The 86th Texas Legislature convened on January 8, 2019 for what will be a whirlwind 140 days. Texas is one of only four stalwart states (Montana, Nevada and North Dakota) whose regular legislative session meets every other year, and these biennial sessions are jam-packed with committee hearings, lobbying galore and, likely more than 6,600 bills filed, if last session is any gauge.
The playing field remains much the same as last session. Yet, following the 2018 November midterm elections, Democrats flipped 12 seats - the largest shift in the lower chamber since the 2010. Republicans’ former 95-55 advantage over the Democrats in the Texas House shrunk to 83-67. A new House Speaker and new House committee chairpersons will also change the dynamics in the House. In the Senate, Republicans also remain in control, with 19 out of 31 seats.
The usual laundry list of key issues will be tackled – education, healthcare, labor, transportation and budget among many others. However, according to Richie Jackson, Texas Restaurant Association CEO who is entering his 23rd legislative session (yes, you read that right), there are two topics looming that will overshadow the entirety of the 86th Session – property taxes and school finance.
“The two issues go hand-in-glove,” Jackson says. “More than half (55 percent) of the money for public education in Texas comes from local property taxpayers.” The state chips in approximately 35%, and the federal government covers the rest. Texas does not have a state income tax, but it does have the 13th-highest per capita property taxes in the country (as of fiscal year 2015), and the 9th-highest per capita sales taxes, as reported by the Tax Foundation.
Clearly, we have a problem, and for years now, property owners have been crying foul. The impact is felt not just with property owners, but also those who rent or lease, whether residential or commercial. Lawmakers on both sides of the aisle have been promising relief. However, before anyone gets too excited, consider that tax relief does not equal a lowering of property taxes, but rather a slowing of future increases.
The Texas Constitution prohibits a statewide property tax, so lawmakers cannot control local property tax rates, however, last session they sought to allow cities, counties and districts to impose their own increases – but with voter approval. The wrench however, was that no one could agree upon where to draw the line; the House favored a six percent limit, the Senate was set on four, and the governor said 2.5.
This time around, Governor Greg Abbott, Lieutenant Governor Dan Patrick and newly-elected House Speaker Dennis Bonnen are unified on the issue, and legislation has already been introduced, and passed the Senate Property Tax Committee, that requires voters to approve any local property tax increase of more than 2.5 percent before it can take effect.
How will schools make up the shortfall? The state will increase its share. Given that the price for public education in 2019 is projected to be $55.4 billion (more than a 25 percent increase from 2010), that is no short order.
Ross Ramsey, policy expert and executive editor of the Texas Tribune reports, “The House’s proposed budget for the next two years adds billions to what the state is spending on schools. The Senate’s plan doesn’t spend as much, but the increases are significant (and in one case, more specific: Patrick has proposed $3.7 billion in teacher pay raises). Abbott floated the idea of holding down local taxes and tax increases — an answer to loud and persistent complaints about property taxes — and increasing state spending to fill the gap. And Comptroller Glenn Hegar, the fourth official at those weekly breakfasts, has proposed requiring the state to pay at least 40 percent of the cost of public education, along with any increases due to inflation.”
Many questions remain - where the state will find the money to bridge the current gaps? What happens when school districts’ and local governments’ needs are greater than what local taxes (along with state supplement) will allow? Some are just waiting to see how the money will be allocated in the school finance bill.
However flawed Texas’ school finance system might be, the Texas Supreme Court concluded two years ago that the state’s school finance formulas, “… were a complete mess, but not foul enough to be called unconstitutional.” And so, we press on.
As the issue is dissected over the next few months, Ramsey provides these school finance highlights from a recent state report:
- Texas is spending 6.3 percent less per student, in constant dollars (stated in 2010 dollars, adjusted for inflation and population), than it was spending in 2010. Overall spending per student, in constant dollars, was $9,845 in 2010 and is projected to be $9,226 in the 2019 fiscal year.
- The state’s share of public education spending has dropped from 37.6 percent of the total to 35 percent of the total projected for the 2019 budget.
- The federal share has dropped, too, from 16.4 percent of the total to 9.5 percent in 2019.
- The local share — the part funded by property taxes — has risen from 46.1 percent to 55.5 percent.
Bringing the state and local numbers in line would cost the state around $5.7 billion annually at current spending levels.
The persistent tug-of-war between property taxes and school finance may not be fully solved this session. However, it is evident that state school funding is likely to increase, and the property tax bleeding may be slowed in the short term, if not stopped.
TRA Legislative Agenda
The good news is that the state is currently sitting upon a $9 billion budget surplus over last session, and an Economic Stabilization Fund (Rainy Day Fund) that is projected to reach a whopping $15 billion by the next biennium if left untouched. Also, over the next two years, the state is expected to bring in about 8.1 percent more funding from taxes.
