Apr. 19, 2004
Text of Gov. Rick Perry's Testimony Before Select Committee
NOTE: Gov. Perry frequently deviates from prepared text
Thank you Chairman Shapiro, Chairman Grusendorf, and members of the Select Committee I want to applaud you for your work, your passion for our children's education and your sensitivity to the plight of Texas taxpayers.
We are here today, on the eve of a special session, for two primary reasons: Texans want this Legislature to take decisive action to improve our schools and they want lower property taxes. In the coming days and weeks, if we remain focused on educational excellence and true property tax relief, we will succeed.
Today I formally offer to the members of the Legislature a roadmap to meaningful property tax relief, increased funding for education, and greater funding equity. It is a fiscally disciplined approach based on conservative principles.
My plan is one way to tackle these issues, but it certainly is not the only way, and I don't contend that it is a perfect way. But I do believe it is the best way, for reasons I will go into this morning.
My plan makes six major improvements.
First, it reduces school property taxes by $3.2 billion, including an average property tax cut of 17 percent for residential taxpayers.
Second, it increases funding for education by $2.5 billion and continues a one-time appropriation of $1.2 billion from the last session. That amounts to a total financial commitment of $3.7 billion for education.
Third, as part of that $2.5 billion in new money, it provides $1 billion in performance incentives that will focus our schools on excellence. And these incentives are equitable because, based on last year's student performance; they provide more money for students in our poorest districts than students in our wealthiest districts.
Fourth, it puts the brakes on skyrocketing appraisals. Under current law, the taxable value of a home can double in just over seven years. My plan attacks the problem of taxation by valuation in a significant way.
Fifth, it protects the job climate, and ensures that as our improving yet still fragile economy, starts to take off, we will not reverse course because of a risky new tax scheme, or across-the-board rate hikes.
And last, it offers this Legislature the opportunity to once and for all rid this state of the Robin Hood funding scheme while at the same time making funding even more equitable. Approximately 98 percent of students would be in an equalized system up from what some estimate is 85 percent today.
That is the big picture. There are panels that will appear before you today that include supporters of my plan that can go into many of the details. I will focus most of my remaining remarks on two areas that have generated the most dispute.
First let me discuss my funding plan for ending Robin Hood. I have noted the opposition to a constitutionally- linked roll but from what I am hearing and reading, it's obvious to me that most opposing it do not understand my proposal. The constitutionally-linked roll remains the best option, and here is why:
The constitutionally-linked roll preserves a degree of local control that a statewide property tax does not. The fact is that local educators may not support the removal of virtually all local control over the raising of operating revenue, and I can't say I would blame them. The linked roll keeps residential dollars in local communities, and it allows 15 cents for local enrichment. The statewide property tax would leave only the enrichment option for the local school districts.
As envisioned in my plan, the constitutionally-linked roll lowers residential rates by 25 cents, and sets employer rates at a $1.40. This means the cost of reducing residential tax rates is $2.8 billion less than any alternative being proposed. It also provides for further reductions in both residential and employer rates in years of surplus until both rates are the same at a 75 cents.
The constitutionally-linked roll provides employers greater tax protection, not less.
My plan is not like what has occurred in any other state, where tax shifts have occurred. My plan is better for employers for three reasons. First, it involves no new business tax. Second, it will cut the maximum tax rate for employers in half, which no other state is doing. Third, it avoids the easy road, which would be to raise the homestead exemption and provide employers not one cent in property tax relief.
And most importantly, to ensure these protections are real, I propose locking them into the Texas Constitution. Employers won't have to trust future legislatures and governors to keep their word; they can trust the Texas Constitution.
We're asking employers to accept a smaller initial property tax cut in exchange for constitutional protections, an eventual 50 percent cut in the property tax rate without a big, new tax in its place and protections from runaway spending that will prevent a tax shift. And if you think about it, the current system on some level is already split.
Employers don't receive the benefit of a homestead exemption, the ten percent appraisal cap or other residential exemptions so their taxes are already set higher in effect.
Now, if the critics refuse to embrace a constitutionally linked roll, they have an absolute obligation to tell the members of this committee where they will find the $2.8 billion it costs to reduce both residential and employer rates 25 cents under any other plan.
Employers who stand opposed to the linked roll should tell you what new taxes they will support instead.
This legislature could raise the sales tax rate. But not only is that a risk for several sectors of our economy, I think most Texans will tell you they're paying enough in sales taxes.
You could expand the sales tax base to professionals and services exempted today, but you do so at the peril of giving professionals in other states a real competitive edge over Texas employers.
And then there are the broad business taxes, one variation of which involves a payroll tax.
But I respectfully ask my friends on this committee, would you have been willing to accept a payroll tax just last year if you knew it would have prevented the creation of 8,700 jobs at call centers in Texas? Or if it would have sent Vought packing for Tennessee? Or if it would have kept Toyota out of San Antonio?
