86th Legislative Session Update

Here are the Interim report recommendations from the Senate Finance committee:
 
BUDGET:
Senate Finance Committee – On November 30th, the Senate Finance Committee issued its interim report. Committee Chair Jane Nelson (R-Flower Mound) said, “I appreciate the hard work of the Senate Finance Committee members over the interim to delve into key fiscal issues such as tax policy, fee structure, and the Economic Stabilization Fund. We took a closer look at funding priorities, including education, transportation and health-related services. Additionally, at every hearing we studied our costs associated with Hurricane Harvey, ensuring that communities have the resources they need to rebuild and that available federal funding is being maximized.” The committee’s charges, conclusions and recommendations are:
Hurricane Harvey Impact – Monitor all funds currently being used to address Hurricane Harvey relief and recovery. Identify ways to maximize the use of federal funds and ensure the efficient use of state funds. Evaluate the long-term impact of Hurricane Harvey on the Texas economy and the gulf coast region. The committee concluded, “Hurricane Harvey will prove to be the costliest disaster ever to hit the Texas coast. While immediate direct costs to the state are estimated to be approximately $900 million, the total costs are undetermined and will be incurred over the years ahead. As the state continues to monitor future costs, state agencies must coordinate to mitigate state costs and ensure that available federal funds are maximized. The Legislature must examine the lessons learned from Hurricane Harvey in order to improve the state’s ability to more effectively and efficiently respond to and recover from any future disaster.” The committee recommended:
  1. Continue to monitor the ongoing costs attributed to the impact of Hurricane Harvey and ensure that state agencies, institutions of higher education and other governmental entities are maximizing available federal resources, including reimbursement for damaged facilities.
  2. Encourage local governments to apply for available federal funding for rebuilding efforts, including Housing and Urban Development Community Development Block Grant funds, hazard mitigation grants, flood mitigation grants, and other federal assistance programs.
  3. Monitor the disbursement of hazard and flood mitigation funding to ensure there is a clear process for applicants and an appropriate cost-share between federal, state, and local governments.
  4. Continue to monitor Harvey’s impact on student population shifts and property value decline affecting local school districts. Review policies utilized during the interim to address these impacts and consider ways to streamline processes for future disasters.
  5. Implement a home single-inspector system for assessing storm-related damage. The inspection system should streamline government in a way that reduces burdens for homeowners and helps communities recover after a disaster.
  6. Improve public awareness of the National Flood Insurance Program. Better utilization of this program will help ensure families have the resources necessary to rebuild following a severe weather event.
  7. Consider ways to streamline agency reporting processes to improve the accuracy and availability of cost-related data for Hurricane Harvey and future disasters.
  8. Consider ways to better track the flow of Disaster Fund transfers, reimbursements, and balance updates.
Alamo Historical Site Renovation – Monitor the expenditures of state funds appropriated to the General Land Office for the preservation, maintenance, and operation of the Alamo historical site. Ensure the funds are spent to emphasize the architectural design and the historical impact the battle had on the development of Texas as a nation and as a state. The committee concluded, “The Alamo was a pivotal battle that shaped the history of Texas and the nation. The Legislature should allocate funds in a way that will best preserve the mission, honor those who fought and died at the Alamo, and highlight the battle’s significance to our state – as one of the world’s most recognizable historic sites.” They recommended:
  1. Continue to assess the Alamo Complex management structure for potential improvements and to safeguard its operational transparency and compliance with the Public Information Act; and
  2. Ensure the planning and implementation processes of the Alamo Master Plan are collaborative and restore the site’s historical reverence – with a significant emphasis on the Battle of 1836.
 
Economic Stabilization Fund – “Examine options to increase investment earnings of the Economic Stabilization Fund (ESF) in a manner that minimizes overall risk to the fund balance. Investment options should ensure the liquidity of a sufficient portion of the balance so that the legislature has the resources necessary to address the needs of the state, including natural disasters. Evaluate how the Economic Stabilization Fund constitutional limit is calculated; consider alternative methods to calculate the limit, and alternative uses for funds above the limit. Examine options and make recommendations for strengthening restriction on appropriations established in Article VIII Section 22 of the state constitution, including related procedures defined in statute. Consider options for ensuring available revenues above spending limit are reserved for tax relief. The committee concluded, “The state needs to maintain a healthy balance in the ESF for emergencies. The state also needs to maximize returns on its investment of reserve funds while maintaining a level of liquidity in case of an immediate need to access the funds.” They recommended:
  1. Allow a greater portion of the ESF to be invested in high-yield strategies while maintaining enough liquidity in case of emergency or natural disaster.
