Schools and Taxes: The Next Big Thing

The primary elections come in less than five months. The general election is about a year away.

When that's all out of the way, we'll all be talking about lawsuits — some that have been filed, some that will be filed later — on school finance and franchise taxes.

The first of the school finance suits was filed earlier this month and another is expected to follow. And the first of two challenges to the state's primary business tax went to the Texas Supreme Court this week.

The two issues are entwined. They were last revised in a special session in 2006 when legislators cut local school property taxes and promised to make up the difference with state funds — funds that would be raised, in part, with a revised franchise tax.

Lawyers for the state told the Texas Supreme Court — under questioning from the chief justice — that a successful challenge to the tax would throw lawmakers into special session to try to find enough money to pay for public schools. 

Allcat Claims Service and John Weakly, a former partner there, are suing the state over the franchise tax, saying it violates a constitutional ban on personal income taxes in Texas because it taxes the business income of business partners as well as corporations.

The state's argument is that the tax doesn't tax the partners themselves — individuals who are protected from state income taxes — but the partnerships to which they belong. The state also says the tax isn't based on net income, but on a company or partnership's gross receipts.

The tax has been problematic, raising less money than estimated and leaving the state short of what it needed to make the 2006 package balance. And now, because lawmakers didn't ask voters for approval, this lawsuit says the tax violates a constitutional provision that permits personal income taxes only if voters allow it.

The justices are also deciding whether the case should have come directly to the state's highest civil court or should have been filed in district court.

A ruling is expected within about a month.

A second lawsuit, based on the different tax rates for different businesses, was filed last week.

The question for the 2013 Legislature is whether any of those cases will cost money, and whether they'll cost money before, during or after that legislative session. It's hard to find a legislator who thinks the state will win the school finance fights. And the franchise tax is troublesome even if it survives the challenges. It doesn't bring in the money they hoped and planned for.

Schooling the GOP

Austin High School
Austin High School

As the field of candidates shapes up for the March 2012 primaries, a new — at least since last election cycle — breed of GOP hopeful is emerging: the education Republican. In several races across the state, candidates who hope to turn the conversation from the anti-Washington cries of the last round for to worry over increasing school class sizes and more rigorous student testing.

At least four candidates have formed campaigns based on public education issues so far: Bennett Ratliff, who’s running for an open Dallas-area House seat; current State Board of Education member Marsha Farney, who’s running for an open seat in Georgetown; Trent Ashby, who’s challenging freshman state Rep. Marva Beck of Centerville; and James Wilson, who’s opposing state Rep. Debbie Riddle in her district bordering Houston.

“People are just now beginning to understand and feel the impacts of the budgetary constraints,” says Ratliff, a longtime member of the Coppell ISD school board in suburban Dallas. “Just now gone back to school, just now starting to realize that student teacher ratios aren't what they've been. They’re just now starting to realize we are starting to look at programs we that may not survive next year.”

That doesn’t necessarily translate to voters wanting to spend more — both Ratliff and Ashby emphasize the need for local control and school finance reform over increased funding.

“I haven't been out on the stump saying that we need to throw a bunch of new money at public education in Texas,” says Ashby, who is the president of the Lufkin school board.

The success of their candidacies will be an effective gauge as to how much the public is feeling the sting of the Legislature’s cuts to public education. And some argue that just because candidates are running on pro-education platforms doesn’t mean that’s what voters care about right now. Beck, Ashby’s opponent, said that in her interactions with constituents, public education isn’t foremost on voters’ minds. A candidate with a school board background like Ashby, she says, would naturally emphasize education. Though there were “issues in public education that need to be addressed,” she says that along with the continued budgetary difficulties, her constituents were primarily concerned with border security.

“If you aren't safe to go to school then the problems at school become secondary,” she says. “There is violence beyond belief that is happening on our border.”

Lawmakers have felt the consequences of a perceived hostility to public education before. The most famous recent example was in 2006, when state Rep. Kent Grusendorf, then the chairman of the public education committee, lost his bid for an eleventh term to state Rep. Diane Patrick, R-Arlington, after a contentious battle over vouchers and school finance during the previous session.

Patrick, who has endorsed Ratliff, says that, “there are concerns everywhere” that public education remain what she says was already the top priority for the Legislature.

“A good strong public education system is essential to the economy of the state,” she says. Those who are running on public education platforms “understand that relationship.”

