HB 1 (82^nd R)

Article 1: Foundation School Program Deferral

• Defers the August 2013 FSP payment until September 2013.

Article 2:  Suspension of Premium Tax Credits for Examination Fees

• Suspends premium tax credits for insurance company examination fees for 2012-13. *

Article 3: Repeal of Chapter 111 of the Tax Code

• Repeals Chapter 111, which relates to economic development tax refunds.

Article 4: Tax Record Maintenance Requirements

• Increases the types and length of time certain tax records must be kept to substantiate a refund claim in district court.
• Final language was negotiated between the Comptroller and stakeholders.

Article 5: Unclaimed Property Dormancy Periods

• Unclaimed property provisions were removed because they were included in HB 257 (82^nd R) (signed by Governor).

Article 6: Judicial and Court Personnel Training Fund

• Re-classifies the fund within the General Revenue Fund.*

Article 7: Process Server Certification Fees

• Specifies that fees may be used to support OCA’s certification of process servers, guardians and court reporters.

Article 9: Motor Fuels Tax Speed Up and Fund 6 Transfer Deferral

• Motor Fuels Speed Up – Provides for a one-time prepayment of one-quarter of the August 2013 payment (expires in 2015). Payers get credit on September 2013 payment.
• Motor Fuels Transfer to Fund 6 – Deferral of July and August 2013 transfers of Motor Fuels Tax to Fund 6.

Article 10: Alcohol Tax Speed Up

• Provides for a one-time prepayment of one-quarter of the August 2013 payment (expires in 2015). Payers get credit on September 2013 payment.

Article 11: Cigarette Stamp Allowance

• Reduces the allowance from 3% to 2.5%; effective October 1, 2011.

Article 12: Sale for Resale

• Excludes entities that contract with certain defense-related federal agencies.

Article 13: Sales Tax Speed Up

• Provides for a one-time prepayment of one-quarter of the August 2013 payment (expires in 2015). Electronic filers only. Payers get credit on September 2013 payment.

Article 14: Late Filer Penalties

• Applies first-time late filer penalty to certain taxes; increase late filer penalty for sales tax by $50.

Article 15: Comptroller Clean Up Language – Voter Registration

• Removes Comptroller from voter registration provisions at the Secretary of State’s office.

Article 16: Comptroller Clean Up Language – Warrant Hold Offset Authority

• Clarifies authority for the Comptroller to withhold lump-sum payments (i.e. annual leave) to employees leaving state service.

Article 17: Comptroller Clean Up Language – Electronic Reports

• Allows the Comptroller to publish certain reports electronically.

Article 18: Comptroller Clean Up Language – Surplus Lines

• Harmonizes state law with federal law regarding surplus lines of insurance.

Article 19: Oil & Gas Regulatory Fees

• Clarifies that funds other than the oil and gas regulation and cleanup fund may be used by the commission for the same purposes if appropriated in the GAA.

Article 20: Electronic Session Laws

• Allows the Secretary of State to publish session laws electronically.*

Article 21: OAG – Fee Authority

• Allows the OAG to collect an electronic filing fee (requested in OAG LAR).*

Article 22: Preservation Trust Fund

• Reclassifies the fund within the General Revenue Fund and expands the use of the fund.*

Article 23: DIR – Fee Authority and Sunset Provisions

• Allows DIR to set and collect fees for managing the state’s information technology policy and planning, as well as managing the state’s consolidated telecommunications system.*
• Requires another full review by Sunset prior to next
  session.
• Requires DIR board to approve contracts above a certain monetary threshold (as set by the board).
• Exempts Department of Agriculture from the Data Consolidation contract.
• Allows DIR to use strategic sourcing in negotiating the purchase of IT commodities.

