Our Profession and our lives are about to face an onslaught of change from forces in the Legislature that wish to redefine the methods of collection and the sources from which the necessary revenue must be acquired to run the State Government.  The Judiciary has mandated this change predicated on a political movement spawned by the introduction of the school finance “Robin Hood Plan”. The judicially mandated controversial transfer of moneys from “rich districts” to “poor districts”, based on property tax revenues served to augment funds to the poor districts, but established adversarial relationships with the rich districts and spawned the political call for Property Tax Reform.  Simultaneously, the rich school districts strategically choose to throw this divisive issue back into the Courts.  Initially the case brought by one school district, “West Orange Cove”, addressed only one claim to the Court. The claim was that the present system of school finance was equivalent to a statewide property tax, and therefore was specifically illegal according to the Texas Constitution.  Initially the poor districts (Alvarado et al) in order to protect their “Robin Hood” revenue were in opposition to this claim. The District Courts ruled the system constitutional.  Appeal to the Texas Supreme Court under Chief Justice John Cornyn overturned the District Courts based on the constitutionally defined mandates of Texas Education.  These constitutional mandates make it the responsibility of the Legislature to ensure the equal and fair distribution of knowledge to the children of the State of Texas.  The specific requirements of knowledge distribution had to answer succinct parameters concerning the “adequacy” of the knowledge,” the “efficiency” of the distribution of the knowledge; the “suitability” of the knowledge delivered, and finally, answer, was there sufficient attention to the “Maintenance and Operation” of the system necessary to ensure the constitutionally mandated delivery of Education.  The Texas Supreme Court ruled that “Maintenance and Operation” were being adequately addressed, but that the other three parameters, as succinctly and specifically defined, were being severely compromised by actions of the Legislature.  The Legislature has set a “ceiling” of $1.50 per $100 of property valuation, but through Legislative mandates to the school districts, the required necessary expenditures of the school districts have brought the “floor” of operational expenses equal with the ceiling. This leaves local school districts “no meaningful discretion” on how to expend their tax dollars and therefore no flexibility to address further defined constitutional mandates or the wishes of the local taxpayer.  The Supreme Court ruled that because the Legislature has set a ceiling and has mandated a floor that this constitutes a “state mandated property tax” which is specifically illegal in the Texas State Constitution.  The Legislature must now devise a system of tax collection to fund the education system that is not a property tax.

 

The John Sharp Tax Reform Commission whose hearings I attended January 9, 2006 is charged by Governor Perry to bring recommendations to the legislature for funding this system.  Politically this is being hailed as a “Tax Relief” bonanza for the citizens of Texas, but it is simply a redistribution of revenue acquisition, and we are in the sniper’s crosshairs.

 

Many organizations were present to testify before the Commission: Chamber of Commerce asks for leniency on businesses to encourage relocation to Texas; Libertarians wanted government out of everyday life, therefore the State would need less taxes; Anti tobacco forces wanted Texas to increase tax on cigarettes to $3.00 per pack as in New York and California.  This will decrease youth smoking, but would increase yearly revenue by $800 million/$1.00 increase in taxes.

 

The TDA and our lobbyists were present and Dr. Jerry Long, chair of the Council on Legislative and Regulatory Affairs, spoke for Dentistry. Dentistry’s message to the legislature is that we are in support of the hard decisions that must be made, but to be clear in our position that dentistry is different from medicine and many other businesses. The business model for our practices averages a 70% overhead. Any tax on our services would be onerous to our livelihood and further penalize the citizens of Texas in their acquisition of affordable dentistry.  We do not have the luxury of insurance coverage found in the medical arena or the ability to pass through costs to our customers as in other businesses. Furthermore, any tax that is applied must be applied to all professions equitably, not singling out dentistry or specific dental procedures as was attempted by previous legislatures.  TDA did an excellent job of delivering our message in this open forum, but we must come together as a profession with unity of strategy and the willingness of individual commitment to join forces and deliver the message to our individual representatives across the state as well as here in the Halls of the Capital.

 

The Courts have set a target date of June 1, 2006 for the system to be corrected.  The simplest method is to change the Constitution to allow a property tax, but this probably won’t happen politically.  An amendment requires a vote by the people therefore, even though this cannot occur prior to the June 1 deadline, the Court will be looking at how fast and therefore if in good faith is the Legislature working to promptly and in a serious way establish a solution and an alternative solution if the vote fails.  Other suggested remedies include raising the $1.50 ceiling to reestablish “Meaningful Discretion” or to totally reform the system away from property taxes.  This last option appears to be the political choice.  At the hearings, one of the commission members asked “if we increased the ceiling and lowered the floor and the Legislature amends the Constitution, would this solve the dilemma?”  Assistant Attorney General Ted Cruz answered in the affirmative.  The problem, however, still exists for dentistry, because the political river is flowing toward property tax reduction.  We are being faced with franchise tax increases, corporation fee increases, variations of payroll taxes; value added taxes (VAT) and increasing licensing fees.

 

The Plaintiffs in the case are asking for a June 1, 2006 deadline because districts must set their ’06-’07 tax plans. They want the Legislature to provide at least a 10% “Meaningful Discretion” leeway, and the districts must not be compelled to establish or operate under an unconstitutional system.

 

So this brings us back to who has to cough up the cash to balance the system?  Will this be a net zero tax burden to us personally? (Decrease property tax but raise XYZ)?  Will this evolve into a personal state income tax?  Will this be detrimental to our businesses and to our profession?  Nobody knows, because there are no public answers, and if preliminary plans are formulated, they are under wraps.  Whether it is the proposed HB3 “Basket Tax” which calls for a capital and earned income tax, as well as a payroll tax piggy backed onto the 1.15% Texas Unemployment Tax which already exists for employers, the Commission’s job is to coalesce the knowledge and recommend a course of action.

 

The TDA’s job…, our job…, your job…, as a Dentist, is to be ready to confront the issues, be onboard with the strategy and answer the call of your profession.  We as Dentists in the Capital Area must accept our role as the front line troops for Dentistry in the halls of the Capital.  You will be called…, I promise!  Numbers matter, voices are heard, so be ready for the unexpected.  Do not hesitate to reschedule patients if the need arises.  They will come back, and they will be impressed by your involvement, your commitment and your resolve!

 

One date I want all of you to mark off on your schedules NOW is February 7, 2007.  This is Legislative Day for our profession at the Capital.  There is no excuse for the entire Capital Area to not be present and letting our positions be known to the Legislators and their staffs at the Capital. Don’t let complacency be your master.  When we stand together, we win together.  Your presence is an invaluable asset and our voices in unison are the clarion of Dentistry’s success.

 

Respectfully submitted,

Mark Peppard, D.D.S.