Paxton backing Patrick on budget

Attorney general’s view on constitutionality likely to figure as chambers reconcile disparate versions.

In a key moment in the fight between Texas House Speaker Joe Straus and Lt. Gov. Dan Patrick over how to pay for the next state budget, Attorney General Ken Paxton has sided with Patrick, saying that an accounting maneuver used by Senate budget writers would likely withstand any court challenges.

His decision will play a major role in shaping House-Senate negotiations, which are beginning in earnest after the appointment of a 10-member conference committee that will hash out the differences between the versions of the budget adopted by each chamber.

When the state budget is tight, as it is this year, lawmakers often find change between the sofa cushions with such tricks as delaying a payment to the public education system by one day to push it into the next budget cycle or low-balling a program’s price tag and counting on the next Legislature to make up the difference.

The House’s proposed $106.8 billion budget uses a handful of old tricks and also would withdraw $2.5 billion from the state’s rainy day fund. The Senate’s $106.3 billion budget, however, relies on a new trick, which would delay a $2.5 billion payment of sales tax revenue to the State Highway Fund to the first month of the next two-year budget cycle.

After Straus, R-San Antonio, called the maneuver “Enronesque” and suggested it violated the Texas Constitution, the Senate’s budget author, Flower Mound Republican Jane Nelson, asked Paxton to weigh in.

On Friday, Paxton sided with the Patrick-led Senate, issuing a legal opinion that their plan is unlikely to be found unconstitutional.

While the Senate’s transportation maneuver is similar in concept to the school funding delay that lawmakers have used before — and that the House budget employs again to the tune of $1.9 billion — there is a crucial difference. The education funding system is established in law, which can be changed with a new law, like the state budget. But the transportation funding transfer is prescribed by the state’s constitution, which cannot be changed in time to alter the budget negotiations.

The House’s chief budget-writer, Republican Rep. John Zerwas of Richmond, said the House is reluctant to consider a financing method that could later be challenged in court. Before Paxton’s opinion, which isn’t legally binding, Zerwas said that House budget negotiators would accept the attorney general’s opinion no matter the outcome.

“Our perspective has been that the constitution does not allow for the method that they’re using with the State Highway Fund, but if the attorney general finds that this is appropriate and within the limits of the constitution, we’ll just negotiate as if we’ve got two very valid methods of finance,” said Zerwas, who chairs the House Appropriations Committee.

But after Paxton’s ruling, Straus spokesman Jason Embry signaled that the dispute might not be over, saying in a statement, “None of this changes the fact that the Senate is attempting to spend the same dollars twice.”

Nelson has framed her request for Paxton’s opinion as a way to shore up skeptics rather than a sign that she and Patrick, who leads the Senate, had any doubts about their plans.

“This Attorney General opinion confirms that the Proposition 7 transfer considered in the Senate is constitutional,” Nelson, who chairs the Senate Finance Committee, said in a statement. “Now the conferees on Senate Bill 1 can begin working to balance this budget with full confidence that this option is on the table.”

Constitutional question

At first blush the constitutional provision, overwhelmingly approved by voters in 2015’s Proposition 7 ballot question, seems clear: It says the transfer must occur “in that state fiscal year” that the money was collected, and the Senate is asking for it to occur in the next fiscal year.

But Comptroller Glenn Hegar, whose office first floated the idea of pushing back the transportation payment, noted that another part of the same provision — requiring that the transfer be made from the “net revenue” of sales tax collections — might make it impossible in some circumstances to follow the constitution’s instructions.

His argument involves arcane details of state finance but is key to understanding the dispute between the House and the Senate.

The transportation funding mechanism sets aside sales tax money that would otherwise go into the state’s general revenue stream for schools, prisons, health care services and other programs. It dictates that after sales tax collections hit $28 billion, the next $2.5 billion are transferred to the State Highway Fund.

The problem, Hegar said, is that in some years, including the next two, sales tax collections won’t reach that level until the last month of the fiscal year, meaning the state won’t know how much “net revenue” to send to the highway fund until after the year ends.

House leaders disagreed and submitted a letter to Paxton describing the Senate plan as “clearly and unambiguously” unconstitutional. Hegar, the letter said, could simply make an estimated payment in the same fiscal year and reconcile any differences that emerge later, a common accounting practice.

Paxton, however, ruled that because of the conflicting provisions, the Senate’s plan amounted to “substantial compliance” with the constitution, enough to withstand a legal challenge.

Conference committee

Paxton’s decision likely will shape how the conference committee, which meets behind closed doors, will approach other pressing questions, like whether to tap the state’s rainy day fund, which at more than $10 billion is the largest of its kind in the country.

Straus and Zerwas have argued that doing so is the most sensible way to bridge the budget crunch, which was caused in part by decisions lawmakers made in 2015, like the transportation set-aside and a business tax cut, and in part by a slowdown in the fossil fuel sector.

The reserve, which is funded primarily through oil and gas production taxes and was designed to help bridge budget woes caused by oil busts, is projected to reach $11.9 billion in 2019 if left untouched.

Patrick, however, has said the fund should only be touched during natural disasters or for one-time expenses. Nelson has said there is little appetite in the Senate to tap the reserve, but she opened the door for using it on items that could be framed as one-time expenditures, like deferred maintenance projects for state buildings.

The green light from Paxton on the Senate’s highway fund maneuver lessens the likelihood the committee will dip into the rainy day fund.

Two Central Texans have been appointed to the budget conference committee: Sen. Charles Schwertner, R-Georgetown, and Rep. Larry Gonzales, R-Round Rock. Another area with representation is the Rio Grande Valley, home to the lone Democratic appointees to the conference committee: Sen. Juan “Chuy” Hinojosa of McAllen and Rep. Oscar Longoria of Mission.

In addition to Zerwas and Nelson, the other members are Reps. Sarah Davis of West University Place and Trent Ashby of Lufkin and Sens. Lois Kolkhorst of Brenham and Joan Huffman of Houston.