Some want a larger property tax cut than I am offering. Some want even more money put into education than I am proposing. But keep in mind, my plan provides an average of $375 more for every child we educate, and a $418 initial reduction in property taxes on the average-priced home. And that is just the start. The buy-down provision would be placed in the constitution to fund additional increases for public schools, and additional property tax relief for homeowners and employers.
Now, when you start thinking about the costs associated with the alternatives a much larger tax bill that risks our economic fortunes on untried tax changes or an increase on the existing base, as well as the added cost of $2.8 billion to reduce all property taxes 25 cents, I think my plan will attract a second look from some of its skeptics.
Let me talk about the second area of contention that I mentioned: the appraisal cap and the property tax revenue cap.
You are hearing from mayors, county judges and others, some who are in this room today, who are making dire predictions about the revenue cap. But let's keep in mind what we are talking about. Property tax revenue every year will grow with inflation and population growth.
My plan also in no way impacts revenue generated from all other taxes and fees collected on the local level. And I offer in my plan an element that is just as critical as capping property tax revenue and that is providing local governments relief from unfunded mandates.
But let's be clear about something: we are not talking about government's money we're talking about the taxpayers' money.
History tells us that property tax cuts passed from Austin do not last very long, and in some cases never make it to Texans' mailboxes, if there are not real protections in place for the taxpayers. From 1997 to 2002, despite two property tax cuts property tax levies increased almost $10 billion. In some cases higher rates contributed to higher tax bills, but the lion's share of the increase is related to rising appraisals.
My plan has aroused opposition from some local officials. But I would suggest the greater imperative here is to ensure a tax cut is really a tax cut, or you risk raising the ire of millions of Texans who pay the bills.
My plan not only provides the owner of an average-priced home an initial property tax cut of $418, it saves them much more off their anticipated tax bill in the years ahead because of the revenue cap.
Let's be clear about the numbers. From 2005 to 2010, if my plan is passed into law, the owner of an average-priced home would save $2,500 off their current rate and would save an additional $2,600 off their anticipated future tax bills because of the revenue cap.
I have a lot of friends in local government. My dad was a county commissioner for 28 years. We're not taking money away from local government, because they can spend what they spend today with an automatic growth adjustment tied to inflation and growth. And local officials can go to their voters and make the case for increased property tax revenue.
But we can't base the success of a property tax cut on a "trust me" approach. History tells us we can't. It didn't work in 1997. It didn't work in 1999. And it won't work in 2004.
When you give voters the power to vote on higher tax bills, it is the ultimate form of local control. All I am advocating is that voters be empowered if their local leaders want to raise more property tax revenue than what is allowed under the cap. If government won't trust the people, then why should the people ever trust government?
My plan achieves an important balance enough property tax relief to take the pressure off homeowners being priced out of their homes, but not so much that a risky new tax plan takes it place at the cost of jobs and prosperity for our future.
Let me say a word about equity in education funding.
I ask you to consider the full ramifications of what I am offering: no increase in the sales tax, $2.5 billion more for education including an incentive plan that doubles the reward to at-risk students and greater equity than has ever been achieved under Robin Hood.
I also support equalizing local enrichment. Some will focus on the wealthiest few districts. I ask you to focus on the more than a thousand districts that will be equalized.
I am offering a plan that replaces Robin Hood AND improves equity.
I have gone to great lengths to ensure rural districts do not lose dollars, and to ensure that all districts get more money than they do today on average $375 more per student. That includes districts that are considered property-wealthy because of a strong commercial base. Their schools will receive more funding, not less.
We can do this. But it requires all of us working together. The Legislature must work its will, and that will require everyone working together everyone helping to pull the wagon.
I have heard some say that all bipartisan bridges have been burned. If that is the case, I suggest it is time to build a new bridge one that puts Democrats and Republicans in this Legislature on the same path the path that will benefit Texans most.
After three sessions on redistricting, some pundits are saying we can't get the job done. I say it's time to prove them wrong. Now is the time to rally together on an issue of great importance to our children and taxpayers. Now is the time to renew bipartisan bonds, not re-open old wounds.
The goal here is consensus, not combat. And I am convinced that enough elements of consensus exist.
Who doesn't want to cut property taxes, increase funding for schools, and make funding more equitable?
I welcome fair criticism of my plan, but I ask the critics to do more than criticize I ask them to offer constructive solutions, too. Leadership is about more than saying what you are against, it requires saying what you are for. That's what I have done.
And whether you like my plan or not, Texans know where I stand, where I want to lead and that I am not willing to allow this challenge to be passed to future governors and future legislatures.
We can do this. We can make Texans proud, and we can stand up for the only two special interest groups that matter 4.2 million schoolchildren, and millions of Texas taxpayers.
Madame and Mr. Chair, thank you for allowing me this time. You have a long day ahead with panels of experts and others who are ready to go further into all the details. But before I leave, if anyone has questions, I will be happy to answer them. Thank you.