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April 21, 2011

Legislative Update Senate Finance Committee Hearing Summary April 20, 2011 Below is a summary of yesterday’s Senate Finance Committee meeting. The committee considered bills relating to funding various state programs. Of those heard in yesterday’s hearing SB 22 and SB 1811 most greatly affect public school funding. Both SB 22, Shapiro’s hybrid school funding model, and SB 1811, Duncan’s new revenue bill, intended to raise the level of funding from the original budget bill, SB 1, passed out of committee favorably as substituted. SB 22 received four “no” votes, from Senators Deuell, Lucio, Whitmire and Zaffirini. The Equity Center did not testify on either bill in the Senate Finance hearing, but testified previously on SB 22 in the Senate Finance Subcommittee on Public Education Funding. Below is a formal summary of the hearing of the committee’s meeting for SB 22 and SB 1811.

AUSTIN (4/20/11, E1.036, 10:00 AM) The Senate Committee on Finance met this morning to consider Senate Bills 22, 1579, 1580, 1581, 1582, 1583, 1584, 1811, and Senate Joint Resolution 5. (10:05) Sen. Ogden calls the meeting to order. SB 22 By Shapiro. Relating to public school finance. - voted favorably as substituted. Sen. Shapiro said there is a committee substitute, which reflects the subcommittee's decisions on school finance. It lays out the "hybrid model" which will flow $5.3 billion that was returned by the subcommittee. It focuses primarily on reducing target revenue, which has allowed them to meet valued principals, and to meet their funding mark. It ensures that no single district takes a drastic cut so as their functions would be drastically harmed. It repeals the $500 supplemental staff salary increase, but there is an amendment that changes this. It reduced any given districts hold harmless amount. This legislation lays out a guide to formula issues in the future, but it cannot and should not be the only avenue down which to look. The substitute modifies the proration statute, so that, in the event of funding shortages, all districts will receive a proration reduction. They realized that over $3 billion state dollars are used for Pre-K programs, but they have zero liability, so this bill addresses that issue by including Pre-K programs. School readiness is absolutely essential for pre1220 Colorado Street, Suite 300 – Austin, Texas 78701 – 512.478.7313 – FAX 512.478.6433 –

schools to ensure that kindergartners are ready. It ensures that districts are not pressured into giving raises when they cannot. It moves from 120 districts to over 600 under this legislation. (10:15) Sen. West said this bill is indicative of the financial times, and asks them to consider this bill in relation to the corresponding bill in the House. West said this is a $4 billion reduction with entitlements, and ask if this is the best they can do. (10:16) Sen. Shapiro said they were given a task that was rather insurmountable. She said there is not a person in the legislature that believes they could sustain the quality of education given their base budget. She recalls TEA stating that they need $6 billion above the base bill, and she took them at their word. (10:18) Sen. West asks how the school districts will be harmed. (10:19) Sen. Shapiro said they are simply giving them a shave, rather than a haircut or a decapitation. She does not believe there to be a single school district that will be cut more than 9% from the bill as introduced. (10:21) Sen. West said he wants to ensure that they are being transparent. He asks if there is additional money available to put into the public education system. (10:22) Sen. Shapiro said they have said over and over that public education is their first priority, and that, if there are additional monies, she hopes that the first place they put it is in public schools. (10:23) Sen. Ogden said half of the money that they have added to the base bill has gone to the foundation school program. He said this is "a pretty heroic effort from the Senate" given the financial climate. He states that they only reason they are short under current law is because of target revenue, and that, if they didn't have that, they would have a $2 billion surplus. Ogden said they are phasing out hold harmless, and that, once this has happened, school finance will be more equitable. (10:26) Sen. West asks if they have to deal with the property tax relief system in order to phase out target revenue. (10:28) Sen. Ogden said it is easy to say that, if only taxes were higher they would not be in such a deficit, but points out that, if taxes were higher, he is unsure if the economy would be any better. He states that the Senate version is "enormously better" than the House version. (10:30) Sen. West asks if they are using any of the rainy-day fund for public education. Sen. Ogden said they probably will, but they have not asked the committee to do that yet. (10:31) Sen. Hinojosa said when they started, they had three priorities, which were public education, healthcare, and public safety. Hinojosa said he is concerned that the bill does not address equity, and asks why this is so. (10:33) Sen. Shapiro said this is a fiscal crisis bill, and not an equity bill. She states that, to change the numbers for target revenue so quickly could drastically affect a school district. She states that they need to work their way out of target revenue, but that they must give them time to do this. 1220 Colorado Street, Suite 300 – Austin, Texas 78701 – 512.478.7313 – FAX 512.478.6433 –

