The session has begun.

Sort of.

Tuesday January 10^th 12 noon, House and Senate members got sworn in and became official.  Representative Dade Phelan (R- Beaumont) was elected Speaker with a vote of 147 to 3.  The 3 went to  Representative Tony Tinderholt (R- Ft Worth). History tells us that members who vote against the eventual Speaker do not necessarily fare well.  Time will tell if this trend continues.  This futile effort was not a surprise.  Representative Tinderholt has not been subtle about his intentions.  He leads a small group of Republican members who feel that the Texas House has not quite completed its starboard tack, Speaker Phelan being the current main impediment in that further shift to the right.       

The complaint or issue de jour for this session is the long-standing habit of appointing a small number of minority party chairman.  This has been a tradition in the Texas House (and Senate) as long as there has been a party in the minority (R or D). While we wait to see the eventual committee assignments in both Houses, there is a good chance that there will be several D chairs in the House at least.  Last session there was only 1 D chairman in the Senate, John Whitmire (D- Houston) who was chair of the Criminal Justice committee.  We should know soon whether that trend continues. 

While the Senate committee assignments should be completed soon, the House will be awhile coming.  House members have been requested to submit their committee preferences by Thursday January 26^th.  The challenge by the Speaker and his team at that point is to arrange the puzzle between members, attempting to align their seniority  requests with the Speaker’s desires and construct committees that can function to accomplish the work that the House needs to complete.  Think of a wall of puzzle sticky note pieces with names on them, being moved around to complete a picture.  Not an easy task considering all that is attempting to be accomplished with the finished picture. 

Water has figured in both Governor and Lt. Governor agendas as well.  It has been many years since water was front and center of the legislative consciousness, this discussion is greatly needed.  With on-going droughts and regular flooding now becoming our new normal, it is time for the state to take a leadership position on water and spend some of this unusual surplus on water infrastructure.

As of today approximately 2,000 bills and resolutions have been filed.  Over 1450 House bills and about 500 Senate bills.  Many dealing with property tax reductions, and, after listening to both the Lt. Governor and Governor inaugural speeches I think it is pretty certain that we will see property taxes reduced.  While it sounds like a significant amount of money most of the proposals would result in less than $200 per year on the average home.  While certainly better than nothing, not by much. 

In addition, both the Governor and the Lt. Governor mentioned (to varying degrees) improving the power grid and school vouchers.  The voucher discussion has never been particularly serious during past sessions with a coalition of rural Republican and Democratic House members coming together to defeat any effort.  While the Governor talked about his support of school choice during the campaign, the Lt. Governor qualified his support with the desire to protect rural communities.  How far this effort progresses remains to be seen.  Regardless, this type of issue manages to remove lots of oxygen from the room and eat up lots of legislative time. 

A number of other issues will also steal time from needed infrastructure discussions including:

Transgender considerations, abortion restrictions, border security, CRT and other red-meat Republican issues. If past is prologue, figure that bills will pass and be signed reflecting these interests. 

The General Appropriations Bills have been filed.  Lots of water still to pass underneath this bridge as this is just a beginning.  Both the House and Senate bills are very similar emphasizing tax relief, school funding, and border security.  While both spend similar amounts they of course differ in the details.  Both bills leave approximately $50 Billion on the table based on Comptroller Hegar’s budget estimate.  127 days till the session over.  Hang on, its going to be a bumpy ride.

On Tuesday October 18^th the House Natural Resources Committee met to hear the final interim charge.  This charge dealt specifically with desalination.  There were a number of witnesses who testified during the several hours-long hearing.  Erica Mancha and Matt Nelson, from the Texas Water Development Board (TWDB) along with Kimberly Nygen and Robert Sadlier, from the Texas Commission on Environmental Quality (TCEQ) comprised the first panel.  They gave some background on the current state of desal around Texas and how TCEQ works with these projects.  The next panel was made up of Kyle Frazier, Texas Desalination Association (TXD) Exec. Dir. and Rebecca Grande, both discussed the ongoing need for additional water and how desalination can help impact that need. Michael Esparza, from the City of Alice, John Niland, from Invenergy, Richard Whiting, from Seven Seas and Thomas Williams, also from Seven Seas made up the next panel.  They discussed the current project in Alice and touched on the activities currently underway in Corpus Christi.  The final panel was representatives of the environmental community Jessica Eubanks, with Citizens Climate Lobby and Alex Ortiz, with Sierra Club. 

The committee had a variety of questions for each of these panels and indicated an interest in the future of desalination as a water source.  While no specific legislation was associated with this hearing, it is instructive that legislation often emerges from these interim hearings.  Overall, it was a positive step in raising awareness in desalination projects and the ongoing need for new water sources. If interested the you can watch the entire hearing on the state website via the link below:

https://tlchouse.granicus.com/MediaPlayer.php?view_id=46&clip_id=23672

With the general election fast approaching a recent dollar figure came to my attention. $200 million (I feel like this number should have an exclamation point but perhaps I’m the only one that is shocked by this figure).  This number comes from the most recent campaign finance report from our major candidates for Governor.  Governor Abbott and former congressman Beto O’Rourke have raised a combined $200 million. 