Campaign Chatter

Michael McCaul who serves the 10th District of Texas in Congress
Michael McCaul who serves the 10th District of Texas in Congress

Delete Michael McCaul from your calculations about the U.S. Senate — after several weeks of thinking it over, he announced he won't seek the seat left open by U.S. Sen. Kay Bailey Hutchison's retirement. That's good news for the rest of that pack. With large numbers of undecided voters and McCaul's built-in treasury (his father in law is Lowry Mays of San Antonio, who made a fortune with Clear Channel Communications), McCaul could have made it more interesting than the competition might like. But after looking at it for a few weeks, he blinked.

Lt. Gov. David Dewhurst, who has been elected statewide four times and is also sitting on a personal fortune, is the presumptive favorite. Former Dallas Mayor Tom Leppert has as much in his campaign coffer as Dewhurst, but is in his first statewide race. Railroad Commissioner Elizabeth Ames Jones is a statewide elected official, but she's got a puny campaign account, especially for a statewide race. Ted Cruz, the state's former solicitor general, is in his first election and is in between, with less money than Dewhurst and Leppert and more than Jones. He's trying to build his campaign on grassroots enthusiasm, with significant success.

That's one of the things that prompted the retooling in the Dewhurst campaign, with the returns of Buddy Barfield, Kevin Moomaw and David Beckwith.

Victor Vandergriff won't run for the Texas Senate, but former Rep. Toby Goodman, R-Mansfield, announced his campaign the next day. He'll face Rep. Rodney Anderson, R-Grand Prairie, in a Republican primary to replace retiring Sen. Chris Harris, R-Arlington. Harris had publicly encouraged Vandergriff to run, but switched to Goodman when Vandergriff decided to stay put. Goodman lost his seat to Democrat Paula Pierson in 2006; Pierson lost to Barbara Nash, a Republican, last November. Texans for Lawsuit Reform, which had encouraged Anderson's challenge to Harris, officially endorsed him after Vandergriff's announcement. But Goodman came in with a pack of local pols endorsing him, including Charlie England. England is the mayor of Grand Prairie, where Anderson lives, and the father of Kirk England, who lost a House seat to Anderson last November.

Bob Yancy got a Texans for Fiscal Responsibility endorsement in the HD-14 race that's underway now. That Brazos County election is the last that will be held under the current House maps; the winner gets Rep. Fred Brown's chair until early 2013, and will have to run again in March and November in a new district. Yancy also picked up a nod from the Young Conservatives of Texas. Judy LeUnes, the Democrat in that race, picked up an endorsement from the Texas branch of the American Federation of Teachers.

Former Texas Railroad Commissioner Victor Carrillo is endorsing Rep. Warren Chisum, R-Pampa, for the RRC seat that'll be open when Elizabeth Ames Jones' term is over. Chisum also has Rob Looney of the Texas Oil & Gas Association, Wallbuilders founder and president David Barton and Carol Everett, founder of the Heidi Group. Chisum will face Christi Craddick and Roland Sledge in the GOP primary.

The family of Railroad Commissioner Barry Smitherman is feeling generous toward Gov. Rick Perry, who appointed him in July. As reported in the Huffington Post, Smitherman, his wife Marijane, son Wyatt, who's at Texas A&M, and a daughter each donated the $2,500 maximum to Perry's campaign. Another son, who still lives at home, sent in $1,000.

Scott Sanford, a McKinney Republican, will run for the Texas House in Ken Paxton's seat. Paxton is giving up HD-70 to run for the state Senate. He's a CPA and executive pastor at a Baptist church.

Ann Witt, who lost a bid for the Texas House ten years ago, is making another run at it as a candidate in HD-136. She's a real estate and land developer. She challenged Rep. Scott Hochberg, D-Houston, in her last go-round; this time she's running for the open seat where Rep. Beverly Woolley, R-Houston, is retiring. Two others are already in: Pam Holm and Michael Schofield.

Running for re-election: State Rep. Bill Callegari, R-Katy.


Inside Intelligence: Perry's Report Card

We stuck with the presidential race and the governor in this week's nonscientific survey of political and government insiders, asking for their impressions of Gov. Rick Perry and how his candidacy reflects on the state.

A majority say his candidacy has hurt the state's image outside of Texas. Only about one in ten thinks his campaign has helped Texas' image. We asked about Perry's campaign claim that his stewardship is responsible for the relative strength of the Texas economy; 18 percent agreed, while 80 percent credit the state's natural resources and long-standing policies like a balanced budget, no personal income taxes and a lenient regulatory environment.

More than half of the insiders disapprove of the job Perry's done as governor, while about a third give him good marks. They're opinionated: Only 2 percent "neither approve nor disapprove" and nobody checked the "don't know" box.

