Finance & Revenue

Keeping up with technology is hard. It’s harder for laws. Bills to tax e-cigarettes are swirling around the country, let’s look: 

• Utah looks to gain $10M in revenue by taxing e-cigs
  • The debate notes that nicotine replacements (gum, patches) are not subject to excise taxes
• Minnesota taxes e-cigs
  • By taxing them like packs at $2.90 
• North Carolina taxes e-cigs
  • By taxing the liquid nicotine at the rate of 5-cent per milliliter 
• In 2014, these states introduced tax legislation for e-cigs: Delaware, Hawaii, Indiana, Kentucky, New Jersey, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington
  • Indiana will tax e-cigs like cigars and impose a licensing requirement on stores that sell e-cigarettes
  • Washington state wants to raise traditional cigarette pack tax and tax e-cigarettes to generate $56M in revenue
• Michigan Governor last week vetoed an e-cig tax because it wasn’t harsh enough

What would be the potential impact?

• Close small businesses that sell e-cigarettes
• If the price is driven up, tobacco, which is cheaper, would see a sales boom

What are the tax trends?

• Tax e-cigs like cigarette packs
• Tax e-cigs like cigars
• Tax e-cigs like nicotine patches or gum
• Tax liquid nicotine, but not the e-cig device
• Tax the business that sell e-cigs by imposing business licensing requirements.

Governing

What received incentives?   Wade Park mixed-use development

Where is it located? Frisco

Which incentives were granted? Local sales and ad valorem tax grants + infrastructure improvements which will be paid through the Frisco Economic Development Corporation and the Frisco Community Development Corporation. The details:

City sales tax grant (half of the city’s 1 percent sales tax collected from the property): $30 million

City ad valorem tax grant (50 percent of the ad valorem taxes collected from the portion of the property dedicated to a mixed-use development of retail, commercial, hotel, multifamily): $60 million

Frisco EDC qualified infrastructure (half of the EDC’s 0.5 percent sales tax revenue generated from the property): $15 million

Frisco CDC qualified infrastructure (half of the CDC’s 0.5 percent sales tax revenue generated from the property): $15 million

City waiving reimbursement costs (costs owed to city from developer for building Lebanon Road and Parkwood Drive): $1.25 million 

Frisco EDC building John Hickman Parkway (EDC will build John Hickman from the tollway to Parkwood): $1.5 million

Total incentive package assuming all performance measures are achieved: $122.75 million

Dallas Morning News RECON @ the Texas A&M Real Estate Center

SJR 9 by Van Taylor would move the ball toward legislative approval of rule making.

Sound far fetched? It’s not.  Other states are doing it:

• 59 % of Arkansas Voters approved it this past November. 
• Utah does it. 
• Idaho tried. 50.59% of voters opposed it. 

A quick, non-exhaustive, list of contentious Texas rule making issues:

• The Railroad Commission common carrier rule making, which is a fight over eminent domain.
• The Racing Commission rule making on historical racing terminals, a fight currently waged in Texas Courts. 

An area heavily dependent on oil and gas, Eagle Pass ISD,  had their A+ bond rating affirmed by Fitch Ratings.

Good News for stability in lending.  Business Wire

Tea Party wants to reign in state and local debt to increase government finance transparency. It’s on every other op-ed/press release. Dallas Morning News examines whether lower oil prices affect Texas debt and equity markets.

• Short answer- don’t know yet.
• Best answer- so far; there’s no sign of an impact on lending.
• Concerning Answer: money people are talking about it. 

It’s a toss up whether underwriters will increase scrutiny on debt and equity markets in Texas after lower oil prices. The pros & cons:

• Con: Knee Jerk Reaction:
  • “There is a knee-jerk reactions to do that,” said Stuart Wernick, senior vice president of Dallas-based Berkadia Commercial Mortgage LLC. “I was in Miami last week at a conference, and two guys came up to me telling me, ‘You are in Texas, right? It’s going to be tough.’  “They said they are going to be more stringent in their underwriting.”
• Pro: No Current Impact: 
  • Anne Raymond, managing director of Crow Holdings, said investors will be discerning in their evaluation of the nuances of Texas’ real estate markets.

    “Of course, it is very early to understand the implications of the falling oil prices,” she said. “To date, however, we have experienced no concern from lenders and equity partners for deals in Austin or Dallas.

• Con: All of Texas is the Same:

  • “People lump the whole state together in terms of energy,” said Mark Dotzour, chief economist at the Real Estate Center at Texas A&M Univeristy. “Some underwriters may scrutinize loans in Texas more.

    “There are a lot of people who only read the headlines, and if they do, they will think Texas is in trouble.”

Dallas Morning News

Pension Systems have diverse investments. CALPERS, California’s state retirement system, has some land investments.Very valuable land in the middle of Sacramento. Land that would make for an ideal Sacramento Kings arena.

CALPERS says the land’s value is $12.5 Million. It has a fiduciary duty to protect the financial integrity of its retirement system. The City of Sacramento finds this value millions too high.

Sacramento Bee

Governor Sandoval (R-NV), who gave up his federal judgeship to run for state office, is proposing a gross receipts tax. The details of his proposal:

• $570 million tax-increase package
• Gross receipts tax that would cost businesses from $400 to $4 million.
  • Greatest burden on businesses grossing over $1Billion
  • Currently businesses pay a $200 business license fee
• Also in the Governor’s tax proposal:
  • Cigarette taxes go up to $1.20 from $0.80
  • Slot machine route operators would be taxed like casinos
  • Increase the mining payroll tax to 2%, up from 1.17%     Las Vegas Sun

Tesla’s new Nevada plant will be near one the largest lithium mines, which its cars require. Reno Gazette Journal

Only 11 states have funded more than 10% of retiree health care liabilities. Thank you to Standard & Poors for tracking the data.

