A week after the Texas House passed the largest tax bill it has ever considered -- a measure intended to replace some local school property taxes with new state taxes -- Comptroller Carole Keeton Strayhorn stunned lawmakers by saying the bill spends three dollars for every two it raises.

Her analysis of House Bill 3 is that it would lose more than $2 billion per year after it's up and running. And getting to that point is bumpy: The legislation would raise $2.8 billion in new taxes the first year — before property tax relief kicked in. In fiscal year 2007, property tax relief would outrun the new tax revenue by $1.8 billion. That gap would grow annually, reaching $2.3 billion by 2009. The biggest problem, she said, is that the House gave businesses the choice of paying the lesser of two taxes without setting a minimum amount each business must pay. Lots of companies would pay little or nothing. And the bill leaves open the hole we wrote about last week, allowing companies with large payrolls to "move" their workers to employee leasing companies and avoiding payroll taxes.

House Speaker Tom Craddick and Ways & Means Chairman Jim Keffer said the comptroller's chief revenue estimator signed off on changes to business taxes that went on to win House approval. But the comptroller's new analysis of those changes — giving businesses a choice between paying something like the current franchise tax or a payroll-based tax — concludes they won't raise the money needed to pay for a one-third cut in local school property taxes.

Strayhorn sent staffers to tell Craddick and Keffer about the numbers and also sent copies of her cover letter and fiscal note to legislators. A copy of Strayhorn's letter and the fiscal note can be downloaded here:

www.texasweekly.com/documents/CKSonHB3.pdf

Word moved fast and some lawmakers found out about the trouble from reporters. They really, really hate that. Craddick, who held a press conference with lawmakers who fashioned the tax bill, didn't mince words. And he didn't leave open any possibility that the House had botched its tax bill: "Maybe she [Strayhorn] is playing politics or maybe she and her staff are inept. Either way, I assure you that we stand by this bill. The Comptroller's office certified it and we are going forward with HB 3 as is."

The comptroller wasn't shy, either, when she talked with reporters shortly after the House leaders tried to shame her: "I just watched the House news conference and my heart goes out to them. They just passed the largest tax bill in history and it does not balance. They thought they were raising $12 billion in revenue. I ran the numbers, and it raises about $8 billion in revenue."

It is a he-said-she-said arrangement. They can't possibly all be telling the truth and it's impossible to figure out just who's lying.

Strayhorn said House leaders didn't check with her staff over the last weekend before taking the bill to the floor of the House and said her aides never signed off on the 20 or so amendments eventually added to the bill. She said Craddick told her staff that he didn't need help or a fiscal note on the bill until the House had passed it.

Keffer said the opposite: "The comptroller's office spent the entire weekend with the speaker's staff, members of the committee on Ways & Means and LBB working on and improving amendments to House Bill 3, specifically Article 2, which is the business tax section of the bill."

He said "no less than a dozen" people were on hand when the revenue wizards signed off on the provisions that went into the final bill. "They assured us it was balanced. Here we are a week later and suddenly the bill is not balanced. How can that be?" Keffer said.

Told that House leaders had said her staff "certified" — with witnesses — the provisions that eventually wrecked the bill, she came close to calling them liars: "That is absolute hogwash."

She said she's not trying to snipe and insisted that she's not playing politics with the numbers: "I'm not going to tell any lawmaker what they can and cannot do. I will tell you that this bill does not do what they said it will do. I am keeping the legislators and the people of Texas informed at every step of the way. That is my job."

She said she sent her staff to brief Craddick and Keffer and then delivered her letter and her fiscal note to the rest of the House.

Strayhorn said her staff ran the numbers for the 100 biggest corporate franchise taxpayers — she didn't release names — and said two-thirds of them would see a cut in state taxes (not counting local school tax reductions) if the House bill took effect.

Neither gang talked about getting the tax bill back on track, either by patching the holes the comptroller has pointed out or by arguing over the mechanics of the bill. It was liking calling from Apollo 11 to say, "Houston, you've got a problem." Put the party of your choice in the command module.

For all the noise, the political scuffle doesn't mean much to the legislative process itself. HB 3 is on its way to the state Senate, and it doesn't truly matter at this point whether it balances or not. The last time the House sent a big tax bill to the state Senate, in 1991, what started as a $3.3 billion measure was drained during an all-night debate, and the shell that crawled across the rotunda was worth less than $35 million. The Senate pumped it back up to full size and the tax bill came back to life. Both houses passed it (and a state lottery), the school finance crisis of that particular moment was averted and that was that.

The Senate is planning a similar remodeling project this time around. Lt. Gov. David Dewhurst and Senate leaders said last week that key provisions of the House plan won't fly in the upper chamber, including the business tax and a full one-cent increase in the state's sales tax. They plan to spend the next month hearing ideas and drafting a tax bill of their own to send back to the West end of the building. For those purposes, it doesn't matter whether the House bill balances or not.

And oddly enough, Strayhorn's harpoon didn't take away all of the House's negotiating power on the tax bill.