Finally, we asked the insiders to score the governor on a number of attributes, on a ten-point scale. They were least likely to agree that Perry can be described as "corrupt" or as an "outsider" or as "competent." They agreed most strongly with descriptions of the governor as a "career politician", "conservative", "self-serving" and "a real Texan."

As always, we've collected the full set of verbatim comments to our questions and they're attached. Here's a sampling:

Regardless of how you view Rick Perry, do you think his candidacy has helped, hurt, or had no effect on Texas's image among voters outside of the state?

• "Opponents bang but the noise rapidly fades."

• "Having the state discussed nationally never hurts. Especially when they say we had 4 aces dealt to us in Texas."

• "Had the media probed his leadership and policies for the past 10 years, had he been held accountable, he wouldn't be running for president and we wouldn't be in this position of embarrassment."

• "The view of Texans as crude and ignorant has been reinforced"

• "He's partly stupid. Just the part that shows on TV."

• "It has simply reconfirmed what the rest of the country already thinks about our state. People like Debbie Riddle, Leo Berman and Louie Gohmert have done their part to make our state a national laughing stock as well."

• "Reminds rest of U.S. what they don't like about Texas -- the swagger and perceived rudeness and intolerance"

• "1000 people moving here a day for work speaks for itself."

Some say Texas's natural resources and long-existing policies such as a constitutionally required balanced budget, no income tax, and a lenient regulatory environment are the main reasons the Texas economy has fared better than the national economy. Others say that Rick Perry's leadership in promoting policies such as low taxes, lenient regulation, and small government is the main reason the Texas economy has fared better than the national economy. Which would you say is closer to your own view?

• "Fared better is both a temporal and relative. Yes natural resources have helped us weather a storm. But we're still a low-wage economy and just because we didn't fall to the mat doesn't hide the fact that a lot of families are living month to month."

• "Many states have resources but push policies to stop their harvest. Many states change tax policies yearly. Texas has a friendly regulatory climate and low taxes because Perry and the legislature have not changed their policies."

• "Rick played the cards that were dealt to him. He played the hand well. He deserves credit for his play, and should thank his lucky stars he's from Texas!"

• "I would add that Rick Perry's leadership and policies have put Texas in the place it is now, which is not only not entirely better than the rest of the country but is only temporary. When the chickens come home to roost, we will see the real impact of Rick Perry's tenure and it won't be pretty."

• "Rick Perry is the 'Mack Brown' of Texas Governors. He will never get enough credit for all the things that he initiated while in office, but will certainly bear the brunt and criticism for everything that went wrong."

• "Perry has been dumb lucky"

• "But to Perry's credit, he didn't screw it up, and there is something to be said for that."

How would you rate the job Rick Perry has done as governor?"

• "I know people will disagree, but Texas is the envy of many states and the governor and legislature deserve much of the credit."

• "In 11 years under his term, Texas has seen two school finance lawsuits, twice that the state's budget has been majorly in the hole, caters to special interests (HPV mandate), caters to his rightwing base (sanctuary cities, sonogram before abortions, voter ID), and yet we find our state worse off then it was when Dubya was here."

• "In almost every measurement that impacts middle class families (education, higher ed costs, children's healthcare, insurance, utility costs) Texas lags in the good stuff and leads in the bad stuff."

• "His critics can say what they want, but Texans have said 'YES' every time he's been on the ballot for Governor. If you're a D, that either says something good about the man or something bad about your candidates."

• "Outstanding judicial appointments; real leadership in protecting the Rainy Day Fund and limiting the size of government; bold attempts to address transportation and infrastructure issues"

Here are several descriptive words or phrases. Using a 0-10 scale, where 0 means “not at all well” and 10 means “extremely well,” please tell us how well each item describes Governor Rick Perry.

• "The dude's for real."

• "How do you define a real Texan?"

• "Career Politician - so many use that word as a pejorative. It's not, or rather - it shouldn't be. But anyone who's spent as much time in office as he has is certainly a career politician. 'Washington Outsider' - hell yes! Didn't you read Fed Up?"

• "Not sure if 'Strong, Conservative Leader who is dishonest and barely competent' is a winning slogan, but nothing else is working."

• "Although I disagree strongly with his ideology, his tactics and his priorities, I acknowledge that the guy is clearly a strong leader--by whatever means they are that he uses, he bends people and processes to his will. He's a strong leader...he's just not a good leader."

• "For as long as he has been 'in' office, Austin's political establishment considers him an uncouth outsider intruder on their private party. Just how many times can you guys write his political obituary?"