  2. Seek out alternate methodologies to establish the sufficient balance.
  3. Reconsider the manner by which the ESF cap will be determined, potentially by exempting federal funds as part of the calculation.
Texas Emission Reduction Plan – Review the Texas Emission Reduction Plan (TERP) and its economic benefits to the state. Examine whether the state’s investment in TERP, including transfers from the Department of Transportation, are being effectively utilized to comply with federal air quality standards, reduce pollution, and protect the public health of Texans. The committee concluded, “The TERP grant program was created as a part of the Texas State Implementation Plan (SIP) to ensure air quality compliance with the Federal Clean Air Act (FCAA). Specifically, the program is intended to mitigate harmful air pollutants and environmental hazards by reducing emissions – and ultimately to help ensure clean air for all Texans. All TERP fee revenue will expire on August 31, 2019, and without the continuation of these fees, no new revenue will be collected for this purpose.” They recommended:
  1. Consider ways to maximize TERP appropriations to ensure compliance with the Federal Clean Air Act and to ensure funding achieves its intended purpose.
  2. The Legislature, in collaboration with the Texas Commission on Environmental Quality, should regularly review individual TERP programs and perform an analysis of how each program is being utilized, its value to the TERP mission, and its economic benefit to the state.
  3. Review the current TERP fee structure, including fees set to expire at the end of the fiscal year, and the impact those fees have on the grant program, fee-payers, and the budget.
Request to Exceed Review – Review all riders requiring interim action by the Legislative Budget Board to reduce the number of times interim budget modification is necessary. The committee concluded, “The state budget places many limitations on agency spending. Requests to Exceed are a tool to manage a two-year budget to address unforeseen events and account for updated cost estimates. As the Legislature develops the budget for the FY 2020-21 biennium, it should consider ways to streamline these requests and reduce the amount of budget decisions that occur during the interim.” They recommended:
  1. Review budget riders and consider ways to reduce the number of unnecessary interim actions by the Legislative Budget Board and Governor.
  2. Provide for more consistent timeframes and approval processes for Requests to Exceed.
  3. Review budget riders and consider ways to consolidate similar Requests to Exceed.
Fee Structure Review – Review state General Revenue-Dedicated (GR-D) fees and make recommendations to reduce fees and lessen reliance on General Revenue-Dedicated fee balances to certify the budget. The committee concluded, “While the state budget relies heavily on fee revenue to meet the state’s growing needs, the Legislature has an obligation to re-evaluate fees, ensure funds are being spent on their intended purpose, and pursue opportunities to reduce or eliminate fees. Legislators should continue to focus on a long-term strategy to reduce reliance on GR-D accounts for budget certification.” They recommended:
  1. Ensure that fee revenue is being used for its intended purpose.
  2. Consider reducing or eliminate unnecessary fees as the budget allows.
  3. Pursue a long-term strategy to reduce reliance on GR-D balances to certify the state budget.
Trauma Funding – Review revenue sources currently funding the state’s trauma system and the impact of declining revenues and balances in General Revenue-Dedicated accounts. Evaluate the impact of statutory changes affecting trauma system funding, including efforts to eliminate the Driver Responsibility Program (DRP). Examine ways to ensure sustainability of the trauma system in Texas. The committee concluded, “A coordinated and adequately funded trauma system is essential to providing effective response and treatment for Texans experiencing trauma. Funding challenges in recent years have put dedicated funding for the state’s trauma system at risk. Due to real concerns about the effectiveness of the DRP and red-light cameras, the Legislature should consider changes to these programs. However, as part of the discussion, the Legislature must carefully consider the negative fiscal impact to the trauma system.” They recommended:
  • When considering changes to trauma revenue sources, such as the Driver Responsibility Program and red-light cameras, the Legislature should identify permanent funding sources to sustain the state’s trauma system.
