Last Week in the Legislature

March 29, 2019 | Issue #11

By John Sharbaugh, CAE
Managing Director of Government Affairs

Sunset Bill – A Vote in the Texas House Next Week

We continue to see progress on the Sunset bill (HB 1520) in the Texas House. This week, the House Calendars Committee voted to put HB 1520 on the calendar for a vote in the full House next Tuesday, April 2.

As we previously reported, HB 1520 was amended in the House Committee on Licensing and Administrative Procedures to include the CPA firm mobility provisions that TXCPA supports. It also includes a fix to a drafting error related to the Resident Manager issue that TXCPA supports. If passed, HB 1520 will continue the Texas State Board of Public Accountancy (TSBPA) and the CPA profession in Texas for another 12 years until its next Sunset Review in 2031.

We are asking all TXCPA Key Persons to contact their members of the House to encourage them to vote for HB 1520 next week.

On the Texas Senate side, the Sunset bill, SB 613, did not see any action, but this was expected as the House is taking the lead on this matter. We anticipate that the Senate will wait for the House bill to get passed and be sent to the Senate.

SB 613, sponsored by Senator Kirk Watson (D-Austin), is identical to the original HB 1520 in the House, so it does not include the CPA firm mobility provisions or the drafting fix on the Resident Manager issue. Based on our conversations with Watson’s office, we are hopeful he will be amenable to accepting the House version once it is passed.

Modifying the Disclosure Requirements for Nonprofit Organizations

This week, there was a hearing in the House Business and Commerce Committee on HB 2147 which is a bill that would amend the requirements for nonprofit organizations to provide copies of their books and records on demand from the public. HB 2147 is sponsored by Rep. Harold Dutton, Jr. (D-Houston) and there is an identical counterpart bill in the Senate, SB 1463, sponsored by Senator Bryan Hughes (R- Mineola).

Under the current law (Texas Code Section 22.353), nonprofits are required to keep records, books and annual reports of the organization’s financial activity and make them available to the public for inspection and copying at the organization’s principal office during regular business hours. HB 2147 would provide an exemption from this requirement if the organization has an independent CPA conduct an audit of the organization’s financial statements and makes the audited financial statements and annual reports available to the public no later than the 180th day after the close of the fiscal year. You can read HB 2147 here.

In presenting the bill to the committee, Dutton explained that some nonprofits were being harassed with voluminous requests for copies of books and records by disgruntled members of the public. Also, in some cases, the law was being used to go on “fishing expeditions” that require significant expense in time and money for nonprofits to respond. Giving nonprofits an option of having an audit performed and sharing that information with the public would help minimize this kind of harassment. Nonprofits that do not undergo an independent financial audit would still be required to share copies of books and records upon request.

There were several people who testified in favor of the bill. The CFO of the Houston Livestock Show and Rodeo and a representative from the San Antonio Stock Show and Rodeo both expressed support for the bill and described how their organizations had been subjected to harassing requests under the current law.

I also testified on behalf of TXCPA in support of the legislation. I noted that it seemed reasonable to provide an exemption from the requirement of Code Section 22.353 if a nonprofit had an independent audit conducted by a CPA and shared that with the public. I also pointed out that under federal regulations, tax exempt organizations must share their federal tax returns (990s) with the public. The combination of an independent financial audit coupled with the requirement to share 990 returns seems sufficient to provide transparency to the public on the organization’s finances. You can read my testimony here.

There was no opposition presented at the hearing and the committee left the bill pending, which is the normal procedure. The committee will likely approve the bill at its next meeting. Since the bill has bipartisan support and has been introduced in both chambers, the odds of it passing this session look good unless opposition materializes.

House Passes a Budget

Shortly after midnight on Thursday morning, after over 11 hours of debate, the House passed its budget proposal for the 2020-21 biennium. HB 1 proposes to spend $251 billion on various state programs and services. The two-year spending plan’s highlight, a $9 billion boost in state funding for the public education portion of the budget, remained unchanged. Of that, $6 billion would go to school districts and the remaining $3 billion would pay for property tax relief, contingent on lawmakers passing a school finance reform package.