However, according to Jackson, that good budgetary news may also make the session more challenging. “Having more money doesn’t mean its going to be an easy session. It’s often the opposite. Having a surplus creates its own competition and tensions. There are a lot of more funding requests and it is a lot more difficult for legislators to say ‘no’. You have to be strategic.”
TRA’s legislative agenda contains some issues leftover from last session (BBQ), and several new efforts (oyster farming). Highlights include:
While U.S. supplies of oysters have rapidly increased, those for Texas have declined and are currently at a 20-year low, due to a variety factors including hurricanes, and increased fishing pressure. Although Texas has one of the largest coastal shorelines in the nation, it is the only coastal state that does not engage in mariculture production of oysters.
Earlier this year, Representative Todd Hunter announced the organization of the Coastal Bend Oyster Task Force to develop awareness on the economic and environmental benefits of oyster aquaculture in Texas. It is a well-balanced group of stakeholders ranging from conservationists to the business community and academia, including the TRA, the Coastal Conversation Association, Visit Corpus Christi and oyster researchers from Texas A&M University, among others.
The group is working specifically with state agencies including Texas Parks & Wildlife to spearhead legislation that would create a new industry in Texas – oyster farming - which has the potential to positively impact the Texas restaurant industry, consumers and the Texas economy. Legislation will cooperatively balance the interests of commercial oyster producers, recreational fisherman/tourists, and conservation groups. It will also ensure that all oysters are produced by fully-trained and certified individuals, acting as environmental stewards, as well as successful oyster growers.
Weights and Scales in Restaurants - The BBQ Bill (p.s. - it’s back)
Under state law, roughly 17,725 retailers, including grocery store chains, airlines, coffee houses, laundries and brisket purveyors, are required to use scales to measure what they sell to the public. Those scales are supposed to be registered with the state (along with a fee), so that inspectors from the Texas Department of Agriculture can ensure that they're not tipped in the seller's favor. In addition, the Department requires that each certified scale have a certification sticker be visible to the consumer.
In 2017 the Texas Legislature passed HB 2029 which eliminated registration and certification requirements for scales “exclusively used to weigh food sold for immediate consumption.” This means that food service establishments that use scales to weigh food for pricing, such as yogurt shops, barbecue restaurants, and salad and sandwich establishments are not required to have their scales registered.
Shortly after passage, the Department of Agriculture, the agency charged with verifying the accuracy of the retailers’ scales, passed rules to nullify the bill, deciding that businesses would only be exempt from regulation if they weighed foods to be eaten “on the premises.” But the barbecue bill's authors argued that in determining how to implement the law, TDA misinterpreted its intent.
The intent, which is supported by the clear language of the bill, merely describes the food sold and exempted from Department weights and measures regulations, and not food limited by the place of consumption. At no point in the legislative process, committee testimony, nor in any draft of the legislation was there language that limited the scope of the legislation to scales used to weigh food for immediate consumption on the premises. In a formal letter, TRA asked TDA to reconsider the adoption of its rules, and to eliminate the term “on the premises”.
No changes were made to the agency’s rules and further, TDA asked the Texas Attorney General for an opinion, which was issued in April of 2018. The Attorney General sided with the authors of HB 2029. “The language of the statute requires that the vendor sell food that a consumer can eat immediately, but it does not mandate where or when the purchaser will eat that food,” Paxton wrote. “Nor does it require that the seller provide a space for the consumer to eat.”
TRA is supporting legislation this session to further clarify and strengthen the language of the original bill and to implement the Attorney General opinion.
TABC permitting - Wet/Dry certification
Under the current Texas Alcohol Beverage Code, all alcohol permit and license applications require the relevant city or county to certify the wet/dry status of the of the applicant’s location. TABC cannot legally issue a permit without this wet/dry certification from the appropriate city/county. However, the law does not require any set timeframe for this certification.
There have been multiple cases reported whereby a city or county has not certified the wet/dry status in a timely manner, causing the applicant to delay opening and incur unexpected inventory and labor costs. It has been reported that many delays of the cities/counties wet/dry certification were caused by cities/counties using the certification process to make applicants take action on matters wholly unrelated to the alcohol permit, such as local code compliance relating to construction, plumbing, electric and other areas.
TRA is supporting legislation that will require cities and counties timely to certify (within 30 days) the wet or dry status of a prospective applicant’s proposed location to sell alcoholic beverages, as part of the TABC application process.
The Sunset Commission included the recommendation as part of their final report on January 9, 2019, and the TABC Sunset bill will include this language.