Property Tax on Business Personal Property – Evaluate the property tax as it applies to business personal property and the current $500 exemption. Quantify the economic effect of taxing business personal property and determine whether the tax places Texas at a competitive disadvantage relative to other states. Evaluate the burden on taxpayers and local governments of administering the property tax on business personal property and determine whether the current $500 exemption should be increased. The committee concluded,” The Legislature must continually review the state’s tax structure to protect our competitive advantage when it comes to the recruitment and retention of Texas businesses. The business personal property tax presents a burden on several classes of industry in Texas, and should be reviewed in the next legislative session. There are many options available to address these challenges, including exempting inventory, raising the exemption above $500, or doing away with the business personal property tax entirely. As with any tax reform, the Legislature must weigh the potential benefits of tax relief against the impact on state revenue. Eliminating the business personal property tax entirely would have a roughly $6 billion negative fiscal impact. Exempting inventory entirely would have a negative fiscal impact of $1-$1.5 billion. Increasing the $500 exemption would be scalable.” They recommended:
  1. Consider changing the current $500 exemption by adjusting it upward to keep up with inflation.
  2. Continue studying options for reducing the business personal property tax burden on Texas businesses.
Interest Rate Disparity – Evaluate the rate of interest charged on delinquent property taxes and delinquent state taxes, compared to the rate of interest paid on property tax refunds and state tax refunds. Evaluate the effect of interest rate disparity on the assessment decisions of governments and the payment decisions of taxpayers. Quantify the amount by which state and local governments profit from interest rate disparity. Identify best practices among other states regarding interest rates charged and paid. Recommend a plan and timeline to reduce interest rate disparity. The committee concluded, “Texans deserve fairness in the taxing process. There are 29 other states that currently have parity. The Internal Revenue Service practices parity, which is generally ‘the ‘federal short-term rate’ plus 3 percentage points, rounded up to the nearest half-point.’ While fairness is important, so is the financial feasibility of implementation. Eliminating the interest rate disparity would bear a significant cost that must be weighed against the growing needs of the state.” They recommended:
  1. Consider ways to phase in tax-parity over time as the state budget allows.
  2. Direct the Comptroller to gather comparative data to determine the impact of interest rate disparities on tax levy challenges.
BUDGET:
Senate Finance Committee – On November 30th, the Senate Finance Committee issued its interim report. Committee Chair Jane Nelson (R-Flower Mound) said, “I appreciate the hard work of the Senate Finance Committee members over the interim to delve into key fiscal issues such as tax policy, fee structure, and the Economic Stabilization Fund. We took a closer look at funding priorities, including education, transportation and health-related services. Additionally, at every hearing we studied our costs associated with Hurricane Harvey, ensuring that communities have the resources they need to rebuild and that available federal funding is being maximized.” The committee’s charges, conclusions and recommendations are:
Hurricane Harvey Impact – Monitor all funds currently being used to address Hurricane Harvey relief and recovery. Identify ways to maximize the use of federal funds and ensure the efficient use of state funds. Evaluate the long-term impact of Hurricane Harvey on the Texas economy and the gulf coast region. The committee concluded, “Hurricane Harvey will prove to be the costliest disaster ever to hit the Texas coast. While immediate direct costs to the state are estimated to be approximately $900 million, the total costs are undetermined and will be incurred over the years ahead. As the state continues to monitor future costs, state agencies must coordinate to mitigate state costs and ensure that available federal funds are maximized. The Legislature must examine the lessons learned from Hurricane Harvey in order to improve the state’s ability to more effectively and efficiently respond to and recover from any future disaster.” The committee recommended:
  1. Continue to monitor the ongoing costs attributed to the impact of Hurricane Harvey and ensure that state agencies, institutions of higher education and other governmental entities are maximizing available federal resources, including reimbursement for damaged facilities.
  2. Encourage local governments to apply for available federal funding for rebuilding efforts, including Housing and Urban Development Community Development Block Grant funds, hazard mitigation grants, flood mitigation grants, and other federal assistance programs.
  3. Monitor the disbursement of hazard and flood mitigation funding to ensure there is a clear process for applicants and an appropriate cost-share between federal, state, and local governments.
  4. Continue to monitor Harvey’s impact on student population shifts and property value decline affecting local school districts. Review policies utilized during the interim to address these impacts and consider ways to streamline processes for future disasters.