The budget plan would spend $2 billion from the Rainy Day Fund, which currently holds more than $12 billion and is expected to grow to more than $15 billion by the end of the next budget cycle. The budget approved by the House would spend about a half a billion less than the maximum that is possible under the “pay-as-you-go” limits of the state Constitution.

The budget passed unanimously on the final vote, 149-0. HB 1 now heads to the Senate. The House and Senate versions must be reconciled before a final budget can be adopted by both chambers.

While more than 300 amendments to HB 1 were offered by various House members, the majority of those were never discussed during the full House debate. And most amendments that were debated were either defeated or sent to the budget “wish list” portion of the budget for future consideration. That section of the budget, known as Article XI, is viewed as a graveyard for most line items. So, it is just another, more polite way of killing them off.

The most significant thing about the House deliberation and debate of the budget this week was how mild it was compared to prior, more contentious sessions. It was an early test for the new Speaker of the House, Dennis Bonnen (R-Angleton), and it showed that he was out to set a different, more civil spirit in that chamber. “I’m not here to compare it to previous sessions,” Bonnen told reporters after the House budget vote. "But I’m here to tell you we had a great tone and tenor tonight and I’m very proud of the business that we did.”

The House also approved a $9 billion supplemental spending plan this week to pay for leftover expenses that aren’t covered in the state's current two-year budget, mostly for Hurricane Harvey recovery and health and human services programs. A $4.3 billion withdrawal from the Rainy Day Fund covers the largest share of expenses in the supplemental bill. Another $2.7 billion comes from the state’s general revenue and $2.3 billion are federal funds.

In 2017, the legislature underfunded Medicaid, the federal-state health insurance program for the poor and disabled, requiring a $4.4 billion infusion of state and federal funds. The legislature must pass the stopgap funding bill before the end of May for the Texas Health and Human Services Commission to be able to pay health care providers on time.

The supplemental bill also includes:

  • Nearly $2 billion to reimburse school districts, state agencies and universities for costs they took on after Hurricane Harvey;
  • About $1.3 billion to shore up a system that pays out teacher pensions, contingent on the passage of a pension reform bill, which includes $658 million from the state savings account to provide a one-time “13th check” made out to retired teachers;
  • Nearly $11 million for the Santa Fe Independent School District, which experienced a mass shooting last year; and
  • $2 million for state mental hospital improvements, which includes funding to plan the construction of new hospitals in the Panhandle and Dallas area.

House School Funding/Property Tax Relief Bill Advances

Another House bill (HB 2) was voted on in the Ways and Means Committee in the early hours of Thursday morning. Around 1 a.m., the committee voted 8-3 to advance a committee substitute version of the bill. HB 2 covers the funding of public schools and also calls for property tax relief. A top priority for state leaders, HB 2 would require cities, counties and other taxing units to receive voter approval before levying 2.5 percent more property tax revenue than the previous year. The substitute version of the bill was not yet available at press time.

It was initially anticipated that HB 2 would be voted on in committee on Wednesday morning, before the full House vote on the budget (HB 1) later in the day. But to the surprise of many, the hearing on a new “committee substitute” version in the Ways and Means Committee was postponed until past midnight.

As amended, HB 2 now exempts community colleges, emergency service districts and hospital districts from abiding by the 2.5 percent election trigger. Another provision lets certain districts, including cities and counties, bank unused revenue growth, so long as they average below 2.5 percent over five years. And new The new version of HB 2 will head to the Calendars Committee and then to the House, where it will be debated by the full chamber. The Senate's measure (SB 2), which was quickly pushed through the chamber’s Property Tax Committee in February, was modified to allow small taxing units to opt in to parts of the reform bill. As first drafted, cities, counties and special taxing districts, like those for community colleges and certain hospitals, were exempted if their sales and property tax leviesdid not top $15 million. Both the House and Senate versions of the legislation also make a host of widely supported modifications to the appraisal and protest process, with an aim of making them friendlier to taxpayers.

SB 2 has not yet been debated by the full Senate either. Once that happens in the House and Senate, the differences between the two chambers’ versions will have to be reconciled. The major difference between the House and Senate versions concerns the rollback tax rate.

