On April 20, Gov. Rick Perry summoned the Texas Legislature to Austin to try and fix the state’s troubled school funding system, but despite their best efforts, the legislators were unable to come up with a viable plan.

In calling the special session, Gov. Perry said there was consensus among legislative leaders on lowering school property taxes and ending the current revenue-sharing system called Robin Hood, which has been in place since the early 1990s. The Robin Hood system requires property-wealthy school districts to share property tax revenue with property-poor districts to equalize funding among all state public schools.

The real sticking point, however, came when lawmakers couldn’t agree on a funding scheme that would cut local property taxes and generate an additional $8 billion in new revenues.

Lawmakers have been under increased pressure to revamp Texas’ $28 billion-a-year system because of a lawsuit filed by dozens of school districts who are at, or near, the maximum constitutional property tax cap of $1.50 per $100 valuation for maintenance and operations. This means the school districts cannot raise more local revenue and must cut expenses, like teaching positions, to balance their budgets.

Growing resentment among homeowners and other taxpayers about rapidly rising property taxes for schools has also added pressure to reform the system.

Sign Up to be a Legislative Ambassador!

Contact your State Representative and Senator

A variety of tax proposals were introduced, with several directly impacting physicians’ practices. The following is an overview of various school finance plans:

Gov. Rick Perry

• Reduce residential property tax rate from $1.50 to $1.25 per $100 valuation;

• Reduce business property tax rate from $1.50 to $1.40 per $100 valuation;

• Raise the cigarette tax from $1 per pack to $1.41;

• Allow video gambling at horse and dog tracks;

• Enact a $5 state fee on admission to topless bars;

• Enforce collection of the motor vehicle sales tax on used cars; and

• Close the loopholes in the corporate franchise tax.

Texas House of Representatives

• Reduce property tax rate from $1.50 to $1 per $100 valuation;

• Eliminate the franchise tax on corporations;

• Enact a payroll tax that would require all employers other than governmental and non-profit entities, to pay 1 percent of their wage base or a $100 fee per employee quarterly;

• Legalize video lottery terminals and collect 60 percent of the net income

• Increase the cigarette tax from $1 per pack to $1.41;

• Increase the sales tax from 6.25 percent to 6.5 percent;

• Increase the motor vehicle sales tax from 6.25 percent to 7.5 percent;

• Apply the sales tax to currently exempt items such as newspapers, magazine subscriptions and coin-operated services; and

• Extend the sales tax to legal services, accounting and auditing, architectural and engineering services, auto maintenance and repairs, financial brokerage services, barber and beauty services.

Texas Senate

The Senate did not produce a bill during the special session but did call for reducing property taxes by 50 to 75 cents per $100 valuation. The Senate discussed replacing the franchise tax with a “business activity” tax that would tax all businesses based on a formula related to payrolls, profits and other measures. They also considered expanding and increasing the sales tax and increasing the cigarette tax, among other measures.