SOUTH PADRE ISLAND, Tex. -- Texas may be forced to reform its tax system and adopt an income tax as the court battle for equitable school funding squeezes the state to find new money, a tax reform advocate said.

Keith Ward, a professor at Auburn University, last week told a gathering of the government Finance Officers Association of Texas that the crisis over school finance in 37 states could force many states to reform their tax systems.

"We need the education crisis in order to make tax reform an issue," Mr. Ward said.

Fourteen states, including Texas, have had courts order their legislatures to create more equitable school finance systems, while another 23 face legal battles.

Mr. Ward said fair funding for schools is a potent nonpartisan issue that is too costly for most states to do without rewriting their tax systems.

In Texas, lawmakers last spring adopted a property tax-backed system that shifts an estimated $400 million a year from property-rich to -poor districts in an effort to meet a court mandate for funding equity.

Just last week, the state was defending the constitutionality of the so-called Robin Hood plan before the Texas Supreme Court. The finance law is the third in two years to face legal challenges.

One lawyer in the case called for a special session in which the Legislature would draft a new school finance system -- if the present is deemed unconstitutional -- that largely would be paid for by the state. Lawyers for Texas say such a plan would cost another $9 billion a year and require an income tax.

Mr. Ward urged the Texas GFOA to take an active role in lobbying for tax reform to ensure that local government is not hurt by the changes.

"The Legislature's way is to say 'Go to hell,' and local government gets hung out to dry," he said in an interview. "Whenever you change the state tax system, there is a serious danger of fiddling around with local revnues."

Debra Forte, finance director of Euless, Tex., and president of the Texas GFOA, said the group has not yet become involved in lobbying for a new tax law. "We are just now starting to look at it," she added.

Bfut Mr. Ward said reform is inevitable because the fedeal government continues to force mandates on state government, and the economy remains too sluggish to generate the level of revenues that will be needed to fund programs.

He said the state relies on a regressive tax system that is not broad-based enough for the future. Instead, Mr. Ward advocated taxing wealth, consumption, and income -- Texas does not levy against the latter -- for a balanced system.

"Tax reform means we need balance, that we need a three-legged stool," he said. "Texas has a two-legged stool, and you simply can't sit on a two-legged stool."

The professor, who is director of the Center for Government Services at Auburn, said that government in Texas relies on sales taxes for 25% of all revenues and property taxes for 41%. Also, while the Texas tax burden is 80% of the national average, the burden is disproportionate for the poor.

"Texas has one of the most regressive tax structures in the United States," he said. "Texas proves that as your income declines, you pay a higher burden."

Mr. Ward said the state could broaden its tax structure and make it fairer by implementing an income tax. Texas is the largest of the seven states tha do not yet have a levy on personal income.

"The difference between an income tax and Elvis Presley in Texas is that some people still think that Elvis is still alive," he quipped.

Lieut. Gov. Bob Bullock supported a corporte and personal income tax system last spring, but law-makers rejected the proposal. Instead, they balanced the two-year budget with several smaller fee and tax adjustments and the creation of a new state lottery.

The lottery, scheduled to begin sales in July 1992, is expected to generate a profit of $461 million -- which is about 2% of the state general fund -- through the fiscal period ending Aug. 30, 1993.

However, Mr. Ward says that in 33 other states, the lottery has proven to be unreliable, costly to operate, and of little impact as a revenue source. "The lottery just won't do it," he said. For now, you have only avoided solving your problems."

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