Bathroom Bill 2.0

While this year’s legislative session has been relatively devoid of controversial “social issues” legislation compared to 2017, that may have changed this week. Senate Bill 17 has created a new controversy and is being framed as “Bathroom Bill 2.0” by a coalition of business, tourism and LBGTQ groups, known as “Texas Competes.” SB 17 was passed by the Senate State Affairs Committee on Wednesday by a 7-1 vote. Read SB 17.

SB 17, sponsored by Senator Charles Perry, CPA (R-Lubbock), would prohibit the state’s occupational licensing boards from enacting rules or regulations that burden “an applicant’s or license holder’s free exercise of religion,” free speech “regarding a sincerely held religious belief” or membership in a religious organization. It would also give anyone licensed by the state, including lawyers and therapists, legal cover in the event their license is threatened because of actions they took based on their faith. There is an identical version of SB 17 in the House – HB 2827 – sponsored by Rep. Phil King (R-Weatherford), but it has not yet had a hearing in committee.

Perry said in introducing SB 17 that it was a direct response to the American Bar Association model rule suggesting that lawyers be prohibited from engaging in harassment or discrimination based on sexual orientation and gender identity. The rule has not been adopted by the State Bar of Texas. You can read an analysis by the Senate Research Center that explains SB 17.

Perry also noted that, “This bill seeks to ensure that no person is hindered from seeking an occupational license, or loses their license, based on faith. This bill does not, I repeat, this bill does not permit an individual to violate state or federal law.”

The bill specifically does not allow someone to cite his/her faith in refusing to provide lifesaving medical treatment and does not apply to law enforcement. Federal law also prohibits certain kinds of discrimination, such as refusing to hire or serve someone based on that person’s race or national origin, but these protections do not extend to sexual orientation or sexual identity.

The Texas Competes coalition consists of 1,400 organizations and counts among its ranks dozens of Fortune 500 companies, including Amazon, Google and Facebook. The group and its allies are out to combat legislative proposals the business leaders consider threats to their economic success, due to the disparate impacts they would have on Texas’ LGBTQ communities.

In addition to their opposition to SB 17, the group has expressed opposition to some other proposed bills, including SB 15, which was at its start a relatively uncontroversial measure aimed at gutting mandatory paid sick leave ordinances in cities like Austin and San Antonio. But the bill was rewritten before it passed out of committee and protections for local nondiscrimination ordinances were stripped out. Although the new version of the bill doesn’t explicitly target LGBTQ Texans, advocacy groups like Texas Competes have raised concerns about the shift.

You can read more about this issue and the opposition to SB 17 in this article from Newsweek here.

Despite the opposition to these measures, both SB 15 and SB 17 have the support of Lt. Governor Dan Patrick, so the odds are high they will proceed to a vote by the full Senate. The prospects for the legislation in the House are not as clear. While there are counterpart bills in that chamber, neither of them has yet had a hearing in a House committee.

Special Session?

We have reached that time during the legislative session when the speculation begins to grow on whether a “special session” will be necessary for the legislature to complete its work. This week, we passed the midpoint of the regular session, which will adjourn on May 27, 2019. This kind of special session talk happens every two years and the typical story line is that the legislature won’t be able to get the “big things” done on time (think budget, school finance, etc.) and will have to go to overtime.

That happened in 2017, when the failure to pass Sunset legislation would have put the Texas Medical Board and licensed doctors out of business; a special session was called to save the day.

Don’t count on a repeat this time around. While it is always possible that Governor Greg Abbott could call an extended 30-day special session, the tea leaves say that is likely not going to happen. The results of the election last November and the public’s reaction to the infighting that took place in the 2017 legislative session had an effect on our legislators. The last thing they want to do is demonstrate that they can’t get their job done on time. And that is the message they would be sending to the public if they would have to go to a special session. So, if I was a betting man, I would lay my money on the legislative session ending on May 27 as planned. We’ve got about eight weeks left to see if I’m right.

 

 

RESOURCES


Background

2019 Sunset Review

White paper on the Sunset process

Firm Mobility proposal

 

Volunteer

Member Involvement

CPA-PAC

 

Quote of the Week:

“Legislative novelty is not necessarily fatal; there is a first time for everything..”

- John Roberts
U.S. Supreme Court Chief Justice