The potential lingering debt liabilities do not grow rosier if we look locally. According to a study by Pew Charitable trusts only 8 of the largest 30 cities fund 5% of retiree health benefits.

These health benefits fill the gap before medicare kicks in for the retirees. If state and local employs retire in their 50s, it could be 15 year of health benefits.

GASB saw the problem. 2014 GASB rules require that governments show these unfunded liabilities on their balance sheets. 

Suggested reforms:

• Link health-care to the number of years of service, above a threshold.
• Apply new reductions in health-care benefits to new or younger workers, while not impacting the health benefits of retired employees.

Wall Street Journal Opinion of Robert Pozen, Harvard Business School

LBB answers questions about the mysteries of fiscal notes:

Speaker Straus announced that the House budget will include provisions that require contracts with an agency or institution of higher education to meet new requirements. 

Which Contracts are affected?

• Contracts over $10 million,  or
• A contract or purchases over $1 million that didn’t go through a competitive bidding process.

What are the new contract transparency requirements?

• Notification, within 30 days, will be required to the following: 
  • ​ Legislative Budget Board
  • Governor
  • State Auditor
  • chair of the House Appropriations Committee
  • chair of the Senate Finance Committee and
  • chairs of any other committees with jurisdiction over contracting 
• Information about the nature of the contract and the vendor awarded it.
• Certification by the agency’s executive director that:
  • They complied with the state’s Contract Management Guide, State of Texas Procurement Manual and all applicable laws.
  • And, if they did not, why, with a legal justification.
  • A certification by the agency’s executive director that the agency can verify vendor performance and deliverables, payment of goods and services only within the scope of the contract, and other information.
• The LBB becomes the enforcer.
  • LBB must sign off before the Comptroller will release funds. 

Speaker Straus Press Release

8 Reasons why the Gas tax Should be abolished:

• Cars are more efficient, eroding the projected growth of the tax 
• Purchasing Power of the Gas Tax has slipped
• Diversions
  • 1/4 the federal gas tax is diverted to:
    •  mass transit in 6 metro areas &
    •  other programs:  street cars, ferries, sidewalks, bike lanes, hiking trails, urban planning and  landscaping nationwide
• Federal spending on “other programs”  has increased 38% since 2008, while highway spending is flat.
• Texas recovered only 88 cents of every dollar
• 7 states and Washington, D.C. eceived more than twice as much.  
• “States can build cheaper in any case, since the Davis-Bacon prevailing wage rules and Buy America procurement provisions that accompany federal funding don’t apply.”

WSJ

If you want people to read interim committee reports, make them interesting. That’s exactly what the House Committee on Economic and Small Business Development did. 

The committee handled hot topics, sifted through detailed audits, and successfully managed to entice people to read their report. Kudos.

The report’s big picture: Texas needs economic development incentives.  But, we’ve got to do it right, and do better with accountability and transparency. In the midst of its clever approach, the committee makes serious recommendations, including establishing specific accountability measures for each fund. 

Houston Chronicle covered the report’s popularity.

House Committee on Economic Development 83R Report

An economic analysis of SB 276, by Campbell, creating the Taxpayer Savings Grant Program, providing grants for private school tuition reimbursements, lists the following economic benefits of the bill:

• Increased GDP 17-30% over 25 years
• Increased property values by 20% or more
• Boost the economy with an increasingly educated workforce
• 560,000 and 985,000 new jobs 

 TPPF

The House Select Committee on Economic Incentives released its interim report calling for consolidated economic development funds with more oversight and more transparency. if this were a court opnion, it’d be a plurality. What everyone agreed on- the auditor reports were spot on, transperancy and accountability can be improved.

Multiple State Auditor reports referenced in the report and the letters of the 4 members, who added their own take to the report.  The Auditor Reports:

Enterprise Fund Audit | September 2014 | Need more Checks & Balances | SAO 15-003 

Emerging Technology Fund Audit | April 2011 | Consistency, Transparency & Accountability |  SAO 11-029   

313 Economic Development Act Audit | November 2014 | Trust, But Verify (Information)| SAO 15-009

The laundry list of reasons this Bloomberg View piece says, “Oil May Not Mess With Texas:”

• “Energy is only 11 percent of Texas’ economy.”
• “In the decade and a half after 1986, Texas’ economy grew by 118 percent, while the mining industry (which includes oil and gas) grew only 18 percent.”
• “Texas actually exports more high-technology goods to other countries than does California.”
• Young population
• Favorable regulatory climate
• Low Taxes
• High job growth in:
  • professional services
  • technology
  • health care

Bloomberg View

As part of an economic development deal with the City of Houston, Valero’s refinery within Houston’s city limits was de-annexed. Thereby, Valero has a lower property tax burden. Information Intelligence

Empower Texas reacted, like this:

• “allowed to skirt around Houston’s property taxes”
• “Essentially this means that city hall could reduce property tax on any Houston homeowner, but they chose Valero.”
• “While the average homeowner in Houston could benefit from a property tax break, developers are using theirs to build lavish lofts.”
• “Reports show the city’s deficit is growing and it seems that there is no effort from city hall to curb the growing debt. Rather than taking away tax-breaks from businesses to increase inflow, City Hall chooses to increase rates on taxpayers.”  

Empower Texashttp://www.empowertexans.com/around-texas/bayou-city-favors-big-business-over-taxpayers/

After the Comptroller announcement that there will be a surplus of $7.5billion, TPPF issued a press release with these highlights:

• A surplus shows Texans are taxed too much
• Calls for substantial tax relief
• TPPF and 13 organizations have called for a conservative budget,  limited to no more than $217.1 billion (The Comptroller estimates of all funds available is $220B)

TPPF Press Release:

FOR IMMEDIATE RELEASE
January 12, 2015

TPPF Statement on the Texas Comptroller’s
2016-17 Biennial Revenue Estimate 

By effectively prioritizing state spending, the Legislature
will have sufficient funds to provide substantial tax relief. 

