George P. Bush, David Dewhurst, (shady real estate mechanisms), and YOUR taxes

"For nothing is secret that will not be revealed, nor anything hidden that will not be known and come to light."
Luke 8:17

Obscure, complicated, fight over education funding broke out last week:

A fight is brewing between Texas Land Commissioner George P. Bush and Republicans on the State Board of Education over investment funds they manage to generate school funding.

For the first time ever, the School Land Board — a three-person body headed by Bush, a Republican — declined to pass any money from its fund to the education board, instead opting to feed $600 million to schools directly.

In response, education board members say they will have to reduce their own contributions toward school funding. And they’re also calling for this complex investment system to be reformed in the next legislative session.

As each side argues over how to best manage the largest educational endowment in the country, their disagreement could affect funding for Texas schools.

The crux of their fight rests on whose investment portfolio is the most profitable.

Since 2001, the land office and the education board have each managed separate portfolios as part of the $40 billion Permanent School Fund, a massive endowment of land and investments set up to support public schools in the state. That money makes up one piece of a broader school finance system in Texas, which also uses funds from local property taxes, state taxes and federal programs to support public schools.

The land office, which manages the real estate and mineral leases on the fund’s land, passed along millions each year from its fund to the education board’s own fund for securities investments.

In the past eight funding cycles, it had twice contributed $300 million directly into school funding, in addition to giving the SBOE anywhere from $200 million to $500 million.

But for the first time, the School Land Board voted not to pass along any money at all to the education board. Instead, all three of the board’s members voted to put $600 million directly into school funding — the maximum allowed under state law.

“Our dollars are needed more than ever, and this was the most direct way to get the money to the schoolchildren of Texas,” Karina Erickson, a spokesperson for Bush, said.

Bush has insisted that the land office's investment fund is more profitable, and thus where it makes the most financial sense to keep school money.

But state board members have disputed his claims, instead accusing the land commissioner of getting involved in school funding to boost his political profile.

The (extremely) short version of what's happening: George P. Bush is hoarding cash in his own agency.  That gap will have to get made up somewhere.  The most likely places are the legislature or local property taxes.  Either one of those outcomes would likely forestall meaningful property tax reform.

So that's bad, but what's more interesting is how we got into this mess in the first place.

In 2001, back when he was Land Commissioner, David Dewhurst (of all people) got the legislature to pass HB 3558: Relating to the sale, lease, and purchase of interests in real property for the permanent school fund.  Essentially, the bill allowed the land office to act as a landlord/real estate developer in the name of "education funding."  Companies with good lobbyists could get favorable tax treatment.  It's pretty much the most Texas government thing ever!

Well:

The state-of-the-art Wal-Mart Distribution Center, located in the Houston Ship Channel area, is the newest and largest Wal-Mart import and distribution facility in the country.

....

Phase II is another 2 million-square-foot bulk storage facility and distribution warehouse consisting of four attached 500,000-square-foot buildings on a 238.80-acre site. Construction (site preparation) began in August of 2004 and Phase II was completed in May of 2005.

The transaction was a significant public/private venture between Wal-Mart Stores East LP and the Texas Permanent School Fund represented by the Texas General Land Office. This is the biggest real-estate transaction ever for the PSF, a $21 billion investment pool that generates about $800 million a year to help pay for the state's share of public education.

Wal-Mart purchased the land and built the two structures that were under contract for sale to the Permanent School Fund. The agreement also included a leaseback provision that was based on bond lease terms at a blended rate of 6.12 percent of the value of the property for the first five years or $6.12 million annually for that period.

The project transaction was conceived in conjunction with Chambers County officials with help from the Governor's Office of Economic Development.

The collaboration of a public entity, the largest retail organization in the world and a governmental agency on a real estate transaction posed certain challenges not familiar to private sector transactions.

This transaction was the first of its kind for the Texas General Land Office, and the asset management and legal departments had to interpret new legislation that allowed the agency to purchase the property. Working together, both departments and Wal-Mart came up with the creative solutions needed to close this transaction in a relatively short period of time for such a large and complicated deal.

Additionally, Chambers County was instrumental in attracting Wal-Mart to the Cedar Crossing Industrial Park. The county's cooperation facilitated Wal-Mart's decision to make their site selection in Chambers County.

So the legislature created a complicated system of using real estate transactions to "fund schools" and the first thing is was used for...was to give tax breaks to Wal-Mart.

Got it.

Bottom Line: This entire wretched system should probably be abolished (or, at least, significantly reformed).  But, at a minimum, dedicated funds should be used for their intended purpose.  George P. Bush is rapidly turning himself into a liability we can't afford....