Congratulations, Texas, It’s a Budget Deal! You Lost.
Texans, you can put down your pitchforks and douse your torches: The edibles you’ve squirreled away in your emergency bunkers can be safely consumed. Life can begin anew. The tax cut war between House and Senate has been resolved, which means that barring a catastrophic screw-up—say, Comptroller Glenn Hegar realizing he misplaced a decimal point in the revenue estimate—we won’t need that special session on budget issues that legislative observers and hack journalists have worried you all about so much.
Is the package—a $3.8 billion dollar bundle of franchise and property tax cuts—any good? Well, that depends on your point of view. Most everyone, save some Democrats and probably a few right-wing senators, is about to tell you, loudly, that the budget deal is very, very good. There’s a great deal of face-saving to be done. This is the point of the session at which former enemies congratulate each other for the finest and most noble works of government since Periclean Athens: Patrick himself posited that this might have been the best legislative session in the state’s history.
The business lobby did pretty well in the tax deal, but the picture is a bit more complicated for most of the other players. The widespread perception outside the Capitol will be that Patrick “won” by getting some property tax cuts past the House. Meanwhile, Texans are getting a raw deal—with too small a tax break to make a real difference for most, and less money coming down the pike now and in the future for basic services like education.
The deal hasn’t been finalized quite yet, but here’s what we know so far: The two chambers have agreed on a 25 percent cut to the franchise tax. The huge property tax deal Lt. Gov. Dan Patrick bet nearly all of his chips on this session is dead, and in return for its death the House has agreed to a fixed increase in the property tax homestead exemption—from $15,000 to $25,000—which is smaller than Patrick’s original proposal.
The deal lets Patrick save face after abandoning his all-or-nothing approach to his property tax plan. But some of the key provisions that Patrick’s conservative backers most wanted, like tying the homestead exemption to median home values, are gone.
Did he, in the vulgar language of the Capitol, “win”? That depends on what you think the game was. If Patrick’s goal was to provide any kind or flavor of property tax “relief,” he succeeded. But the stakes here were always higher for Patrick than they were for the House.
Privately, many in the lower chamber didn’t really believe in a future for their plan, except as a negotiating tool to curb Patrick’s ambitions. When you take into account the different goals for the two chambers, it is harder to say who came out on top. The House won franchise tax cuts that the business lobby liked more than those offered by the Senate. By offering a larger overall tax cut plan than Patrick did, the House deprived Patrick of the political ammunition of claiming the House was standing in between you and cutting your property taxes. It’s very difficult for legislators to stand against property tax cuts, which are essentially political heroin, and yet they found an effective way to do so.
Patrick wanted and needed a signature victory for this session, his first. After all this furor, Patrick is likely to win for his constituents a smaller-than-expected tax break that most Texas homeowners—the people whom Patrick is expecting to give him credit—won’t even notice, because they’ll be swallowed up by rising rates and home values. Average homeowners might pay about $120 less in property taxes than they might have otherwise, but how many will notice or care as their taxes continue to go up? The only thing that can bend the property tax curve downward is a substantive reorganization of the state’s overall tax structure. Anything else is a band-aid, and not a long-lasting one at that.
It’s not really the stuff that launches political careers skyward. Some of Patrick’s supporters have said the Legislature can rededicate itself to real property tax reform next session, but that seems doubtful. The economy will likely have cooled, and the state may face a budget hole thanks to the school finance lawsuit and other looming budget issues. This session may have been the last, best opportunity to do a big tax cut deal.
If you think Patrick’s original plan stunk, you should be grateful to the House for somehow convincing him to abandon what was his biggest priority, one he kept doubling down on. And in the course of the standoff, the size of the offered tax plan, which at one point had almost reached $5 billion, has shrunk down to $3.8 billion. That’s a sizeable chunk of change the state will need in the 2017 session, or the next special session, when it’s likely to need it very badly.
But there’s still an opportunity cost to going along with even the small property tax cut. In the draft of the budget released by the conference committee Wednesday afternoon, a package of additional money that the House had attempted to allocate to public education had been scaled back from $2.2 billion to $1.5 billion. It cannot be said enough that Texas has not returned to the same level of investment in public services, particularly education, that it had before the last recession.
These are supposed to be flush times, when we store up our surplus and make prudent investments before the next winter. That’s fiscal conservatism. Instead, we’re ensuring that when hard times come again—as they inevitably will—the cuts we’ll have to make will cut even deeper. It’s a fundamentally reckless way to run the state.