Capitol Update 04.26.06

Late Monday night (and into the early hours of Tuesday), the House passed bills to provide school property tax relief, reform the business franchise tax and increase the state share of funding our public schools. Within the first 7 days of the special session, House lawmakers approved bills to provide for a phased-in cut of local school maintenance & operations (M&O) property taxes, revise the business franchise tax, create capacity for more local school revenues and ensure the public school doors are open this fall.

The House tackled the job of cutting property taxes and reforming the school funding laws and state franchise tax through a series of bills designed to meet the June 1st deadline of the Texas Supreme Court. Rep. Branch, along with Rep. Chisum and Rep. Eissler, is a co-sponsor of House Bill 1, which lowers the local school M&O tax rate on all property by 17 cents and ensures the constitutionality of our local school property tax system. HB 1 provides for the additional local school district capacity required by the Supreme Court and pays for the property tax reduction with over $ 2 billion from the state's $8.2 billion surplus. The tax cut on both residential and commercial property is effective this year. The 11 percent rate reduction will provide local school districts the "meaningful discretion" required by the November, 2005 Supreme Court decision and reduce the reliance on local property taxes for school funding. As passed by the House, a local school board will be able to add up to $.03 onto the tax rate for local enrichment without a vote, or go higher with local voter approval.

Rep. Branch fought hard to end state recapture of any future local school tax increases (by DISD and HPISD) and instead, provide more state dollars for low property wealth school districts, but was defeated by an effort led by Rep. Charlie Geren. At this writing, Rep. Branch is working with Sen. Florence Shapiro, Senate Education Chair, to correct this portion of HB 1.

The articles in yesterday's Austin American Statesman and Dallas Morning News (state edition) further outline the primary elements in HB 1:

HOUSE BILL 3 REFORMS FRANCHISE TAX & INCREASES STATE SHARE OF SCHOOL FUNDING:

House Bill 3 by Representatives Jim Keffer, Otto, Luna, Branch and Villarreal, reforms our franchise tax system using many elements recently laid out by the Texas Tax Reform Commission (24 business persons appointed by Gov. Perry) led by former Comptroller John Sharp. Along with HB 1 and HB 2, this legislation will allow for a 30 % school M & O property tax cut beginning in 2007 (the largest property tax cut in state history) and allows the state to fund a much higher percentage of our public education needs.

Simply stated, the reformed franchise tax will end the 4.5 % tax on corporate income and replace it with a 1% tax (or 1/2 % tax on non- exempt retail/wholesale businesses) on gross receipts less employment compensation or costs of goods sold. For state constitutional reasons, sole proprietors, general partnerships and certain passive investment entities will continue to be exempt from the franchise tax. In addition, this bill more than doubles the small business exemption. It is estimated that approximately 50,000 business entities that have avoided the franchise tax, many times due to organizing as limited or limited liability partnerships, will be subject to the reformed franchise tax under provisions in HB 3.

Governor Perry has indicated that after the court mandated school property tax reform is addressed by the Legislature, he will expand the agenda to legislation related to additional school funding and education reforms. In addition to HB 1 and HB 3, Rep. Branch has filed several bills to improve high school funding and limit future franchise tax rate increases.

BRANCH FIGHTS FOR TAXPAYER PROTECTIONS:

Rep. Branch introduced a house joint resolution to be considered this Special Session that requires any increase in the 1% or 1/2% rate of the reformed franchise tax must be approved by a two-thirds vote of all members in each house of the legislature. If passed, this resolution will assure that the reduced rate of the reformed franchise tax would be kept in check and accountable to a super-majority vote.

BRANCH BILL PROVIDES NEEDED FUNDING TO SCHOOLS, IMPROVES COLLEGE READINESS AND COMBATS HIGH SCHOOL DROPOUT TRENDS:

While the House has been busy addressing the school tax reform (tax bills must begin in the House), the Senate has been hearing education reform proposals to address needs such as teacher pay, budgeting reform and college readiness.

Rep. Branch has filed House Bill 57 to provide districts an additional $500 per high school student. The new funding would be used to provide academic support to underachieving students and administer high school completion and success programs. The bill seeks to improve college readiness by requiring 4 years of English, math, science and social studies beginning with the freshman class of 2007, and seeks to reduce dropouts by allowing schools to provide flexible instruction hours for current and prospective student dropouts.

BRANCH RECOGNIZED IN MEDIA POLL:

Rep. Branch has been a key player during the committee process and floor debate, serving as a joint author on both of the major bills to fix our unconstitutional property tax system and fix our broken franchise tax system. Last week, he was recognized in the top 10 of the Capitol Inside Most Powerful Texas Lawmakers list, and was recognized as the highest ranking member in his Class of 2003.

Please find links to the Capitol Inside articles below:

Most Powerful Texas Lawmakers List Has Perennial Players Minus a Few Big Names: http://www.danbranch.com/media/CapitolInside/CapitolInside_04.17.06_Hailey.htm

House Sophomores Having Real Impact, But Previous Classes Set Power Standard: http://www.danbranch.com/media/CapitolInside/CapitolInside_04.20.06_Hailey.htm

STAY TUNED:

The House legislation now moves to the Texas Senate, and we will try to keep you informed of further major developments during the Special Session. Thank you.

