04.05.06

The Perry Plan’s Unintended Consequences Are Starting To Show

Posted in Uncategorized at 10:41 pm by wcnews

Did I say earlier there are problems with the Perry Plan for Tax & School Finance Reform? Well the hits just keep coming. Those in the Texas Senate seem a little skittish on using the surplus for tax relief, Dip into state surplus may prove costly later.

Members of the Senate Select Committee on Education Reform and Public School Finance also raised questions about the other major revenue sources in the multibillion-dollar proposal — a proposed business-tax expansion and $1-a-pack increase on cigarettes.

State Sen. Florence Shapiro — who heads both the select committee and the standing Senate Education Committee — said senators have “high regard” for the proposal developed by a group of business leaders appointed by Perry and led by former comptroller John Sharp.

“But there’s also lots and lots and lots of questions,” said Shapiro, R-Plano, adding, “I’m very concerned about the surplus.”

[…]The property-tax cut also would be financed by the higher cigarette tax and use of a portion of an estimated $4.3 billion budget surplus. Democratic Sens. Eddie Lucio of Brownsville and Royce West of Dallas noted some would like to see at least a portion of a cigarette-tax increase used for health programs.

The use of the surplus drew particular concern from senators, who said the move could mean a budget challenge down the road. Their concern comes as some in the House are taking an opposing view by urging an even bigger use of the surplus to buy down property taxes.

“We all have to recognize that it is a one-time surplus,” Shapiro said. “You have to address that surplus every year from this day forward if you include that in any of your numbers.”

Alright so the Senate is not so hot on using the surplus to fund the governors tax swap no big deal, right? Well…now we find out that the price of the tax swap is going up and not only that but it’s probably going to cause all kind of problems with the school finance system, School funding proposal could cost extra millions.

A new tax plan pushed by Gov. Rick Perry could cost the state much more than advertised — likely hundreds of millions of dollars more — because it does not account for key components of the Texas school finance system.That’s the conclusion of several school finance experts, who say that while the plan was designed as a way to address a Texas Supreme Court mandate, it could create even more legal headaches unless the state comes up with more money to fund it.

Options include digging deeper into the budget surplus, cutting other areas of state government or further expanding taxes.

“It breaks the system,” said school finance expert Wayne Pierce, who is an advocate for greater funding equity between rich and poor districts. “And it mistreats children in very poor districts in a tremendous way. You’ve got to do it [make adjustments] to make sure you don’t have a system that doesn’t get more unbalanced.

This will unbalance the system even more and from I recall of the Supreme Court ruling it hinted pretty hard that school funding and equity would be problems in the near future if they weren’t addressed soon. Here’s what the governor’s office had to say:

The Sharp-Perry plan would give districts much more discretion to raise local rates — but nowhere does it identify a source for the additional matching funds for property-poor districts. All told, the equalization issue could increase the state’s responsibility to local districts by as much as $275 million each year, although experts say the initial amount would probably be somewhat less.

Officials with the Perry administration acknowledge the phenomenon but say that future legislatures could deal with it. They said that quirks in the school finance system may produce extra money in the short term to help right now.

Oh yeah, the old tax swap funding gap phenomenon? I remember that. Anyway I interpret that to mean, “I’ve got an election to win, I can’t be bothered with the details. I have to get something through the legislature so I can get reelected”. Mr. Sharp what do you have to say?

Former comptroller Sharp, a Democrat tapped six months ago to lead a 24-member panel that crafted the plan, said the governor tasked him with overhauling the tax code, not with addressing the nuts and bolts of school finance. As such, he said, the 92-page proposal works.

“The [school finance] formulas are not addressed at all — that’s not what we were charged to do,” he told the Star-Telegram. “We didn’t do anything to affect Robin Hood. We dropped the tax rate, and addressed the tax rate. … We were supposed to fix the tax system and lower property taxes in a way that’s fair to business.”

I believe the best way to interpret that is, “I was asked to fix taxes, not school finance. That’s someone else’s job”.

So there you have it. We have a plan that will lower overall taxes for most Texans anywhere between one and two percent, up to 4 percent for the wealthy, and “breaks” the school finance system. Now that’s what I call tax reform.

Permalink