AUSTIN – Today, Texas Comptroller Glenn Hegar released the report Biennial Revenue Estimate 2016-17 that provides the 84th Texas Legislature with an estimate of revenue likely available to appropriate for the next two-year budget. Given the state’s constitution requires a balanced budget, this report sets the stage for how much legislators have available for spending and tax cuts in the 2015 Legislative Session that starts tomorrow.
 
The report shows that there will likely be $113 billion in general revenue-related funds available. This amount is calculated from a $7.5 billion surplus at the end of the current 2014-15 fiscal period plus general revenue-related funds of $110.4 billion during the 2016-17 budget period less $5 billion in transfers to the state’s Rainy Day Fund and State Highway Fund. The estimated amount of total funds available, including state and federal funds, is $220.9 billion.
 
The Foundation’s Center for Fiscal Policy Director Talmadge Heflin issued the following statement:
 
“With another surplus expected during the current budget period, Texans are clearly taxed too much,” said Heflin. “Despite economic concerns over the steep drop in oil prices, today’s revenue estimate for the upcoming two-year budget period shows that there will be sufficient revenue available from continued economic growth to cover core government functions and provide substantial tax relief.
 
“The Texas Public Policy Foundation and 13 other organizations have called for the Texas Legislature to pass a conservative Texas budget. This conservative budget would limit the total budget to no more than $217.1 billion providing legislators with room for tax relief. To sustain the nation’s economic and job creation engine that has provided opportunities for Texans to prosper, legislators should work to eliminate the margin tax as they limit the growth of the state’s budget.”The Honorable Talmadge Heflin, Director of the Center for Fiscal Policy at the Texas Public Policy Foundation. In the 78th Session, Heflin served as chairman of the House Committee on Appropriations and navigated a $10 billion state budget shortfall through targeted spending cuts that allowed Texans to avoid a tax increase.

The Texas Public Policy Foundation is a non-profit, free-market research institute based in Austin, Texas.

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The Numbers:

• $7.5B beginning balance for 2015 Lege
• $110.4B General Revenue Collections
• $113B for general purpose spending

Comptroller Hegar Comments on Economic Forecast:

2016-2017 Biennial Revenue Estimate   Comptroller One Pager: Why it Counts Comptroller Press Release

TPPF on the margin tax: “The margin tax is an inefficient form of taxation that presents both a financial and compliance burden on small businesses and the Texas economy. “

It’s recommendation for margin tax reform in 2015 include:

• 1. Use the budget surplus to quickly buy down and eliminate the margin tax. 

​  TPPF

TPPF’s pension, local & state, related recommendations:

Valero operates a large refinery within the city limits of Houston. It’s the only refinery within the city limits. To ensure an $800Million expansion in Texas, isn’t replaced by a  move to Louisiana, Houston City Council is voting to redefine the location of the plant.  

The reported tax deal is:

• Valero will pay a projected $37.7 million in fees under the 15-year deal,
• Roughly $10 – $18 million less than if the refinery remained in Houston and paid property taxes

Residential property tax activists are not pleased. Houston has hit the revenue cap, and if the revenue cap remains static, then there would no revenue impact to the city.  Houston Chronicle 

The updated forms:

• Texas Economic Development Act Agreement (Form 50-826)
• Biennial School District Cost Data Request (CDR) (Form 50-827)

The corresponding rule changes for the updated forms were published for comment in the 1/2/15 Texas Register. 

Dynamic fiscal modeling is often heralded as necessary by fiscal conservatives in Texas. This week the U.S. House adopted a rule to require dynamic fiscal models.

The benefits of dynamic modeling:

• More favorable for tax cuts
• Includes broad economy  impacts ( think: rates of inflation and employment)
• More comprehensive view of a bill’s impact on the federal budget.

The Hill NYTimes

WallStreet Journal reports on the effect of declining oil prices on Texas Economy:

“Richard Fisher, President of the Federal Reserve Bank of Dallas, says the Lone Star state may have expanded into other industries enough to ward off a downturn. “This is a test,” Mr. Fisher said. “Is Texas indeed as diversified as people like me say it is?”  WSJ Energy Journal

Two conflicting Texas federal court rulings on whether property tax lending will impact the future of their business. Under state law is it an extension of credit or not?

• Senior U.S. District Judge Harry Lee Hudspeth ruled that property tax loans are an extension of credit governed by the federal Truth in Lending Act (TILA).
• U.S. District Judge Orlando Garcia ruled that allowing property taxpayers to defer the payment of their property-tax obligations doesn’t amount to an offer of credit, so the transactions are not subject to TILA.

According to Empower Texas, 52% of the gas tax is diverted and tolls are back-end taxes.  Their proposal is: 

“Republican leadership must push stricter, constitutional limits on total spending growth that can’t be gamed.”

Empower Texas

Last year California produced 3.5 million gallons of olive oil. Texas produced 15,000 gallons of olive oil. 

The US is one of the world’s largest consumers of olive oil, and it imports 97% of the olive oil consumed. There’s a market as California has learned. 

“Olive farming isn’t going to provide huge numbers of jobs,” said Tunstall, research director at the Institute for Economic Development at the University of Texas at San Antonio. “But it offers some specialization.”

Bloomberg

Environment Texas supports economic incentives for solar power based on these facts:

• Solar is currently the fastest-growing industry in the country
• In 2013 it  added 143,000 jobs nationwide.
• Employs 4,000 people in Texas
• Is on its way to providing 20% of Texas power.

