Last Week in the Legislature
March 25, 2019 | Issue #10
By John Sharbaugh, CAE
Managing Director of Government Affairs
Sunset Bill – Continued Progress in the House
This past week, the Sunset bill in the Texas House continued to make progress. On Tuesday, the committee substitute for HB 1520 was voted out of the House Committee on Licensing and Administrative Procedures by a margin of 10-0. The bill now goes to the House Calendars Committee. This is the committee responsible for scheduling all bills for consideration by the full House. We hope the bill will be scheduled for a vote in the House sometime in the near future.
The committee substitute for HB 1520 approved in committee includes the CPA firm mobility provisions TXCPA was seeking. It also fixes a drafting error on the resident manager issue that TXCPA supports and most importantly, the bill continues the Texas State Board of Public Accountancy (TSBPA) for another 12 years until its next Sunset Review in 2031. We thank Rep. Senfronia Thompson (D-Houston) for making these changes to the bill and managing it through the committee process.
On the Texas Senate side, the Sunset bill is in a holding pattern as the House is taking the lead on this matter. SB 613 (which is identical to the original HB 1520 in the House) is authored by Senator Kirk Watson (D-Austin). Since the House is taking the lead on the legislation, the Senate has not had any activity on this matter other than the introduction of its version. SB 613 has been referred to the Senate Business and Commerce Committee, but there have been no hearings on it to date. Hopefully, the Senate will defer acting until the House version is passed. That bill would then be sent to the Senate, where we would work to have the House committee substitute version accepted. We have had initial conversations with Watson’s office about the issue and are hopeful he will be amenable to accepting the House version once it is passed.
Bill to Deal with Anti-Trust Issue for Texas Boards
During the Sunset Review process, one of the initial recommendations made by the Sunset staff was to change the composition of the Texas State Board of Public Accountancy (TSBPA) to reduce the number of CPAs serving on the Board and make it a majority “public member” Board. The current composition of TSBPA is 10 CPAs and five public members. The Sunset staff’s recommendation was driven by a U.S. Supreme Court decision a few years ago involving the N.C. Dental Board that dealt with antitrust concerns related to state licensing boards run by licensees (called “marketplace participants” in the Supreme Court decision). TXCPA argued against this recommendation and the Sunset Commission removed it from the final report on TSBPA. Instead, the Sunset Commission referred the matter to the legislature to decide how to deal with this issue for all licensing boards in Texas, not just TSBPA.
For an overview of this Supreme Court case and the underlying issues, see this information from the National Association of State Boards of Accountancy. And to see TXCPA’s arguments on this issue , see the comment letter that was sent to the Sunset Commission last year.
Recently, the chair and vice chair of the Sunset Commission, Senator Brian Birdwell (R-Granbury) and Rep. Chris Paddie (R-Marshall), introduced legislation – SB 1995 and HB 4112 – to deal with this issue. Basically, under their bill, a process and division would be created within the Office of the Governor to review all proposed rules by licensing agencies that could affect market competition before the rule can be adopted or implemented.
If this bill is passed, it would provide the “active state supervision” that the Supreme Court discussed as a safeguard against possible antitrust claims that could be lodged against a licensing board. Since the legislation is sponsored by the leaders of the Sunset Commission and it has been introduced in both chambers, the odds of its passing are high. The bill has been referred to the Senate State Affairs Committee, but has not yet been scheduled for a hearing. The House bill had not been referred to a committee at press time.
House School Finance/Property Tax Bill Approved by Committee
On Tuesday, the House Public Education Committee unanimously signed off on a comprehensive $9 billion school finance and property tax reform bill, but only after removing a controversial merit pay provision that had angered teachers’ unions. The committee substitute on House Bill 3, filed by Committee Chair Rep. Dan Huberty (R-Houston), would put $6.3 billion into public schools and $2.7 billion into property tax reform. The bill is expected to head to the full House soon, where more than 100 representatives have already signed on as co-sponsors.
The initial draft of HB 3 included money for districts that wanted to rate their teachers and provide the top-rated ones with more money. But teachers’ organizations were opposed to the use of standardized test results as a means of evaluating teacher performance, even though it was not mandated in the bill language. Teachers argued that although the bill didn't require districts to rate teachers based on standardized test scores, it would be difficult for them to use any other metric. And teachers’ organizations would rather have directed pay raises for all school employees than a program directing more money only to certain teachers. Their arguments obviously won out, as the offending language was removed from the final bill passed out of the committee.
Unlike the major education funding bill in the Senate (SB 3), HB 3 does not include an across-the-board teacher pay raise. The House argues that school districts should instead have local control to decide how to use additional funding. SB 3 (which has already been unanimously passed in the Senate) would put $4 billion toward $5,000 raises for all full-time classroom teachers and librarians.
Once HB 3 passes in the House (as is expected), the House and Senate versions will have to be resolved. So, it may be a while until we see agreement on a final package.
Increasing the Sales Tax to Help Lower Property Taxes?
While the school funding bill, HB 3, would also provide some minor property tax relief (estimated to be about $100 for a homeowner on a $250,000 home), to get to any real level of property tax relief would require a significant infusion of revenue from some other tax source. And the author of HB 3 – Rep. Dan Huberty (R-Houston) – also has a proposal to accomplish that through a proposed constitutional amendment to raise the sales tax by one cent.
HJR 3 is a House Joint Resolution that Huberty has proposed to put the issue on the ballot in November for voters to decide. In the initial resolution, Huberty tags the rate at 6.26 percent (the current rate is 6.25 percent), but that is just “placeholder” language until there is agreement on what the number should be on the ballot. You can read the resolution here .