What attracted business to the House bill was the "choose your poison" option that would have allowed each business taxpayer to choose which of two taxes they'd rather pay — one based on payroll or something similar to the current franchise tax, which includes an income component in its calculations and weighs heavily on capital-intensive corporations. That was also the bill's undoing: The comptroller's number-crunchers assume, for estimating purposes, that every business will take the cheaper of the two options. The House bill didn't include a minimum tax amount, and that opens the door to the sort of loopholes that have made the current franchise tax easy for most Texas businesses to avoid.

Business like the choice idea, and the House can go to the inevitable conference committee defending the structure of its bill, if not the exact rates or particular provisions. If they can make that work, it may yet turn out to be more palatable than whatever the Senate proposes.

Although it wouldn't raise enough to replace a third of local school property taxes, the House bill, according to Strayhorn, would actually stay in the black during the next budget cycle. That's because the state taxes would be starting up before the school taxes would be dropping. The comptroller said the first year would see income of $2.8 billion with no school taxes to replace. In the second year, school taxes would cost $1.8 billion more than the new tax bill would produce, but that first-year buffer would keep the state's cash flow positive. After that year, the numbers would start running red, in amounts starting around $2 billion annually and growing each year after that. In the five-year fiscal note, the bill ends up $4 billion in the red. In the context of that initial two-year budget, however, the thing would actually have a positive impact on state spending of about $1 billion.

A Matter of Presentation

This tax thing could have blown up quietly. Comptroller Carole Keeton Strayhorn's decision to widely distribute the fiscal note undermining the bill -- instead of working out problems behind the scenes with House leaders -- turned a nasty glitch in a tax bill into a public firestorm that angered lawmakers without directly boosting the comptroller's prospects.

Think how it would have been handled if allies had discovered they'd made a mistake. But House Speaker Tom Craddick chewed out the comptroller's top revenue estimator on the Friday before the bill came up and then, according to the comptroller and her aides, didn't ask for help over the weekend. Ill will was in the wind before the number-crunchers sat down after the House vote to see what the approved bill would actually do.

Whatever her motivation, Strayhorn's ambush on the House contributed to a growing problem: A lot of people in the Pink Building don't trust her agency. Historically, the agency's reputation was, "Those people sure know their numbers, but they might be might be messing in your business." Now it's flipped: "Those people are messing with you, but they might be right about the numbers." That's a significant change, moving the state's finance officer to a position of suspicion from one of trust. Everyone assumes there's a sniper somewhere in the trees whenever she's in the mix.

Before her staff finished calculating the tax bill, lawmakers and their aides were passing along rumors that she planned to short-sheet the tax bill and that she would say the related school finance bill was out of balance in the other direction. The rumored numbers were off, and the rumor itself was only half-correct, but lawmakers expected a shot and they got one. Relations began cracking two years ago, and reached a peak when, at the end of the last legislative session, Strayhorn momentarily refused to sign off on a state budget she said was out of balance. She backed off, but lawmakers were incensed enough to strip her office of its high-visibility performance reviews and to begin laying the legal groundwork to diminish her influence on budget numbers.

Now she's got the House worked up, and some political types came out of the turmoil saying she had effectively assured financing for any Republican who wants to challenge her in next year's elections. Agriculture Commissioner Susan Combs wants to run but has stopped well short of challenging the incumbent, saying she thinks the seat will be open. Strayhorn has all but said she'll be running for governor and not for reelection. And a challenge would be tough: Strayhorn is a strong campaigner — even her enemies think so — and she's already got $5.7 million in her campaign treasury.

Blue Moon

The House passed its version of telecommunications reform legislation — there's more fighting left in that one on the Senate side and, later, in conference committee — but killed a tax while they were at it. The Telecommunications Infrastructure Fund was set up during a reform effort years ago. It added a fee to phone bills to pay for improved telecom and Internet lines and equipment for schools, libraries, hospitals and such. And it was supposed to end when that purpose was served. But it's hard to kill taxes once they're in place, and lawmakers working on school finance had their eye on the so-called TIF money.

But the House, led by Rep. Senfronia Thompson, D-Houston, voted overwhelmingly to kill the tax. After she took to the microphone to "keep the promise" of killing the tax when it wasn't needed, the House voted 99-36 to support her. Unless they vote to put it back in — an idea that would require a bunch of people to change their votes on a tax bill — that one's cooked. The TIF brings in about $200 million annually, according to the comptroller's office. It's one of the components of HB 3, the tax bill that's supposed to finance a cut in local school property taxes.

• The House was all set to vote on a constitutional amendment capping growth in property values, but mistakes — and doubts among members about their votes — pushed the issue back a week. The legislation would cap annual growth in the taxable value of a residential or business property at 5 percent. Current law caps that kind of growth at ten percent.

Cities, counties and other local entities that depend on property taxes have been loud in their opposition to new caps. The legislation by Rep. Dwayne Bohac, R-Houston, sets up a constitutional amendment, which needs a two-thirds majority from both the House and the Senate. He'll find out next week whether he's got the support. Meanwhile, an alternative idea — capping growth in revenues collected from property taxes — is gathering steam. It wouldn't require a constitutional amendment.

Living Large

Talk to budget wonks about the Senate's proposed spending plan and you get this: "Well, it's big." And it is big, recommending a bottom line increase of nearly $13 billion, to $139.3 billion from $126.6 billion two years ago.

