Major Issues Facing the Texas Legislature During the 2011 Session

Gardere’s Government Affairs practice is preparing for the 2011 Texas legislative session, one that will pose major fiscal challenges to state government.While the 140-day legislative session is always challenging and intense, the current economic climate will have a great impact on the decisions made by the legislature in 2011.

In addition, several significant state agencies that regulate insurance, the environment and energy are currently up for major assessments this year. The recommendations developed during this 2010 “Sunset” review process will result in legislation that will be considered by the legislature next year in 2011. Therefore, those seeking to change or maintain the status quo at these state agencies will need to focus on these Sunset bills.

OUTLINED BELOW IS ADDITIONAL INFORMATION ON CERTAIN KEY AREAS OF LEGISLATIVE ACTIVITY LIKELY TO BE CONSIDERED IN 2011:

Budget Shortfall

When the Texas Legislature convenes on Jan. 11, 2011, legislators will likely be looking at a two-year budget shortfall that some say could reach at least $18 billion. The shortfall stems from decreases in sales and franchise tax revenue matched with other structural issues that have allowed some expenditures – such as a property tax reductions – to outstrip revenues. While the state is expected to have about $10 billion in its “rainy day fund,” legislators are not expected to deplete the fund in order to close the budget gap. While several members of the state’s leadership are pointing to budget cuts to close the shortfall, others are likely looking to legislative changes that could raise additional revenue for the state.

• Taxes: As is always the case, the Texas Legislature could consider increasing taxes as a way to close the budget shortfall gap. In a conservative state such as Texas, such efforts are extremely rare. Yet, considering the $18 billion shortfall, many business interests in the state are preparing to defend their turf to protect themselves from new or increased taxes. The House Committee on Ways and Means is currently reviewing the state’s tax exemptions leading to a possible future determination as to which, if any, should be repealed. The exemptions being considered include those in place for sales tax, property tax, franchise tax, and the severance tax. Speaker of the Texas House of Representatives Joe Straus indicated last month that he will not address the budget shortfall through tax increases. Instead, he indicated that he plans to work to close the gap with budget cuts and other cost saving measures such as employee furloughs at state agencies.
• Gaming: Supporters of legalized gaming in Texas see the budget shortfall as an excellent opportunity to make their case to increase gaming opportunities in Texas. While the state has a lottery and pari-mutuel wagering, the Texas Legislature has not acted to allow casinos,Video Lottery Terminals at race tracks, card rooms, or expansion of the lottery through other gaming activities.While some legislators support gaming for the economic benefit it provides, other oppose it on moral or social grounds. In addition, because so many Texans travel to other states to gamble, these out-of-state gaming interests are also fighting against the passage of gaming legislation in Texas in order to protect their non-Texas based interests.

Reviews of Texas State Agencies by the Sunset Advisory Commission

The Sunset Advisory Commission conducts assessments between each legislative session to determine if certain state agencies need to exist. The Sunset process is guided by a 12-member body appointed by the lieutenant governor and the speaker of the house. Recommendations from the Commission are developed into legislation to be introduced in the next session. As this legislation moves through the legislative session, numerous amendments not considered during the sunset process are proposed to the legislation. Thus, a Sunset bill is a time of great opportunity and risk for anyone who deals with Texas state agencies.

The Sunset process is unique during this interim between Texas biennial regular legislative sessions because of the large number of major state agencies up for review. These agencies include:

• Texas Department of Insurance and the Division of Workers’ Compensation
• Texas Commission on Environmental Quality
• Texas Department of Transportation
• Texas Railroad Commission
• Public Utility Commission of Texas
• Department of Information Resources

Any industries that fall under the jurisdiction of the agencies listed above should pay close attention to the relevant Sunset legislation.

Federal Health Care Reform

Like other states, Texas is working to decipher what changes to state law must be made in order to implement the recently passed federal health care reform. The Texas Department of Insurance is actively reviewing state law to determine what changes must be made. Meanwhile, committees in both the Texas Senate and Texas House are considering what choices the legislature must make next year regarding state responsibilities under the federal law. Therefore, those with interest in the health care industry should pay close attention next session to determine the extent Texas will interface with the new federal reforms.

Transportation

Texas, like many states, is facing major road congestion and maintenance issues. If no changes are made in 2011 regarding Texas procedures and formulas for funding highway construction, all Texas Department of Transportation funds for highways will be directed to maintenance, and no new state roads will be built. For this reason, legislators are looking for new funding opportunities in order to attempt to allow new highway construction to remain on par with the state’s needs.

If you have any questions regarding the information contained herein, the Texas Legislature or Texas state government, please contact one of the following Gardere partners in the Austin Office: Kimberly A. Yelkin (kyelkin@gardere.com or 512.542.7001) or Mark Vane (mvane@Gardere.com or 512.542.7077).