Huberty is trying to drum up support for raising the state sales tax by a penny, to 7.25 percent, and pouring the money into public education. It wouldn’t be for new spending, but it would increase state spending enough to significantly lower local property taxes. A one-cent rate increase in sales taxes would produce a lot of money. According to the Texas Comptroller, the state collected $31.94 billion from sales taxes in the 2018 fiscal year and at that level of taxable sales, a one-cent increase in the rate would bring in an extra $5.1 billion.
HJR 3 will make it to Texas voters’ ballots if it’s backed with a two-thirds vote in both legislative chambers. HJR 3 has been referred to the House Ways and Means Committee, but has not been scheduled for a hearing yet. There is no similar proposal in the Senate.
House Committee Passes Out Budget
Another major item this past week was the House Appropriations Committee voting out its budget proposal for the House (HB 1), which will now go to the Calendars Committee and on to the full House for a vote. The proposal would spend $115 billion in state funds, including a $9 billion infusion of new funds for Texas public schools and property tax relief.
The House budget plan would spend $2 billion from the state’s Rainy Day Fund, which currently holds more than $11 billion. The total two-year budget would spend state, federal and local funds totaling about $250 billion. After considering a limit imposed by the Texas Constitution, House lawmakers left about $500 million on the table, according to testimony from the Legislative Budget Board.
Some of the highlights of the House’s spending plan are:
- $9 billion in new state funding for K-12 education and property tax relief, contingent on lawmakers passing reforms to the way the state funds public schools. The budget does not dictate the breakdown of those funds, but a bill backed by the House speaker would give about $6 billion to school districts and use the remaining $3 billion to pay for a reduction in local school district property taxes.
- A $2.8 billion increase in state and federal funds for health and human services above what the House proposed in January. That includes a $25 million increase for early childhood intervention services, $6.7 million to reduce caseloads for Adult Protective Services workers, $31 million to expand capacity at local mental health clinics for low-income Texans and $87 million to raise the pay of personal attendants, who care for the elderly and disabled, by about 10 cents an hour.
- A $168 million expenditure to give some Texas prison guards and parole officers a pay raise.
The Senate is supposed to take up its 2020-21 budget plan in the Senate Appropriations Committee this Thursday.
Raiding the Rainy Day Fund
If you have been keeping track, then you know that the legislature has been proposing a number of ways they plan to use the state’s Rainy Day Fund this session. Thus far, proposals in the Texas House would spend $6.6 billion from the state’s savings account and the Senate would spend $4.4 billion. Some of that is for the supplemental budget (to pay for Hurricane Harvey relief and the Medicaid payment shortfall) and some of that is for the budget for the next biennium. My guess is when the two chambers finish their negotiations on these budgets, the final number on using the Rainy Day Fund will end up in the middle between the two proposals, somewhere in the $5 billion range.
The current proposals for using the Rainy Day Fund come at a time of record prosperity for the 32-year-old state savings account, which is fed by oil and gas taxes. The current record for the fund’s largest withdrawal belongs to the 2011 legislative session, when lawmakers withdrew $3.2 billion amid a national economic downturn. The Comptroller predicts the Rainy Day Fund will grow by more than $3 billion over the 2020-21 budget cycle, so the fund is not going to be depleted anytime soon. Historically, the legislature has been reluctant to tap this fund, but events this year appear to be affecting that norm.
Wayfair Legislation Advances
Another tax issue that moved forward was HB 2153. A committee substitute for HB 2153 was voted out of the House Ways and Means Committee on Wednesday. This is the legislation proposed by the Comptroller’s Office to deal with the Wayfair Supreme Court decision related to remote sellers. HB 2153 would require remote sellers with no in-state physical presence to collect use taxes on sales to Texas customers. This bill is intended to reduce the compliance burden on remote sellers by authorizing them to elect to remit local taxes at a single combined rate.
The single rate is the estimated average local rate for the preceding year computed by dividing total local sales tax collections by total state tax collections multiplied by the 6.25 percent state rate rounded to the nearest .25 percent; currently, this single rate would be 1.75 percent. Purchasers at locations where the total local rate is less than the single rate may apply for a refund of overpaid tax. Tax receipts resulting from the use of a single combined rate are to be distributed to local taxing entities based on their percentage share of total state and local tax collections.
A committee substitute on the bill was adopted. The bill will now go to the full House for a vote. There is a companion bill in the Senate (SB 70) that was identical to the original HB 2153. The committee substitute adopted on Wednesday was not available at press time.
Protecting Lemonade Stands from Tyranny
Also this past week, HB 234 was passed by the House and is on its way to the Senate where there is a companion bill (SB 824). HB 234, sponsored by Rep. Matt Krause (R-Fort Worth) amends the Local Government Code to prohibit a municipality, county or other local public health authority from adopting or enforcing an ordinance, order or rule that prohibits or regulates, including by requiring a license, permit or fee, the occasional sale of lemonade or other nonalcoholic beverages from a stand on private property by an individual younger than 18 years of age.
Under the current law, lemonade stands are illegal, because homemade drinks are banned due to health concerns. And there have been incidents where local youngsters running a lemonade stand were shut down by local authorities. Krause’s bill is designed to fix that situation. On Tuesday, when the bill received initial approval, Krause stated that, “Today is Lemonade Freedom Day.” And when the bill cleared the House on final vote on Wednesday, he said, “Yesterday was one small step for lemonade and today is one giant leap for young entrepreneurs.” Despite the hyperbole, my guess is this legislation will pass this session.
Quote of the Week:
“A politician needs the ability to foretell what is going to happen tomorrow, next week, next month and next year. And to have the ability afterwards to explain why it didn't happen.”
- Winston Churchill
Prime Minister of the United Kingdom