That seems excessive.

That number is one that most of us have no concept of nor will ever have to consider.  For the sake of perspective, how much will $200 million dollars buy today?  Currently the median home price in Texas is $257K, so $200 million will buy you approximately 778 single family homes, or a small subdivision.  The Frost Bank tower in downtown Austin cost $137 million in 2003, after inflation lets just call that a wash and assume you could probably get the equivalent today for approximately $200 million.  The yearly budget for the Texas Alcoholic Beverage Commission (not the largest or the smallest state agency) is around $54 million, so you could fund the TABC for almost 4 years at its current budget.

For a campaign there are no “tangible” assets acquired during the campaign itself.  There are some people employed and payroll taxes paid, printing services required, some office space rented, a variety of consultants paid to consult and some gas and airline fuel paid for and consumed.  Most of that money goes to the purchase of paid advertising on a variety of screens, audio speakers and mailboxes.

All with the goal of capturing our attention for a brief moment so that when (and if) we step into that voting booth we will have some recollection of something we have seen or heard that might sway our decision making at that instant.  It is a less than exact science, for we are a fickle group with very short attention spans. 

One might ask, what are the powers and duties of the Governor of Texas that would warrant this level of support? With just a minimum amount of research, the answer to this question is readily apparent. The Governor of Texas can:

• Sign or veto bills passed by the Legislature
• Serve as Commander-in-Chief of the state’s military forces
• Convene special sessions of the Legislature for specific purposes
• Deliver a report on the condition of the state to the Legislature at the beginning of each regular session
• Line-item veto portions of the state budget bill
• Make appointments to a large and varied number of state commissions and boards that actually oversee the daily running of our state government

What the Governor cannot do is introduce legislation, make committee assignments in the House or Senate or vote on any piece of legislation. The Governor can suggest, recommend, support or threaten to veto legislation but that is where it ends.  It is up to the individual members and their leadership whether any Governor’s policy suggestions are accepted or denied.  

All of these duties are indeed important.  Something that should be included on this list is the ability to make emergency declarations.  This ability gives broad authority to the Governor during declared disasters such as: hurricanes, floods, tornados, epidemics, etc. The Governor can activate the state guard, suspend certain laws and make emergency funds available to assist local and regional political subdivisions.  Most of us are aware of the use of some of these powers during past emergencies, some of us may have actually experienced the results of these powers once enacted, for better or worse.

As for the motivation for contributors to any campaign those reasons are as varied as the $200 million dollars that have been contributed so far. Ensuring each’s own version of “good government” is usually the motivation. 

My “good government” may be completely different than your “good government”, that’s what makes elections and politics combative.  It has long been said that Texas politics is a contact sport.  That has never been truer than now.    Early voting begins today, go vote.

JKF

ELECTIONS

With the passage of Labor Day the election cycle is now in full swing.  While cable TV commercials have been running for those well funded enough to afford them, many campaigns are just now going up on commercial TV with their full ad buys, hoping their budgets allow them to stay up and on for the duration of the campaign.  The negative ads showing up in close races, while those with comfortable margins run positive bio and “vision” ads.  The overwhelming use of negative political ads in contested races, is a long running political tradition.  It is much easier to convince a voter to be against someone than to be in favor of someone.  It is possible that all of us have been in the position of voting for the “lesser of two evils” especially when “none of the above” is not usually an option.  Much of the estimated $170 million dollars that will end up being spent by the 2 candidates in the Governor’s race will be spent between now and November 8^th.  Early voting in Texas begins on October 24^th and continues for 12 days.  It will be here before we know it.  If you are not registered to vote in the upcoming election, you still have time.

HOUSE INTERIM HEARINGS

PROPERTY TAX

The Senate has concluded most of it’s Interim hearing schedule and has none scheduled at this time.  If there are any issues still to be discussed these Senate hearings will probably not resume till after the November election.  The House is still conducting hearings and my understanding is it will continue well into October.  Of interest to many businesses was the recent hearing in the House Ways and Means committee.  Several charges on the agenda dealt specifically with changes made during last session that attempted to reform the property tax system and the property tax appraisal system.  The hearing was lengthy and at times complex.  The property tax system is arcane and not readily or easily understood for many payers, especially homeowners. 

A long list of invited witnesses representing a host of professional and mostly business interests took the witness dais and engaged in a detailed and esoteric recitation of facts and figures that often left the listeners, both the knowledgeable and the uninformed with the feeling of not getting quite enough to be completely satisfied.  The new system, the timing of the postcards, complexity of the worksheets developed by the Comptroller’s office and to some degree a lack of uniformity between taxing districts, all still needs some tweaks to be a bit more user friendly.

