Update: April 2015
The Texas Enterprise Fund:
In short, thus far the fund remains largely intact in its funding and function. There were attempts to defund the enterprise fund, film incentives, and others during the budget process in the Texas House. The Senate has yet to pass a budget so there is a possibility that there can still be changes to the level of funding and function. The Governor has called for more oversight and accountability of the fund within his office, but he has not called for any significant changes to the administration of the Enterprise Fund. The Governor, the House and Senate have all proposed various ways to streamline the usage of the fund, but no definitive decision is in place as of yet. Dallas area Representative Angie Chen-Button has authored HB 26, which calls for a fund oversight board; however, this legislation currently sits before the House’s Economic and Small Business Development Committee. Neither of the Chambers have placed new money into any of the state’s economic incentive funds as of yet. The most significant action in regards to economic incentives is the Governor’s significant proposed restructuring of the Emerging Technology Fund. Under Governor Abbott’s plan, half the remaining balance would go into the enterprise fund and the rest would go into education. Currently, this is the approach taken by the House and proposed in the Senate. This would add approximately $46,000,000 to the Enterprise Fund.
Currently, there are no changes in the Legislature regarding TexasOne. Governor Abbott noted in interviews after his State of the State address that he intended to be, “bigger and bolder” than his predecessor in his utilization of the state’s economic development corporation to lure businesses to the Lone Star State.
Electric Grid Expansion:
Fort Worth area Representative Matt Krause filed legislation (HB 962) at the beginning of the legislative session to remove the 20 percent market ownership cap on electric generation companies that has been in place since deregulation took place in 1999. However, this piece of legislation currently sits in front of the House’s State Affairs Committee. There is currently no hearing scheduled for the bill.
One piece of legislation gaining steam, at least on the House side, is a bill by Houston area Representative Sylvester Turner that would prevent electric companies from charging minimum use fees. Supporters of HB 2254 argue that charging customers not to use a minimum amount of electricity discourages users from conserving electricity. Representative Turner’s bill was heard in committee on March 25. The committee has taken no action on HB 2254 yet.
On Taxes and Fees:
Tax cuts have turned into one of the most polarizing action items of the legislative session. During his State of the State address, Governor Abbott called for meaningful tax cuts and vowed that he would veto any budget from the legislature that did not contain them. However, the House and Senate have varied significantly on what constitutes meaningful tax cuts.
The Senate, under Lt. Governor Dan Patrick and Senate Finance Chairwoman Senator Jane Nelson from Flower Mound passed legislation that calls for $2.4 billion in tax relief for homeowners by raising the homestead exemption from school property taxes. This plan ties the homestead exemption value to the median home value in the state. As a safety net, SB 1 contains hold harmless provisions for rural and districts with lower than median property values where the state will step in and replace lost monies. These hold harmless provision carry a projected cost of $2.1 billion to the state for the coming biennium. The Senate estimates that this tax cut would amount to approximately $200 in annual savings for the average homeowner.
The Senate also passed a couplet of bills dealing with the margins tax. SB 8 raises the threshold for the state’s margins or “franchise” tax to $4 million. This is a $3 million increase from the current exemption. Groups such as the Texas Association of Business have opposed this plan because they contend that it creates a sort of class warfare by placing an undue burden on bigger businesses in an effort to provide tax relief for smaller ones. SB 7 cuts the margins tax rate 15 percent across the board.
The House under Speaker Joe Straus and Representative Dennis Bonnen, Chairman of House Ways and Means Committee has adopted a significantly different approach to tax relief. Chairman Bonnen has proposed a $4.9 billion tax cut plan, which is comprised of a cut in the sales tax from 6.25 percent to 5.95 percent. This would be the first cut to the Texas sales tax in history and would result in an average savings of $172 per year for Texas families. Supporters argue that sales taxes have the greatest impact on economic output and the cut does no harm to school finances. The Texas Association of Business was quick to support the House plan. CEO Bill Hammond was quoted in the Texas Tribune as saying, “It is fair, balanced, and is a winner for everyone.” Opponents are quick to note that this figure is less than the $200 average in the Senate’s plan.
Chairman Bonnen also has proposed a 25% across the board cut to the state’s margins tax. However, in his plan there is no increase in the threshold for paying the tax. This would result in nearly $2 billion in tax breaks for businesses of various sizes. Speaker Straus and Lt. Governor Patrick have taken turns sparing over the merits of their respective chamber’s plans. Speaker Straus questions the Senate’s willingness to spend additional money through the hold harmless provisions without providing what he has termed “noticeable” property tax relief. While Lt. Governor Patrick has been quick to criticize the House for not providing the property tax relief that, he insists the Governor and the voters have called for by electing him.
Two final items are important to note to have a complete understanding of the Legislature’s debate on tax cuts. First, Chairman Bonnen’s plan has yet to make it out of committee and to the House Floor for a vote by the rancorous body; though it is unlikely there will be any dangerous opposition or significant changes to it. Secondly, there is a bill in the Senate that ties spending to population growth and inflation. SB 9 and SJR 2 by Senator Kelly Hancock have drawn praise and criticism from both sides of the political spectrum. SB 9 passed the Senate on April 9, 2015, by a vote of 19 to 12, a nearly party line vote. SJR 2 currently sits on the Senate Intent Calendar.
