Last Week in the Legislature

April 26, 2019 | Issue #15

By John Sharbaugh, CAE
Managing Director of Government Affairs

Sunset Bill Continues to Progress

This week, the Sunset bill on the Texas State Board of Public Accountancy (TSBPA), HB 1520, continued to progress when the Senate Committee on Business and Commerce voted to pass the bill out of committee on Tuesday.Since the committee approved a “committee substitute” of the bill that included a minor change requested by the Sunset Commission, it will require the bill to go back to the House sponsor, Rep. Senfronia Thompson (D-Houston), to get her concurrence on that change.

We anticipate Thompson will give her approval and then the bill can be scheduled for a vote in the full Senate, hopefully sometime in the near future. Once the Senate approves the bill, it will secure final passage.

Nonprofit Bill Hits a Snag

Several weeks ago, I reported 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.

HB 2147 had a hearing in the House Business and Industry Committee on March 26 and 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. 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 as detailed in the statute.

There was no opposition to the bill at the hearing and all of the witnesses (including TXCPA) who presented testimony were in favor of the bill. That led me to speculate at the time that the committee would likely approve the bill at its next meeting and that the odds of the bill passing this session looked good unless opposition materialized.

Well, that opposition did materialize in a big way after the hearing through the office of the Attorney General. Seems the AG’s office opposes the bill and does not agree with the concept of allowing nonprofits that undergo a financial statement audit by a CPA firm to be exempt from the record retention and sharing aspects of the current statute. Apparently, the AG likes the public to have this ability and access to nonprofit books and records to help identify wrongdoing or improper activity within nonprofits.

Discussions are now underway between the supporters of the legislation and the AG to see if they can come up with alternative language for the bill that would help address the original concerns of affected nonprofits while also satisfying the AG. If some kind of agreement can be reached to assuage the AG,  the proposed legislation may be able to get back on track. Otherwise, the chances for the bill advancing do not look good.

Property Tax Debate Continues – Or Not

The House was supposed to take up HB 2 (its bill to reform property taxes and slow their future growth) last week, but that didn’t happen. Instead, they postponed the discussion and vote to this week. But on Thursday, instead of debating the bill, the House once again postponed that discussion and debate until next Tuesday. We will see if that happens or not.

As the session has progressed, the unanimity on the property tax solution announced by the state’s top leaders has diminished as rank and file legislators have debated the proposed solutions. And the latest proposal by the big three (Governor Greg Abbott, Lt. Governor Dan Patrick and Speaker Dennis Bonnen) to raise the sales tax by 1 percent to provide property tax relief does not appear to be garnering the level of support it would need to pass (two-thirds majority in each House).

While everyone agreed that they wanted to do something about property taxes, finding a proposed solution that can pass muster with enough legislators to make it through the process has been a challenge. The clock is running and the question is can a solution be found that a consensus can support before the time runs out.

Shoring Up the Teacher Retirement System

This week, the House voted to advance legislation that would make the Teacher Retirement System pension fund financially healthy and give one-time checks to retired teachers. House members gave final approval to Senate Bill 12, endorsing a costlier revised version of the teacher pension fix that was originally proposed in the lower chamber. The House's version of SB 12, sponsored by Rep. Greg Bonnen (R-Friendswood), would increase the amount the state contributes to the pension fund by 2 percent over the next five years and give every retiree a one-time check of up to $2,400 by September 2020, in addition to retirees' monthly checks of that amount.

The Senate’s version of the bill, passed unanimously in March, would increase the amount the state, school districts and current school employees pay into the pension fund over the next six years in order to make it financially healthy. It would give retirees a smaller "13th check" of up to $500.

The House has proposed spending $684 million in general revenue to increase the state contribution and $658 million from the state savings account for the one-time payment. The Senate has proposed spending $542 million from the state savings account for a smaller increase in the state contribution and a smaller one-time payment. Both House and Senate versions of the bill would make the pension fund actuarily sound, or financially healthy, meaning lawmakers would be able to improve a cost-of-living increase for pension payments under state law. But SB 12 would not provide automatic increases in monthly payments for retirees. The differences between the two versions will now have to be negotiated.

Investing Rainy Day Funds for a Better Return

On Tuesday, the House approved legislation that would allow Texas voters to decide whether to redirect money that would otherwise go into the state’s Rainy Day Fund into riskier, but potentially higher-return investments. House Joint Resolution 10, which would put the measure on the ballot in November, and House Bill 20, which would create an endowment called the “Texas Legacy Fund,” passed easily.

HB 20 was presented by Rep. Giovanni Capriglione (R-Southlake), who said in explaining the bill prior to the vote that Texas would take money that otherwise is generating very small returns and invest it with the goal of garnering more revenue that would go toward paying off the state’s mounting unfunded liabilities. “We are looking at having almost $15 billion in our rainy day fund. Most of it is being held at nothing more than treasuries. We are doing a disservice to our taxpayers by doing that,” Capriglione said. Comptroller Glenn Hegar, who oversees the Rainy Day Fund, is the architect of the Texas Legacy Fund, an idea he has been promoting for a few years.

The Rainy Day Fund, which is supported mainly by oil and gas severance taxes, is among the largest funds of its kind in the country. A committee of House and Senate lawmakers had set the minimum balance the fund must maintain at $7.5 billion over the next two years. Currently, half of the extra severance tax revenue above the minimum balance must go into the Rainy Day Fund and the other half of the revenue goes to the state highway fund.

