While 2020 continues to be one of the most challenging years on record, the events of 2020 may offer more challenges to the State of Texas in the upcoming 87th Legislative Session, scheduled to convene January 12, 2021. This article reflects our observations of certain issues, and it should be noted that it is written before the results of November 3rd election are known. The outcome of certain federal and state races could have additional material impacts. Regardless of the outcome of the election, it is safe to say that the Texas Legislature will be confronted with difficult issues that will require tough choices.
Over the summer, the State Comptroller reported that the COVID-19 pandemic resulted in or contributed to declines in State sales and use tax revenues and oil prices. As a result, when the Texas Legislature returns it will likely face a revenue shortfall impacting the State’s biennial budget. While some early estimates projected a shortfall approaching $30 billion, more recent estimates indicate an amount closer to $10 billion. The first question the Legislature will have to tackle is how to balance the budget. Will the State’s leadership be willing to use the rainy day fund? How the Legislature will meet its growing education funding obligations under House Bill 3, enacted by 86th Legislature, which reduced school district tax rates and replaced lost revenues with State funding? Will the State be able to enact reforms or modifications to Senate Bill 2, enacted by the 86th Legislature, to drive further ad valorem tax relief? One of the House Ways and Means Committee’s interim charges in preparation for the 2021 legislative session was to consider possible methods of providing property tax relief, including identifying sources of revenue that may be used to reduce or eliminate school district maintenance and operations taxes, so that gives us some insight into their priorities.
Given the foregoing, political subdivisions, including particularly school districts, will be watching closely to see what spending gets cut, and by how much. Without legislative action this session, chapter 313 tax abatements will expire soon. Reauthorizing and retooling this economic development tool will be front-and-center for next session. Since the adoption of House Bill 3, it was clear that the 2021 session would be critical to funding for school districts.
The government’s response to the pandemic will likely remain a prominent issue when the Legislature convenes in 2021, so be on the lookout early and often for bills that address the current emergency, future emergencies, or both. Integral to such bills will be a debate on the scope of the emergency authority extended to certain local and statewide officials. Lawmakers may additionally seek to curtail the effects of disaster declarations, including revisiting provisions authorizing political subdivisions to revert to prior law following a disaster declaration (such as in Senate Bill 3 adopted in 2019).
And to top it off, 2021 is a redistricting year. While this may be saved for a special session during the summer, if Republicans lose a significant number of seats in the House, this could be a very difficult issue to resolve. Additionally, given the projection for Texas to pick up additional seats in the federal Legislature, the outcome of the federal election may further impact redistricting.
Beyond the substantive matters outlined above, we will have a new Speaker of the House during the 87th Legislative Session. The results of the election will have a significant impact on who emerges victorious in the Speaker’s race. It is also not yet clear how the 87th Legislature will conduct its business. For instance, we do not know whether lawmakers will attempt a “business as usual” approach during a pandemic or switch to virtual meetings. How will virtual hearings and other opportunities to weigh in on legislation be changed? It is clear that 2021 will offer a fair share of challenges during the 87th Legislative Session, but it may offer some opportunities as well.