Houston Chronicle 

Governing Magazine looks at the tax interests of  Texas legislators; Phil King; Craig Estes;  Dan Patrick; Greg Abbott. Highlights: 

•  “Making sure that government tightens its belt will be a — if not the — priority of the session,” says Phil King, national chair of the conservative American Legislative Exchange Council.
• On Business Taxes:
  • Greg Abbott, the incoming governor, has expressed support for modifying or eliminating the business franchise tax, which accounts for 10 percent of the state’s revenues. “The question is, can we afford to get rid of it?” says state Sen. Craig Estes. “We’re crunching the numbers and I think the answer is yes.”
• On Property Taxes:
  • “Maybe so, but there’s competition for those dollars, even among tax-cut true believers. Lt. Gov. Dan Patrick, who presides over the state Senate, is more interested in reducing the burden on property taxpayers than on businesses.”
• On Transportation Funding:
  • “Texas voters approved a measure that will redirect a share of the state’s energy revenues from its rainy day fund, devoting them to roads instead. That is expected to increase the state’s infrastructure budget by $1.7 billion in 2015 alone. But given increasing demands, “that gets us only halfway, at best, to where we need to be,” says King. “We’re probably still at least a couple billion a year short on transportation funding, and that’s a conservative estimate.”   Governing

To expand Medicaid, Arizona Governor Jan Brewer proposed a fee on hospitals. It passed. 36 Republican legislators sued claiming the hospital fee was really a tax, triggering a required 2/3 vote by the Arizona Legislature.

 An Appellate Court allowed the suit noting that the legislators have a constitutional right to support the efficacy of their votes. If the 2/3 vote was required, the legislators purport the measure would have failed.  

Courthouse News Service

Last week the Joint Select Committee on Economic Stabilization Fund Balance set the fund’s floor at $7Billion. Panola Watchman

The LBB presented materials on the background and composition of the Rainy Day Fund (AKA Economic Stabilization Fund). This LBB document gives you:

• 1 slide history of the Rainy Day Fund
• A chart detailing which funds go into the Rainy Day Fund
• Estimates for Rainy Day Fund
• History of Transfers to the Rainy Day Fund
• The votes needed to access the fund: 2/3 present for any purpose; 3/5 present in other situations (depends on which portion of the TX Constitution you reference to get to the funds)

LBB

Local governmental entities can approve extra sales tax for economic development purposes, which Ray Perryman says has “enhanced the performance of the state economy.”

Perryman lists 3 reasons Economic Development Corporations, funded by this sales tax, are key to Texas economic growth: 

• EDCs increase job opportunities
• EDCs increase business investment, and
• EDCs increase tax receipts. 

Perryman lists 5 factors as to why an array of economic development options are crucial:

• Increase in labor and capital mobility 
• More sophisticated site selection process
• Increasing globalization
• Higher public scrutiny for businesses in debt and equity markets
• Use of site selection consultants

Midland Reporter Telegram

Greater Houston Partnership Annual Report says 62,900 new jobs will come to the Hosuton Area in 2015. Any losses in oil production jobs will be offset by petro-chemical jobs increasing. 

GHP Employment Forecast Press Release: Greater Houston Partnership  Click 2 Houston 

Take aways from a Conroe forum featuring Senator Nichols and Representative-Elect Metcalf:

• $3.5Billion can be added to road funding by dedicating vehcile sales tax to TXDOT
• Cut unnecessary spending 
• To offset the hit to general revenue from dedicating the vehicle sales tax, Metcalf is quoted as saying “Our plan is to add 10 percent of the funds to the road funds over a 10-year span.”

[The Courier of Montgomery County]

TPPF supports tax liens as a tool for maintaining homeownership.

To support their positions, TPPF points to:

•  Tax lien transfers “do not impose a new obligation on property owners.”
• “Instead, the transfers offer them a way to restructure an existing debt…” [Statesman]

Beaumont editorial details additional costs needed in public education and transportation, but concludes by calling on the Legislature to return the budget surplus to the taxpayers. [Beaumont Enterprise]

[LBB]

Ray Perryman offers 6 reasons our economy has been strong:

• Technology sectors,
• Incentive programs,
• Texas’ workforce,
• Texas’ location,
• Texas’ cost structure,
• ” But the oil boom above all of that is really what has created so much additional momentum for the state,”

[KSAT 12 ABC]

The Texas Supreme Court has upheld the pole tax just in time for the holidays. [TX Tribune] [TX Tribune via San Marcos Mercury] [1200 News Radio WOAI] [Law 360]

Previously on Information Intelligence: Is the $5 entrance fee to Strip Clubs an Occupation Tax? Whose Occupation- the bouncers? the dancers? the janitors?  

Whoever said tax law was boring, hasn’t been paying attention. The Legislature nobly passed this tax to increase funding to  domestic violence prevention programs. But, since it passed the Legislature in 2008, this tax is a lesson in litigating tax laws.  

First, the Texas Supreme Court says in 2011 we may have a first amendment violation of free speech. The case gets sent back to the trial court to look at it again. Back through the courts we go for 3 more years. Now the courts say so long to the first amendment, and hello occupation tax. Wait, if its an occupation tax, we have to allocate 25% to public education, scratch that analysis. Definitely not an occupation tax. It’s just a tax. Definitely no first amendment problems, thanks to a U.S. Supreme Court ruling. But, wait folks, it’s not done yet, we still have the Texas Supreme Court to give its final word. [Third Court of Appeals] [Texas Tribune]

The official press release lists the group’s website as www.fairtaxesfortexas.com. [PRNewswire]

Previously on Information Intelligence:  TAB, Realtors Join Forces to Stop Sales Price Disclosure

Texas Association of Business and the Realtors are joining forces to oppose mandatory sales price disclosure. The group will be called Coalition for Equal and Uniform Taxation, and will also include: 

•  North Texas chapter of NAIOP
• Texas chapter of the International Council of Shopping Centers
• Texas Association of Builders
• Texas Self Storage Association
• Texas Hotel & Lodging Association have formed the 

Sales price disclosure has been supported by county appraisers.  [Austin Business Journal] 

In sharp contrast to the Dallas Morning News editorial supporting tax incentives, the Beaumont editorial leads with “Economic speculation isn’t good fit for Texas school districts.” The editorial goes on to call the audit “disturbing.” [Beaumont Enterprise]

Add the Tyler Morning Telegraph editorial board to those supporting reforming or ending the margins tax.

