This article was previously published in Texas CEO Magazine: https://texasceomagazine.com/legislative-football-texas-style/
There’s an adage in football, now America’s favorite sport (at least if you believe the TV ratings), that winning comes down to the fundamentals. If you block and tackle properly, success will follow.
Members of the 86th Texas Legislature certainly did a lot of blocking and tackling. They filed more than 7,300 bills in 2019 and enacted over 1,400 into law, addressing some difficult issues and coming away with some big wins.
The “Big Three” in Texas state government—Governor Greg Abbott, Lt. Governor Dan Patrick, and House Speaker Dennis Bonnen, all Republicans—focused their legislative energies on fundamental policy issues like property tax relief and school finance reform, and largely avoided the more divisive social issues.
Why the newfound synergy? Look no further than the November 2018 elections; Republicans lost 12 House seats, two incumbent senators, and two incumbent congressmen, and other statewide elected officials survived closer-than-expected elections.
It was apparently enough to scare Republicans straight. What resulted was a more “moderated” leadership team and a Legislature that focused more on issues like taxes and education reform and less on social issues, as they had previously done with the so-called “bathroom bill.”
While it was pragmatic politics, let’s also give credit where credit is due—the 86th Legislature solved some longstanding, thorny issues. And, importantly to our state’s CEOs, they didn’t tread on the nation’s leading economy, which continues to create jobs in record numbers.
State Budget. House Bill 1 establishes a two-year balanced state budget (as required by the Texas Constitution) with $250.7 billion in overall spending. This is an increase of more than 16 percent over the prior biennium, made possible by a healthy Texas economy and growth in the energy sector.
Much of the new spending went to the top legislative priorities: $6.5 billion for public schools and $5.1 billion to “buy down” Texans’ property tax bills (more on that below). QT_Khorus Lite: Disruption Labs
The legislature also authorized a record-breaking $6.1 billion withdrawal from the Economic Stabilization Fund (or “Rainy Day Fund”) for large-scale infrastructure projects and Hurricane Harvey recovery.
Economic Incentives. The Texas Enterprise Fund—the governor’s “deal-closing” fund to attract large companies and their jobs—received a whopping $535 million boost. Texas Enterprise Fund projects are centered largely in the big cities. Some will argue that rural Texas needs and deserves similar attention.
The Texas Film Incentive program, which had languished and lost pace with other states for the past several years, was increased to $50 million dollars.
Property Tax Reform. The Legislature (via Senate Bill 2) barred cities, counties, and special districts from increasing property tax collections more than 3.5 percent in any year without a vote of the public; school districts are capped at 2.5 percent, a major reduction from the current cap of 8 percent.
School Finance Reform. The Legislature accomplished something many insiders thought impossible—enacting wholesale school finance reform without a court mandate.
The legislation provides a total of $11.6 billion in new state funding for public education:
- $4.5 billion for a 20 percent general increase in per-student baseline funding, and targeted funding increases for pre-kindergarten programs, third-grade reading proficiency, and dyslexia;
- $2 billion for an average salary increase of $4,000 for teachers, librarians, nurses, and counselors; and
- over $5 billion for “buying down” school districts’ maintenance and operation tax rates to provide taxpayer relief (an average of 8 cents per $100 property valuation in 2020 and an additional 5 cents per $100 property valuation in 2021).
House Bill 3 will also provide future school tax relief by limiting local school property tax growth to 2.5 percent per year (absent voter approval). And because state government is increasing its share of public education funding from 38 percent to 45 percent, it is decreasing the “Robin Hood” recapture payments required from wealthy districts by $3.6 billion per biennium, or 47 percent overall.
Even with the passage SB 2 and HB 3, Texans are unlikely to see their property tax bills fall in absolute terms, as increasing home values will continue to drive those bills upward. But the reform package should prevent the dramatic increases Texans have been seeing in high-growth areas.
State vs. Local Control. The revenue limitations in SB 2 and HB 3 are fairly extreme examples of state preemption over local control. On the other hand, cities were successful in defeating legislation that would have removed their ability to enact local ordinances requiring employers to provide paid sick leave or regulating short-term rental companies like Airbnb.
In November, Texans went to the polls and passed Proposition 6 to fund the Cancer Prevention and Research Institute of Texas (CPRIT) for another decade. Not only has CPRIT played a role in reducing cancer-related mortality; it has also spawned companies that create innovative technologies and related jobs.
Propositions 1 and 7 to fund infrastructure projects in areas impacted by Hurricane Harvey were also approved by voters.
Soon, Texas legislative interim committees will begin hearings on issues expected to be debated in the 87th Legislature, including the impact of business taxes on job creation and the nation-leading Texas economy.
For example, the Senate Finance Committee will be examining business personal property taxes, among 20 total issues with varying impact on the business community. Where and how to tax distribution of online purchases will also be examined.
Chapter 313 of the Texas Economic Development Code—which allows for local property tax abatements to attract jobs—will also be scrutinized in the interim year.
The 2020 elections will determine who controls the redrawing of legislative district lines (a.k.a. redistricting) when the 87th Texas Legislature convenes in January 2021, so every competitive race will be hotly contested. Those elections will also influence the approach to a variety of issues important to the Texas business community.
If the economy continues to flourish and property tax bills stay at least level, expect the Legislature to stay close to its current composition. But the state’s demographics are changing rapidly, with a growing Hispanic population and in-migration from more liberal states that could change our politics—and our policy—faster than anticipated.
Either way, these once-a-decade redistricting sessions have always included fireworks. 2021 will be no exception.