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June 2 , 2006
By Bobby Horecka
Field Editor
Jim Keffer said he knew finding a solution to school financing in Texas would be no simple task.
After all, the Texas Legislature had tried for years to find a workable answer to the education funding debate. And now, lawmakers had but 30 days to reach an agreement in order to meet the stipulations set forth by the Texas Supreme Court.
But when the last bill was signed and forwarded to the governor's office in mid-May, Keffer said he couldn't be more pleased.
"This was a great milestone for the state of Texas," he said. "We got a lot of good work done in a short amount of time, and the end result will have great effects for all Texans."
Rep. Keffer (R-Eastland) authored one of the most critical pieces of legislation in the five-bill measure to revamp the state's funding mechanism for schools.
That bill (House Bill 3) established a new business tax, or margins tax, which replaced the old franchise tax that only a handful of businesses were required to pay. It allows employers the freedom to choose their method of taxation and spans a much wider range of enterprises.
And by creating a new source of revenue—one backed by several business associations—HB3 effectively paved the way for the provisions in HB 1, which sliced local school property taxes by one third over the next couple of years and adds to school equity programs statewide.
According to tax relief totals put together by Gov. Perry's office, the new margins tax will help deliver a record $15.7 million property tax cut statewide, making it the single largest tax reduction of its kind in state history.
In addition, Perry noted, property taxes will realize a nearly $2,000 reduction over the next three years, with agricultural operations getting an estimated $700 per year tax break.
That will be a huge boost to rural Texas, Keffer said.
"We were able to find an option that helped spread the tax burden equally across all regions of the state, and at the same time, provide a much needed tax break to everyone across the board," he said. "A third reduction in taxes is huge in anyone's pocketbook. And I think the positives will be tremendous.
For some, Keffer said, the tax savings will manifest as home purchases, improvements or expansions. But the true benefit of the tax savings will come when businesses and industries expand and create more jobs.
"Most large plants don't particularly want to be located in urban areas," he said. "Between traffic issues and air pollution restrictions, most large production plants always prefer rural areas. And when they do locate in these smaller communities, it has an orbital affect for miles around, not only in the specific jobs they create, but also in the support and service industries that supply it. The end result is positive for everyone involved."
Sen. Todd Staples (R-Palestine) agreed.
"Our old method of funding education often left rural Texas with a disproportionate share of the property taxes," Staples said. "But the new plan puts the entire system on a more level playing field, one that fosters economies and growth all across our state."
That's a huge victory for folks out in the country.
As Rep. Glenn Hegar (R-Katy) pointed out, just two of the 180 lawmakers in the Texas House of Representatives still make their living on the farm. To attain such a farm-friendly tax policy is indeed a big win, he said.
"Texas, as we all know, is still a large rural state, despite the fact so much of the population is found in urban areas," Hegar said. "We had to find a method of solving the school finance problem so that rural Texas would not be overly impacted by the changes, and it wasn't easy. This is my seventh special session in four years."
Hegar wraps up his second term in the Texas House this year, returning in 2007 to replace Sen. Ken Armbrister, who retires this year. Being a sixth generation rice and soybean farmer, Hegar said he paid particular attention to how the plan might affect producers' interests.
As sole proprietors or general partnerships, agricultural producers are largely exempted from the new business tax, Hegar said, so the biggest perk for farmers and ranchers come in the property tax reduction.
But the new plan will also help in other ways, he said, pointing to the $2,000 a year teacher salary increase as an example.
"Many rural school districts simply cannot afford pay raises," he said. "So this will be an extremely important bill for those districts and the hundreds of families depending on those salaries. The entire package will be a big win for rural Texas."
But it is not farmers or taxpayers who benefit most from the plan, said Sen. Kel Seliger (R-Amarillo).
"We worked hard to not fundamentally change the way we treat agricultural tax policy," he said. "Everything in our state hinges on agriculture in some form, including our tax policy in education.
"The solution we worked out is a progressive step to the future," Seliger said, "and it ensures that 4.4 billion school kids will be prepared for it."
Editor's Note: For more information on the new plan for school finance, see "Special Session" story of this issue.