The editorial relies on TPPF data, and says either Sen. Estes’ bill to eliminate the margins tax or Sen. Schwertner’s bill to increase the deduction to $5 million would be an improvement. [Tyler Morning Telegraph]

The State Auditor released a report looking at 313 tax abatement agreements. The auditor made recommendations below. Dallas Morning News supports Texas being in the game, offering tax incentives, but supports monitoring of tax incentives and abatements. 

— Requiring independent verification of information that businesses provide to school districts on job creation and investment pledged as part of a tax break deal.

— Requiring school district officials and employees to disclose annually any potential conflicts of interest with the tax break agreements.

— Require the state comptroller’s office to obtain and post on its website copies of tax credit applications from school districts that granted credits.

— Require the comptroller to define performance requirements school districts must include in tax break agreements with businesses and require districts to review compliance annually.

[Dallas Morning News]

New TPPF publication: Tax Lien Transfers: A Reasonable Means of Rectifying Property Tax Obligations.

Big picture, in TPPF’s words:

• Tax lien transfers offer Texas property owners a reasonable and cost effective means of rectifying their tax obligation
• The demand for tax liens is driven in part by the Texas’ overreliance on property taxes as a main source of public revenue. 

• Denying Texas property owners access to tax lien transfers will not eliminate demand but merely push them into an expensive delinquency process. [TPPF]

• TPPF: Should have gone with a lower rate 
• Statesman: “Texas budget board picks lowest spending cap”
• Breitbart: Texas budget board picks lowest spending cap
• Texas Tribune: Texas Leaders Adopt Spending Cap for Next Budget
• Dallas Morning News Trailblazers:  State leaders set tighter spending limit than required, rebut critics on the right
• The LBB documents: [The LBB Motion and Vote] [Revenue Documents: How do Tax Revenues Break Down by Tax] [Revenue Estimator’s Report: Fiscal and Economic Conditions]

TPPF highlights:

• LBB vote reflects a rate of growth of 11.68% on personal income
• TPPF recommends a 6.5% limit on the growth of the entire state budget
• TPPF supports its recommendation with:
  • total spending is up 13.4 percent
  • support for “…match[ing] spending growth with Texas families’ ability to support it by limiting the increase in appropriations to population growth plus inflation.”  [TPPF Press Release]

LBB met on Monday to set the revenue limit for the 2015 legislature at $94,267,654,158.   

[The LBB Motion and Vote] [Revenue Documents: How do Tax Revenues Break Down by Tax] [Revenue Estimator’s Report: Fiscal and Economic Conditions]

A Texas A&M study found that the economic activity generated from state parks is an estimated: 

Texas Association of Business and the Realtors are joining forces to oppose mandatory sales price disclosure. The group will be called Coalition for Equal and Uniform Taxation, and will also include: 

•  North Texas chapter of NAIOP
• Texas chapter of the International Council of Shopping Centers
• Texas Association of Builders
• Texas Self Storage Association
• Texas Hotel & Lodging Association have formed the 

Sales price disclosure has been supported by county appraisers.  [Austin Business Journal] 

House Select Committee on Economic Development Incentives will soon release its report on economic devleopment programs. Economic development dominated conversations this fall, especially as oil prices fall. 

2 state auditor reports have been published within months of each other,  and an audit from a few years ago has found new life as Texas determines how to keep its economic engine alive and kicking.

• Late August release of the SAO report on the Enterprise Fund [SAO]
• November release of the SAO review of 313 Programs [SAO]
• 2011’s SAO review of Emerging Technology Fund [SAO] 

As we near the release of the report from the House Select Committee on Economic Incentives, let’s look back at the State Auditor Report on the Enterprise Fund. The SAO report sparked the newsclips which purport that funds were awarded without adequate application, or in some cases, any application. [SAO]

What’s more important than job growth to Texas economy? Research.

That’s according to noted economist Ray Perryman. Quality research leads to quality education with leads to a quality, educated workforce. It’s a chicken and egg situation. [Perryman Group, ” US Energy Workforce”] [Corpus Christi Caller]

Fuel Fix notes two recommendations from State Auditor Keel regarding Chapter 313 Agreements: 

• Require independent verification
• Set tighter policies on school board members and district employees who handle tax break applications.  [Fuel Fix] [SAO Report]

313 Tax Abatement Agreements allow school districts to affect the taxable value of appraised property to ecourage capital investment and jobs creation.

On Friday, the Sate Auditor released a report directing attention to the self-reporting required under Tax Code Chapter 313. [SAO]

At a Tea Party candidate forum this weekend, SD 18 candidates were asked about whether their businesses participated in any RFP process.  [Big Jolly Politics]

Furgeson, Missouri has challenges. Add to the list of challenges, declining sales tax revenues due to protests. The month protests began, sales tax revenue fell by nearly 25%. [Washington Post]

TPPF proposes eliminating the property tax, swapping it for a broad base sales tax at a rate of 11%. TPPF points to a report by economist Art Laffler. The economic benefits listed in the report incude: 

• personal income would likely increase by at least $23 billion during the five years after the swap compared with the current tax structure.
• create more than 200,000 net nonfarm jobs during this five-year period

[TPPF]

New Jersey needs more funding for transportation. Its a common refrain. New Jersey has the nation’s 2nd lowest gas tax at 10.5 cents. 

New Jersey has a Transportation Trust Fund, but the funds  go to pay transportation bond debt. Sounding familiar?

To fill transportation funding gaps, NJ raised its toll prices. It’s not enough.

