WHAT YOUR C-SUITE NEEDS TO KNOW, PLUS A PREVIEW OF 2013
By Royce Poinsett
Texas business leaders feel a certain sense of dread every two years as the Texas Legislature convenes, and in January 2011 that fear was particularly acute. The media issued troubling reports of an impending budget shortfall first estimated at $15 billion, then $17 billion, then $23 billion, then finally topping out at $27 billion – a staggering shortfall that amounted to a full 25-30 percent of current state spending. Legislative committees turned a hungry eye toward major tax exemptions, and some legislators argued for tax increases. Older Texas executives had flashbacks to the 1987 session, when lawmakers enacted a massive tax bill to bridge a similar shortfall.
Texas CEO’s are asking: How much damage did the 2011 legislature do to Texas businesses? The answer is: Surprisingly little.
Following the lopsided 2010 elections, Republicans had enough votes to pass most bills without any support from Democrats, who were left with parliamentary tactics as their only tool to slow or divert the Republican legislative steamroller. A staunchly conservative governor and legislature quickly served notice that tax increases were not in fact on the table.
In balancing the state budget Governor Perry and the legislature relied almost exclusively on tough budget cuts (and some “optimistic scenarios” and “accounting techniques”) while rejecting proposals to raise revenues or utilize reserves. The end result was very deep (and potentially unpopular) cuts across the budgetary spectrum, especially in public education, higher education and human services. Although some state fees were raised, tax increases were not seriously considered and very few exemptions were revoked.
The Legislature even continued the complete business tax exemption for the 28,000 small businesses with less than $1 million in annual revenue. This continued exemption obviously pleases small businesses, but it concerns larger businesses which fear a gradual “burden shift” of the business tax onto their shoulders.
Most Texas businesses are pleased with this government austerity, although some worry that underfunded public and higher education systems may eventually lead to an uncompetitive workforce.
At the courthouse, many business leaders will applaud a so-called “Loser Pays” bill passed this session. The bill allows judges to rule on motions to dismiss frivolous lawsuits much earlier in the litigation process and to award costs and attorney’s fees to the prevailing party.
After considerable debate the legislature passed “Amazon tax” legislation. This new law requires an online retailer who pays in-state marketers to advertise on its behalf to collect sales tax on online sales to Texas consumers. Traditional “brick and mortar” retailers who want a more level playing field are thrilled; online retailers much less so.
Private property rights fared well in 2011, as the legislature further restricted government’s powers to utilize eminent domain, reaffirmed that landowners own the groundwater below their land, and once again turned back an effort to establish a statewide smoking ban in restaurants and other workplaces. On the other hand, the legislature did allow concealed weapon license holders to keep their guns in their cars while on an employer’s private parking lot, even if the employer objects.
Surprisingly, conservative Republicans were unable to deliver on their campaign pledge to enact Arizona-style laws to ban so-called “sanctuary cities,” reduce illegal immigration and penalize employers who hire illegal workers. These measures were stalled by a coalition of moderate Republicans, Democrats and some influential business groups.
Looking forward to the 2013 session, business leaders (especially those in regulated industries) should keep an eye on a handful of potential developments in Texas politics.
First, 2012 will be a very active campaign season – and therefore a very expensive season for executives and corporations who support favored candidates. See Is Corporate Electioneering a Texas Game-Changer? (www.texasceomagazine.com) We may see the largest turnover in Texas political leadership in a decade if Governor Perry and/or Lt. Governor Dewhurst depart for Washington, because several other statewide officials will finally see an opportunity to move up the ladder. If so, the 2013 legislature will see new personalities in charge and promoting new agendas.
Second, we will keep an expectant eye on the economic recovery in Texas. All hope that the economy rebounds and that sales tax collections revive, but many fear a sluggish recovery and skyrocketing Medicaid costs will result in yet another multibillion-dollar state budget shortfall. If so, the 2013 legislature will once again have to decide whether to shrink state government even further, or to finally seek new revenues.
Third, we will observe how the Texas public responds to the tough 2011 budget cuts in education and social services. Texas voters who favored conservative government in principle may not like it nearly as much in action, and may be more tolerant of new taxes in 2013.
Fourth, we will gauge the growing momentum for a major rewrite of the state’s business tax system during the 2013 session. According to different legislators, the system levies too much revenue, does not raise enough revenue, applies too broadly, or applies too narrowly – but all seem to agree that it needs to be “reformed.” Of course, broad tax reform always leaves winners and losers. Sophisticated industries and their advocates will spend the interim organizing advocacy teams, polishing policy arguments, and preparing to fight for their preferred version of “reform.”
And as January 2013 approaches Texas CEO’s will feel that certain sense of dread returning.
Royce Poinsett is an attorney and lobbyist in the Austin office of McGinnis, Lochridge & Kilgore, L.L.P., where he leads the firm’s government relations practice group. He joined the firm following several legislative sessions at the Texas Capitol advising Texas political leaders on legal and policy issues, and now provides government relations representation to some of state’s leading corporations and trade associations.
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