Before you spit up your breakfast cereal, add some caveats: The numbers in the old budget are understated; $3.9 billion of the increase is in federal and not in state funds; and the Senate tried to restore many of the items cut from the budget two years ago when budgeteers started the game $10 billion in the red.

And remember: At this stage, it's only a bargaining document. The senators and staffers who did all the work weren't wasting time, but the real budget will come out of the May mash-up between the House and Senate budgets in particular, and the school finance and tax bills, too, should those measures make it to the finish line during the regular session.

The state's supplemental appropriations bill hasn't been finalized or much detailed yet, but it could top $2 billion. That mini-budget covers the difference between current spending and the budget passed two years ago, covering increases in spending that weren't in that original blueprint. Like the objects in your car's rearview mirror, the budget behind us — the old budget — is larger than it appears after you add in the supplemental numbers.

If you watch the state budget, you know what's driving this thing: Education would get a $2.7 billion increase in general revenue (state money) in the Senate plan and another $2.7 billion increase would go into various health and human services programs, primarily health. The $6.5 billion overall increase in GR is dominated by those two areas.

Some points of interest in the Senate plan: It would increase state employee pay by 4.5 percent annually, including extra money to get state peace officers at or above what they'd make working for urban police departments; a mess of health and human services programs would be fully or partially restored and waiting lists would be reduced by five percent over two years; textbook programs that were slashed two years ago would be ramped back up; four student aid programs would be combined, including B-On-Time, college work study and both Texas Grants programs. The bill passed unanimously, but some senators complained that the growth in the budget, while it restores some programs to 2003 levels, doesn't cover inflation or the growth in the state's population.

It includes a $746 million with list that would cut waiting lists for HHS programs, move eligibility renewals from the current six months to every 12 months for CHIP recipients, add $80 million to college financial aid, put $100 million more into tuition revenue bonds, add $175 million to the higher education fund, among other things.

Hope on Hold

Rep. Ruben Hope has to sit on the runway for a little while longer. The Conroe Republican is in line for a district judgeship that would open up because of a widely rumored but as yet announced resignation. Judge Olen Underwood has let the governor and others know he'll give up his spot on the bench but will stay on as presiding judge of the state's 2nd judicial administrative district. Hope would get the robes and the 284th court, and his seat would open up for a special election. That started its own round of speculation about who might and might not run.

Hope, in an effort to cork the talk, sent a letter to Gov. Rick Perry and House Speaker Tom Craddick, copied to everyone in the House, saying he's not ready to leave. "It is my intention to complete this session," he wrote. He didn't say whether he'd stick around for a special session, but then nobody has officially said there will be such a thing.

Among other things, that means Hope will remain the chairman of the House Republican Caucus for the rest of the regular session, and with big bills passing with one- and two-vote majorities in place, it means Craddick and other Republican leaders will hang onto a much-needed likely vote for the next nine weeks.

Absence Makes the Quorum Grow Smaller

The redistricting session and the walkouts to Oklahoma and New Mexico inspired Rep. Dan Branch, R-Dallas, to file legislation that would make such out-of-state experiences pointless. He's got two proposals.

One is similar to legislation he proposed two years ago and would allow the Legislature to meet so long as two-third of the members currently in the state were present. The key phrase there is in the state. If 51 members left and only 99 were still in Texas, the House could meet and do business with as few as 66 members in the building. It currently takes 11 absences to bust the Senate; under this plan, the upper chamber could lose 11 senators to the charms of Albuquerque and meet with just 14 on hand.

Branch's alternative proposal would allow the Lege to meet so long as a simple majority was present. That's 76 in the House and 16 in the Senate. Both would require constitutional amendments, and thus, a public vote. That only requires a majority of the voters who show up.

Politics as Sport

A Missouri political firm put together a "presidential March Madness" game on the Internet that lets you vote in brackets to see which of 64 Republican politicians ought to advance, round by round, to be the GOP nominee in 2006. U.S. Sen. Kay Bailey Hutchison and Gov. Rick Perry are among the possibles, though both lost in the first round. He was a 13-seed, facing Sam Brownback of Kansas; she began as an 11-seed facing Bill Owens of Colorado. You can look, or vote, or both, at this website:

www.surveysaintlouis.com/marchmadness/Bracket.php

The two Texas officeholders in those presidential brackets didn't get out of their first-round matchups. Perry got 36.1 percent against Brownback; 836 votes were cast. Hutchison got 46.6 percent against Owens; 928 votes were cast. They would have to have survived until the fourth round before going head-to-head in the online game. They shouldn't feel bad: The mouse-pushers who voted against them also favored commentator and former presidential candidate Pat Buchanan. He beat Arnold Schwarzenegger.

Panning, or Mousing, for Gold

For a while there, cool Internet names were bringing in piles of money. George Strong is about to find out if that's still the case. The semi-retired Houston political consultant, now luxuriating somewhere around Crystal Beach, is ready to sell off the web domain name political.com if the market it hot enough. He says he's "considering offers" for it, and he's hired a firm to broker the deal if there's a deal to be brokered. He wants to see if there's anything to stories of good web names bringing big bucks. If the prices aren't any good, he says, he'll just keep the website — where he still posts political gossip every week or so — and hope it appreciates. Find the details at:

www.adastro.com/political.html

Political People and Their Moves

Who's the star here? U.S. Sen. John Cornyn plans a Dallas fundraiser after the Easter break that features guest of honor George P. Bush (nephew of George W., son of Jeb). And the invite includes a tidbit about federal campaign finance law, where contribution limits now move from year to year. "Cornyn Circle" members are being asked to give $8,000 per couple to the senator's campaign; the limits now are $2,100 per election per person. That translates to $4,200 per person for each election cycle: $2,100 for the primary election, and $2,100 for the general election. 