The head of the Assembly’s Transportation Committee wants to increase the wholesale gas price. The cost to people in NJ will be about 80cents per day, but it will raise $1.25 Billion per year for transportation funding.

A couple weeks ago there was an election, and a lone Republican Governor lost his re-election bid in Pennsylvania’s. He had signed a nearly 30 cent increase in the gas tax. That’s on Chris Christie’s mind as NJ grapples with funding transportation. [NorthJersey.Com]

Add the Marketplace Fairness Act to the list of things US Senator Ted Cruz opposes. He calls it bad for consumers and for small start ups. Marketplace Fairness would allow what Cruz labels an internet sales tax. Speaker Boehner calls it DOA in his chamber. 

Brick and mortar retailers think it will level competition. Supporters include: National Governors Association, National Retail Federation and Alliance for Main Street Fairness.

An Alliance spokesperson said, “The Texas small business community, tea party leaders, and state legislators support e-fairness because it closes loopholes, protects the free market.” [Dallas Morning News]

Refreshing Recollection: Texas House Ways & Means had a hearing about it in October. 

A major state univeristy system has two arguments against complying with state transparency laws:

• Our university is a lot more than just a budget. Your laws cannot pigeon hole us.
• Our univerisity collects its revenue information in a different format, so we can’t really answer your questions accurately. So, we’ll just not comply.

The university’s positions sound like legalese. It’s also like when my dog eats the cat food, looks innocent like he has no idea what happened, while he has cat food crumbles stuck in his wrinkles.

The University- University of California System. [SF Gate]

Americans for Tax Reform sent a letter to members of the 2015 Texas Legislature urging members to:

• “Rein in the unsustainable trajectory of state spending, which can be accomplished by instituting a true and unbustable state spending cap; and
• eliminate the state’s business tax, otherwise known as the margin tax.”

  Grover Norquist urges legislators to follow TPPF’s advice. He points members to the TPPF publication, The Conservative Texas Budget.

[Americans for Tax Reform]

Property Tax Relief and Santa Claus are both on their way to Texas. Whether one or both are real is a bigger question. Senator Bettencourt filed SB 182 to cut the tax rollback rate in half.

The Senator’s words:

“If property appraisals go up, tax rates should come down; otherwise property tax bills will continue to go through the roof. In this example, a 5 penny tax rate cut means that homeowners and business owners would both get the same tax relief because the taxing jurisdictions would have to keep their rates below the new, lower rollback tax rate limit.”  [Breitbart]

San Antonio Express News Business Writer and Columnist David Hendricks declares the Legislature will act on a business tax bill.

Week #1 of prefiling offers plenty of business tax bills to choose from- repeal the margins tax, reduce the rate of the amrgins tax, increase the exemption to $5 million, phase out the margins tax,  and/or add in new exemptions.  [San Antonio Express News]

Milwaukee Bucks need a new stadium. An option is taxing the income of professional atheltes and stadium workers. It’s creative tax revenue usage. [AP]

Louisiana, like other states, envies Texas ability to draw major sporting events. Credit goes to Texas’ Major Events Trust Fund, which has, as of April 2013, contributed $277 million to lure big events. Other states want to be Texas. Imitation is the highest form of flattery. 

Some of the events Texas has hosted because of the Major Events Trust Fund:

• Houston hosted the Final Four in 2011 and will again in 2016.
• San Antonio will host the 2018 Final Four. 
• North Texas will host the first CFP championship in January and why it hosted the 2014 Final Four.
• Arlington hosted Super Bowl XLV in 2011.
• San Antonio hosted the 2008 Final Four.
• Dallas hosted the 2010 NBA All-Star game.

[New Orleans Times Picayune]

Property tax lenders are facing lawsuits from homeowners. Lawyers are on all sides of this issue- inside and outside. From the article:

“They are trying to create a different definition for what their loans are,” Texas Bankers Association general counsel John Heasley said of the companies. “Factually, you would have to say these are real-estate-backed loans and . . . that they have a lien backed by the property itself.”

[San Antonio Express News]

Senator Estes is the focus of a Breitbart piece on his SB 105. Some highlights:

• The Texas margins tax is “one of the most destructive taxes on corporate and small businesses in the country,” according to Scott Drenkard, an economist for the Tax Foundation.
• “The margins tax is anti-business, anti-worker, and anti-consumer,” Estes explained
• “The margins tax is the most disagreeable tax on business that we have,” Bettencourt stated in a phone interview with Breitbart Texas. “Anything we can do to reconsider this is a good thing.” [Breitbart]

Estes colleagues also filed legislation to wind down or repeal the franchise tax, including Reps, Murphy & Leach and Senators Perry & Huffines.  

Transportation Funding, including fuel tax increase options, are being bandied about in IA, MI, MN, WI, NJ, SC… just to name a few.  

The Owner-Operator Independent Drivers Association supports increasing the fuel tax. It says that its fair and efficient, as long as the additional revenue goes to transportation projects. [LandLineMag]

The margins tax is on the Legislature’s Most Wanted List.  In week 1 of pre-filing bills for 2015, 7 bills to gut the tax have been filed.  The texas manufacturers, thinking proactively, urge caution.  

From the Manufactuers: “TAM believes the Texas Franchise Tax is a fair system that provides necessary revenue while allowing all businesses to share in the cost of running our state,” the group said in a separate position paper on the franchise tax.” [Dallas Morning News | Trailblazers]

Day #1 of pre-filing resulted in 371 bills filed. For those keeping score, that’s the 3rd highest bill filing volume for the first day of pre-filing. 

