Coalition Tests the Ways and Means of Closing Tax Loophole

You probably know the old divisions: Republicans are supposedly the party of cuts and Democrats are supposedly the party of spending. But for some reason, in the Texas Capitol anyway, House members on both sides would rather hang around the Appropriations Committee—where state money gets allocated—and no one wants to go to Ways and Means, the committee that, through its oversight of the tax structure, largely determines how much money there is in the first place.

But Monday’s Ways and Means hearing seemed to indicate a change to all that. A bill to close a technical tax loophole and save the state a scant $20 million drew supporters from a variety of advocacy and policy groups not normally found paging through the tax code. What did the groups have in common? They’re all part of Texas Forward, a coalition promoting “balanced” approaches to the budget.

So far this session, the Texas Forward coalition hasn’t exactly flexed its muscle. The group, made up of various non-profits and advocacy and policy organizations, has been pushing hard for the Legislature to spend the entire Rainy Day fund, the state’s $9 billion piggy bank, and has focused on the costs of the potential widespread cuts to education and healthcare.

But now it appears the coalition of more than 40 groups won’t just be limiting itself to fighting against cuts. They’re also looking for places to add dollars back into the budget.

“Instead of merely going to Appropriations and saying ‘Don’t cut! Don’t cut!’ we’re going to Ways and Means and saying ‘Raise revenue!'” explained Dick Lavine, the senior fiscal policy analyst for coalition member the Center for Public Policy Priorities, after the hearing.

Before Texas Forward members took the stand, state Rep. Mike Villarreal, who was carrying the legislation, laid the groundwork out for the coalition. He began by noting that closing the tax loophole would save $20 million over two years—the equivalent of putting 2,000 more students back on the state’s primary college scholarship program.

Then he explained the bill. It saves $20 million by ending a program that reimburses some businesses for their property taxes. The program came about back in 1995, after school districts stopped offering property-tax breaks to businesses moving to the locale. With the end of those breaks (called tax abatements in “Legislatese”), some businesses cried foul. They argued they’d relocated specifically for a tax abatement, and now the state was changing the rules in the middle of the game. So the Legislature voted to repay those companies for the property-tax deals they’d been promised.

It makes sense—except that the deal was over 15 years ago. The businesses affected by the change aren’t even allowed to receive those tax abatements anymore. (There’s a 10-year limit, and in this program, businesses can only get the deal for a max of five years.) Instead, new companies are applying for the tax breaks to get the best deal. When the law was first passed, only 16 companies applied to get reimbursed because of the 1995 policy change. But now, despite that change being more than 15 years old, an average of 148 businesses apply for the deal. Even the Legislative Budget Board, the state’s source of non-partisan fiscal information, had recommended the state save money by cutting the tax refund.

“Let me tell you friends, that first cohort has come and gone,” Villarreal explained. “Their expectations of receiving a property-tax abatement ended 10 years later. But yet this giveaway is still on the books and new cohorts of businesses take advantage of them.”

The supporters from the Texas Forward coalition then came in with gusto. Monty Exter of the Association of Texas Professional Educators, was especially blunt. “ATPE feels that this particular fund is an excellent example of fat in the budget,” said he said, using the popular conservative phrase. “This is an area where you can use a scalpel.”

The Texas Forward members all riffed off of similar lines, emphasizing the outdated-ness of the current system and the desperate need for more revenue in the state budget. Bonnie Leitch from the League of Women Voters called the current loophole a “wasteful outdated program that provides no benefit.”

Five witnesses, representing groups in Texas Forward, gave oral testimony against the bill, while the another five offered the Ways and Means committee written testimony or their positions on the bill.

Lavine told me there will be many more bills like Villarreal’s, focused on closing outdated and technical tax loopholes. Although most of them save $10 or $20 million here and there, Lavine says a few are worth $100 million each. It’s not a lot in the face of the $27 billion budget shortfall, but in this budget cycle, every dollar will count.

It helped that Villarreal’s bill—which is still pending in committee—was a relatively uncontroversial move (if any tax-tinkering can be called uncontroversial). It allowed the coalition members to appeal to a wide variety of lawmakers. The committee had few questions. When Lavine offered his own testimony in support of Villarreal’s bill, conservative Republican chair Harvey Hilderbran told him to hurry. “I’m inclined to like what ya’ll are saying. Move fast so I don’t change my mind.”