Article 24: CLE exemption for OAG Attorneys

• Exempts OAG attorneys from CLE requirements for 2012-13 but requires the OAG to provide in-house training for the same period.*

Article 25: Ethics Commission – Fee Authority

• Allows the Ethics Commission to charge higher lobby registration fees.*

Article 26: Veterans Commission – Public Assistance Reporting Information System

• Allows the Veterans Assistance Fund to be used for the analysis of information from PARIS to identify additional federal benefits for Texas veterans.*

Article 27: 911 Commission – Regional Poison Control Centers

• Authorizes the commission to standardize the operations of the regional control centers and to implement management controls to make the centers more efficient.

Article 28: CPRIT – Debt Service on Bonds

• Allows earnings on tobacco endowments outside the Treasury to be used to pay this debt service.

Article29: Facilities Commission – Surplus & Salvage Property

• Restructures the process used to dispose of state surplus or salvage property to improve the efficiency of the program.

Article 30: Nexus

• Identical language as HB 2403 (82^nd R). Clarifies and expands the terms of a retailer being engaged in business in the state.

Article 31: Franchise Tax Credit Carry Forward

• Extends the eligibility period for which businesses can take tax credits that had accrued under the old franchise tax.

Article 32: CPA Procurement Authority

• Comptroller benefit funding purchasing language; permissive.

Article 33: Sales Tax Holiday

• Indexes holiday dates to the uniform school start date.

Article 34: Budget Transparency Provisions

• Requires annual LBB meetings; posting of certain budget documents online; hearings if budget reductions ordered; publication of fee schedule by the Comptroller; Cash Management Committee hearing; additional budget program-level detail.

Article 35: Back To Work Program

• Creates program, and allows funding from the Enterprise Fund, Governor’s Trusted Programs, and/or available federal funds.

Article 36: Disabled Veteran Surviving Spouse

• Allows surviving spouse to pay property tax in installment payments.

Article 37: Two-Year Extension of Small Business Exemption

• Reauthorizes small business $1 million exemption through January 1, 2014.

Article 38: Assistant Prosecutor Longevity Pay

• Suspends the longevity pay program if sufficient funds are not available.

Article 39: OCA – Certification Division

• Requires OCA to establish a certification division to oversee regulatory programs, including process server certification, and establishes a process server review board. Savings assumed in introduced budget.

Article 40: Juror Pay

• Reduces juror pay for the 2012-13 biennium only.*

Article 41: Collection Improvement Program

• Puts counties back into CIP.

Article 42: Correctional Managed Care Committee

• Changes the make-up of the Correctional Managed Healthcare Committee, transfers the authority to contract for medical services from the committee to TDCJ, authorizes TDCJ to contract for a biennial report on expenditures under the managed care plan, and removes the authority for the committee to contract for services or allocate funding for correctional health care.

Article 43: Homeless Program

• Establishes the Homeless Housing and Services Program, and allows funding from the Enterprise Fund, Governor’s Trusteed Programs, and/or available federal funds.

Article 44: UGCM Transfer

• Transfers of Uniform Grant and Contract Management (UGCM) from the Governor to the Comptroller.

Article 45: Franchise Tax Exemption – Live Event Promoters and Courier Services

• Floor Amendment 121, as modified (Thompson): Limits margins tax liability for concert promoters 50% of ticket revenue; limits liability for couriers services on contract drivers; excludes a political action committee from the definition of a taxable entity.

Article 46: Bee Agriculture Exemption

• Provides ag exemption for land used to raise or keep bees.

Article 47: Comptroller Data Collection

• Allows DPS, TRS, ERS and TWC to provide the Comptroller with certain information regarding individuals from their records every 5 years rather than annually. (Info is used for locating people entitled to unclaimed property.)

Article 48: Goods In-Transit Clean-Up

• Clarifies conflict between constitutional amendment and enabling statute for goods in transit (SB 326).

Article 49: AP Exam Subsidies

• Limits eligibility for an AP exam subsidy to low-income students.*

Article 50: Educational Aide Tuition Exemption

• Limits eligibility for an educational aide tuition exemption to persons enrolled in courses required for teacher certification in a critical shortage subject area.*

Article 51: Franchise Tax

• Defines apparel rental stores as retailers.

