Shifting the Burden

A New Day for Taxes, Electric Retail Market

illustration by Doug Potter

Retail electric deregulation legislation was nearly D.O.A. as early in the legislative session as February, but last week, the patient was shocked back to life when the proposed Senate bill on the issue was transferred from the Senate Committee on State Affairs to the Committee on Economic Development. SB 684 author Senator Jerry Patterson (R-Pasadena) made the shift to avoid stagnation in State Affairs since its chair, Senator Ken Armbrister (D-Victoria), will head up the busy new tax committee in the Senate. It doesn't hurt that Economic Development committee chair David Sibley (R-Waco) was a proponent of telecommunications deregulation last session, and will likely shepherd SB 684 along. To wit: Sibley quickly scheduled a hearing on the bill for today, April 10, at 8am -- the first hearing the bill has had since February. The bill is also getting a boost of energy from Lieutenant Governor Bob Bullock, who approved the committee switch. According to Bullock staffer Mike Hailey, the lieutenant governor believes that "if we're going to have deregulation, there is no incentive to wait another two years," although he stresses that Bullock has not taken a position on the bill. "This was an attempt to get the discussions on track, and then we'll let the chips fall where they may," Hailey offers.

Patterson and Rep. Mark Stiles (D-Beaumont), who carried the House version of the bill, had a troubled start with the retail deregulation idea. Organized talks between the legislators, consumer groups like Public Citizen, and the investor-owned utilities (IOUs) fell apart in February when they couldn't agree on debt-recovery on "stranded costs" for infrastructure, "green" energy resources, and conservation program funding. Those problems still have not been addressed by Patterson or Stiles, but Patterson's chief of staff Larry Laine says there will be a substitute bill forthcoming for SB 684 that extends the transition period into total deregulation from three years to a maximum of seven. Why that concession? "We couldn't get the IOUs to talk with us until we made that change," says Laine.

That change satisfies the IOUs, but makes matters worse for consumers, says Public Citizen director Tom "Smitty" Smith. "It stretches the amount of time utilities can recover their stranded costs, payments that many of them don't deserve." Those costs would be paid off in part from a proposed seven-year freeze on electric rates, savings Smith asserts should instead be passed on to consumers. "The opening gambit in this round of negotiations is a utility dream bill... it's corporate welfare for utilities."

Smith is confident, however, that some consumer concerns will be addressed in the Senate and House committee meetings, adding that "it would be unwise for the legislature to pass a bill with as few consumer protections as this bill has." As for the concerns of the consumer groups, staff for both Patterson and Stiles say the legislators' doors are always open, but that holding organized talks is an idea that will not be revisited. At least not until seven years are up -- say, in the year 2003 or 2004?

A Rose Is a Rose

Don't call it a new tax, call it a tax shift, say legislators who filed their new bill overhauling the state's tax system. After eight weeks of hearings, the House Select Committee on Revenue and Public Education Funding finally released its version of a new state tax structure that offers school tax relief for residents and businesses, with the cuts funded by a broadening of the state sales tax and the business franchise tax. The whole thing could require a special-called session in the middle of summer. The net gain in the new system, $38 billion, matches the current needs of the state's public school system and manages to do away with the unpopular "Robin Hood" method of school financing.

But that doesn't mean that Texas can flaunt the court order to equalize education funding. The new system attempts to achieve equal funding with a simplified structure -- each district would be guaranteed $80 per student from the state, which for many school districts could mean that the state will be covering 90% of their education budget. Additional funds for special programs, for instance, would come from local school taxes on residential homeowners, and would be capped at 50 cents per $100 valuation, a reduction from the current state average of $1.30. Still, it's curious how equality will be achieved in this instance, since property values differ drastically among school districts.

Businesses would be exempt from local school taxes, paying instead a statewide tax directly to the comptroller's office of $1 per $100 valuation, an average rate reduction of 20%. The business tax would be used to fund school maintenance and operation costs. The new structure does not, however, address the problem of many school districts which have facility construction debt payments tied in with the maintenance and operation costs of those facilities. But the "hold harmless" contingency in the new tax plan (whereby the state would pay the difference necessary to enable districts to meet debt requirements and remain financially afloat) could be a way out for small districts with high construction debt, since they owe more than the 50 cent cap can bring in.

Back to the tax shift: The state would pay for the new system not by raising the current 6.25% sales tax, but by expanding the tax to transactions formerly exempted. Items on that list include: Coal and lignite transactions; transportation services, such as taxi, limousine and freight; sky boxes in sports stadiums; auto repair services; magazine subscriptions; and various personal transactions, such as massage, tanning, diet, and dating services. The 4.74% business franchise tax would also be expanded to all partnerships, including legal and medical groups. Other tax revenue could be gathered from a 4.152% tax on the sale of power by electric utilities, and an increase of taxes on the sale of new manufactured homes, alcoholic beverages, cigarettes, and hotel stays. One concern for consumers: The tax bill does not include language forcing landlords to pass on any property tax savings to tenants. One apartment owner association promised the legislative panel that they would come up with a plan to pass on those savings, but try to remember the last time a landlord voluntarily reduced your rent.

Grinding Gears

Revisions to the 1993 hate crimes law that would help define prejudicial or bias-based crimes could be stalled in House committee. House Bill 1116 by Sylvester Turner (D-Houston) adds language describing such acts as motivated by hatred of a certain "race, color, disability, religion, national origin or ancestry, or sexual orientation of the person against whom the offense was committed." The language is controversial for many conservative members, who see the inclusion of "sexual orientation" in the language as "special rights" for gays. The House Committee on Criminal Jurisprudence, to which the bill has been assigned, has failed to even set a date to hear HB 1116, although no reason has been given.

HB 1116 is the companion bill to the original Senate Bill 80, authored by Senator Rodney Ellis (D-Houston). Although they are identical, both bills were filed to allow two chances for the revisions to make it through to final passage. But that may not do any good. If a bill is held up, or delayed for too long in the legislative process, it could essentially be killed by inaction.

Ellis is taking the bill for a third walk around the capitol block; his original 1993 hate crimes law enhanced penalties for prejudicial crimes, but in 1995, when the senator attempted to define those prejudicial crimes, the bill was killed in the House in the final hours.

As in 1995, the path is smoother on the Senate side; a hearing was finally held on the bill last week. But no one expects SB 80 to get easy passage under the new Republican majority. A final committee vote was withheld by Ellis -- most likely the senator is gathering more votes, or waiting for HB 1116 to get unstuck and on the go again.

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