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Governor Bush and the Texas Surplus

By Bill Zeeble, KERA 90.1 FM reporter

Dallas, TX – Bill Zeeble , KERA 90.1 reporter: All through the Presidential campaign, Governor Bush has declared his plans for the projected federal budget surplus expected this decade. It could be as much as four trillion dollars.

George W. Bush, Republican candidate for President and Governor of Texas (taped from the first, October 3rd, 2000 debate): I want to take one half of the surplus and dedicate it to Social Security, one quarter of the surplus for important projects, and I want to send one quarter of the surplus back to people who pay the bills.

Zeeble: Cutting taxes when there?s a surplus ? which the Governor?s done in Texas and would like to do from the White House - is a foundation of Mr. Bush?s governing philosophy.

Bush: I want everybody who pays taxes to have their tax rates cut.

Dale Craymer, Chief Economist, Texas Taxpayers? & Research Association: In Texas, about a quarter of the overall surplus last session was devoted to tax relief.

Zeeble: Dale Craymer used to be the Governor?s deputy budget director, and also served under Governor Ann Richards. He?s now Chief Economist for the Texas Taxpayers? and Research Association, based in Austin. It?s a non-profit, business-funded organization that that distributes tax information and lobbies Texas officials.

Craymer: Those are about the same targets he?s working with at the national level. The tax cuts were broad in their application. You saw funds targeted for property tax relief to all property owners. And you saw exemptions for non-prescription drugs, sales tax holiday, and there were business tax incentives targeted toward encouraging investment in the state.

Zeeble: All that took place last year, adding up to nearly two billion dollars in tax. Bush initially asked for more relief, exceeding two and a half billion dollars. That amount got scaled back, after legislators approved higher teacher pay raises and more health insurance for children. In the 1997 session, the Governor pushed for a far more comprehensive and complex overhaul of the state?s tax system. He wanted to increase the state?s share of school spending and secure more taxes from some businesses currently protected under state law. Some Democratic and Republican legislators praised the effort as ambitious and visionary, but it did not pass. A billion-dollar property tax cut did pass, though, in the form of an increased homestead exemption. In both sessions, legislators spent days fighting for pieces of the heavenly manna they never see in leaner times. Democratic State Representative Paul Sadler, who chairs the Public Education Committee, said he was completely surprised by the Governor?s desire for tax cuts.

Paul Sadler (Democrat), State Representative (District 8) and Chairman, Public Education Committee: The one in ?97 - which he didn?t warn anyone about - he simply called a press conference and said, ?I want to commit a billion dollars of potential surplus to a tax cut.? And did it without consulting Bullock or speaker Laney. It caught all legislators off guard. Again in ?99, once again there was a surplus, he went out on his own and said, ?We?re going to utilize this amount of money in tax cuts,? without, to my knowledge, consulting anyone.

Zeeble: Some who watch the Texas legislature, like Austin American Statesman columnist Dave McNeely, say presidential politics probably played a role in the tax cuts.

Dave McNeely, columnist, Austin American Statesman: The tax cut was something Bush was gearing to, to compete in the 2000 primary in Iowa and New Hampshire. The Republican primaries. That?s what it was directed for. They will tell you every way from Sunday that Texans really needed the money back.

Zeeble: Governor Bush denies politics played any part in his tax cut plans. And his spokesperson Ray Sullivan says the Governor made sure key programs, like education, got the money they needed.

Ray Sullivan, Spokesperson, Bush presidential campaign: He said, ?Once we?ve funded priorities, let?s give some surplus back to those who earned it and paid it in the form of tax cuts.?

Zeeble: But some legislators, Elliott Naishtat among them, weren?t sure that was the best use of the surplus. The democrat chairs the state?s House Human Services Committee. He says he?s confused by Governor Bush?s tax cutting approach

Elliot Naishtat (Democrat), State Representative (District 49) and Chair, Texas House Human Services Committee: Because I don?t see the people of this state and I don?t see the people of the United States screaming and yelling for tax refunds. Sure, taxes are high. But we have so many services at the federal and state level which need to be funded. I don?t need to remind listeners that Texas ranks at the bottom of the ladder in every category of health and human services spending.

