By Tom Aldred, Executive Director. Dec. 2, 2019
The Senate Committees on Finance and Health & Human Services both begin their interim work this week with hearings on Tuesday. The Finance Committee will tackle two perennial issues: the state’s constitutional spending limit and the application of property taxes to business personal property, while Health & Human Services will delve into vaping and the state’s 1115 Medicaid waiver.
TCCRI will submit testimony on each of these issues. Reforming the state’s constitutional spending limit remains a key objective for conservatives in Texas. The current limit is based on Texans’ personal income growth, can be overridden by a simple majority in the legislature, and does not apply to all state spending. We recommend tethering the limit to a formula based on population growth and inflation, requiring a super-majority to override the limit, and applying it to all state spending. Reforms along these lines were carried by Senator Kelly Hancock and passed the Senate in 2015 and 2017.
The 87th Legislature should pass these reforms into law to permanently base state spending increases on an objective metric that mirrors the growth of the state. While recent legislatures have done a good job holding the line on spending, strengthening the constitutional spending limit is about limiting how fast government can grow no matter the makeup of the legislature. A stronger spending limit would mean that Texas trusts the private sector – from households and businesses small and large – to allocate resources as they see fit rather than having the state do it for them. Government should not grow at a faster rate than the people it serves.
Our testimony on the spending limit also discusses the importance of exempting tax cuts from the spending limit, a point which is brought into sharp focus by the second item on the docket for the Senate Finance Committee: the business personal property tax (BPPT). While the state does not levy a property tax, Texas’s local property taxes are among the highest in the nation and include businesses’ personal property such as inventories and machinery & equipment.
Texas exempts the first $500 of a business’s property from the BPPT and Senator Paul Bettencourt has filed bills in each of the past three sessions to raise that exemption. However, raising the exemption imposes a fiscal cost to the state because it lowers school district property tax collections. School finance formulas then require the state to make up the difference. In each of the last two sessions, the Senate has passed Sen. Bettencourt’s bill raising the BPPT exemption to $2,500, with a roughly $2.6 million annual cost to the state. This type of appropriation should generally be exempt from the state’s spending limit.
Our testimony explains how damaging the BPPT is to business investment and urges the legislature to follow the example of Ohio which, in 2005, eliminated its BPPT on new investment in manufacturing and phased out its BPPT on other business tangible personal property. For each of the following four years, Ohio won Site Selection Magazine’s “Governor’s Cup” award as the state with the most major business expansion projects, underscoring the type of boon that eliminating the BPPT can be for business investment.
By pursing tax cuts and a stricter spending limit, the Texas Senate continues to advocate the core principles of TCCRI: limited government and free enterprise. These first Finance Committee hearings of the interim ought to set the stage for passage of both measures by the 87th Legislature.