Last Week in the Legislature

April 19, 2019 | Issue #14

By John Sharbaugh, CAE
Managing Director of Government Affairs

Sunset Bill Has a Hearing in the Senate Business and Commerce Committee

This week, we had a pleasant surprise when the Sunset bill on the Texas State Board of Public Accountancy (TSBPA), HB 1520, was scheduled for a hearing in the Texas Senate Business and Commerce Committee on Tuesday, April 16. We were anticipating that it might be a while until the bill was heard, as there are hundreds of bills in this committee waiting for a hearing. But there appears to be an effort this session to quickly move all the Sunset bills in the legislature through the process, compared to two years ago.

That’s probably in response to what happened in the last legislative session when several Sunset bills did not get passed before the session ended and led to a Special Session of the legislature to make sure the Texas Medical Board did not go out of business. Whatever the reason, we weren’t about to “look a gift horse in the mouth” as they say, when the timetable for our bill was accelerated.

At the hearing on Tuesday, the sponsor of the Sunset bill (SB 613) in the Senate, Senator Kirk Watson (D-Austin), presented the House version (HB 1520) and encouraged its passage by the committee. He did introduce a “committee substitute,” which includes a minor change to the bill requested by the Sunset staff and Senator Brian Birdwell (R-Granbury), who chairs the Sunset Commission.

The change relates to members of TSBPA being required to acknowledge in writing that they have received and “reviewed” a training manual on the board’s operations and relevant information related to the law, rulemaking and antitrust issues, etc. In the original bill, the language stated that board members must acknowledge in writing that they had received the training manual. This change in the committee substitute adds that they have also “reviewed” the manual. I guess they wanted to shut down a loophole that would allow a board member to receive the training manual and never open it. This proposed change is being added to all Sunset bills this session, not just the one on TSBPA.

I testified in favor of the bill at the committee hearing on behalf of TXCPA and to offer support for the CPA firm mobility provisions that were added into HB 1520. There were no other witnesses and the bill was left pending in the committee, which is standard operating practice. The committee will vote on the bill at a future meeting, hopefully in the near future. Once the bill is voted out of the committee, it will go back to the sponsor in the House, Rep. Senfronia Thompson (D-Houston), to get her concurrence on the committee substitute change. We anticipate she will concur and then the Senate could schedule the bill for a vote in the full Senate. At that point, once the Senate passes the bill, it goes to the governor’s office.

So, things are continuing to progress on the Sunset bill. Unless there is a new wrinkle or controversy that arises, we anticipate it will continue to work its way through the process and be approved by the end of the legislative session.

Property Tax Reform – Senate Bill Finally Passes After Threats of the “Nuclear Option”

The Senate Committee on Property Taxes was first out of the gate back in mid-February, passing legislation to try and slow the growth of future property tax increases. But since then, the proposed legislation (SB 2) continued to sit waiting to garner enough votes to send it to the full Senate for a vote. Under the Senate rules, 60 percent of the Senate (or 19 senators) must approve a bill to have it move to the floor for a vote. There are 19 Republican senators, so clearing that hurdle is not a problem if they are all in sync on an issue. But in this case, there was at least one senator (Kel Seliger, R-Amarillo) who came out publicly against SB 2 right after it was passed in committee. Without any Democratic support, SB 2 was stuck.

That all changed this past week after Lt. Governor Dan Patrick threatened to use the “nuclear option” to change the Senate rules to allow a bill to advance with a simple majority vote. In comments to the media over last weekend, Patrick said: "I respect our Senate rules, but I do not intend to let a procedural motion stop the Senate from passing this important bill. The public doesn’t care about our procedural rules. They want tax relief and they deserve it. Time is running out on our session.”

After Patrick’s threat to change the Senate rules, Seliger decided he was for the Senate rules and traditions more than he was against SB 2 and voted to move the bill to the Senate. In a lengthy speech explaining his decision to vote to let the bill reach the Senate floor, Seliger criticized Patrick for even floating the “nuclear option.” Seliger, who has clashed with Patrick in the past, suggested his vote letting SB 2 advance was at least partly driven by a desire to prevent the Senate from taking a procedural move that “discredits this body.” Seliger said, “I voted to suspend the rules today in an effort to preserve decades of collegiality and cooperation in the Texas Senate."

Seliger’s announcement allowed a reworked SB 2 to be considered on Monday by the full Senate. It included a handful of technical changes and one notable concession. As updated, SB 2 will force cities, counties and other taxing entities to receive voter approval before raising 3.5 percent more property tax revenue than the previous year – rather than the 2.5 percent trigger originally proposed. School districts would still face a 2.5 percent trigger under the version of the bill approved Monday. Only revenue generated on existing properties, not new construction, would count toward the threshold.

After nearly three hours of debate, SB 2 was passed on an 18-13 vote on Monday. Seliger was the lone Republican to vote against it, as well as all the Democrats except one who voted present. SB 2 now sits in the House waiting for a hearing in the Ways and Means Committee. The House, meanwhile, has postponed a debate on its own property tax reform legislation – House Bill 2 – until April 24. Unlike the Senate’s version, the House has exempted hospital districts, community colleges, emergency service districts and school districts from abiding by a 2.5 percent election trigger.

Currently, taxing units can levy 8 percent more property tax revenue before voters can petition for an election to roll back the increase. SB 2 and HB 2 would make those elections automatic and propose a battery of widely supported reforms designed to increase transparency and utility for taxpayers.