Carl Reynolds, the general counsel for the Texas Department of Corrections, is leaving that gig for the smoother waters at the Office of Court Administration, where he'll work for Wallace Jefferson, chief justice of the Texas Supreme Court. Reynolds has worked for the prison system for 11 years.

Marc Levin is taking a part-time gig — in real life, he's a lawyer — setting up the "Center for Effective Justice" at the Texas Public Policy Institute. That Austin-based think tank is moving into criminal justice issues and Levin will be executive director of that operation.

Gov. Rick Perry appointed three to the Texas Tech University System's board of regents: Larry Anders of Plano, Mark Griffin of Lubbock, and Dan Serna of Arlington. Anders is the top guy at Summit Alliance Companies, an insurance concern, and a Tech graduate.  Griffin is president and general counsel of Rip Griffin Truck Service Center, L.P., serves as president of Pro Petroleum, Inc., and is president of the Lubbock ISD board. He got his law degree at Tech. Serna, a former Arlington city council member, founded and now heads Serna & Company, a CPA firm. He's an alum.

The U.S. Senate okayed Jeffrey "Clay" Sell of Amarillo as deputy secretary of the U.S. Department of Energy. Sell, who was chief of staff to U.S. Rep. Mac Thornberry, R-Clarendon, for four years, moved to DOE from the White House, where he was working in legislative affairs.

Quotes of the Week

Cardinal Theodore McCarrick, the archbishop of Washington, D.C., quoted in The New York Times as he and other bishops start a campaign against the death penalty: "We cannot teach killing is wrong by killing. We cannot defend life by taking life."

Paul Weyrich, chairman of the Free Congress Foundation, defending U.S. House Majority Leader Tom DeLay in a commentary quoted by The New York Times: "If we let him hang out to dry, how many others in leadership will ever risk trying to accomplish bold objectives?"

Deputy Comptroller Billy Hamilton, after House changes to business taxes threw the school finance bill out of balance: "People have been struggling with how to reform this tax for an entire decade... you have problems when you're trying to do something people haven't done in 10 years in two days."

Rep. Dwayne Bohac, R-Houston, fighting back an amendment that would have changed his legislation naming a road for Ronald Reagan Highway to one naming it for George W. Bush: "President Bush is still with us, and history is out, somewhat, on his success."

Frank Sturzl, executive director of the Texas Municipal League, quoted by the San Antonio Express-News on appraisal tax caps: "We're going to continue to oppose them until the last dog is dead."

Smith County Constable Dennis Taylor, in an Associated Press story about two men who dismantled a house over several weeks and sold it for drugs: "Everybody drove by and waved at them."

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Texas Weekly: Volume 21, Issue 39, 28 March 2005. Ross Ramsey, Editor. George Phenix, Publisher. Copyright 2005 by Printing Production Systems, Inc. All Rights Reserved. Reproduction in whole or in part without written permission from the publisher is prohibited. One-year online subscription: $250. For information about your subscription, call (800) 611-4980 or email biz@texasweekly.com. For news, email ramsey@texasweekly.com, or call (512) 288-6598.

National groups playing in Texas, Texas groups playing in Washington, and the congressional campaign season begins.• Several Texas groups are gearing up, again, for judicial confirmation hearings that might include the appointment of Texas Supreme Court Justice Priscilla Owen. The locals -- a combination of Texas outfits and the Texas affiliates of national groups that bills itself as the Texas Ad Hoc Coalition on Judicial Nominees -- are trying to fire up supporters who'll write to U.S. Sens. John Cornyn and Kay Bailey Hutchison to tell them to leave the Senate's filibuster rules alone. Democrats in the Senate have used those rules -- or the threat of them -- to stall a dozen of George W. Bush's judicial nominees, including Owen. They told reporters they don't really have much hope of swaying Cornyn and that they think they've got slightly better chances with Hutchison -- they got that reading from her disapproval of J. Leon Holmes of Arkansas. Their real hopes, they said, are pinned on convincing Republican senators from other states. • National groups trying to knock off U.S. House Majority Leader Tom DeLay, R-Sugar Land, are running television ads in and around Houston kicking the Texas Republican for ethics lapses they say are evidence of deeper problems in Congress. Two groups -- Campaign for America's Future and the Public Campaign Action Fund -- are running commercials in DeLay's congressional districts and in the districts of three congressmen they say are key to whether the House does anything to rebuke the Texan. And in a model that worked for groups on the left and right during the last election campaign, their ads online are linked to their forms for raising money, to run more and raise more money and so on. Meanwhile, a coalition of conservative groups has formed up to defend DeLay. The groups say they're not trying to get DeLay to resign from Congress, but want him to give up the leadership post. They're running about $75,000 in commercials on cable networks in his district. • Rep. Richard Raymond, D-Laredo, is raising money for his exploratory campaign for Congress, and says that's a legal loophole in the law that prohibits Texas lawmakers from raising money during legislative sessions. It's a federal race, not a state race, he says, knocking down a press-release complaint from U.S. Rep. Henry Cuellar, D-Laredo. Raymond went to Dallas for his first funder in that possible challenge race; the notice said, "Contributions are appreciated, but not required." Among the hosts: state Reps. Rafael Anchia, Yvonne Davis, and Terri Hodge, all with D-Dallas suffixes, and Aaron Peña, D-Edinburg; former U.S. Rep. Martin Frost, former Dallas mayor Ron Kirk and a mess of other Dallas politicos. A political consultant to Cuellar said Raymond is "trading on his state job to raise money." Raymond says it's all legal and said Cuellar is scared "because these are real Democrats." He hasn't decided on a challenge to Cuellar yet, and says he'll give all of the federal contributions back if he decides not to run.

