Texas leaders have been challenged with “fixing” school finance for many years. Property taxes are high and taxpayers welcome relief.
The debate over how to change school finance is raging. And some of those most critical of the Texas Tax Reform Commission report have yet to put a plan on the table. Gov. Rick Perry has proposed a plan. And it is a starting point.
The plan includes using part of the budget surplus which represents over taxation and should be returned to taxpayers. We should use the full surplus to "buy down" property taxes. Then Texas should institute spending limits, which has broad public support. Republicans supported it with 90% of the vote on the Republican primary ballot.
Spending limits would require government to do what Texas families do – live within a budget. Texas should use future surpluses to continue to lower school property taxes. With a spending limit, this would not be a "one time fix" but a permanent solution.
Numbers have been run which show that limiting state government growth proportionate to population and inflation, with surplus funds directed to “buy down” property taxes, we could eliminate school maintenance and operations property taxes in less than 20 years. That is the most fiscally responsible plan.
Certainly, the current Franchise Tax is paid disproportionately by capital intensive industries and should be either abolished or lowered and broadened. However, we should never enact a new business tax to offset another tax without also enacting taxpayer protections. If any tax is enacted to replace property taxes but fails to include taxpayer protections, the result will inevitably be a tax increase.
Few Texas taxpayers remember the $1 billion property tax cut in 1997. Most don’t remember it because they never saw it. In this tax shift, we must put safeguards in place to make sure property tax cuts don’t get gobbled up by local taxing entities.
Legislators must make sure this is a tax cut that taxpayers can “take to the bank.”
Another troubling element of the proposed tax plan is the increase in cigarette taxes from 41 cents to $1.41 – a whopping 244 % increase.
First, if we rely on sin taxes to fund education, we better hope that there aren’t too many converts. While we are considering a tax to discourage smoking, we are counting on it to raise revenue.
Yet government is addicted to the tobacco money. It may be easier politically to increase the tobacco tax than other taxes, but it is bad public policy to single out one industry to tax at a higher rate.
High taxes lead to tax avoidance. If tobacco taxes increase $1, we should anticipate cigarette sales to drop by about one-fourth. Fourteen states which increased tobacco taxes since 2002 have seen sales volume fall while low-tax states like Kentucky and Delaware sales have increased 25%. Consumers may go to internet sales, or to purchase in surrounding states like Louisiana where the tax is 36 cents. Contraband is likely to be prevalent in Texas. The Bureau of Alcohol, Tobacco and Firearms reports that cigarette smuggling is up and the small operations are being replaced by organized crime syndicates including some linked to terrorist organizations. This is according to the U.S. GAO May 2004 report “Cigarette Smuggling: Federal Law Enforcement and Seizures Increasing”.
The bottom line is this: we really don’t have a tax or revenue problem, but a spending problem. Let’s face it. School districts used tax dollars to sue the state for more tax dollars. Where is the money going? Over the past eight years, administrative costs rose nearly three times faster than student enrollment, outpacing the growth in classroom spending. Operating expenses increased 57% while student enrollment rose 13%, the number of teachers increased 17%, campus administrators increased 32% and central office administrators increased 35%.
We believe that education reform and spending reform should accompany funding. As the state increases its financial commitment to education, the state should direct those dollars to the classroom or to parents to provide them with the ultimate control over their children’s education.
We also encourage the legislature to review the large amounts of money some school districts are holding and hiding. It is impossible to conclude that districts have insufficient funds without considering their reserve funds. Cypress-Fairbanks ISD had over $75 million in reserves according to the Comprehensive Annual Financial Report dated June 30, 2003. And school board minutes confirmed their action to hide the money:
“Trustees were advised in December that lawmakers might be considering a plan that would take away any undesignated funds…. With roughly $75 million in undesignated funds at the present time… the district is taking pro-active measures to assign undesignated funds to reserved status…Other Houston-area school districts have already adopted or are reviewing similar plans.”
As AFP stated in our amicus brief filed in the West Orange Cove case on August 31, 2005:
“It is ironic that districts are litigating and lobbying for more equity and a greater state share of educational expenses at the same time they use accounting gimmicks to shield the full extent of their available resources from the courts and the Legislature.”
These school district accounting tricks must be stopped.
Taxpayers should be concerned. Once passed, the business tax is permanent but property tax cuts aren't. If a business tax is passed, we should require a supermajority to increase the rate. We also need taxpayer protections.
At the very least, safeguards should be put in place to lower the 8% rollback rate and eliminate the petition-gathering process required for a rollback election. The real solution is to institute spending limits at all levels of government tied to population and inflation, with taxpayer approval required for additional spending.
Ultimately, Texas needs to enact meaningful tax and expenditure limits and future surpluses should either be spent only with taxpayer approval, or used to continue to reduce property taxes.
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