Tax Swap – Sales Tax Increase for Property Tax Reduction

The big news last week was the state’s top leaders – Governor Greg Abbott, Lt. Governor Dan Patrick and Speaker Dennis Bonnen – coming out in favor of a 1 percent increase in the state’s sales tax rate (going from 6.25 percent to 7.25 percent) to generate revenue that would be used to lower property taxes. Their proposal is for a constitutional amendment that would need approval by the voters before this change would take place. And it is predicated on the legislature also passing legislation to slow the future growth of property taxes (i.e., HB 2 and SB 2).

Reactions to the proposal have been mixed, with both Democrats and some Republicans arguing against it. Democrats argued because of the regressive nature of the sales tax and some conservative Republicans do not like the idea of raising any taxes, especially when the state is looking at a surplus in the Rainy Day Fund.

It is estimated that a 1 percent increase in the sales tax would yield around $5 billion in additional revenue for the state. But it would also push Texas to the top of the list of states in terms of its sales tax rate, tying us with California at 7.25 percent. Local jurisdictions in Texas can also tack on up to another 2 percent, so the max rate in Texas would end up being 9.25 percent in many locals.

It should be noted that it really doesn’t require a constitutional amendment to increase the sales tax. The legislature could do that through the normal legislative process. Some believe the state’s leaders are taking this approach for political reasons. To get a constitutional amendment on the ballot, you need a supermajority of both the House and Senate to approve it. And then the voters need to approve it by a simple majority.Some observers believe the leadership is taking this approach to help temper any fallout as to who gets the blame for raising the sales tax. Ross Ramsey at the Texas Tribune had an interesting column that highlighted this issue.

It will be interesting to see how this plays out and whether enough Democratic votes can be obtained to support the idea. If all Republicans in the House and Senate would support the proposal, it would still need the votes of 17 Democrats in the House and two in the Senate to make it to the voters.

Eliminate the Franchise Tax?

It is hard to find anyone (taxpayers, legislators, CPAs) who likes the Texas franchise tax. Proposals to eliminate or significantly reduce it have been a featue of every session of the legislature since its passage. This session is no different and two of those proposals had a hearing this past Monday in the Senate Finance Committee.

SB 66, sponsored by Senator Jane Nelson (R-Flower Mound), would mandate a cut to the franchise tax every two-year state budget cycle if state revenue is projected to climb by at least 5 percent – dedicating half of any revenue growth above that level to trim the franchise tax rate. Nelson filed this same kind of bill two years ago. That one was passed in the Senate, but was never taken up in the House.

According to Nelson, the goal is to provide tax relief to businesses, encourage job creation and support economic growth. She estimates that if approved, SB 66 would wind down the franchise tax over a 20-year period until it is eliminated.

Another proposal is SB 2326 by Senator Brandon Creighton (R-Conroe). SB 2326 would just eliminate the franchise tax outright in 2026.

In recognition of the significant impact eliminating the franchise tax would have on the state budget, Creighton’s bill would also require “a comprehensive study” by the Texas Comptroller of Public Accounts “to research alternative revenue sources to replace state revenue lost by the repeal of the franchise tax,” as well as to prioritize “the revenue needs of this state” and identify possible cuts.

Neither bill drew public testimony during the hearing this week, although several business groups registered support for SB 66, compared to just one for SB 2326.

Don’t expect either of these bills to get passed in this session. With the current controversy surrounding how to lower property taxes and increase funding for public schools, it is not likely that any measure will pass that would lower revenues for the state.

Budget Conferees Set

With both the House and Senate having now passed their budget proposals, the stage is set for a conference committee to work out the differences and develop a budget both chambers can support.

This week, Patrick announced his appointments to the Conference Committee. They are Senators: Jane Nelson (R-Flower Mound, who chairs the Senate Finance Committee), Joan Huffman (R-Houston), Lois Kolkhorst (R-Brenham), Robert Nichols (R-Jacksonville) and Larry Taylor (R-Friendswood). The significant point is that this list of Senate conferees includes no Democrats.

The House named their conferees last week, with Bonnen appointing Representatives: John Zerwas (R-Houston, who chairs the House Appropriations Committee), Greg Bonnen (R-Friendswood), Sarah Davis (R-West University Place), Oscar Longoria (D-Mission) and Armando Walle (D-Houston).You will note that the House appointees are more bi-partisan.

Many observers feel that this group will be able to work out their differences in the time remaining this session. Both chambers approved budgets with similar price tags and both have agreed to pump an additional $9 billion in state funds into the public education portion of the budget. They also both recommend using money from the Rainy Day Fund. But some crucial differences remain between the proposals and that is what the conferees will focus on over the upcoming weeks to reach an agreement they can all support.

The Clock is Running

I have mentioned before that the last day of the legislative session is May 27, 2019. But that’s not really the deadline for legislators or the bills that they want to see passed. There are other deadlines that also come into play and one of the significant ones is May 6, 2019. That’s the last day for House committees to report bills and joint resolutions in order to have a chance for them to be placed on the House calendar. And before that can happen, the bill needs to have an updated fiscal note or impact statement and the committee report must be prepared.

Realistically, it normally takes a full day or more for a bill to reach the Calendars Committee after the bill is reported from the committee. Thus, we are talking May 4 or 5 as the last date to get a bill in the House out of committee so it can be heard in the House. That means we have about two weeks left for House bills to make that deadline. In golf terms, the “pace of play” in the legislature is going to ratchet up significantly as we move forward over the next few weeks. Everyone is now “on the clock.” In the meantime, the Senate adjourned late on Wednesday and it won’t reconvene until Tuesday, in light of the Easter holiday weekend.