Once the invited testimony concluded, the public was allowed to address the committee.  This testimony ran the gamut of personal interests and grievances.  From repeal all property taxes and replace with the expected state surplus (the speaker did not have an answer about what happens next cycle when that surplus does not exist) to the make up and forming of Appraisal Review Boards and the ability to contest appraisals and everything in between.  The changes from last session will continue to be reviewed by this House committee and the appropriate Senate committee as well.  I feel certain that additional changes for the appraisal process and all things connected will be considered next session. 

TAX INCENTIVES

At the conclusion of this discussion the committee moved on to the next charge dealing with not renewing Ch. 313 of the tax code and should it be replaced with something else. Last session the business tax incentive known collectively as “Ch. 313” was allowed to expire.  What is a Ch. 313 tax exemption, you ask?  Well, I will tell you.

Ch. 313 refers to Chapter 313 of the Texas Tax code.  In this case the law allowed for an appraised value limitation on business property in which the taxpayer agrees to build or install property and create jobs in exchange for:

• A 10-year limitation on the taxable property value for school district maintenance and operations tax (M&O) purposes. 

This business incentive was wildly popular in a variety of areas around the state for the past several years.  The reason for the lapse was that it was also extremely unpopular with large swaths of elected officials and just everyday citizens.  The reasons against its continuance are numerous and wide ranging, from morally unfair for the government to pick winners and losers to the belief that some school districts and businesses took advantage of and abused the incentive.  All these abuses, perceived and otherwise were legal, just not overly popular, hence the reasons it was allowed to lapse. 

Many in the business/economic development sector feel that Texas will be at a distinct disadvantage without this type of tax incentive when compared to other states.  The majority of the remainder of the hearing dealt with this discussion.  As with all interim hearings there were no specific bills discussed, votes taken or decisions reached.  I am not going too far out on a limb to suggest that this issue will be engaged at length during the upcoming legislative session and a great deal of money will be spent to see some version of this tax break be reinstated.

WATER

The recent rains allowed some portions of the state to ease out of their current drought status, but that condition may be short lived.  While the rain is always welcome, it does not address the root problem of water need throughout most of Texas.  A potentially larger impediment to business relocation to Texas than lack of tax incentives is most assuredly lack of water.  As this is being written this morning on the first day of fall, Austin is forecast to reach 101 degrees for a high today, no rain in sight.

JKF

The cash registers (both at the state and in private business) continue to ring at a record pace.  I recently sent out a state revenue estimate report from Comptroller Hegar (link provided below) that reflects his latest estimate.  This is the last update before the end of the state fiscal year on August 31st.  The surplus number currently sits at around $40 billion.  Our current budget for the biennium is $122 billion.  I include that number for scale.  Since I have been watching this yearly circus the largest surplus I can recall was around $5 billion and it seems like that has been in the last 6 or 7 years.  Probably safe to say that come next January the number will have increased once again.  Truly unprecedented.

Lt. Governor Patrick has issued his budget priorities:

• 4 Billion for property tax relief for next year
• Increase homestead exemption to $60,000 (long term goal $100,000)
• Suspend state gas tax for remainder of 2022
• Teacher pay raise, maintain current education funding and property tax cuts from 2019
• Provide 13^th check for retired teachers

To date I have not seen anything similar from either the Governor of Speaker Phelan.  When the general election cycle begins in earnest after Labor Day I would expect to see a more complete discussion on how and why some of this money will be spent.  It’s your tax dollars (or stimulus money as the case may be) so make sure your local state Reps and Senators know how you feel these funds should be spent, if at all. 

I begin every day reviewing the Texas drought monitor. You can find this handy information at:

https://www.drought.gov/states/texas

Current levels are:           Abnormally dry                 99.2%

                                                Moderate drought          94.8%

                                                Severe Drought                84.1%

                                                Extreme Drought             56.7%

                                                Exceptional Drought       20.4%

While you review these dry statistics, consider that our rainy season (if Texas actually has a rainy season) is really not until late September or October, unless of course a hurricane blows through.  Truly a unique situation when some might wish for a hurricane, just a small one.  One might suggest that some of the surplus money should be spent on water infrastructure, controlled burns and brush control. 

Hearings on interim charges continue, mostly in the House.  There are a full slate of hearings on a variety of issues over the next 6-8 weeks in the House committees.  As of this date the Senate only has a single upcoming hearing in late August.  Expect that to change in the not too distant future.

If you wish to monitor these activities on your own, the state has an extremely efficient and well organized website (capitol.texas.gov).  In this instance, your tax dollars very well spent.

