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HB 2 Conferees Reach Agreement; HB 3 Conferees 'Real Close'

By J. Lyn Carl,

Austin, TX –

"This bill includes a lot for Texas," said House Speaker Tom Craddick (R-Midland) as he today announced the conferees on HB 2, the public school reform bill, have reached an agreement.

The announcement comes as legislators face a midnight Wednesday drop-dead time and date for the 79th First Called Session to end, and a mandate from Gov. Rick Perry to pass a public school reform bill and a property tax relief bill or face coming back for a second called session.

While Craddick was announcing the five House and five Senate conferees had reached an agreement on HB 2, the Conference Committee on HB 3 was meeting trying to iron out its differences in time to bring the bill to the House and Senate floors.

While things look to be inching closer together for passage of the special session's marquee legislation, Craddick's office was quick to point out in a statement today that, "HB 2 is still linked to property tax relief. Therefore, HB 3 (or similar legislation) must be passed - at any time - before HB 2 can go into effect."

And on the HB 3 front, it was deja vu all over again today. "We're very close," said Rep. Jim Keffer (R-Eastland), as the HB 3 conferees met this afternoon, repeating the oft-uttered mantra used in recent days to discuss progress by the committee.

"Although the hour is late, and we certainly all know we said in the very beginning, this situation of property tax and property tax reduction is not going to go way. We need to make sure the people of Texas are afforded every opportunity to enjoy property tax relief." Keffer said that has been, and will continue to be, the goal of the legislature.

Addressing the agreed-to language of HB 2, Craddick said, "Every public student in Texas will benefit from this legislation." He said it provides more money for every Texas school district, more money for districts serving at-risk and limited English proficient students, more money for small and rural districts, for school districts operating in high-cost areas, more for transportation, for textbooks and for instructional technology. "HB 2 also provides substantial relief from Robin Hood," said the Speaker.

Meanwhile, back at the ranch, Keffer said that late Monday, the governor, lieutenant governor and House Speaker met for approximately three hours of "discussion" on the HB 3. He said conferees were hopeful that discussion would continue later in the evening. "Unfortunately that didn't happen," he said. "We'll see if that made any difference."

While there are still some differences of opinion among House and Senate conferees on the provisions of HB 3, Keffer said the two sides are "as close as we've ever been." He said the House has agreed to come down on the sales tax increase it had proposed, included a property tax exemption the Senate felt was important, "and we agreed."

Keffer said a version of the bill that the House has signed off on and a version that the Senate had signed off on are being circulated. "I hope that sometime in the future we can get together and get those things worked out."

Sen. Steve Ogden (R-Bryan), Senate chair of the conference committee, said part of the discussion in today's hearing is "to show how close we really are so that there is still some hope for the future." He said that is preferable to someone saying of the legislature, "They couldn't agree and they all left town mad."

Ogden offered the following from the Senate version of HB 3:

- Reduction in the maintenance and operation (M&O) taxes in 2006 to $1.27 if immediate effect. The following tax year M&O tax reduced to $1.25. If voters approve, there will be an additional homestead exemption of $7,500. From 2007-2010, the goal will be to reduce M&O taxes to $1.10.

- Property tax administration issues - clarification on where oil and gas drilling rigs are taxed and clarification on property tax arbitration in the House bill.

- Franchise tax - agree with House to close loopholes - difference is that the Senate supports repeal of the throw-back provision in current tax law. If left in the law, it will be inconsistent with stated policy of the state regarding franchise taxes. If subject to franchise tax, only tax to extent of the profits made in Texas.

- Let the franchise tax expire on Jan 1, 2008, and require the next session of the legislature to completely overhaul the state's business tax with a goal of making it broadly based, uniform and at a low rate.

- Sales tax - Senate proposes an immediate increase by one-half cent. If voters approve homestead exemption in a November, 2005, election, the sales tax will increase to 6.95 percent. If the homestead exemption is not approved, the sales tax will go up only a half cent - on all items currently subject to the sales tax.

- Tobacco, alcohol taxes - Senate proposed and agreed with House proposal of a $1 increase per pack on cigarettes; cigars and other tobacco products to increase 13.6 percent. Alcohol tax increased by 10 percent, half of what was previously approved by the Senate.

- Appointment of a Committee on Business Tax Reform during the interim, to include one public member and four House members appointed by the House Speaker and one public members and four Senate members appointed by the lieutenant governor. The group will be a joint committee with subpoena powers.

- Submit constitutional amendment to voters regarding a 15 percent increase in the homestead exemption. If approved in November, at same time voters vote to increase the homestead exemption from $15,000 to $22,500, they will also be agreeing to increase the sales tax from 6.75 to 6.95 percent.

- Adopt House language on private contractors compensation for collection of debts owed to the state - so that the fee is not a flat 30 percent, but "not more than" 30 percent.

- Charitable bingo - reduce some Senate language so the provisions only apply to Indian tribes.

- Texas Economic Development Act - adopt House language with a temporary provision for two years. Double professional fees on 16 licensed professions in the state for that period.

"Based on our discussions, you agree with approximately 80-90 percent of this," Ogden said to Keffer. "We think this is something we can pass in the Senate." He added that it also represents a bill "not too far off" of what could pass in the House.

Keffer responded by addressing the sales tax proposals in the two versions of the bill. He said that although the House proposes an increase to a full 7 percent, "We'd not block a bill because of that small difference." He also said the House version adds to the tax base auto repair, bottled water, Internet access and computer maintenance.

"We're going to continue to work on this," pledged Keffer. "We want to assure the people of the state of Texas we're working hard on this. It's a complex issue and you can't do it quickly. We want to make sure whatever we do doesn't harm the economy and is good policy."

Rep. Kent Grusendorf (R-Arlington), House chair of the conference committee on HB 2, said the bill "changes the culture of education by providing greater efficiency, greater productivity, and more financial transparency in our public school system" by shifting the focus "where it matters most - in the classroom."

Among the provisions of the agreed-to language of HB 2:

- Provides property poor districts with the highest equalized funding guarantees in state history, with base (Tier 1) funding set at approximately the 95th percentile of school district property wealth, and new local enrichment (Tier 2) funding equalized up to the 96th percentile.

- Accountability - School districts will be required to spend more money on classroom instruction, with no less than 65 percent of each district's budget being allotted for instruction by 2009. They will be held accountable for students' progress toward English proficiency in bilingual education programs. Also provides more transparency for district budgets and spending, including how much is spent at each school compared to the amount of additional funding that districts receive to serve the students who attend that school.

- Teacher pay - All teachers to receive a $1,500 pay raise in 2006. School districts will also be given an extra $500 per teacher - for a total of $2,000 - to be distributed at their discretion. By 2007, districts will receive another $500 discretionary fee per teacher - for a total of $2,500.

- Local enrichment - Will require voter approval to increase taxes in the local enrichment tier, and school district trustee elections will be held in the November general elections of every even-numbered year. Establishes a uniform start date for schools on the first Tuesday after Labor Day.