By the year 2017, they will no longer have target revenue, and all districts will be funded by the formula. (10:36) Sen. Williams said they have struck a good balance for eliminating target revenue, and appreciates the careful consideration on this. (10:37) Sen. Lucio thanks Sen. Shapiro for her leadership. However, he clarifies that cutting $4 billion from public education is a choice. He asks when equity will be a priority for school finance, stating that, when they have money, it isn't a priority, and neither is it when they don't. He is concerned for those that this bill leaves behind. (10:39) Sen. Deuell said he appreciates that this would reduce target revenue and phase out hold harmless. He reads the definition of equity from the school code. He states that it's not a bad bill, but that he cannot support it and properly represent his districts. (10:41) Sen. Whitmire clarifies that they can afford to do better, and that they are not limited to the two given choices from the House and Senate. He states that they are better than to think they must be boxed in to these two choices. He does not believe them to be out of time on this, and that they are not a poor state. He emphasizes that they are the fastest growing state in the nation, and that they should not surrender to the circumstances. He proposes that they use the rainy-day fund, and states that he will work around the clock to find other sources of revenue. Whitmire said he will vote no on this bill, as the people of Texas deserve better. (10:46) Sen. Seliger said he voted against the bill twice in subcommittee, as he did not believe it to accomplish everything it needs to. He drafted a substitute that reduced hold harmless to 0, and which took a system that was broken and dysfunctional and made this system work. He notes that Sen. Shapiro pointed out that this proposal was radical and had drastic effects. He states Shapiro's bill improves the entire system, which is as good as they can ask for. (10:51) Sen. Nelson said there is nothing more important that they can do as a state than educate their children. She emphasizes the amount of leadership it takes to come up with $6 billion in these times. She believes that this is as much as they will be able to come up with in order to do what they have to do. She expresses concern for the standards of education that they have put into place, as she has heard whispers of the dismantling of some of these standards from the House. (10:55) Sen. Patrick said this is the best possible formula that they can create for the school districts at this point in time, and urges them to encourage other Senators to support this plan. He also supports the move away from target revenue, but reminds them that 9% of the school districts account for 95% of their growth, and that, if they dropped target revenue altogether, the effects on these schools would be devastating. (10:57) Sen. Eltife emphasizes that this is "a heroic effort" on behalf of the Senate. He states that the $6 billion is not enough, and that they must add more to this.

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(10:59) Sen. Shapiro explains Committee Amendment #1, which changes the school readiness certification system slightly, to bring it under the auspices of TEA. It also states that certain districts can obtain a waiver for this, if they have demonstrated success. (11:01) Sen. Zaffirini asks about a letter that she received from the (11:02) Committee Amendment #1 is adopted. (11:03) Sen. Shapiro quickly lays out Committee Amendment #2, and it is adopted. (11:04) Sen. West explains Committee Amendment #3. He states that it would restore the healthcare supplement to employees. Committee Amendment #3 is adopted. (11:05) Sen. Duncan explains Committee Amendment #4, which was co- authored by Sen. Seliger. It repeals target revenue for FY17. (11:06) Sen. West asks what they would have to do in order to fix the target revenue system. (11:07) Sen. Duncan said they would have to pass Senate Bill 22, as it is a good compromise for solving a problem without throwing certain districts under the bus. He states that the implementation of target revenue was due to a time in which they could not predict growth rates, so they gave a snapshot solution for this problem. Phasing out target revenue is the fairest way to address this issue. He states that this formula allows them to set the baseline for the formula in the future. (11:13) Sen. West said he will vote no on the amendment as a result of the fear of uncertainty. (11:14) Sen. Shapiro emphasizes that they have got to move forward with this. The committee recessed from 11:15 to 3:37. (3:38) Kara Johnson, Texas Early Childhood Education Coalition, testifies that children that go through Pre-K programs score higher on reading exams, and that Texas saves money on these programs, as children do not have to repeat grades. (3:40) Bill Hammond, Texas Association of Business, testifies in support of the bill. He said they are in support of the bill in general, and especially the Pre-K program. Hammond said they need to increase the productivity of the education system, and that this bill will help that tremendously. He would say that is not an unfunded mandate, but rather a very well funded mandate. (3:42) Greg Pool, Superintendent, Barbers Hill, testifies by echoing the sentiments of the previous testimony. He states that there was a report that looked at federal money, and that they should consider this for funding if they are not already. He also suggests looking at the wise use of spending to decide how much money to appropriate to a given district. He states that equity is something that "we can always know, but don't know how to define."