Article 52: Retention of Certain FSP Payments

• Addresses issue created last session relating to the ability for school districts to collect target revenue hold harmless if they collect below their compressed rate.

Article 53: Compression Percentage

• Allows a proportional reduction in target revenue hold harmless for school districts collecting below their compression rate.

Article 54: Guaranteed Student Loan Corp Composition

• Changes makeup of the TGSLC board and requires Governor to designate the chair

Article 55: Mineral Funds Outside Treasury

• Redefines the disposition of mineral proceeds for Texas A&M System, Texas State University System, Texas Tech, and Texas A&M Kingsville.

Article 56: TIRZ Adjustment

• Reduces the reduction of a school district’s financial entitlement by the amount a district has deposited into a TIRZ account.

Article 57: School Finance Provisions

• Floor Amendment 20, as modified (Patrick): Regular program Adjustment (RPA) at .98% is floor, with a full RPA sunset in 4 years (ASATR 6 years). TEA Commissioner has rulemaking authority to implement payment smoothing.
• Floor Amendment 26 (Truitt): Authorizes ISDs to charge for transportation under certain circumstances.
• Floor Amendment 163 (Aycock): Sets the GY on copper pennies at $33.95 for ISDs at maximum rate.
• Floor Amendment 45 (Aycock): Authorizes comp ed funds to be used for JJAEPs and DAEPs.
• Floor Amendment 44 (Aycock): Directs TEA to adjust indirect cost allotments so that funding reductions may be applied across all programs equally.

< p>Article 58: Mixed Beverage Tax Reimbursements

• Floor Amendment 125 (Torres): Returns city and county mixed beverage tax reimbursement levels to a 10.7% floor for FY14-15.

Article 59: Guarantee of Charter School Bonds by PSF

• Floor Amendment 26 (Harper-Brown): Authorizes certain charter schools to participate in the PSF bond guarantee program.

Article 60: Competitive Procurement for Adult Education Programs

• Floor Amendment 35 (Guillen): Requires TEA to use a competitive procurement process to award a contract to a adult education program service provider.

Article 61: Virtual School Network

• Floor Amendments as modified (Madden): Compromise language makes changes regarding adult use of the program for a fee, the course approval process, and foundation school program funding.

Article 62: Transfer of the Department of Rural Affairs to the Department of Agriculture

• Floor Amendments (Callegari/Hardcastle): Abolishes TDRA as an independent agency and transfers it as a program to TDA; creates the Texas Rural Health & Economic Development Policy Council.

Article 63: Court Jurisdiction of Youth in Foster Care Over the Age of 18

• Floor Amendment 64 (Naishtat): Makes changes regarding extended foster care for young adults age 18-21; provides trial independence period option for these young adults.

Article 64: Commission on Fire Protection Fees

• Floor Amendment 75 (Martinez): Limits the Comptroller’s authority to deposit fee revenue into the Commission’s GRD account to the amount appropriated; excess goes to GR.

Article 65: Correctional Managed Care Cost Savings

• Floor Amendment 81 (Madden): Provides for a higher inmate co-pay for medical care; directs over the counter medications be made available for purchase in correctional facilities; allows for the creation of a corrections medication aide treatment program.

Article 66: Guardianship Proceedings

• Floor Amendment 109 (Naishtat): Streamlines the transfer of guardianships among counties and from other states, avoiding major delays and allowing the state to recoup expenses. Provisions previously passed by both chambers.

Article 66A: Guardianship Language In Estates Code

• Transfers guardianship language in Article 66 to newly codified sections of the Estates Code.

Article 67: Habitat Protection Measures

• Floor Amendment 119 (Chisum): Authorizes the Comptroller to establish and administer a program for endangered species habitat conservation.

