Ten Ways To Fix Texas

August 2005By Comments

Illustrations by Jonathan Carlson are not available online.

BY NOW THERE CAN’T BE MANY SOULS IN TEXAS WHO REMAIN unaware of the Legislature’s long record of failing to lower school property taxes. At least with lawmakers back at the Capitol to address the problem, there is cause for optimism. Elsewhere in state government, however, disarray prevails: too many failing students in our public schools; soaring health care costs that threaten to undermine the solvency of the state; nursing homes that may have to close because the state underfunds them so badly; a tax system that fails to reflect the modern Texas economy; a franchise tax for businesses that is so riddled with loopholes and exceptions that at least five out of six firms do not pay it; a looming water crisis that is as sure to come as the next drought; a demographic tsunami of lower-income students who will arrive at our colleges and universities around 2015, where they will discover that neither the quality of higher education nor the quantity of financial aid is adequate to the task of educating the state’s future workforce. These issues and a handful of others represent the permanent agenda of the state. This agenda exists whether the state’s leaders choose to address it or not. It can be ignored, but it can’t be wished away.

I have worked in the Legislature or written about it for almost four decades, and I can vouch that any state leader during that time would have no trouble recognizing the issues that face Texas today. Problems are intractable and solutions elusive, and for many lawmakers, the temptation is irresistible to spurn the permanent agenda in favor of a political agenda. So it was this past session, when legislators gave up on improving the education and tax systems and instead flung themselves into battles over banning gay marriage (for the second time) and whether dirty dancing by cheerleaders was a threat to America.

Enough already. The truth is that most of these issues have been studied to death. Legislators know what they need to do. They just don’t want to do it. They want good schools, reliable water supplies, magnificent roads—but they don’t want to make the voters pay for them. So, just this once, let’s put aside the conflict of the moment and approach the permanent agenda free of political constraints. Here are ten things we can do to make Texas a better place.

01 — INSTITUTE A PERSONAL INCOME TAX

Tax experts say that the tax system, like a kitchen stool, requires three legs to stand without collapsing. The legs are sales taxes, property taxes, and compensation taxes. In Texas today, the stool is near collapse—because it’s missing a leg. There’s a reason why property taxes in Texas are so high that the Legislature is under pressure to reduce them. It’s because we have no income tax. There’s a reason why Texas has one of the highest sales tax rates in the country. It’s because we have no income tax. The idea that the absence of an income tax makes Texas better able to attract business to the state is an illusion. High property taxes are a deterrent to home ownership. They are a deterrent to high-wage businesses that might want to move to the state or expand here.

Texas has an outmoded method of taxing business that is based on an old-fashioned industrial economy rather than the contemporary service economy. The state taxes corporations and excludes partnerships. Businesses from Dell Computer to the Fort Worth Star-Telegram have figured out how to reorganize themselves in a way that allows them to avoid paying the business franchise tax. The professional-services sector of the economy—doctors, lawyers, architects, accountants, engineers, consultants, insurance and real estate agents—finds it even easier to get around the franchise tax. A personal income tax, therefore, doubles as a business tax. It is the only way to tax business partnerships and produce enough money for the state to fund its schools, meet federal mandates in health care, and keep violent criminals locked up.

In its contortions to avoid the “i” word, the Legislature has considered a payroll tax on businesses that are not corporations. This is a terrible idea, for three reasons: First, it penalizes companies for creating jobs. Second, it hits some businesses harder than others, namely low-profit-margin, labor-intensive operations such as call centers and Wal-Mart. Third, it lets businesses without employees (for example, investment partnerships) off the hook entirely. Why shouldn’t the Bass brothers pay a state business tax?

The Texas Constitution decrees that two thirds of the revenue raised by a state income tax must go toward the reduction of school property tax rates. That sounds pretty good right now. So does this: The remaining third must go to education. The constitution also requires approval of an income tax by the voters. If the public really is serious about wanting property tax cuts, let’s give them a chance to put their mouth where their money is.

02 — STOP THE TOLL ROAD MENACE

Toll roads have their place: Oklahoma. Yuk, yuk. Okay, I’ll admit to using the Dallas North Tollway now and then and bypassing Houston traffic on the Sam Houston Tollway. I’ll even concede that toll roads make sense to relieve congested routes between cities. But turning planned freeways—that’s freeways—into toll roads in urban areas and holding commuters hostage is downright un-American and un-Texan. And that’s exactly what we are in the process of doing. There is a relatively easy way to prevent this kind of highway robbery: Raise the gasoline tax. Five years ago, Texas’s gasoline tax was 20 cents per gallon—much higher than California’s (18 cents), New York’s (8 cents), and Florida’s (13.3 cents). By 2004, New York’s gasoline tax stood at 39.2 cents, California’s at 35.9 cents, and Florida’s at 30.6 cents—while Texas’s remained at 20 cents. A 10-cent increase in the Texas tax would yield $1.41 billion—a little more than $1 billion for highways and the rest reserved for public schools. That money could be used to pay the interest on bonds for freeways. Let’s not stop there. The Legislature should allow voters in the state’s three most populated regions—Houston, Dallas-Fort Worth, and Austin-San Antonio—to authorize a local gasoline tax of 5 cents a gallon for new freeways within each region. Don’t think of this as a tax increase. Think of it as a toll road decrease.

