Despite key policy friction, special session may be averted

posted on 5.11.2015

 - Budget, tax cuts, border security still pending

Legislative procedure and Texas’ cooling economy are giving lawmakers greater impetus to resolve a Senate-House dispute over the state’s next two-year budget before the current session ends June 1. With just three weeks remaining in the session, however, they’ll have to work hard and fast to lock in a plan that can withstand the increasingly turbulent economy, fulfill campaign promises and avoid inviting challengers in next year’s elections.

The 2015 regular session of the Texas legislature has been highlighted by concerns about border security, widespread interest in cutting tax revenue significantly and, of course, adopting a budget for the state’s next two-year spending cycle.

Currently, the House and Senate are about $300 million apart on border security, with the Senate being far more generous than the House where members continue to voice concerns that the Department of Public Safety lacks metrics to judge the success of the state’s efforts along the border. Nonetheless, this issue will be resolved and Texas will wind up spending somewhere between $500 million and $800 million on border security in 2017-18.

A final package of tax cuts is less certain. The House has passed a package of sales tax and franchise tax reductions. The Senate has approved a franchise tax cut and a strategy for reducing property taxes which includes requiring a super-majority vote by local governing boards on tax rate increases and further restricting the amount local school districts, cities and counties can increase tax revenues from one year to the next.

With the business community split on the tax cut approach – big business supports the House plan, while the National Federation of Independent Business is advocating for the Senate approach – it’s possible the Legislature will settle on a hybrid plan that cuts the state franchise and sales tax while also forcing reductions in the local property tax.

In any event, while the sum total of tax cuts will be large, they will be largely unnoticed by individual taxpayers, ranging from just $150 to $200 per person annually.

But efforts to smooth over differences in the state’s next two-year budget, including tax cuts, will likely succeed in short order because of a key constitutional provision.  If Governor Greg Abbott has to gavel in a special session so legislators can finish their budget work, Comptroller Glen Hegar will have to issue a new revenue estimate for the next biennium.

With continued low oil prices and the slowdown in retail sales and other economic activity, that estimate would likely be lower than the one Hegar issued at the start of the year, making the budget task even harder.

Questions? Contact TAB's Oscar Rodriguez or call (512) 322-9944.

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