Taxes, budget cuts and Texas’ biennial mud-slinging contest

By Tom Banning

After five special sessions in two years, the Texas Legislature finally approved Gov. Rick Perry’s plan to revamp Texas’ antiquated school finance system by reducing local school property taxes and replacing them with a new business tax and a $1 increase in the cigarette tax.

Despite an outpouring of grass roots efforts against including physicians in the revised tax plan, there was little political support for entirely exempting physicians from the final plan. The new business tax plan, which won’t go into effect until February 2008, will impose a 1-percent gross receipts tax on businesses earning more than $300,000 per year and includes many businesses not previously subject to any business taxes, like attorneys and many physician practices. However, sole proprietorships, general partnerships and non-profit businesses are exempt from the tax plan.

Under the plan, businesses can deduct payroll costs, health care costs and pensions, with a $300,000 limit on compensation deductions per employee (including physician salary) or they can deduct 100 percent of the cost of goods sold. The definition of “cost of goods sold” is based on the IRS code.

Additionally, physician practices will be able to exclude all revenues from government payers — Medicare, Medicaid, workers’ compensation, and CHIP — from their taxable income. Physicians can also exclude the cost of all uncompensated care provided to patients. The state comptroller has been charged to promulgate rules on how uncompensated care will be determined.

Through the interim and during next legislative session, TAFP will work with the governor and legislative leaders to ameliorate any negative tax implications this plan may have on physicians’ practices and their ability to continue providing quality health care to their patients.

Tightening their belts — again ...

Despite a projected $8-billion budget surplus, the state Legislative Budget Board (a permanent joint committee of the Texas Legislature that develops recommendations for legislative appropriations for all agencies of state government) instructed state agencies to prepare new budgets for 2008-09 biennium with a 10-percent cut from their 2006-07 expenditures, totaling about $3 billion in general revenue.

The letter signed by Legislative Budget Board deputy director John O’Brien and Mike Morrisey of the Governor’s Office of Budget, Planning and Policy notified all state agencies, “As a starting point for budget deliberations, an agency’s baseline request for general revenue-related funds will be limited to 90 percent of the sum of amounts expended in fiscal year 2006 and budgeted in fiscal year 2007… Exceptions to the 90-percent limitation include amounts necessary to maintain public education funding based on legislative actions, satisfy debt service requirements for existing bond authorizations, maintain caseloads for federal entitlement services, and maintain adult prison populations.”

The letter goes on to say, “Funding requests for other purposes which exceed the baseline spending level may not be included in the baseline request but may be submitted as exceptional items.”

While this is only the starting point for budget deliberations and may be more of a symbolic gesture that the Legislature is not going to go on a spending spree with an $8-billion surplus, the fact remains there will be increased pressure and competition for limited state funds next session. What remains unclear is how Medicaid/CHIP budget needs to cover things like higher health care cost and utilization will be addressed, not to mention increasing provider rates. How the Texas Higher Education Coordinating Board will recommend adjusting funding for graduate medical education, how the Department of State Health Services will prioritize funding for disaster preparedness, avian flu, immunizations and a host of other public health initiatives are all questions that remain to be answered.

Start your engines ...

Labor Day in Texas has come to signify many things — the start of a new school year, the beginning of football season and the unofficial opening of a perennial name-calling contest, or what we in Austin like to call Texas’ general elections.

While most of the down-ballot races were determined during the primary, there is still plenty of excitement at the top of the ticket where incumbent Gov. Perry faces three big-name challengers: former Congressman Chris Bell of Houston is running as the Democrat, Texas’ current Comptroller and now former Republican Carole Strayhorn is running as an Independent as is author/singer/songwriter Kinky Friedman. Most seasoned political observers believe Perry will win, though in such a crowded field he’s not likely to capture more than 40 percent of the electorate.

While there are a handful of Texas state Senate races, none are truly competitive. The chances of a challenger knocking off an incumbent senator this election cycle would be like a peewee league football team beating the Dallas Cowboys — actually the football game might be a closer match.

In the Texas House of Representatives, like the Texas Senate, most races were determined in the primary. However, after the passage of a massive new tax bill during the special session coupled with a general dissatisfaction of politics, some House members may face a difficult time in their re-election bids.

While there may be few truly competitive elections this fall, they do provide the Academy and its members the opportunity to help influence decisions these elected officials will make on issues ranging from liability reform to Medicaid reimbursement, managed care reform and professional discipline. If you are interested in becoming more politically active, knowing what candidates TAFPPAC has endorsed or learning more about TAFPPAC and how it represents family physicians’ political interests, please visit www.tafppac.org or contact Tom Banning at (512) 329-8666 ext. 22.