Media Contact: Office: (214) 745-5768		For immediate release April 26, 2006 Go Back
S T A T E O F T E X A S H O U S E O F R E P R E S E N T A T I V E S
Special Session: School Finance Update
Rep. Dan Branch Dallas, Highland Park, University Park April 26, 2006
TEXAS HOUSE PASSES TAX REFORM IN PROMPT FASHION:
Late Monday night (and into the early hours of Tuesday), the House passed bills to provide school property tax relief, reform the business franchise tax and increase the state share of funding our public schools. Within the first 7 days of the special session, House lawmakers approved bills to provide for a phased-in cut of local school maintenance & operations (M&O) property taxes, revise the business franchise tax, create capacity for more local school revenues and ensure the public school doors are open this fall. HOUSE LEADS THE FIGHT FOR PROPERTY TAX RELIEF WITH HOUSE BILL 1: The House tackled the job of cutting property taxes and reforming the school funding laws and state franchise tax through a series of bills designed to meet the June 1st deadline of the Texas Supreme Court. Rep. Branch, along with Rep. Chisum and Rep. Eissler, is a co-sponsor of House Bill 1, which lowers the local school M&O tax rate on all property by 17 cents and ensures the constitutionality of our local school property tax system. HB 1 provides for the additional local school district capacity required by the Supreme Court and pays for the property tax reduction with over $ 2 billion from the state's $8.2 billion surplus. The tax cut on both residential and commercial property is effective this year. The 11 percent rate reduction will provide local school districts the "meaningful discretion" required by the November, 2005 Supreme Court decision and reduce the reliance on local property taxes for school funding. As passed by the House, a local school board will be able to add up to $.03 onto the tax rate for local enrichment without a vote, or go higher with local voter approval. Rep. Branch fought hard to end state recapture of any future local school tax increases (by DISD and HPISD) and instead, provide more state dollars for low property wealth school districts, but was defeated by an effort led by Rep. Charlie Geren. At this writing, Rep. Branch is working with Sen. Florence Shapiro, Senate Education Chair, to correct this portion of HB 1. The articles in yesterday's *Austin American Statesman* and *Dallas Morning News* (state edition) further outline the primary elements in HB 1: *House passes property tax cuts- Austin American Statesman- 4/25/06* http://www.statesman.com/news/content/news/stories/legislature/04/25finance.html *Business tax plan OK'd by House- The Dallas Morning News- 4/25/06* http://www.danbranch.com/media/DallasMorningNews/dmn_04.25.06.htm HOUSE BILL 3 REFORMS FRANCHISE TAX & INCREASES STATE SHARE OF SCHOOL FUNDING: House Bill 3 by Representatives Jim Keffer, Otto, Luna, Branch and Villarreal, reforms our franchise tax system using many elements recently laid out by the Texas Tax Reform Commission (24 business persons appointed by Gov. Perry) led by former Comptroller John Sharp. Along with HB 1 and HB 2, this legislation will allow for a 30 % school M & O property tax cut beginning in 2007 (the largest property tax cut in state history) and allows the state to fund a much higher percentage of our public education needs. Simply stated, the reformed franchise tax will end the 4.5 % tax on corporate income and replace it with a 1% tax (or 1/2 % tax on non- exempt retail/wholesale businesses) on gross receipts less employment compensation or costs of goods sold. For state constitutional reasons, sole proprietors, general partnerships and certain passive investment entities will continue to be exempt from the franchise tax. In addition, this bill more than doubles the small business exemption. It is estimated that approximately 50,000 business entities that have avoided the franchise tax, many times due to organizing as limited or limited liability partnerships, will be subject to the reformed franchise tax under provisions in HB 3. STILL TO COME: Governor Perry has indicated that after the court mandated school property tax reform is addressed by the Legislature, he will expand the agenda to legislation related to additional school funding and education reforms. In addition to HB 1 and HB 3, Rep. Branch has filed several bills to improve high school funding and limit future franchise tax rate increases. BRANCH FIGHTS FOR TAXPAYER PROTECTIONS: Rep. Branch introduced a house joint resolution to be considered this Special Session that requires any increase in the 1% or 1/2% rate of the reformed franchise tax must be approved by a two-thirds vote of all members in each house of the legislature. If passed, this resolution will assure that the reduced rate of the reformed franchise tax would be kept in check and accountable to a super-majority vote. BRANCH BILL PROVIDES NEEDED FUNDING TO SCHOOLS, IMPROVES COLLEGE READINESS AND COMBATS HIGH SCHOOL DROPOUT TRENDS: While the House has been busy addressing the school tax reform (tax bills must begin in the House), the Senate has been hearing education reform proposals to address needs such as teacher pay, budgeting reform and college readiness. Rep. Branch has filed House Bill 57 to provide districts an additional $500 per high school student. The new funding would be used to provide academic support to underachieving students and administer high school completion and success programs. The bill seeks to improve college readiness by requiring 4 years of English, math, science and social studies beginning with the freshman class of 2007, and seeks to reduce dropouts by allowing schools to provide flexible instruction hours for current and prospective student dropouts. BRANCH RECOGNIZED IN MEDIA POLL: Rep. Branch has been a key player during the committee process and floor debate, serving as a joint author on both of the major bills to fix our unconstitutional property tax system and fix our broken franchise tax system. Last week, he was recognized in the top 10 of the Capitol Inside Most Powerful Texas Lawmakers list, and was recognized as the highest ranking member in his Class of 2003. Please find links to the *Capitol Inside* articles below: *Most Powerful Texas Lawmakers List Has Perennial Players Minus a Few Big Names:* http://www.danbranch.com/media/CapitolInside/CapitolInside_04.17.06_Hailey.htm *House Sophomores Having Real Impact, But Previous Classes Set Power Standard:* http://www.danbranch.com/media/CapitolInside/CapitolInside_04.20.06_Hailey.htm STAY TUNED: The House legislation now moves to the Texas Senate, and we will try to keep you informed of further major developments during the Special Session. Thank you.

Special Session: School Finance Update