Politics snarl battle over TN budget

On April 25, 2010, in News 2010, by Mark Norris

Bredesen pushes sales tax hike; Republicans want spending cuts

Tennessean.com, Chas Sisk
April 25, 2010

Gov. Phil Bredesen and Republicans in the Tennessee legislature are sparring over the last fraction of the state’s $28 billion budget, in a major test for the state’s leaders before elections that will determine which party controls the state House of Representatives and the governor’s office.

At issue is a series of sales tax increases Bredesen has proposed as a way to close a $150 million gap in the state’s spending plan for next year.

Bredesen says the increases will have little impact on consumers. But Senate Republicans say they support still more spending cuts.

Meanwhile, a contingent of House lawmakers from both parties is pressing to dip further into the state’s reserves.

Republicans are seen as having the edge in the November elections, but lawmakers risk a backlash if they approve a tax increase.

“No matter what you do up here, it can be spun against you. So if you stick to your core principles, let the politics take care of itself,” said Franklin Rep. Glen Casada, chairman of the House Republican Caucus. “And Republicans’ core principle is not to raise taxes on families and businesses, especially in a recession.”

The issue has come into sharp focus over the past 10 days, after Bredesen floated a plan to raise sales taxes for items valued at more than $3,200. The proposal will bring in $85 million a year and make up for a shortfall in tax collections this year, supporters say.

Lt. Gov. Ron Ramsey quickly turned the proposal into a campaign issue. Days after the proposal was suggested, the Republican candidate for governor sent an e-mail to supporters touting his opposition to the plan.

Bredesen said Ramsey was putting his political aspirations ahead of the state budget. Ramsey and other Republicans, however, have said their opposition is fiscally responsible.

“This bill as presented would take $85 million out of the economy, and mostly from small businesses that buy those backhoes and Bobcats to create jobs and bring it to the state treasury,” Ramsey said. “It couldn’t be worse timing.”

The proposal and Republicans’ reaction have revealed how far apart the two sides are as they try to put the final touches on the state budget, their last major piece of business before adjourning for the year. Those differences threaten to extend the session for at least three more weeks.

But the timing of the proposal also appears to have exposed fault lines between the administration and Senate leaders, some of whom are still smarting after they tried and failed to make additional budget cuts last year.

The late introduction of the tax proposal — coming just as lawmakers were planning to begin final debate on the budget — has led some to fear that the governor and his Democratic allies are attempting to outmaneuver them.

“Folks try to be deferential to the governor’s plan, but they’re not staying with that plan,” Senate Majority Leader Mark Norris said. “The governor holds his cards too close to his chest. It’s the game they play.”

Businesses would pay

Norris’ Democratic counterpart, Senate Minority Leader Jim Kyle, said the onus is now on Republicans.

“I can respect the fact that folks don’t want to be presented as being pro-tax,” he said. “But if they’re saying they’re not going to do any kind of revenue raiser, because of the mood of the electorate, then they owe it to the governor and the electorate to present a plan.”

Senate Republicans are expected to release an alternative by Tuesday that probably will call for delaying some bond issues and making cuts to other state programs. Such a plan would let the state avoid raising the sales tax rate for big-ticket items, they say.

For its part, Bredesen’s proposal would raise the taxes on a $10,000 item by about $187, according to analysis released by the state Department of Revenue. Automobiles, boats and manufactured homes would still be exempted. Many luxury items, such as jewelry and furniture, would fall under the tax.

Even so, all sides in the debate say most of the tax would be paid by businesses.

Darrin Metz, chief executive of NovaCopy, which sells photocopiers and office equipment, said the tax would hurt his business.

“For customers that pay cash, it’s significant,” he said. “That the equivalent of a price increase.”

But others said they had paid little attention so far to the tax proposal.

“Since the Senate said it was not inclined to entertain it … a lot of businesses believe that it’s not going anywhere,” said Jim Brown, state director for the National Federation of Independent Business, which opposes the proposal.

Reserves targeted

A separate GOP plan won’t be the only alternative to Bredesen’s plan. Members of the state House of Representatives have expressed interest in avoiding spending cuts and tax increases by dipping further into the $445 million that Bredesen’s budget proposal would leave in the state’s reserves.

“I made a statement from the beginning that I thought we ought to go deeper into reserves,” House Speaker Kent Williams said. “It’s a very tough time to cut any more projects.”

Legislative leaders will meet privately this week in an attempt to resolve their differences. If they succeed, a final budget framework could be finished by the end of the week.

But lawmakers say it also is possible that the Senate and the House will pass two different versions of the budget. That would mean the two chambers themselves would have to hammer out their differences in a conference committee, a process that could take several weeks more, before sending the budget to the governor.

The budget gap might be relatively small in dollar terms. But politically, it looms wide.

“It’s just a question of which direction folks want to go,” Norris said. “We still don’t have the complete picture.”

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