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(3:45) Sen. Shapiro said they should be looking federal money, but that sometimes it's tough to tell exactly how much they are receiving. Shapiro said the efficiency/effectiveness model that he suggests will be implemented in the future. (3:46) Sen. Ogden asks Mr. Hammond how he feels about the use of the rainy-day fund. Hammond said the use of some of this money would be completely appropriate, as this is exactly why they have such a fund. (3:52) Bill Grusendorf, Texas Association of Rural Schools, testifies about target revenue and hold harmless. He said they should reduce up to 6% in the previous year, rather than going back to year one. This will be more gradual, and won't cause them to "go off the cliff at the end." (3:54) Sen. Duncan withdraws Committee Amendment #4, and sends up Committee Amendment #5, which simply makes a technical change to Committee Amendment #4. (3:56) Sen. Williams asks about the exact difference between the two amendments. (3:57) John McGeady, LBB, said the only difference relates to charter school funding, keeping them consistent with school districts in terms of target revenue for FY17. He answers a technical question from Sen. Williams, stating the provision simply clarifies which parts take effect in FY12 and which take effect in FY17. (4:00) Sen. Nelson said she understands the intent, but asks if he has a plan for how to get where he is going with this. (4:02) Sen. West inquires about Section 3, which changes the prorate statute. He asks how proration will change in 2016, as opposed to the way it works today. (4:04) McGeady said it would apply the same proportion to all districts, rather than the percentage of the tax base of the given district. He states that this is changing the language referring to hold harmless from the proration section. (4:08) Sen. Ogden said he interprets this as a non-substantive change from bill. (4:10) Sen. Patrick asks if he would consider moving the date back by one year, so as to give three full legislative sessions before this would come into effect. He states it would be much easier on the members of that session, as they would not be facing that deadline, and that the economic hardships could continue, which could stick those legislatures between a rock and a hard place. (4:13) Sen. Duncan said he believes that wanted to make the deadline for 2015, rather than 2016, but was told that it was too early. He states that there are strong feelings on both sides of this issue, and that this seems to be a good compromise. (4:15) Sen. Patrick said he is concerned that they won't have enough time to fix the financial situation.

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(4:16) Sen. Ogden said if the financial situation hasn't improved by the next session, and they continue to "kick the can down the road," he does not believe any of them will be reelected, as Texans will begin to believe that they are worse than those in Washington DC. (4:17) Sen. Seliger said the problem is the current system that they have, and that throwing additional money won't fix this problem. (4:19) Sen. Patrick said they actually haven't solved any problems, and that he fears they will be in the same situation next session. Patrick said he is willing to stay here as long as he has to this summer to make long-term solutions to problems. (4:21) Sen. Shapiro said she is optimistic they will be able to solve these problems, and hopes that they will stop using property taxes. She states that, if they leave this amendment off, they will continue to "kick the can down the road." (4:23) Committee Amendment #5 is adopted, 12-3. (4:24) Sen. West explains Committee Amendment #6. He said the property tax relief fund is synonymous with the structural deficit. He emphasizes that this amendment is not "kicking the can down the road." (4:26) Sen. Williams asks about the practical effect of the amendment. He asks if it will bring an end to the property tax relief fund. (4:27) Sen. West said in order to fix these problems, they must adopt this amendment. (4:28) Sen. Williams said he is still not sure what the amendment does. He asks how the amendment would change the fund. He asks for clarification that this would prevent the legislature from using GR to fund public education. Sen. West gives a very ambiguous answer to this question. (4:32) Sen. Shapiro asks what his definition of "fix" is, as the only thing he seems to be saying is that this fixes the property tax relief fund problem. She emphasizes that this is not necessarily the source of the problem. (4:36) Sen. Lucio asks about the impact that this amendment would have on that of Sen. Duncan's. (4:38) Sen. Duncan said this amendment would continue to "kick the can down the road," and it would essentially negate his own amendment. (4:39) Sen. Shapiro said in essence, he is saying they must raise the tax. (4:40) Sen. West withdraws his amendment. (4:41) Sen. Deuell explains Committee Amendment #7. He states that it relates to supplemental insurance. He states that if they adopt this amendment they must rescind Committee Amendment #3. (4:43) Sen. Shapiro said she is opposed to this amendment. 1220 Colorado Street, Suite 300 – Austin, Texas 78701 – 512.478.7313 – FAX 512.478.6433 –