• "Every negative article that appears today in the national press relates to a friend that he has rewarded in some way."

Our thanks to this week's participants: Gene Acuna, Cathie Adams, Victor Alcorta, James Aldrete, Clyde Alexander, Jay Arnold, Louis Bacarisse, Charles Bailey, Tom Banning, Mike Barnett, Reggie Bashur, Walt Baum, Leland Beatty, Dave Beckwith, Andrew Biar, Allen Blakemore, Tom Blanton, Hugh Brady, Steve Bresnen, Chris Britton, Andy Brown, Terri Burke, Kerry Cammack, Marc Campos, Snapper Carr, Tris Castaneda, William Chapman, George Cofer, Rick Cofer, John Colyandro, Harold Cook, Hector De Leon, June Deadrick, Tom Duffy, David Dunn, Jeff Eller, Alan Erwin, Jon Fisher, Robert Floyd, Terry Frakes, Dominic Giarratani, Scott Gilmore, Daniel Gonzalez, Kathy Grant, John Greytok, Michael Grimes, Billy Hamilton, Bill Hammond, Sandy Haverlah, Susan Hays, Ken Hodges, Laura Huffman, Shanna Igo, Deborah Ingersoll, Jason Johnson, Mark Jones, Robert Kepple, Richard Khouri, Kenneth Kramer, Dale Laine, Pete Laney, James LeBas, Donald Lee, Luke Legate, Leslie Lemon, Richard Levy, Ruben Longoria, Homero Lucero, Matt Mackowiak, Dan McClung, Parker McCollough, Lynn Moak, Bee Moorhead, Steve Murdock, Craig Murphy, Keir Murray, Keats Norfleet, Pat Nugent, Sylvia Nugent, Todd Olsen, Nef Partida, Jerry Philips, Tom Phillips, Wayne Pierce, Kraege Polan, Andrea Rado, Bill Ratliff, Tim Reeves, Carl Richie, Kim Ross, Jason Sabo, Luis Saenz, Mark Sanders, Andy Sansom, Jim Sartwelle, Stan Schlueter, Bruce Scott, Bradford Shields, Dee Simpson, Ed Small, Martha Smiley, Todd Smith, Larry Soward, Dennis Speight, Bob Strauser, Colin Strother, Michael Quinn Sullivan, Sherry Sylvester, Russ Tidwell, Bruce Todd, Trent Townsend, Trey Trainor, John Weaver, Ware Wendell, Ken Whalen, Darren Whitehurst, Woody Widrow, Michael Wilt, Seth Winick, Lee Woods, Peck Young, Angelo Zottarelli.


The Week in the Rearview Mirror

Early-voting signs went up this week for the Nov. 8 election on 10 proposed amendments to the state Constitution. Lawmakers crafted the propositions during the legislative session, and now it’s time for voters to weigh in on such issues as funding of water projects, student loans, agricultural exemptions and rules for officeholders. The 135 year-old Constitution has been amended almost 500 times, and most amendments usually pass. Historically, turnout in these elections is low — less than 20 percent.

A hearing on the validity of the recall petitions against three El Paso officials is under way. Attorneys for El Paso Mayor John Cook called on signers of the petition to testify to their affiliations with local churches, which Cook and others contend is an illegal avenue for gathering signatures. El Pasoans for Traditional Values, which has mounted a campaign against Cook and two city council members for their votes in favor of extending health benefits to the partners of gay and unmarried city employees, says it didn’t violate state law in circulating the petitions and is free to act like a corporation. Last year, the U.S. Supreme Court granted corporations the same rights as individuals in the political arena.

Another Texas mayor may be facing a recall. New Braunfels Mayor Gale Pospisil received an angry letter from a local businessman and political activist expressing his dissatisfaction with her recent actions surrounding a proposed disposable-container ban. The ban is up for a vote on Nov. 8 and has already drawn big crowds during early voting. Mark McGonigal got the issue on the ballot after city officials passed the ban earlier this year. McGonigal accused the mayor of distorting the facts, saying that the volume of trash was reported in gallons rather than pounds, making the totals harder to verify. He also accused the city of counting items thrown into riverside trash cans. 

Occupy Fort Worth is struggling to find its footing after different groups of protesters have presented themselves as the voice of the local movement. The first incarnation of the group worked with authorities to gain access to free parking spaces near its Burnett Park encampment. But after demonstrators were arrested for obstructing access to the sidewalks near the park, the protesters split into two groups, and their relationship with the authorities has grown tense. The group that left the park is making plans to re-form at another location and has called the remaining protesters anarchists.

