On the Lege

The special legislative session doesn't end until Wednesday, but the business lobby is already popping the champagne corks. That's because consumers and regular working stiffs, not businesses, will be shouldering the larger cost of "the biggest property tax cut in Texas history!"

Bowing to brass-knuckle pressure from Gov. Rick Perry and the business lobby, a weary Senate early Monday passed a meeker version of what was originally touted as a bold initiative for business tax reform – a proposal that would have given voters a say in reducing their property taxes while broadening the state business tax.

After several hours of back room arm-twisting and seven hours of floor debate, the Senate approved a measure that more closely meshes with the House tax plan that Perry supports. If there's one bright spot on the horizon, it's that both chambers are in a better position to hash out differences on the two tax bills and produce a final compromise plan before the special session ends on Wednesday. The bill then returns to the House and Senate for one last look and final adoption, and that's where things could get sticky.

The widest gap between the two bills is the half-cent difference on sales tax, with House leaders pushing for a one-cent hike and the Senate digging in its heels (for now) on no more than a half-cent. Having caved once already, it's uncertain how far the Senate is willing to go with this fight, though El Paso Democrat Eliot Shapleigh has vowed to filibuster until the cows come home if a joint negotiating committee turns out a bill with anything higher than a half-cent increase.

On property tax differences, the House bill, narrowly approved last week, calls for lowering and capping the maintenance and operations tax rate (which funds the general budgets for public schools) from $1.50 per $100 valuation to $1.12 in 2006, and raising the sales tax rate from 6.25 to 7.25 cents. Perry's main talking point on the House bill is its promise of "$7 billion in property tax relief" for homeowners. But an analysis by the nonpartisan Legislative Budget Board notes that in terms of the overall tax burden, the bill would only benefit businesses and well-off Texans.

The Senate proposes capping the property tax rate at $1.25 (for an overall reduction of $4.8 billion) and adding a dollar to the cigarette sales tax and 20% to the tax on alcohol. Both bills allow for voters to decide local "enrichment" taxes for schools – although still in play is how much enrichment to allow the wealthiest school districts without being subject to recapture (aka "Robin Hood").

The Senate bill – widely considered the less offensive of the two – passed 20-8 on third reading, with Austin Democrat Gonzalo Barrientos voting "no," and GOP San Antonio Sen. Jeff Wentworth, who represents a slice of southwest Austin, voting with the party majority. Both Barrientos and Wentworth had proposed amendments to increase the homestead exemption, which would provide greater relief for homeowners of all income brackets. Barrientos won on his larger increase – doubling the existing $15,000 exemption to $30,000 – but saw his amendment die when the Senate removed the business tax provision that would have paid for the added relief.

Given the realities of an intractable House and a headstrong governor, Lt. Gov. Dewhurst cast a rare vote to break a 14-14 tie to kill the ambitious business tax measure that would have closed two franchise tax loopholes and asked voters to approve a so-called payroll tax on companies.

The plan's demise not only knocked Barrientos' proposal off the table but temporarily deflated the spirit of the Senate plan's author, Finance Committee Chair Steven Ogden, R-Bryan, who said the business tax overhaul would have generated $2 billion for the state. Ogden, who owns an independent oil and gas business, doesn't pay a franchise tax. But he argued that he couldn't in good conscience raise taxes on everyone but himself. "I'm not going to come down to this floor of the Senate and say to the people of Texas, 'It's OK to tax you, but I'm not going to tax myself,'" he said.

Early in the Senate debate, which started at 8pm Sunday and ended after 3am Monday, Sen. Shapleigh had a little fun putting Ogden on the spot, noting that proponents of the House bill advertise it as providing the highest property tax cut in the state's history, while opponents say it would create the highest sales tax in Texas history. "Which one do you think it is?" Shapleigh asked Ogden, who had declined to ask the LBB for a tax analysis like that done for the House bill. "I, uh," Ogden began, before deadpanning: "I advertise it as the committee substitute to House Bill 3."

Ogden will need a stronger marketing shtick to sell what's left of his bill to the House negotiating team, which includes Ways and Means Committee Chair Jim Keffer, R-Eastland, and Reps. Charlie Geren, R-Fort Worth; John Otto, R-Dayton; Warren Chisum, R-Pampa; and David Swinford, R-Amarillo. As of press time Wednesday, Senate conferees had not yet been named. During the regular session, the process collapsed when negotiators could not come to an agreement – eventually leading to this not-so-instant replay.