Zeeble: Naishtat?s correct, according to government figures. When looking at teacher pay and benefits, high school drop-out rates, public health funding and insurance for low income children and families, Texas ranks so low, 90% of the nation?s states do better. Representative Paul Sadler wanted to change that.

Sadler: We must pay our teachers a fair wage. I think it?s appalling, the health needs of our children. We should do more and better to do that.

Zeeble: Sadler wanted Mr. Bush to call a special session before 1999, to launch the Children?s Health Insurance Program, or CHIP. But Bush did not. The state is now signing up 400,000 children for the program by next year. Critics say those children could have had insurance coverage already, had the Governor acted sooner. But Bush representatives say the program?s working fine, as intended. John Cole, President of the Texas Federation of Teachers, blames the tax cuts on some of the state?s continued teacher shortages. Legislators passed a $3,000 teacher pay raise last session. But Cole says twice that was needed to meet the national average salary, which the surplus could?ve funded. Instead, he says, thousands of certified teachers are not teaching in Texas.

John Cole, President, Texas Federation of Teachers: They?ve chosen to go into business; they?ve chosen to earn more money doing something else. And we need to get them back.

Zeeble: Cole calls last year?s billion-dollar property tax cut a sham, in part because it represented a paper savings of $40 or $50 off annual property taxes.

Cole: The state allowed for an increase in the homestead exemption for school districts, which cut into tax revenues for school districts; but they needed that money to operate. So they just raised their local tax rates to offset the increase in the homestead exemption.

Zeeble: In other words, it was a wash, according to the Texas Weekly?s Ross Ramsey. The magazine is the inside political read for lobbyists and legislators. Ramsey says the tax cut was designed to win some votes, but not much else.

Ross Ramsey, Editor, ?The Texas Weekly?: You can give a million dollars to one guy and he?ll be happy; or you can give a million people a buck and they?ll be glad for the buck and you won?t remember it long. What you have is the latter.

Zeeble: Economist Ray Perryman says the Governor and legislators faced the same problems anybody confronts when demand outstrips supply.

Ray Perryman, President, The Perryman Group: Most people have a priority consistent with their own pocketbook The organization representing the teachers feel more money should have gone into pay raises. The organization that represent children?s health insurance think more money should go there; the ones that impact the criminal justice system think money should have gone there.

Zeeble: But Perryman calls the property tax cuts significant, valuable.

Perryman: And in that process you did re-allocate a lot of resources in an efficient and more effective way, ?cause the property tax is a fairly inefficient taxing mechanism. In that perspective they?ve been positive, brought some benefits. Clearly they?ve not solved all the problems of Texas; they?ve not - in terms of economic development incentive cuts, gone far enough - but they?ve been an overall net benefit to the state economy.

Zeeble: As for the next state budget, the jury?s still out over whether there?ll be another surplus. It could reach one and a half billion dollars - there might be none. If there is money, Republican legislator Bill Ratliff, who chairs the Senate Finance Committee, says he already knows where he?d put some.

Bill Ratliff (Republican), State Senator (District 1) and Chair, State Senate Finance Committee: The highest and best use of a good portion of that is to create a partially state-paid teacher health insurance program. That?s what I?ll be advocating.

Zeeble: Without it, teachers complain last year?s pay raise will keep getting eaten up by higher health insurance costs, the same way rising property values cut into the property tax cuts. Should Mr. Bush reach the White House, all agree he?ll keep his promise and try to cut taxes. As in Austin, there?ll no doubt be big debates over the trade-offs between tax cuts and funding of social programs. But if Mr. Bush is President, the budget fights in Texas could seem like fun and games compared to the partisan bickering that defines Congressional battles. For KERA 90.1 I?m Bill Zeeble.