Under HB 20, the minimum balance of the Rainy Day Fund would be set at 7 percent of the state general revenue. The state highway fund’s share of the revenue above the minimum Rainy Day Fund balance would remain at 50 percent and the other 50 percent would go to this new Texas Legacy Fund that would be created. The bill would take $500 million from the current Rainy Day Fund to set up the Texas Legacy Fund in the first year. Once invested and generating returns, the Texas Legacy Fund would pay for the unfunded liabilities of the Employees Retirement System and the Teacher Retirement System. Any interest and earnings from the Texas Legacy Fund would go back into the Rainy Day Fund. There is no companion bill in the Senate and the chances of HB 20 succeeding there are not clear.

Senator Jane Nelson (R-Flower Mound) introduced SB 69 a few weeks ago, which would direct up to 75 percent of the Rainy Day Fund balance to be invested. SB 69 was passed in the Senate last week and has been sent to the House. See SB 69 here.

SB 69 would steer investment revenue to address long-term needs, as authorized by the legislature. But the Senate bill does not set up a separate endowment structure of the sort envisioned by the House legislation, which authorizes the comptroller to manage the assets of the Legacy Fund. The support for HB 20 in the Senate may well hinge on the issue of having a separate fund and who controls it.

While historically, many lawmakers have been reluctant to tap the Rainy Day Fund, this year that does not appear to be the case. Legislators are poised to draw on a chunk of the Rainy Day Fund to pay for Hurricane Harvey recovery, as well as to make schools safer and to shore up the Teacher Retirement System.

The House has proposed spending $2.3 billion from the Rainy Day Fund for the 2020-21 biennium budget, plus $4.3 billion from the fund in supplementary spending for fiscal 2019. The Senate’s proposed two-year budget includes no spending from the fund, but its supplemental spending bill calls for tapping the Rainy Day Fund for more than $4 billion.

Bills Banning Red-Light Cameras Advance

A few weeks ago, it looked like several bills designed to eliminate red-light cameras in Texas were on the ropes. That all changed in the past week to 10 days. Last week, HB 1631, sponsored by Rep. Jonathan Stickland (R-Bedford) was finally passed out of the House Committee on Transportation, after being held prisoner there by the Committee Chairman, Terry Canales (D-Edinburg). Canales had previously stated that he was opposed to the bill and would not let it advance to a vote. But recently, he said he changed his mind after Stickland told him he had the approval of a majority of the committee’s members.

And when the vote was taken in the committee last week, it passed by a 9-3 vote. Its fate now rests with the House Calendars Committee, which is responsible for scheduling bills to go to the House for a vote. If HB 1631 can make its way to the House floor, its passage seems certain, since more than 100 House members have signed on as co-authors.

Meanwhile, on the Senate side, SB 653 was passed on Thursday in the Senate Transportation Committee by a 6-2 vote. Sponsored by Senator Bob Hall (R-Edgewood), it is identical to HB 1631 and has three other senators as co-authors. It now awaits a vote in the Senate.

Outlawing red-light cameras appears to be a popular issue with voters, who detest the $75 fines that turn up in the mail, and among a number of lawmakers, who say the cameras are unconstitutional. The Texas Supreme Court is mulling that question right now and could issue its ruling by June. Several other states have already banned or restricted the use of red-light or speed-enforcement cameras, while some prohibit such enforcement measures on state highways, but allow them on local roads.

Ending Daylight Savings Time?

In addition to banning red-light cameras, another issue that disturbs some voters and legislators is the semi-annual ritual of springing forward and falling back by changing our clocks to conform to daylight savings time. There have been bills to get rid of daylight savings time every legislative session for a number of years, but none have ever come close to passing. That’s because people can’t agree on whether to ditch daylight savings or stay on it all year long. The issue is being approached a little differently in this session by proposing a constitutional amendment to let the voters decide.

This week, the House debated and approved a two-part legislative plan that would kill twice-a-year time changes and let voters decide in November on Texas’ permanent time. The first proposition passed by the House on Wednesday was House Joint Resolution 117. It would ask whether a referendum on daylight savings time may take place. The Texas Constitution does not permit a statewide referendum on the issue, so this first question would be necessary for voters to weigh in on the second proposition. The second ballot question would ask voters’ preference between year-round daylight savings time or year-round standard time. This is enabled by HB 3784, which was given final passage by the House on Thursday.

Rep. John Smithee (R-Amarillo) attempted on Wednesday to amend the ballot measure outlined in HB 3784 to add a third option to keep the time changes, but his amendment was tabled in a narrow vote of 72 to 70. In discussing his proposed amendment, Smithee said: "We’re going to let the voters decide, but we’re giving them a false, and I would say fraudulent, choice here. We’re putting a muzzle on approximately a third of the voters in Texas and saying your opinion doesn’t count... If we’re really serious about giving voters a choice, let’s give them a true choice."

While voters would get to weigh in and decide the future of Texas time, there’s a key caveat. If they choose year-round daylight savings time, the State of Texas would need federal approval before implementing it. Under current federal law, a state can opt out of daylight savings time, but there is no provision for a state to follow it all year long. However, there is pending legislation in Congress that could eliminate the need for that approval.

HJR 117 and HB 3784 now head to the Senate, where there is no companion bill to HB 3784.