(4:44) Sen. Deuell moves to reconsider the adoption of Committee Amendment #3. Motion fails, 59. Sen. Deuell withdraws his amendment. (4:46) All adopted amendments are rolled in a committee substitute. (4:47) Committee substitute is adopted, as amended. (4:48) Sen. Shapiro said they have got to work diligently to avoid compromise, and that they must stand strong for the children of Texas. (4:50) SB 22, voted favorably, as substituted, 11-4. SB 1811 By Duncan. Relating to state fiscal matters. - voted favorably as substituted. Sen. Duncan said there is an amendment to Article V of the bill, which clarifies language. This is Committee Amendment #3. (6:48) Sen. Hinojosa asks for further clarification about the application of this amendment. (6:50) A representative from the Comptroller's Office said when the bill was written, it would have applied to all furnished apartments, and the substitute clarifies that furnished apartments for tenants, and not hotels that are furnished, are excluded. (6:53) Committee Amendment #1 is withdrawn. Committee Amendment #2 is adopted. (6:54) Committee Amendment #3 is adopted. (6:55) The adopted amendments are rolled into the committee substitute. The committee substitute is adopted. (6:57) Sen. Duncan said this identifies and makes available for use over $4 billion. Sen. Duncan moves passage of the committee substitute. (6:58) Sen. Patrick said he can support all of the issues except for the speed-up of the business franchise tax. He states that they have worked very hard with the stakeholders on this, but that he has to vote no, despite being in support of the rest of the bill. He hopes they are able to resolve the issue with a floor amendment. (7:00) Sen. Shapiro said she will be voting for the bill, but simply because she knows that they will be able to come to a sensible conclusion before it is all over. (7:01) Sen. Williams points out that it is very important that they continue to work on this with their House colleagues who have also been working very hard on this. (7:02) SB 1811, as substituted, voted favorably, 13-2. (7:03) Sen. Ogden said they put a contingency rider in Senate Bill 1 that would state unless they find other funds, they ought to use $3 billion from the rainy day fund.

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(7:04) Sen. Zaffirini said she supports the use spending this money, and would support spending more. (7:05) Sen. Eltife asks about the supplemental bill. (7:07) Sen. Ogden said he thinks they are committing about half of what it ultimately will be. (7:08) Sen. Patrick said they need to hold on to every dollar, and that he believes that they will still be about $12-$15 billion short. (7:10) Sen. Ogden said the only place they could cut, in order to make up for funds, is to cut Senate Bill 22 in half. (7:11) Sen. Patrick said they should explore other ideas, such as a 1 penny increase in sales tax, which would be offset. (7:17) Sen. West asks about the other sources of revenue that they might use, other than the rainy day fund. (7:19) Sen. Ogden said Medicaid is not likely to be fully funded in Senate Bill 1, but they are going to have to pay for it somewhere. (7:22) Sen. Seliger said his constituents say the current times call for the use of the rainy day fund. He reminds them that they can add to the rainy day fund. (7:25) Sen. Duncan said almost nobody agrees on when to use the rainy day fund, as it is not defined when they should. He offers a lot of examples and scenarios of different types of people that could be affected by their decisions. The committee adjourned at 7:29 PM.

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