Article 68: License Plates for Certain Golf Carts

• Floor Amendment 131 (Phillips): Expands the requirement for when golf carts may be issued specialty license plates.

Article 69: Repeal of Court Fee on Child Safety Seat Violations

• Floor Amendment 136 (Orr): Repeals the 15-cent court fee on child safety seat violation convictions.

Article 70: JJAEP Programs

• Floor Amendment 145, as modified (Berman): Provides for the administration of Juvenile Justice Alternative Education Programs in Smith County.

Article 71: Chronic Health Conditions Medicaid Waiver

• Floor Amendment 85, as modified (Coleman): Authorizes HHSC to apply for a federal waiver to better leverage state and local funds for the treatment of chronic health conditions.

Article 72: Drivers License Provisions

• Floor Amendment 132 (Pitts, Geren): Provides for the issuance of personal and commercial drivers licenses for citizens and temporary visitors. The provisions require that anyone that is applying for a drivers license provide proof the individual is in the country legally.

Article 73: 911 Equalization Surcharge

• Floor Amendment 102 (Hardcastle): Applies CSEC 911 equalization surcharge across a broad range of telecommunication services, and sets the rate to be revenue neutral.

Article 74: TDHCA Sunset Provisions

• Extends sunset until 2013.
• Allows the board to adopt the qualified tax credit allocation plan annually, versus biennially.
• Allows the board to allocate $3M in tax credits in a single round, versus $2M currently.
• Increases the licensing requirements for manufactured housing retailers.
• Increases regulation and inspections of third-party manufactured housing installers.

Article 75: Governor’s Designation of CDBG Disaster Funds

• Allows the Governor to designate a state agency to administer federal CDBG disaster funds.

Article 76: Campaign Finance Provisions

• Floor Amendments 59-61, as modified (Geren and Hochberg): Implements portions of HB 1616, including the reporting of credit, interest, rebate, refund, reimbursement, or return of a deposit fee; the deposit of personal funds in a campaign account; and the dismissal of certain complaints.

Article 77: Dallas County Groundwater Conservation District

• Floor Amendment 139 (Rodney Anderson): Prevents TCEQ from creating a groundwater conservation district in Dallas County.

Article 79: TRS Edujobs Provision

• Exempts school district salaries paid from federal Edujobs funds from TRS retirement contributions.

Article 79A: Protective Detail Travel Vouchers

• Limits release of travel vouchers under the Public Information Act for the protective detail of elected officials for 18 months. Total amounts of costs for each elected official shall be released quarterly in summary form.

Article 80: Effective Date

• Unless otherwise provided, the effective date is September 1, 2011, with the necessary vote, or the 91st day after the last day of the legislative session.

Margin Tax

During Senator Steve Ogden’s opening remarks at the beginning of the 82^nd Session, he listed some of his legislative concerns including the underperformance of the margin tax. Although some legislation was filed during the 82^nd Session to make several tweaks to the tax and resulted in discussions in several committees, the issue did not gain legislative traction. Throughout the entire session, even until the 140^th day, the “structural shortfall” was not far from discussion. Some members and officials have said the underperformance of the margin tax has added to the structural shortfall. It is likely we will see this topic addressed during the interim.

One of the resolutions that generated some discussion was SJR 52 – Ogden – Proposing a constitutional amendment clarifying that a tax imposed on certain business entities is not subject to Section 24, Article VIII, Texas Constitution, and imposing certain limitations on the computation of a tax imposed on a business entity. SJR 52 was left pending in the Senate Finance committee after being considered in public hearing on April 28.

Revenue

HillCo Partners closely monitored revenue options discussed during the 82^nd Session and reported on them in client send outs. Although some increases in fees were granted during the regular and special session, no significant revenue raising bills passed during the regular session or special session. However, there were discussions of various options mentioned in the chambers and in c
ommittees, including removing certain tax exemptions and other non-tax options. It is expected some of these options will be further reviewed during the interim.