  5. Implement a home single-inspector system for assessing storm-related damage. The inspection system should streamline government in a way that reduces burdens for homeowners and helps communities recover after a disaster.
  6. Improve public awareness of the National Flood Insurance Program. Better utilization of this program will help ensure families have the resources necessary to rebuild following a severe weather event.
  7. Consider ways to streamline agency reporting processes to improve the accuracy and availability of cost-related data for Hurricane Harvey and future disasters.
  8. Consider ways to better track the flow of Disaster Fund transfers, reimbursements, and balance updates.
Alamo Historical Site Renovation – Monitor the expenditures of state funds appropriated to the General Land Office for the preservation, maintenance, and operation of the Alamo historical site. Ensure the funds are spent to emphasize the architectural design and the historical impact the battle had on the development of Texas as a nation and as a state. The committee concluded, “The Alamo was a pivotal battle that shaped the history of Texas and the nation. The Legislature should allocate funds in a way that will best preserve the mission, honor those who fought and died at the Alamo, and highlight the battle’s significance to our state – as one of the world’s most recognizable historic sites.” They recommended:
  1. Continue to assess the Alamo Complex management structure for potential improvements and to safeguard its operational transparency and compliance with the Public Information Act; and
  2. Ensure the planning and implementation processes of the Alamo Master Plan are collaborative and restore the site’s historical reverence – with a significant emphasis on the Battle of 1836.
Economic Stabilization Fund – “Examine options to increase investment earnings of the Economic Stabilization Fund (ESF) in a manner that minimizes overall risk to the fund balance. Investment options should ensure the liquidity of a sufficient portion of the balance so that the legislature has the resources necessary to address the needs of the state, including natural disasters. Evaluate how the Economic Stabilization Fund constitutional limit is calculated; consider alternative methods to calculate the limit, and alternative uses for funds above the limit. Examine options and make recommendations for strengthening restriction on appropriations established in Article VIII Section 22 of the state constitution, including related procedures defined in statute. Consider options for ensuring available revenues above spending limit are reserved for tax relief. The committee concluded, “The state needs to maintain a healthy balance in the ESF for emergencies. The state also needs to maximize returns on its investment of reserve funds while maintaining a level of liquidity in case of an immediate need to access the funds.” They recommended:
  1. Allow a greater portion of the ESF to be invested in high-yield strategies while maintaining enough liquidity in case of emergency or natural disaster.
  2. Seek out alternate methodologies to establish the sufficient balance.
  3. Reconsider the manner by which the ESF cap will be determined, potentially by exempting federal funds as part of the calculation.
Texas Emission Reduction Plan – Review the Texas Emission Reduction Plan (TERP) and its economic benefits to the state. Examine whether the state’s investment in TERP, including transfers from the Department of Transportation, are being effectively utilized to comply with federal air quality standards, reduce pollution, and protect the public health of Texans. The committee concluded, “The TERP grant program was created as a part of the Texas State Implementation Plan (SIP) to ensure air quality compliance with the Federal Clean Air Act (FCAA). Specifically, the program is intended to mitigate harmful air pollutants and environmental hazards by reducing emissions – and ultimately to help ensure clean air for all Texans. All TERP fee revenue will expire on August 31, 2019, and without the continuation of these fees, no new revenue will be collected for this purpose.” They recommended:
  1. Consider ways to maximize TERP appropriations to ensure compliance with the Federal Clean Air Act and to ensure funding achieves its intended purpose.
  2. The Legislature, in collaboration with the Texas Commission on Environmental Quality, should regularly review individual TERP programs and perform an analysis of how each program is being utilized, its value to the TERP mission, and its economic benefit to the state.
  3. Review the current TERP fee structure, including fees set to expire at the end of the fiscal year, and the impact those fees have on the grant program, fee-payers, and the budget.
Request to Exceed Review – Review all riders requiring interim action by the Legislative Budget Board to reduce the number of times interim budget modification is necessary. The committee concluded, “The state budget places many limitations on agency spending. Requests to Exceed are a tool to manage a two-year budget to address unforeseen events and account for updated cost estimates. As the Legislature develops the budget for the FY 2020-21 biennium, it should consider ways to streamline these requests and reduce the amount of budget decisions that occur during the interim.” They recommended:
  1. Review budget riders and consider ways to reduce the number of unnecessary interim actions by the Legislative Budget Board and Governor.