03 — RESCUE THE NURSING HOMES

Federal law requires Texas to provide funding for Medicaid patients in nursing homes. The homes sued the state, claiming that the payments were inadequate, and won. The Legislature doesn’t have to come up with a bunch of money to bail out the homes. It just has to come up with an even scarcer commodity: political will. A bed tax on nursing home patients of $7 a day would bring $3 back to Texas in federal matching funds for every $1 it generates. This would solve the problem for the 85 to 90 percent of the nursing homes that take Medicaid patients. The rest would not share in the federal largesse; however, their patients are more able to pay the tax, and some also have long-term-care insurance. But the fear of being accused of passing a “granny tax” is too much for politicos to overcome.

04 — BOOST TEACHERS’ SALARIES

The most difficult public policy issue the Legislature faces is how to put more money into public schools in a way that actually produces results in the classroom. The problem is that more than 80 percent of the proposed $37 billion public education budget goes to pay salaries and benefits. Incremental salary increases aren’t likely to make much of a difference. But suppose the salary increase was more than incremental? Suppose we raised the starting salary for teachers from $31,874 (in 2002–03) to $50,000. Wouldn’t that be enough to attract a lot of highly talented people who currently avoid going into teaching? We should provide similar raises for current teachers as well. Critics will say that we get nothing out of paying more money to the same old teachers, including those who perform poorly, and they have a point. The solution is that, in exchange for the upgrade in pay, teachers will have to forgo the union-style job protections that they now enjoy. Principals will set salaries and hand out raises (or cuts) according to merit, and they can fire teachers who don’t measure up. In return, principals will be held accountable for the performance of their school on standardized tests.

I know what you’re thinking: How much does it cost? The answer is around $5.5 billion a year. That’s a lot of money, but I have a way to help pay for it. The last time Texas faced a school finance crisis, I asked an expert in the field if the state should place a limit on administrative expenses by local districts. “You can’t do that,” he said. “Then Houston will have no place to put its incompetent teachers and principals.” Suspicions confirmed. The governor should direct the commissioner of education to devise a plan to reduce administrative expenses statewide by 50 percent, with the savings to be redirected to teacher pay.

05 — FIX THE PROBATION SYSTEM

This ought to be a no-brainer. It costs $14,600 a year to sustain a prison inmate, compared to $730 to supervise an offender on probation. But the state’s probation system, everyone agrees, is a mess. Many probationers escape supervision altogether, because too few probation officers have to supervise too many cases for too long. Currently, the maximum probation period is ten years. That’s a long time for an offender not to make a misstep and violate the conditions of his probation. Getting in a fight, drinking booze, failing to show up at an appointment with his probation officer—any of these can cause probation to be revoked, requiring a return to prison. So frequently does this occur that the state’s prisons are almost out of bed space. In an attempt to prevent an overcrowding crisis that would require building more prisons—another expensive undertaking—the Legislature passed a probation reform bill this spring that reduced the maximum supervisory period to five years for a select group of third-degree felons and provided for the hiring of more probation officers. The idea was that more supervision would reduce crime and make prison beds available for violent criminals. Right idea, wrong governor: Rick Perry vetoed the bill. The Legislature should pass it again at its first opportunity.

06 — INCREASE OUR WATER SUPPLIES

Texas is one drought away from catastrophe. Already, towns like Blanco, west of Austin, and Electra, west of Wichita Falls, have experienced days when they ran plumb out of water. In the booming suburbs north of Dallas, on the Interstate 35 and U.S. 75 corridors, population is outstripping water supplies. In a prolonged dry spell, state officials say, 435 communities would not have enough water to meet their needs. By 2050, the number will swell to 900, affecting 38 percent of the state’s projected population. Two things must happen between now and then. One is that a source of funding must be found for projects that can move water from where it is (but only a fraction of it is used), which is East Texas, to where it isn’t, which is the other three directions. A major water bill in the recent legislative session proposed placing a fee on large commercial, industrial, and residential users. The residential fee was just 13 cents per one thousand gallons for usage above five thousand gallons a year, but 2050 is a long time away, and political expedience is ever with us, so the fee idea died. The second necessity is a plan that will fairly allocate the water—but everybody’s idea of fairness is not the same. City folks fear that they will provide most of the money but rural communities will be the beneficiaries. Rural folks fear that their towns will dry up because the metro areas can outvote them. The realities of politics are that it will take another prolonged drought like the one in the fifties before anyone gets really serious about water.

