Burnt Orange Report

Lowering Property Taxes Won't Fix The School Finance Mess, Solicitor General Says

By Vince Leibowitz

Though it may be politically expedient, Texas' Solicitor General Ted Cruz told the Texas Tax Reform Commission (chaired by former State Comptroller John Sharp) Monday that such an action will not get the state out of legal hot water when it comes to public school finance.

According to an AP story, the commission appointed by Governor Perry is looking at additional state taxes to pour into schools in place of local property taxes:

To lower property taxes by a third, which has been the goal, lawmakers need to find about $5.5 billion a year in new consumer and business taxes to replace current income.

Giving homeowners a break may be a good idea politically, said Ted Cruz, Texas' solicitor general who represents the state in the school funding lawsuit. But as a legal matter, lowering property taxes presents a new funding challenge to lawmakers without addressing the court order, he said.

Lowering the school property tax cap from $1.50 per $100 of property value has been the benchmark of numerous failed school funding proposals during the last three years. Simply lowering the cap won't make the system comply with the Texas Supreme Court's opinion on what would be legal, Cruz said.

The tax cap was intended to be a locally levied tax. But the Texas Supreme Court ruled that school districts no longer have discretion to set their own rates because they are required to fund state and federal education mandates — which eat up much of the property tax revenue — and still not tax above the cap.

The rate has become both a minimum and maximum taxing level, the court ruled. That amounts to a prohibited statewide property tax, which makes the system unconstitutional.

Until districts have discretion to set their own rates, the tax remains illegal, Cruz said.

That means that if lawmakers choose to replace property taxes with new tax revenues, but still lower the cap, districts would still be forced to tax at the new cap and wouldn't have the flexibility to set their own rates.

Cruz said lawmakers could bring the state into compliance by dropping some state mandates to ease spending requirements. Additionally, school districts could gain flexibility to set their tax rates if lawmakers gave them more money and removed the property tax cap, Cruz said.

All this came during one of the group's meetings Monday in Austin. The group has been holding public hearings across the state to seek input for its upcoming recommendations concerning new business and consumer taxes.

AP also noted:

An estimated 15 in every 16 businesses avoids the state's main business tax because of exemptions and loopholes in the law. Former comptroller John Sharp, chairman of the panel, said many businesses have indicated they are prepared for their tax-free ride to end.

"There are going to be some people that are going to hold out until the end, that think that the good Lord put 'em here not to pay taxes," said Sharp, who wants to submit the committee's recommendations to the Legislature by the end of March. "But most of the business community knows that that's not a situation that can work."

So, what's all this really mean? Not much, in the grand scheme of things. The fact remains that the Lege has until June 1 to fix the school finance mess. Perry will reportedly call another special session after the March primaries. However, given the problems the Lege has had coming to terms with school finance in the past, it remains to be seen whether or not a constitutionally viable solution will be able to be hashed out by then.

The fact that Texas' top pols—Perry, Lt. Governor Dewhurst, and Comptroller Carole Keeton Strayhorn—are all in the midst of an election cycle won't make things any easier, either.

Eye on Williamson County has more on this.

Vince Leibowitz is a regular contributor to Burnt Orange Report. He also writes for PolState.