Neither side of the gambling issue is ready to call it a day.Gambling opponents, who now include the odd couple of Tina Benkiser and Charles Soechting, the leaders of the Republican and Democratic parties, respectively, held a rally at the Capitol to say they don't think slot machines and casinos are the best ways to fund the state budget. And gambling proponents are promoting the idea of letting voters decide. In fact, that's the name of their website: www.LetTheVotersDecide.com . They've unwrapped a report by Texas economist Ray Perryman that says casinos would produce $5.5 billion every two years for the state and would produce 200,000 jobs. The report is on the website. At the same time, another group pulled out a report -- also by Perryman -- that says video lottery terminals, or VLTS (slot machines, to us natives) at Texas racetracks would create 26,073 jobs and bring in $1.2 billion in annual state revenues. The theory is that when those three big bills collide -- the budget, school finance reform and taxes -- those gambling numbers will look better and better.

Gov. Rick Perry hit the bricks this week to talk to House members about appraisal caps, among other things, but the votes still aren't there and the issue was delayed for a second week.Rep. Dwayne Bohac, R-Houston, had his legislation on the House's calendar once, but it was knocked aside by a real, live technical problem and by a quieter political one; the bill was flawed but fixable in the first case, and short of votes in the second. With the first problem patched, it now appears that the constitutional amendment is short of the two-thirds support it needs to clear the House. The legislation would lower limits on allowable annual increases in taxable property values to 5 percent from 10 percent, and would impose that cap on residential, commercial and other properties. Perry, who's been calling for a 3 percent cap for two legislative sessions, says he still likes the idea and he told reporters he disagrees with city, county, and other local officials who form the opposition. "The fact of the matter is that this is not limiting them in any way. It's asking them to ask the public for approval to spend above a certain amount," he said. And he said he thinks the House and Senate will eventually approve the caps: "I think it is a popular item that the public is for, and so I think they'll have a vote and we'll get it done." Local officials don't like the caps for a variety of reasons and they've been hollering loud and hard at lawmakers since the beginning of the session. That's beginning to have some effect, and it's given new life to alternate legislation by Rep. Carl Isett, R-Lubbock, that leaves the appraisal caps alone while limiting growth of local government spending to three percent unless voters say more spending is okay.

Three dozen House members, including a number of Republicans, have added their names to legislation (HB 1348) that would prohibit so-called "issue and advocacy ads" in the last days before elections (but would allow them earlier in the election cycle).They'd outlaw issue ads funded by undisclosed contributors and narrow the definitions of how money donated by unions and corporations could be spent in politics. Those organizations would also be prohibited from giving to political action committees that aren't directly associated with the donors. Reps. Todd Smith, R-Bedford, and Craig Eiland, D-Galveston, were the first on board. Now they've signed up more members and are trying to get a hearing for the bill, which was last seen waiting for attention from a subcommittee. The new co-sponsors, grouped by party: Democrats: Rafael Anchia, Dallas; David Farabee, Wichita Falls; Scott Hochberg, Houston; Mark Homer, Paris; Elliott Naishtat, Austin; Aaron Peña, Edinburg; Eddie Rodriguez, Austin; and Mark Strama, Austin. Republicans: Fred Brown, College Station; Dennis Bonnen, Angleton; Scott Campbell, San Angelo; Carter Casteel, New Braunfels; Warren Chisum, Pampa; John Davis, Houston; Joe Driver, Garland; Gary Elkins, Houston; Dan Flynn, Van Horn; Charlie Geren, Fort Worth; Toby Goodman, Arlington; Tony Goolsby, Dallas; Bob Griggs, North Richland Hills; Pat Haggerty, El Paso; Rick Hardcastle, Vernon; Charlie Howard, Sugar Land; Delwin Jones, Lubbock; Terry Keel, Austin; Jim Keffer, Eastland; Edmund Kuempel, Seguin; Brian McCall, Plano; Tommy Merritt, Longview; Jim Pitts, Waxahachie; Wayne Smith, Baytown; John Smithee, Amarillo; and Vicki Truitt, Keller.