  2. Provide for more consistent timeframes and approval processes for Requests to Exceed.
  3. Review budget riders and consider ways to consolidate similar Requests to Exceed.
Fee Structure Review – Review state General Revenue-Dedicated (GR-D) fees and make recommendations to reduce fees and lessen reliance on General Revenue-Dedicated fee balances to certify the budget. The committee concluded, “While the state budget relies heavily on fee revenue to meet the state’s growing needs, the Legislature has an obligation to re-evaluate fees, ensure funds are being spent on their intended purpose, and pursue opportunities to reduce or eliminate fees. Legislators should continue to focus on a long-term strategy to reduce reliance on GR-D accounts for budget certification.” They recommended:
  1. Ensure that fee revenue is being used for its intended purpose.
  2. Consider reducing or eliminate unnecessary fees as the budget allows.
  3. Pursue a long-term strategy to reduce reliance on GR-D balances to certify the state budget.
Trauma Funding – Review revenue sources currently funding the state’s trauma system and the impact of declining revenues and balances in General Revenue-Dedicated accounts. Evaluate the impact of statutory changes affecting trauma system funding, including efforts to eliminate the Driver Responsibility Program (DRP). Examine ways to ensure sustainability of the trauma system in Texas. The committee concluded, “A coordinated and adequately funded trauma system is essential to providing effective response and treatment for Texans experiencing trauma. Funding challenges in recent years have put dedicated funding for the state’s trauma system at risk. Due to real concerns about the effectiveness of the DRP and red-light cameras, the Legislature should consider changes to these programs. However, as part of the discussion, the Legislature must carefully consider the negative fiscal impact to the trauma system.” They recommended:
  • When considering changes to trauma revenue sources, such as the Driver Responsibility Program and red-light cameras, the Legislature should identify permanent funding sources to sustain the state’s trauma system.
Property Tax on Business Personal Property – Evaluate the property tax as it applies to business personal property and the current $500 exemption. Quantify the economic effect of taxing business personal property and determine whether the tax places Texas at a competitive disadvantage relative to other states. Evaluate the burden on taxpayers and local governments of administering the property tax on business personal property and determine whether the current $500 exemption should be increased. The committee concluded,” The Legislature must continually review the state’s tax structure to protect our competitive advantage when it comes to the recruitment and retention of Texas businesses. The business personal property tax presents a burden on several classes of industry in Texas, and should be reviewed in the next legislative session. There are many options available to address these challenges, including exempting inventory, raising the exemption above $500, or doing away with the business personal property tax entirely. As with any tax reform, the Legislature must weigh the potential benefits of tax relief against the impact on state revenue. Eliminating the business personal property tax entirely would have a roughly $6 billion negative fiscal impact. Exempting inventory entirely would have a negative fiscal impact of $1-$1.5 billion. Increasing the $500 exemption would be scalable.” They recommended:
  1. Consider changing the current $500 exemption by adjusting it upward to keep up with inflation.
  2. Continue studying options for reducing the business personal property tax burden on Texas businesses.
Interest Rate Disparity – Evaluate the rate of interest charged on delinquent property taxes and delinquent state taxes, compared to the rate of interest paid on property tax refunds and state tax refunds. Evaluate the effect of interest rate disparity on the assessment decisions of governments and the payment decisions of taxpayers. Quantify the amount by which state and local governments profit from interest rate disparity. Identify best practices among other states regarding interest rates charged and paid. Recommend a plan and timeline to reduce interest rate disparity. The committee concluded, “Texans deserve fairness in the taxing process. There are 29 other states that currently have parity. The Internal Revenue Service practices parity, which is generally ‘the ‘federal short-term rate’ plus 3 percentage points, rounded up to the nearest half-point.’ While fairness is important, so is the financial feasibility of implementation. Eliminating the interest rate disparity would bear a significant cost that must be weighed against the growing needs of the state.” They recommended:
  1. Consider ways to phase in tax-parity over time as the state budget allows.
  2. Direct the Comptroller to gather comparative data to determine the impact of interest rate disparities on tax levy challenges.