AP: Texas

01/09/2006

By APRIL CASTRO  / Associated Press

Texas lawmakers have made lowering property taxes a top priority in fixing the state's school funding problems, but an expert said Monday that won't be enough to get the system out of legal trouble.

The school funding system was declared unconstitutional last year by the state's Supreme Court, and lawmakers were given until June 1 to fix it.

The Texas Tax Reform Commission, appointed by Gov. Rick 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.

House Speaker Tom Craddick said lawmakers have "a chance of a lifetime" to build a lasting system.

"It's a chance to fix the system, not just dump more money into it, but to actually fix the system where the children of this state now and the ones behind it will have the opportunity to get a better education," Craddick said Monday, speaking to a meeting of a conservative think-tank.

The tax reform commission, made up of state business leaders appointed by Perry, has been holding public hearings around the state, taking input as it crafts recommendations for new business and consumer taxes. Monday in Austin, a group of high-powered attorneys from around the state addressed the panel about various proposals their entities would favor.

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."

Perry is expected to call another 30-day special session sometime after the March 7 primary.

Comptroller and independent gubernatorial candidate Carole Keeton Strayhorn on Monday urged Perry to do so immediately.

"There is now no excuse not to give legislators as much time as possible to fix what's broken," Strayhorn said. "They need as much time as possible to deliberate to reach a long-term solution."