Transportation & Infrastructure
Headed into the 84th Legislative Session, there was a broad bi-partisan consensus that there needed to be long-term, stable, and sizable funding for roads in Texas. Several plans quickly emerged but only what is referred to as the “Nichols Plan”, has enjoyed rapid success in the Texas Legislature.
The first plan, commonly called the “Nichols Plan” or SB 5 by Senator Robert Nichols dedicates the first $2.5 billion in sales tax collected from vehicle sales directly to the state’s general revenue fund and the next $2.5 billion goes to the state highway fund. This measure passed the Senate 28-2 and currently sits before the House’s Transportation Committee.
Proposition 1 passed in the Fall elections last year, this measure created a first time injection of about $1.7 billion into Fund 6 (Fund 6, which pays for construction projects) then dedicates a portion of monies that would traditionally be destined for the Rainy Day Fund into Fund 6 annually. There are also bills out there that dedicate the taxes paid on oils and lubricants, tires, rental vehicles, and other various transportation related products to Fund 6. However, action on these items is still in its early stages.
SH183 & SH114 CDAs:
The Comprehensive Development Agreements (CDAs) for State Highways 114 and 183 are signed, funded, and complete. Construction on these two projects is about to be underway. You can learn more about this project called, “The Midtown Express” by visiting their website here.
On Education: (A-F)
There are several important items under consideration this session in the education arena. Foremost in this area, House Appropriations Chairman John Otto pledged to fix issues with Texas’ school finance system despite the ongoing lawsuit between the State and hundreds of school districts. The House passed HB 1 (the House’s version of the budget), which included an amendment for an additional $800 million for public education. House Democrats argued that a truly serious fix would require nearly double the $800 million figure. Many expect the Texas Supreme Court to rule later this year or early next on the lawsuit over school finance.
Another major education item tackled by the legislature is Pre-K education. HB 4 adds $130 million in funding for certain quality Pre-K programs. School districts are able to opt in or out of these programs depending on their needs. Republican leaders in the House sought to structure the program this way to prevent what they say could be an unfunded mandate on local districts by making in mandatory throughout the state. House Democrats have called for more money and a more comprehensive Pre-K program throughout the state. Governor Abbott supports HB 4. The bill has moved on to the Texas Senate where it awaits further action.
A final item of note to mention here is the Senate’s plan to create an A–F rating system for public schools in Texas compared to the current rating system that critics charge is convoluted and hard to understand. The Senate passed SB 6 by Senator Larry Taylor in March and it currently awaits action in the House. Opponents of the bill argued that the state needs more action to address the actual problems with under performing schools instead of creating a new system to label them. Lt. Governor Dan Patrick has said that this issue is at the top of his agenda this session.
There are two items of note surrounding the issue of air quality currently before the State of Texas. First, the Texas Senate passed SB 12 by Uresti that creates an incentive and grant program for governmental bodies such as state agencies, counties, and school districts with a vehicle fleet to switch over to cleaner burning fuels (such as natural gas) and install infrastructure for servicing and fueling those fleets. The bill would make $30 million available annually out of the state’s $1 billion+ TERP fund for the program. The second major issue is the lawsuit currently before the U.S. Supreme Court that Texas is a major party to regarding the EPA’s new proposed regulations on pollutants commonly associated with coal powered electric generation. Texas argues that the EPA failed to consider the nearly $10 billion dollar burden placed on businesses, states, and local governments to comply with the new regulations. Industry argues that this would lead to many coal powered electric generation plants in Texas and the U.S. to shut down. The U.S. Supreme Court will rule on this case later this summer.
To date in the 84th Legislative Session, there has been no significant action taken on the legalization of gaming in Texas.
Taxes on Technology:
HB 3927 by Representative Kuempel is a proposed $4 constable technology fee to be paid upon conviction of an offense in a justice court. All revenue from this fee is held by the county to be used for education expenses for constables and their staff on technological enhancements for the office and the purchase and maintenance of technology for their offices such as computers. The Texas Legislative Budget Board calculates that this $4 fee could raise as much as $2.6 million annually for the average county.
There are several pieces of legislation regarding tax abatements for data centers and technology companies as well as tax breaks and incentives for tech startups pending before the legislature. However, no significant action has been taken at this time.
SB 551 by Senator Seliger is the leading piece of conservation legislation in the 84th Legislature. SB 551 directs the state’s Water Conservation Advisory Council to provide specific legislative recommendations with their annual report to the Governor and Legislature. The Water Conservation Advisory Council is a 23-member council comprised of representatives from various state agencies, industries, and water user groups. SB 551 passed in the Senate and it is expected to pass in the House. SB 551 is strongly supported by the Texas Association of Business and by the Texas Association of Manufacturers.
Water Project Permitting:
HB 1865 by Representative Morrison and SB 709 by Senator Fraizer are companion bills. Both these pieces of legislation would shift the burden of producing evidence from the applicant to the complainant in contested case hearings on applications with the Texas Commission on Environmental Quality (TCEQ) for air quality; water quality; municipal, industrial and hazardous waste; and underground injection permits. The bill would also limit the issues that may be referred to the State Office of Administrative Hearings to the factual disputes actually raised by “affected persons.” Finally, it would limit the time for a contested case to no longer than 180 days from the date of the preliminary hearing. Because the bill would streamline face value demonstration requirements, experts and state officials expect that these bills could reduce the time needed for hearings and for the preparation of permits for projects in Texas. HB 1865 and SB 709 have been heard by their respective chamber’s natural resource committees and await further action. Texas Association of Business supports both these measures.