The House's budget, while smaller than the Senate version, also calls for a serious increase in state spending.If the Democrats and renegade Republicans hold enough votes to block gambling, it could put management into a fiscal corner. Without expanding gambling to raise new money from so-called "voluntary taxes," the confederation of budgeteers, tax wonks and public education wizards will have to pull together a package of revenue, spending and reform that all fits neatly into a balanced budget. The budget section took another step forward, and Appropriations Chairman Jim Pitts, R-Waxahachie, will give the full House a dose of spending next week. The House Appropriations Committee would spend $137.5 billion overall, compared with the Senate's bottom line of $139.3. Both numbers are up significantly from the tight budget approved two years ago, and both include only some of the money that'll be needed if the state is going to put more into public education. They're closer together on general revenue spending -- the part funded by state taxes and other revenues -- which totals $65.9 billion in the House version and $66.2 billion in the Senate blueprint. Two big differences: The Senate has a pay raise for state employees in its bill, and the House does more of its public education spending in the budget than in the school finance bill. And the House budget isn't really as frugal, compared to the Senate, as it first seems. The lower chamber spends a negative amount -- $1.9 billion, in accounting parentheses -- in Article 9, the "general provisions" section of the budget. The Senate version has a positive number -- $662.1 million -- in that section. That's because the House put public education and child protective services reforms into its supplemental budget bill, a smaller measure meant to cover any spending gaps that have developed in the current budget. When you put the House budget and its supplemental bill against the Senate's plans, the differences are less stark. The differences will be settled, as usual, in conference committee after the full House votes and the Senate respectfully disagrees with that plan. Taxes, as we've noted, are in the hands of the Senate, where Finance Chair Steve Ogden, R-Bryan, plans to take the rest of the month hearing testimony and tinkering. Senate Education Chair Florence Shapiro, R-Plano, has already begun similar hearings on school finance and education reforms. The three bills probably won't reach the crucial intersection where they have to be reconciled with each other until May. That's when the real numbers emerge, showing the size of the budget, the school finance reforms, and the revenue bills that pay for them.

Live and in living color, senators acting like senators:``See it in Windows Media or in Quicktime.
This video, shot by a crew working for Gov. Rick Perry's political campaign, shows U.S. Sens. Kay Bailey Hutchison, R-Texas, and Hillary Rodham Clinton, D-New York, exchanging pleasantries at a fundraiser for restoring an historic building in Washington, D.C. Luis Saenz with the Perry campaign says he shared it with a couple of consultants and that it spread from there to other Perry supporters via email. While some in the Perry camp made hay of Hutchison getting kudos from the unpopular (in Republican Texas) Clinton, some in the Hutchison camp were making hay of Perry's early efforts to discredit a possible challenger in next year's GOP primary for governor.

Democratic leaders in the House say they're against gambling as a way to finance public education or to fill holes that might appear in the state budget.It'll take a constitutional amendment -- and thus, 100 votes from Texas House, 21 in the Senate, and a majority from Texas voters -- to add slot machines to racetracks or to allow casinos in the state. The issue might not ever get to the second and third hurdle. Four top Democrats in the Texas House -- Garnet Coleman of Houston, Jim Dunnam of Waco, Pete Gallego of Alpine, and Scott Hochberg of Houston -- say they're against adding gambling to the state's revenue mix right now. If they've got even a small number of their colleagues on board, that's it for new gambling this session. Do the math. The House has 87 Republicans, including a faction estimated at two dozen or so who say they're against gambling no matter what. Actual mileage may vary -- we've talked to members who count anything from 45 to 65 GOP votes for gambling. With those numbers gambling supporters need at least 35 Democrats on their side, and as many as 55, to prevail in the lower chamber. Even a subset of the Democratic contingent could block gambling. Though they say they're speaking only for themselves, Dunnam heads the House's Democratic Caucus, Coleman heads the Black Caucus, and Gallego heads the Mexican-American Caucus. Hochberg doesn't head any particular group, but he's the leading voice on public education among House Democrats. Proponents will have to peel Democratic votes away from Democratic leaders; not impossible, but it raises the difficulty of passing a gambling measure during this session.

Legislative retirement benefits are based on a formula that includes the salary of district judges, who might be in line for their first pay raises in seven years.The basic setup -- it changes according to benefit choices made by each legislator -- is to multiply that judicial salary by 2.3 percent, an arbitrary number set in statute, and to multiply that by a lawmaker's years of service. Judges now make $101,700 (some make more, by local option, but that's not part of the formula). Lawmakers have to serve at least eight years to qualify for retirement at age 60; if they serve 12 years or more, they can begin drawing state retirement after age 50. The Senate's pay raise for judges would increase lawmakers' retirement benefits by the same percentage. That bill, authored by Sen. Robert Duncan, R-Lubbock, is on its way to the House. Based on the current judicial salary, each lawmaker gets $2,339.10 in retirement pay for each year served in the Legislature. If Duncan's bill raising judicial pay to $125,000 passes in its current form, legislative benefits will jump that same 22.9 percent; each retired lawmaker would get up to $2,875 in annual retirement pay for each year served. A retired lawmaker with 20 years experience can now draw $46,782 in benefits each year. If the Senate version of the judicial pay bill becomes law, that amount would increase to $57,500 annually. Duncan had hoped to avoid political problems that can crop up when lawmakers sweeten their own benefits by tying the lawmaker retirements to the governor's salary instead of to judicial pay. But he got his fingers burned: legislative budgeteers have proposed raising the governor's pay to $150,000, which would have meant a 47 percent increase in retirement pay was included in the state budget. He moved it back to judicial pay, and to the smaller increase.