The race for Texas Governor is getting a little bit more interesting.  There are NO limits on the amounts of money that can be contributed to or spent by candidates for state office in Texas.  If someone wants to write a $1 million check they can or more than 1.  In this case on a recent report, Democratic candidate Beto O’Rourke received $1 million dollars each from an Austin couple.  Don’t worry, Governor Abbott has his list of large donors as well.  In the most recent reports Governor Abbott raised $37 million, spent $52.2 million and has $45.7 million on hand.  Democratic nominee Beto O’Rourke raised $40.9 million, spent $15.9 million and has $23.9 million on hand.  These numbers are based on campaign reports that came out at the end of June.  There will be updated reports available at the end of October.  We won’t see final fund raising and spending totals till after the November election.  Regardless, THIS. WILL. BE. BY. FAR. The most expensive Gubernatorial race in Texas history. (Bold, caps and periods added for effect)

What do they spend ALL THAT MONEY ON?

For a little balance (just a little) Texas population is almost 31 million people.  Texas has 20 media markets (that’s a bunch for 1 state) 2 in the top 10, DFW #5 and Houston #8 and San Antonio rounding out the group at #31.  That means it is EXTREMELY expensive to get on TV in Texas.  Plus as we all know the last 3 weeks of the election every time we go to the mailbox we take out LOTS of direct mail that we put in the trash, usually without even glancing at it.  That direct mail is very expensive. Plus radio, cable TV, social media, staff, travel, etc. Its expensive to run a statewide race in Texas, always has been.

But, so far the 2 of them have already spent almost $70 million dollars and not one general election vote has been cast.  This is for a $153,750 a year salary.  Go figure.

After the election we will do the math to see how much the winner spent to receive each vote.  One other thought, do you think the future Governor answers the phone when the $1 million contributor calls? 

Another interesting point that, while it is an on-going problem in the private sector, most of us do not consider the situation at the state level, and that is personnel.  The state is having a difficult time not only finding new employees but retaining those that are currently employed.  Over the past several months I have attended a variety of Sunset hearings for agencies big and small.  All of them have the same problem, not enough people do to the work, much less any new responsibilities.  These are jobs at all levels from clerical and administrative to professional requiring advanced degrees.  The state just cannot keep up with what the private sector is willing to pay.  Think about that next time it takes longer than usual to get your license or permit or some other service the state provides on which you might depend. 

More to come…

JKF

THE 2022-23 CERTIFICATION REVENUE
ESTIMATE UPDATE

The conclusion of the first primary run has ushered in the initial set of Interim Hearings in both the House and Senate.  That coupled with the first Sunset review hearings promises a busy rest of April and May.  There are still several run-offs that need to be concluded (May 24^th) but not enough to derail the start of these hearings. 

 As of today Texas is currently experiencing Severe Drought or worse (per US Drought Monitor). Almost the entire state is at least Abnormally Dry and 53% is at the Extreme Drought level.  Unless the state has an extremely wet April/May we will have a good chance of repeating the drought of 2011.  How this will impact citizens, industry and ag businesses remains to be seen but it won’t be good.  We have not done much to fix the problems identified during the 2011 drought except we have more people.  In 2021 Texas grew by approximately 810 people per day or over 310,000 people for the year. That is the equilivant of a new city larger than Plano coming online every year.  With all statewide offices, Senate and House seats up for election, now would be a good time to ask these potential future office holders how they might want to address these issues.

The Interim charges in both the House and Senate have been released and the hearings have begun.   Water availability, groundwater management (both Senate and House committees), marine desalination rural employment, workforce education and the ever present review of property taxes are all of interest to folks in our industry.  We will monitor these hearings and report anything of interest in the future.

We met with the Comptroller senior staff recently to discuss a variety of issues, including taxes and the expected budget surplus.  While they were fairly close-mouthed on the exact amount of surplus that is expected,  they did reveal that the surplus will be exceptionally large.  How decision makers will deal with this influx of surplus funds remains to be seen.  I think it is a given that the term “spending like drunken sailors” may be appropriate when all is said and done.

Board Member, Mike Irlbeck, has been good enough to develop a PowerPoint presentation that presents  a very comprehensive view of the current state of water in Texas.  It is not encouraging.  Between our current drought conditions and the inadequacies of the statewide water plan, it would be fair to say that we are heading toward a challenging time in regards to water availability in Texas.  Mike and I have begun to offer this presentation to virtually any decision maker or key staff person who is willing to sit for the 45 minutes to listen.  The presentation is not necessarily centered on desalination, instead, it is focused on raising awareness of the lack of “realistic” planning that constitutes the statewide water plan.  We will report any feedback we get, positive or negative. The upcoming legislative session begins in 247 days (depending on what day you read this).  That time period will pass in the blink of an eye.  As with any legislative session, this one promises to be unique, maybe even more unique than usual.  More to come…

JKF