By requiring a set time frame (30 days) for a city or county to certify wet status, the TABC permitting process will be significantly streamlined, efficient, and effective. TABC will be able to approve permits and licenses quicker (without having to unduly wait for city or county certification) and businesses will be better able to plan, financially and employee staffing, for business openings and permit approval.
The rapid growth of delivery and digital ordering promises a bright future for restaurants and the alcohol industry. Delivery visits are up ten percent, and sales up 20 percent since 2012, with the majority of growth coming from digital orders. In the next five years, analysts predict that 25% of all restaurant sales – $200 billion out of the $800 billion industry – will occur through digital channels, with the majority of that being delivery.
There is a strong and growing consumer demand to have alcoholic beverages delivered with their meals. Many people enjoy margaritas with their fajitas, beer with barbeque or a Bordeaux with their steak, and that is the one piece missing from the restaurant meal delivery experience.
Alcohol delivery is occurring Texas but is limited to deliveries from package stores and beer and wine permittees, either through third-party delivery apps or by retailers themselves. Texas law permits beer and wine to the leave the premises of a beer and wine permittee, but the same authority does not extend to a mixed beverage permittee.
Under the current Texas Alcohol Beverage Code, alcohol is prohibited from leaving the premises of a restaurant that holds a mixed beverage permit, save for the case of a partially-consumed bottle of wine. A person may take alcohol off the premises of a mixed beverage permittee located in a hotel.
With customers increasingly craving convenience and hotels, grocery stores and package stores already permitted to allow alcohol to be taken or delivered off the premises, TRA is supporting legislation that will level the playing field for restaurants.
This proposed legislation does not interfere with the three-tier system or expand the service of alcohol to dry areas of the state. Mixed beverage permittees will still be required to purchase their alcohol through the same distribution channels that exist under current law. Furthermore, this bill will not allow alcohol to be delivered to those areas of the state that are not wet for alcohol.
Uniform Employment Standards
When Austin’s Paid Sick Leave ordinance passed last fall, it was clear that something needed to be done to draw the line against government interference in the employer-employee relationship. TRA, along with 15 other prominent business groups, including the Texas Association of Business, the Texas Retailers Association and the Texas Association of Builders joined a new coalition, the Alliance for Securing and Strengthening the Economy in Texas (ASSET). ASSET was key in successfully fighting the Paid Sick Leave ordinance this past November, which was ruled unconstitutional by the Third Court of Appeals in Austin.
TRA (and ASSET) is supporting legislation would preempt local governments from unilaterally enacting local employment and labor laws, like employer benefits, employer hiring practices, scheduling, and other daily operational business practices.
School Start Date
In 2006, the Texas Legislature established the 4th Monday in August as a state-wide, uniform start date for public schools.
However, in 2015, H.B. 1842 became law, which allowed school districts to exempt themselves from 67 state requirements, one of which being the uniform, 4th Monday in August start date, thus creating early and inconsistent school start dates throughout the state.
Early and inconsistent start dates have disrupted private sector business operations throughout the state, causing reports of significant revenue losses, reductions in operating hours and operating capacities, and reductions in workforce (including summer jobs once available to school kids and teachers) as businesses have been forced to scale back to adjust to a dramatically shrinking family customer market disrupted and altered by early school start dates.
In his 2017 study, noted Texas economist Dr. Ray Perryman concluded that moving the average school start date in Texas just one week earlier would cost the state a billion dollars in lost economic activity, more than 7,500 permanent jobs, and $62.1 million in lost tax revenues.
These losses are being most profoundly felt by small businesses which comprise at least 70% of the Texas travel and tourism industry. Many small businesses, such as restaurants, accommodations, retailers, attractions, summer camps, state park concessionaires, sole proprietorships, independent contractors, and others, are reporting double-digit percentage decreases in business volume and revenues. Without a full summer family travel period, the short-term and long-term outlook for many of these businesses is dubious.
TRA is working with the A+ Texas coalition to support legislation to establish a uniform school year that begins after Labor Day and ends before Memorial Day. This will restore a full summer for Texas families and enable Texas businesses to grow while generating more tax revenues and creating more jobs.
TRA’s legislative issues are of utmost importance to not only Texas restaurants, but the business community, and the state economy as a whole. TRA will continue to fight for what is best for Texas restaurants, safeguard entrepreneurship, and ensure that our lawmakers at the state, federal and local levels are held accountable.
While Jackson and his legislative team tackle the 86th Legislature, he says he also has his eye keenly fixed upon the next election cycle, and not just the presidential race. Every ten years the state district lines are redrawn following completion of the United States census, which is scheduled for 2020. “Whomever controls the governor’s mansion and the state legislature is even more critical at this point, because that is also who will control redistricting.” Which sets the legislative stage for the next ten years.
For updates throughout Texas’ 86th Legislative Session visit TRA’s Advocacy page.