Tax bills are high on the popularity list.  It’s a veritable smorgasbord of tax bills: 

• HB 52 and HJR 30 Homestead exemptions
•  HB 79 Exemption from sales and use & franchise tax during a business’ initial operation in Texas 
• HB 82 Let’s amend the sporting goods tax
• HB 83 Addressing taxes for harvesting trees for wood
• HB 84 Tax computation for harvesting trees for wood
• HB 85 SB 140 Taxes on farm and ranch GPS equipment
• HB 103  HB 105 & SB 31 Tax free sales and auctions for firefighters and emergency service groups
• HB 128 Exempting certain mineral intersts from ad valorem taxes
• HB 129 Let’s talk about what Texas does with its motor vehcile taxes
• HB 133 Fixing how Texas taxes open space land categorized as agricultural
• HB 151 Create a tax exchange for miles driven & fuels taxes
• HB 157 Municipal sales Tax Rates
• HB 158 How to use the sports goods tax revenue
• HB 193 SB 105 SB 138  Phase out/ repeal the franchise tax
• HB 202 Limit the use of motor vehicle sales tax and rental vehicle sals tax revenue
• HB 203 Limit the use of revenue from taxes on tires and auto parts
• HB 206 Sales tax holidays for guns and unting supplies
• HJR 27  HJR 28 HJR 29 HJR 36 SJR 12The Constitution and transportation related revenues
• HJR 33 and HJR 39 the Constitution and Sporting Goods Taxes
• SB 52 Reduce the franchise tax rate
• SB 61 Allocation of transportation related revenues
• SB 71 How to tax privately owned park land
• SB 80 Review and report on tax exemptions
• SB 134 Increase the franchise tax revenue exemption to $5M
• SB 156 SJR 14 Limit appraised values on homesteads
• SB 157   Sales tax holiday for textbooks

KTRK talked to Senator-elect Bettencourt about property taxes. His changes to the property tax system: 

• ” We need to force tax rates to come down (as values increase) and it’s easy to do it’s called a rollback tax rate limit,” 
• Cut a couple of hundred dollars off the next tax bill.
• Potentially use the state’s rainy day fund to further lessen the tax burden on homeowners and businesses. [ABC 13 KTRK Houston]

New Jersey proposes to fix a transportation funding gap with a “portion of the sales tax people are already paying for the electricity, hydrogen and natural gas they need to power their alternate fuel vehicles.”

It’s a method to capture a psuedo-gas tax from vehicles that do not rely on fuels in the gas tax.  [NJ 101.5]

Are state revenues being put to their highest and best use? That’s a common Tea Party refrain.

Fiscal conservatives will look at today’s State Auditor Office report on ERS’s HealthSelect Plan Contract and think- are we getting what we’re paying for? [SAO Report 15-007]

The Tax Foundation released its annual ranking of the best business tax climates. Texas is #10. Texas is the largest state in the Top 10. [Get Informed on11/ 4 /14]

Empower Texas outlines why Texas is not #1. The answers: local debt & more. What did Texas do wrong? Here’s the list:

• Texas Economic Development Act
• Texas Enterprise Fund
• Franchise Tax
• 26% increase in spending by the 2013 Legislature
• Texas has the 2nd highest local debt per capita in the nation [Empower Texas]

November Revenue Estimates are available. Sales tax revenue in October was $2.41 billion, a 12.9% increase over October 2013.

Revenue Estimates for the numbers junkies: [Texas Transperancy] and for the people who like words: [Comptroller Press Release]

On Tuesday, California voters approved stronger Rainy Day Fund protocols. A day later, Standard and Poors upgraded California’s credit worthiness to A+. California remains the most indebted state in the nation.  [Bloomberg]

69% of Californians voted to bolster their Rainy Day Fund. Governor Brown (D-CA) chaampioned the measure. that will require the state to move the following funds to the Rainy Day Fund:

• 1.5 percent of general-fund revenue each year; and
• capital-gains taxes that exceed 8 percent of the general fund. [Governing]

The Tax Foundation ranks Texas #10 for its business tax climate in 2015.  Texas other taxes were ranked as follows:

• Overall rank: 10
• Corporate tax rank: 39
• Individual income tax rank: 6
• Sales tax rank: 36
• Unemployment insurance tax rank: 15
• Property tax rank: 36

How did the other states compare overall? 

• #1 Wyoming
• #2 South Dakota
• #3 Nevada
• #4 Alaska
• #5 Florida
• #6  Montana
• #7 New Hampshire
• #8 Indiana
• #9 Utah 
• #10 Texas
• #48 California
• #49 New York
• #50 New Jersey     [Houston Business Journal]

BBA Compass economic analysis supports economic benefit for Texas from the deregulation of energy in Mexico. Mexico’s energy deregulation will “add 217,000 jobs, about $3.5 billion in state revenue, and $45 billion in gross domestic product to the economy in Texas.”

It’ll take private companies to enter the market. But, since when have private companies shied away from capitalistic opportunities? [Eaglefordtexas.com]

A court had denied CALPERS creditor status in Stockton’s bankruptcy, which was causing a $1.6 Billion issue with CALPERS. [Information Intelligence 10.1.2014]

This hiccup was resolved last week when the bankruptcy judge approved Stockton’s plan to exit bankruptcy.  

From CALPERS statement: “The judge recognized that the city’s employees and retirees have already made significant concessions” and “that further impairing pensions would harm them even more.” [WSJ]

Hardhatters is cataloging opinions of state officials on the Enterprise Fund. Those leaning pro-Enterprise Fund are:

• Villalba
• Laubenberg
• Van de Putte

Critics of the Enterprise Fund:

• Dan Patrick
• Nevarez
• Miles
• Eltife     [Hardhatters]

Mexico has entered into de-regulation of its energy market & is experiencing an economic resurgence. As a result, the economies along the border in Texas are benefiting with increased revenues as more Mexicans travel into South Texas for commerce. [Houston Chronicle]

Circuit of Americas is claiming an $897 Million impact to the economy for the last year. A single year.  The economic impact of SXSW and ACL pale in comparison.