It’s not as dramatic as a hurricane, but the drought is wreaking havoc on Texas agriculture. Farmers who’ve suffered losses in the millions are receiving payments from a national crop insurance program, but it’s estimated to be only about a third of the amount farmers will lose this year. Ranchers are in an even worse predicament, with no hay to feed their animals. Relief for some starving animals has come from organizations like Ranch Hand Rescue that are taking in as many animals as they can, but it’s not enough for many, and a petition has been posted online asking Gov. Rick Perry to authorize spending state funds on drought relief.

For the first time this season, coastal residents are fighting off swarms of mosquitoes. The record drought had kept their eggs dormant, but heavy rain two weeks ago spawned the first batch of hatchlings this year and sent authorities into overdrive as they mobilized trucks and planes. Neighborhoods throughout coastal counties are scheduled to be sprayed until a cold front moves in and slows the pests.

Taxation, rarely a popular subject in Texas, was under increased scrutiny this week as the state Supreme Court began hearing a case challenging the constitutionality of the state’s major business tax, known as the margins tax. In 2006, the Legislature revamped the school finance system by increasing the business tax while reducing property taxes. But the resulting margins tax has never produced the projected income and is now being contested in court as an income tax, which the state Constitution prohibits.

After a two-year legal dispute between the Lower Colorado River Authority and the city of San Antonio, the parties have reached a settlement approved by LCRA’s board that will send $30 million to San Antonio. The first payment of $18.8 million would be paid out immediately, and the remainder would be paid out at the rate of $1.4 million for the next eight years. The LCRA was unable to proceed with a deal to provide water to San Antonio after conducting thorough and costly feasibility studies, prompting the city to sue to recover the cost of the studies.

Political People and their Moves

Think of this as having all of the names in one place, since you've likely heard it: Joe Allbaugh joined Rick Perry's presidential campaign as a senior advisor, apparently sitting at the top of the organization chart. Nobody is leaving the campaign, apparently, though the roles of the new folks and the pre-existing folks aren't entirely clear. Allbaugh, until now a lobbyist, managed George W. Bush's campaigns for governor in 1994 and for president in 2000 and Rudy Giuliani's campaign for president in 2008.

They've added Tony Fabrizio and Fred Maas as senior advisors too, and Curt Anderson, Jim Innocenzi and Nelson Warfield will work on the media squad for the campaign. And Stanton Anderson will be the campaign's liaison to Congress.

Luke Marchant is joining David Dewhurst's U.S. Senate campaign as a political consultant; he'll focus on organization. He's the son of U.S. Rep. Kenny Marchant, R-Coppell, and was most recently the political director for U.S. Sen. Marco Rubio, R-Florida.

Brian Newby, a Fort Worth attorney, former chief of staff to Gov. Rick Perry and a judge advocate in the Air National Guard, won a promotion to Brigadier General. He's also the new chief of staff and vice commander of the Texas Air National Guard.

Matt Barr, a former legislative staffer who was most recently a regional aide to U.S. Sen. John Cornyn, is joining Houston-based Strategic Public Affairs.

Department of Corrections: In an earlier version of this week's newsletter, we put another name on Raul Torres' quote (see Quotes of the Week). It's fixed now. Sorry, sorry, sorry.

Quotes of the Week

Not attending the debates would just reinforce the image that he’s not ready for prime time — that he can’t compete on that playing field, therefore he’s choosing not to play.

Mark Jones, a professor of political science at Rice University, to the San Antonio Express-News on talk that Gov. Rick Perry will opt out of future debates

I can tell you that after the first 45 minutes I was tempted to walk off that stage.

Presidential candidate Ron Paul of Texas, quoted by the Des Moines Register after the latest GOP debate

I voted for it but it was not in my best interests to do so.

State Rep. Raul Torres, R-Corpus Christi, on the redistricting map he's hoping the federal courts will overturn, quoted by the Rio Grande Guardian

Every once in a while, you hear of somebody making a clean break, but that is few and far between. If you put on airs, and there is nobody that has your back, they will rat you out in a second.

Retired FBI agent Peter Hanna, who investigated the notorious Gulf Cartel for years, to the Houston Chronicle on the capture of Rafael Cardenas Vela, nephew of the imprisoned cartel kingpin Osiel Cardenas Guillen

Get the ginger ale ready!

U.S. Senate candidate Tom Leppert, a Rangers fan jumping the gun on Twitter during Game 6 of the World Series