U.S. Sen. Kay Bailey Hutchison isn't the only Republican in Texas who has consorted with Democrats, or for that matter, with Hillary Clinton.After the Air Kiss video turned up, the Houston Chronicle came up with a 1993 letter from then-Texas Agriculture Commissioner Rick Perry to then-First Lady Clinton. In the letter (click here for a copy in .pdf format), Perry commended Clinton for her "worthy" efforts to reform health care and asked her to be mindful of agriculture interests while working on it. His folks say it's not a bid deal. Her folks say the video doesn't show people anything but Normal Senatorial Behavior. And there you have it. Want to guess at the next rounds of "Who's true blue, er, Red?" Perry was the 1988 state campaign chairman for Democratic presidential candidate Al Gore Jr., who was trying to win his party's nomination to run against then Vice President George H. W. Bush (honors, of course, went to Michael Dukakis). And if you want to drag the other potential candidate in to the mix, Carole Keeton Strayhorn appeared, as the mayor of Austin, at events for Walter Mondale, who was running against President Ronald Reagan in 1984. Both Perry and Strayhorn were Democrats at that time; they changed parties and ran for statewide office later. If you missed it in our earlier posting, the video of Clinton and Hutchison is available online in two formats: Quicktime and Windows Media

Carole Keeton Strayhorn hasn't said in any definitive way where she wants Texas voters to put her next year, but she's hired two of the people who'll help her campaign.Alex Castellanos of Alexandria, Virginia-based National Media, Inc., has worked on three of Strayhorn's previous statewide campaigns. He was on the George W. Bush reelection team in 2004 and worked for George H. W. Bush's campaigns back in the day. His firm does political advertising. John McLaughlin is a pollster and general consultant. His firm, Blauvelt, New York-based McLaughlin & Associates, was part of the phalanx that helped Arnold Schwarzenegger win the special election for governor of California. Strayhorn has hinted broadly that she'll be running for governor against Rick Perry next year. But she's got a placemat at the table; when Agriculture Commissioner Susan Combs said last year she's running for comptroller and that Carole wasn't, Strayhorn stepped in to say Combs had gone too far. Strayhorn wants to keep the option of reelection open. So far, she and Perry and U.S. Sen. Kay Bailey Hutchison -- who's also got her eye on the Governor's Mansion -- are the only prominent state politicos making a show of gearing up for next March's GOP primaries. Castellanos worked in the California race, too, but not for Schwarzenegger. He did ads for the "American Taxpayers Alliance," which was critical of Gov. Gray Davis, whose unseating made the actor's rise possible. And if you remember the commercial knocking Al Gore in 2004 -- the one by the Republican National Committee that flashed the word "RATS" for a second and raised some news controversy about subliminal advertising -- you've seen a famous Castellanos ad. The consultant also worked for Jeb Bush, now governor of Florida, in Bush's first and unsuccessful run at that post. In Texas, his ads for Strayhorn were among the best of the last cycle, featuring a sepia look at old dusty western scenes while an announcer talked about "One Tough Gramma." McLaughlin worked for presidential hopeful Steve Forbes on campaigns in 1996 and 2000. He's worked on a bunch of U.S. Senate races -- he and Castellanos both worked for former U.S. Sen. Jesse Helms of North Carolina.

Sherry Sylvester, lately the voice of the Texas Republican Party, is leaving the Lone Star State for New Jersey, where she'll be snapping the verbal towel for gubernatorial candidate Doug Forrester, a businessman and former mayor who's leading a six-person field in the GOP primary.Sylvester joined the Texas GOP late last year. She wrote Texas Media Watch, an online press critique, before that and was the political reporter at the San Antonio Express-News before that. But she was in New Jersey and New York first, working in Democratic politics (for former U.S. Sen. Geraldine Ferraro and former NYC Mayor David Dinkins, among others) and then working for papers. Sylvester starts Monday; no word on who'll be the new spokesperson for the Texas GOP. New Jersey has an off-year gubernatorial race, with the primary set for June 7 of this year, and the general in November. Texas will just be coming to a boil when New Jersey gets through.