Circuit of Americas added jobs, direct and indirect. Most interesting is that the F1 fans spend more than other attendees. Consumer dollars in the economy are a good thing. [Statesman] 

What’s interesting in this week’s economic data?

 Texas replaced all of its recession-hit jobs by December 2011

Texas unemployment rate was 5.2 percent for September 2014, a full point lower than 2013 

Sales tax collections have increased for 54 consecutive months (year-over-year) [Economic Outlook]

An economist explains why Texas economy won’t be affected by lower gas prices, and his rational is solid: 

“Even though the oil industry and gas has been thriving in recent years, the Texas economy is no longer dependent on it for ups and downs,” gas and oil economist Karr Ingham told Breitbart Texas. “The oil and gas industry has not gotten smaller–rather, the overall Texas economy has gotten bigger. The state economy is now a powerhouse. It is more than just an oil and gas economy; it is an industrial economy, a tech economy, a business economy, a manufacturing economy…We are much better positioned in terms of experiencing a long period of economic difficulty than we were in the ’70’s.” [Breitbart]

Matt Rinaldi, who defeated Bennett Ratliff in the primary, believes that economic development funding is corporate welfare. In his opinion, economic devleopment is gained through low taxes & limited regulation.

Rinaldi also opposes Prop 1. He believes transportation funding should be a dedicated revenue from a vehicle sales taxes. 

 [Dallas Morning News]

A family spending $100 in groceries would be taxed $25. That would be the effect of the sales tax if the property tax is eliminated. Several tax structure changes would have to occur.

• Sales tax exemptions would be eliminated.
• Sales tax rate dramatically increased. 
• Local control of property taxes would be eliminated & replaced with state control over sales tax.

[Waco Tribune]

E-cigarettes are new lucrative industry. Lucrative industries are targets of new taxation, especially when a state needs more revenue or needs to restrucgture its tax system.

Arizona has a budget deficit and a plethora of new or increased taxes are possible. No specific tax  amount has been set for e-cigarettes, but all agree that any tax on e-cigarettes will not be enough to recoup the $1Billion Arizona deficit. 

In 2013, two states imposed taxes on e-cigarettes. [AP]

So says Americans for Tax Reform. To refresh our recollection, the House  Ways & Means Committee met on October 8th and heard testimony from the National Conference of State Legislatures and the Mainstreet Fairness Coalition on this very topic. 

Americans for Tax Reform refer to Marketplace Fairness proposals as: complex,  unfair, and “a massive burden on business.” [Americans for Tax Reform] 

Speaking to the Texas Taxpayers and Research Association, Speaker Straus called for reforms to the state’s economic development funds. Speaker Straus said, “Many say we should just eliminate them entirely. And that would be understandable. But…Texas doesn’t compete for jobs in a vacuum.” [Austin Business Journal]

Empower Texas opposes a lot of things, including changes to the gas tax. In the penned opposition, note their last paragraph:

 The biggest advocate for a gasoline tax hike in the state senate is Sen. John Carona (R-Dallas). He talked a lot about his desire to hike taxes and revenues for several years. And he lost. To a guy promising not to raise taxes.  

Gas tax is a campaign issue for Empower Texas. [Empower Texas]

Houston is tossing around tax breaks for developers who re-develop blighted property. [Houston Chronicle]

Property development has a litany of economic benefits. In some locations, to develop high rise living requires the developer to include a certain number of units for low income individuals. But, what if there was a way around this?

Negotiations in San Francisco permitted a devloper to pay $13.85Million to avoid requirements related to low income housing requirements. [SF Chronicle]

Villalba points to the $24 Billion benefit to the Texas economy from business that received Enterprise Funds. He also highlights flaws in the State Auditor Report, including that one award flagged by the auditor was in actuality an appropriation. [Dallas Morning News]

Texas Tribune offers TribTalk, a collection of perspectives. One of these perspectives is from Konnie Burton, Van Taylor, Brandon Creighton and Bob Hall on the spending cap. Each session the spending cap is debated. Each session there are supporters and detractors. Highlights from the Burton, Taylor, Creighton, Hall perspective:

• The 2014-2015 Budget was the largest budget in Texas history.
• General Revenue, non-dedicated spending, reached $85 Billion. 
• In 2015, two health agencies will request an additional $1 Billion for the current biennium.

Their final paragraph: “We reject the Washington-style budgeting gimmicks and political tricks used to pressure legislators into accepting spending trends that jeopardize our children’s future. The citizens of Texas have sent a clear message that they expect their elected officials to roll up their sleeves and make the tough decisions necessary to keep Texas a beacon of freedom and opportunity, and that’s exactly what we intend to do.” [TribTalk]

Every tax system has tax breaks. There are deductions, exemptions, and credits that impact every tax payer. Tax breaks for wind energy and natural gas has caught the eye of Texas Comptroller Combs.

Comptroller Combs has called on the wind sector needing to stand on its own feet and will soon highlight the tax breaks and will call for a review of natural gas tax incentives.    [Comptroller Combs Wind Energy Report] [Texas Tribune]  

Refreshing Recollection: 2013 LBB GEER recommendation included modifying the natural gas tax incentives. LBB offered the following 3 recommendations:

[2013 LBB GEER Report]

The Comptroller issued a new report on school district indebtedness. 36 districts will have bond propositions on the November ballot, which will increase indebtedness. 

Comptroller analysis of school construction shows us that the majority of construction is for elementary schools. [Fiscal Notes]

Schools turned to bond financing to cover construction costs when the Legislature reduced state funding in 2011. Bond financing requires increased revenue to cover the indebtedness.  The uptick after 2011 for school bond financing resulted in more school districts hitting the tax cap.

When the Legislature addresses school finance, there will be a renewed push for facilities funding. Facilities funding would address schools that incur indebtedness to cover construction costs associated with growing student populations. [Houston Chronicle]