Sharp Believes School Finance Stands Good Chance of Passing

DallasBlog.com ^ | 03/23/2006 | Tom Pauken

[Dallasblog.com]

DallasBlog talked with John Sharp yesterday in Dallas about the status of the proposed re-structuring of the school finance system. Sharp is Chairman of the Governor’s Commission on school finance. The Commission is expected to officially announce next week the full details of its plans to lower property taxes by one-third paid for by a 1% expanded business franchise tax. Sharp told DallasBlog that the plan would be "revenue neutral" and, in fact, would be an overall tax cut since at least $1 billion in surplus funds would be used to further reduce property taxes. When asked what effect this property tax reduction would have on the "Robin Hood" redistribution of property taxes from some local districts to others, the former State Comptroller indicated that it would end the Robin Hood system for most of the school districts which currently fall under it.

Here in North Texas, the property owners in the following districts are subject to double taxation because of Robin Hood: Park Cities, Coppell, Plano, Richardson, Carrollton-Farmers Branch, McKinney and Allen. The Dallas Independent School District (DISD) is expected to join that list next year unless the current system is changed.

Sharp addressed the concerns of the critics of the tax restructuring who maintain that an expanded business franchise tax at a 1% level will quickly be raised to higher levels. Sharp acknowledged that the comments of News columnist Bill McKenzie on the opinion pages of the Dallas Morning News were not helpful last week when McKenzie immediately called for the business tax to be set at much higher rate -- 3%, rather than the 1% the Sharp Commission is recommending. McKenzie’s comments in the News were not well-received by companies that had agreed to support the Sharp Plan on the basis that the tax rate would remain low.

Sharp’s view is that it is hard enough to get any expanded business tax passed with 18 major law firms opposing it, led by Vinson & Elkins. He believes that any attempt to raise the rate from above the agreed upon 1% would be vigorously opposed by businesses across the board, including those companies that have signed on to the Sharp Commission plan. Of course, the legislature could provide built-in protections to prevent any increase in the business tax percentage from happening. But Sharp maintained that those questions were beyond the purview of the mandate of his Commission, and would have to be addressed by the Governor and the legislature in the special session.

Another concern expressed about the Sharp proposal is how can property owners be assured that the one-third cut in property taxes won’t be taken away by local school districts raising property taxes back to their existing levels within a few years, as they did when property taxes were cut by the 1997 Texas Legislature. Again, Sharp deferred the issue of how to deal with "property tax creep" to the legislature; but he did say that the cap would be lowered, thus providing one level of protection for property owners.

State Representative Jim Jackson, who was present during the discussion, indicated that the legislature could require voter approval prior to increases in local property tax levels. Jackson would like to see at least $2 billion of the budget surplus used to lower property taxes, even more than that being proposed by the Sharp Commission. There is rising speculation that the surplus is much larger than the $4.3 billion figure previously acknowledged by the Comptroller, Carole Strayhorn, thus allowing for a greater cut in property taxes than the $1 billion mentioned by the Sharp Commission.

Jackson also noted that, if you increased the sales tax by 1/2 cent, expanded the business franchise tax along the lines called for by the Sharp Commission, and used at least $2 billion of the surplus to reduce property taxes, you could completely eliminate "Robin Hood" once and for all. Rep. Jackson, a former Dallas County Commissioner who took Kenny Marchant’s seat in the state house is seen by political observers as becoming increasingly influential in Republican leadership circles in Austin.

Sharp indicated that the principal opposition to his plan is coming from major law firms who avoid any tax under the current system. (Here is our link to the previous DallasBlog story on that issue which includes the list of 18 law firms who are members of that opposition coalition). Sharp did note that manufacturing firms have signed on in support of his Commission’s proposal to change the existing business tax system in Texas. Manufacturers in Texas see this new approach to business taxation as a much needed remedy to the existing franchise tax which discriminates against capital-intense corporations.

Sharp declined to comment on the dispute between Gov. Perry and Lt. Gov. Dewhurst over what issues should be considered in the upcoming special session, but he did acknowledge that relations between himself and the current Lt. Governor (whom Sharp ran against in 2002) remain cool.

Overall, Sharp sounded cautiously optimistic that school finance reform could be passed by the Texas legislature in the April special session.

[P-40]

the tax rate would remain low.

Has this ever happened? Anywhere?

[WOSG]

"There is rising speculation that the surplus is much larger than the $4.3 billion figure previously acknowledged by the Comptroller, Carole Strayhorn, thus allowing for a greater cut in property taxes than the $1 billion mentioned by the Sharp Commission."

Fiscal conservatism pays dividends!