07 — RESTORE CUTS FOR MEDICAID

Wielding the budget ax in 2003, the Legislature imposed a 5 percent cut on the amount it paid to doctors and hospitals who treated Medicaid patients. The amount necessary to restore the cuts was trivial by the standards of a $138.3 billion budget—a total of $67 million—and the consequence of not restoring the cuts is potentially serious, which is that the providers, as the health care jargon goes, may not accept new Medicaid patients. If that occurs, the patients will seek treatment in emergency rooms, where care is far more costly than it is in clinics. Paying the docs is the easiest thing to do on this entire list, and yet the Legislature managed not to do it.

8 — CREATE NEW FLAGSHIP UNIVERSITIES

One of the best ways to jump-start economic growth is to build major research universities. Yet the only top-tier public research universities in the state are UT, A&M, and the lesser-known UT-Dallas, in engineering and technology. Texas needs more flagships to bring in federal research dollars and create ongoing, cutting-edge economic development, as the University of California system has done for that state. The UC system includes five of U.S. News and World Report’s top ten public universities in America. The Texas higher education system has none. It does have some flagship wannabes: the University of Houston; Texas Tech; UT—San Antonio; and the University of North Texas, based in Denton but soon to open a campus in Dallas. For at least twenty years, there has been widespread agreement among higher-education policy makers that the state has to have more flagships. So, what’s the holdup? Just two little things: politics and money. Jealousy among Texas’s regional universities and their rival backers in the Legislature is so intense—toward UT and A&M and toward each other—that the people involved would rather see all fail than one or two succeed.

What makes the situation so frustrating is that it doesn’t cost much money—or take much time—to turn a good university into a great one. Fifty million dollars a year for ten years—half a billion dollars total—would go a long way toward enabling a university to recruit (i.e., steal from other universities) the kind of faculty members who bring in the big research dollars and signal the national academic and research communities that something big is going on in Texas. The University of Houston has the shortest distance to go to flagship status, and the best location—especially if it were to join the UT System and affiliate with the medical institutions in the area. Another $500 million spread over ten years could be shared among UT-Dallas and the other three wannabes, moving them closer to elite status. That’s a total of a billion dollars. And the overall cost to the state budget would be zero: Take money that has already been earmarked for economic development—the $300 million Texas Enterprise Fund, replenished each legislative session, that is used by the governor to attract companies to Texas. As the California example proves, there is no greater payoff in economic development than top-ranked universities.

09 — MAKE COLLEGE AFFORDABLE FOR ALL

Once we have upgraded our universities, the next issue is whether students will be able to afford them. The demographic reality is that Texas is going to be a majority Hispanic state. If we fail to provide for these kids’ education—to keep them in public schools until they graduate and to see them through college—Texas is done for. Without an educated workforce, we can’t have a thriving economy in the Information Age. But students who come from poor backgrounds often see attending college as something they will never be able to afford. Fortunately, it doesn’t cost that much to send kids to college—if you’re the state, that is. The Texas Grant program pays the full cost of tuition and fees at public institutions to students who graduate from high school after completing the college-bound curriculum and maintain a 2.5 grade point average in college. Current funding is $331 million, which does not cover all eligible students. Full funding would cost another $193 million. There’s not a better investment to be made.

10 — BRING BACK THE POLITICAL CENTER

Fair redistricting: These are not words that one normally sees paired, but together they envision a reform that would go a long way toward making Texas politicians more accountable. Regardless of which party has been in power in Texas, the trend in redistricting has been to draw safe seats for incumbents. The result has been to reduce the number of seats that one party can hope to wrest from the other, until it is down to a handful in each house of the Legislature. The only race that matters to most legislators is their party primary; the general election is a foregone conclusion. The result of safe-seat redistricting is to shrink the political center, to cause politicians to gravitate toward the extremes of the spectrum, to institutionalize party-line voting, to discourage independence, and to ensure that lawmakers cannot face the ultimate accountability, which is defeat by the opposing party. Various proposals to have a nonpartisan (or bipartisan) panel draw districts in a way that would make seats more competitive have gone nowhere. A few states have tried it, but, sad to say, Texas will not soon be one of them. Neither will the center soon return to Texas politics.

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