The proposal includes a 200 percent increase in Texas business taxes and an increase in the taxes on cigarettes and tobacco products, along with a minor change in the motor vehicle tax.
These provisions would produce about $728 million in new state revenue in fiscal year 2007 and $4.29 billion in fiscal year 2008 when the revised franchise tax takes effect. Similar fiscal effects from the tax increase continue in succeeding years.
It sets a new ceiling tax rate for maintenance and operations of $1.30 per hundred dollars of assessed value. Districts would be able to increase the local tax rate by as much as six cents per year, without voter approval, up to the $1.30 ceiling.
Governor Perry’s plan simply does not balance. It is $1.41 billion short in the first year, and this shortfall grows to more than $2 billion annually in succeeding years.
Over the five years in this analysis, the shortfall could total $10.6 billion, depending on the local school district response to the property tax provisions of the proposal.
This gap would have to be covered either by the use of surplus funds in the state Treasury, which simply may not be available or by other, future tax increases either at the state or local level. Otherwise, public school funding inevitably would have to be reduced to close the funding gap.
The proposal also allows local districts to raise property taxes up to six cents in each year without voter approval.
As I am sure you recognize, five years of six cent increases at the local level would bring districts to the statutory tax rate ceiling and could undo the meaningful discretion that the Supreme Court ordered the state to achieve by reform of the finance system.
Ironically, this proposal is advertised as a property tax cut, but it actually gives local school districts an incentive to raise property taxes as the only means to meet rising school costs.