David Hartman, a retired Austin banker and active Republican financier (and a former candidate for state treasurer in 1994) was so unhappy with the House's tax bill he called for House Speaker Tom Craddick should "step aside."Hartman, who is also the chairman of the nonprofit foundation that publishes the Lone Star Report, wrote in that publication that HB 3 includes a payroll tax that in his view "looks like, and smells like, a personal income tax." He said Craddick pushed the bill through with "a heavy gavel" and closed by saying the speaker should be appreciated for working to elect "well-qualified legislators capable of improving Texas state government." His closing looked to some like a call for the speaker's head; to others like a prayer that the Senate would undo what the House did: "It is now time for him [Craddick] to step aside and let them usher in a new efficient and progressive era of state government. It is to be hoped the Senate will prove capable of joining them in this crusade." For the record, he favors a business activity tax as an alternative to the current state franchise tax and says the school finance problem is "a remarkable opportunity" that state leaders ought to exploit to revamp the tax system. "It's about time somebody showed some leadership somewhere in the higher offices of the state," he said. Craddick responded with a letter saying the House's proposed taxes on payrolls aren't income taxes and are based on unemployment insurance taxes that have been in place in the state since 1936. He didn't get into a fight over the weight of his gavel, but did say the bill was the product of work by members of the House. He also quoted Comptroller Carole Keeton Strayhorn (the letter is dated before she concluded HB 3 was out of balance) as saying an earlier version of the bill would add to personal income growth, investment growth and new jobs in the state. Janelle Shepard, meanwhile, wrote in "Texans for Texas" that Comptroller Strayhorn -- the top vote getter among state Republicans -- ought to step down. Shepard is among those listed by Gov. Rick Perry's reelection campaign as an early supporter -- that list went out early this year to highlight some of his support among well-known conservative Republicans. Strayhorn is openly considering a challenge to his reelection bid next year. And Shepard says the comptroller is showboating. Shepard is executive director of Texans for Texas, which publishes periodic email flyers on state issues from a conservative viewpoint (it's free; sign up at www.tx4tx.org). Without repeating her support for Perry, she blasts Strayhorn in the latest edition for flunking the House's tax bill and calls on the "rough grandma" to resign. Strayhorn, you'll remember, said the bill as passed by the House would raise $4 billion less than it spends; House leaders said she ambushed them after they consulted with her. She said they made big last-minute changes without asking her tax wizards about the effects. Shepard sides with the House and says Strayhorn was playing to the spotlights. Strayhorn aides passed when given a change to comment, but noted Shepard's support for Perry.

Hays, Giuliani, Simmons, appointees, births and a duckSusan Hays is resigning as chair of the Dallas County Democratic Party, the victim of infighting spurred by her endorsements -- one on Party letterhead -- of a couple of Republican federal appointees. Those are old news -- Hays has said she'd rather endorse good judges who are Republicans than fight everybody with an elephant pin in George W. Bush's home county. And the Democrats have started winning races there, topped by Lupe Valdez' election as Dallas County sheriff last year. Dallas County Democratic precinct chairs will meet over the weekend to elect her replacement. Hays, an attorney, has held the post for three years. Say goodbye to the artist formerly known as Bracewell & Patterson. The Houston-based firm has a new partner of some renown, former NYC Mayor Rudy Giuliani, and has changed its name to Bracewell & Giuliani. The new guy will work out of firm offices New York office. Add a blog to your list. Lobby Duck is an anonymous lobbyist who's writing about the session as if he/she/it were on vacation here. Check it out, at www.lobbyduck.com. The governor appointed Rebecca Simmons of San Antonio to the Fourth Court of Appeals for a term that expires at the next general election. She's currently a state district judge -- the 408th District Court -- and the chair-elect of the Texas Bar Foundation. Paul Green left that court to become a Texas Supreme Court justice in last year's elections. Perry reappointed Charles Aycock of Farwell and Jackie DeNoyelles of Flint to the Texas Board of Pardons and Paroles. Aycock is a former Parmer County attorney (that's Amarillo, to you new people), and still lives there. Denoyelles used to work for Perry, in economic development, and now works in the Palestine office of TBPP. And the Guv put Stella Caldera of Houston and Howard Johnsen of Dallas on the Texas Private Security Board, which licenses private investors, security guards and their ilk. Caldera is president and CEO of Etoile, Inc. Johnsen heads Hans Johnsen Co. and is a director of the Visiting Nurse Association of Texas. Born: Christopher John Mark Toureilles, to Rep. Yvonne Gonzalez-Toureilles, D-Alice, on the afternoon of Good Friday. He was 6 lbs. 12 oz., and 20" tall. Everybody's fine.

Will Texas House members have to go a "trust, but verify" strategy before voting on another tax bill? Will the folks in charge get a chance for revenge against the state's chief number cruncher? Does this sound like a bad imitation of a Batman comic book?Their first effort, pushed by House Speaker Tom Craddick and other House leaders (with significant help from allied lobbyists), passed by a narrow margin. A couple of days later, Comptroller Carole Keeton Strayhorn bombed it, saying the measure spent around $12 billion on local school property tax relief while raising only $8 billion for that purpose. The tax legislation, in other words, would create a $4 billion deficit. Craddick House leaders said she was either incompetent or dishonest, but state law says it doesn't matter: The only numbers that count, as a matter of law, are those from the comptroller. That's always been the case for state budgets, though lawmakers now argue the point and have seen some sympathy for that view from Attorney General Greg Abbott. But tax bills are different, since the comptroller is not only the official estimator but also the tax collector. As it stands now, what she says goes. Tempers have settled a bit, but there's still a quiet effort in the House to take away some of the comptroller's powers or to punish Strayhorn in some way for embarrassing the House. In the Senate, where the comptroller raised tempers two years ago, she's in better shape; they got their pound of flesh by removing performance reviews -- the e-Texas program -- from her office and putting in the LBB.

Gary Scharrer will remain in Austin, reporting and writing for San Antonio instead of El Paso.Scharrer, who has been working for the El Paso Times for a quarter of a century -- his words, or we'd have been gentler, will leave that paper at the end of April for the Austin Bureau of the San Antonio Express-News. He's been reporting on state politics since 1987 for the paper, and will actually pass his 25-year marker in mid-April. The San Antonio shuffle started with Gardner Selby's move to the Austin American-Statesman.