Tennessee’s budget battle

On May 9, 2010, in News 2010, by Mark Norris

As the effects of continued spending cuts start to appear, Republicans in Nashville say no to a few small increases in taxes and fees to help close a $150 million deficit.

By Richard Locker, CommercialAppeal.com
May 9, 2010

NASHVILLE — One of the best episodes of “The West Wing” had President Bartlet in a budget face-off with congressional leaders determined to shut down the government before backing off their demands for ever larger spending cuts.

When Martin Sheen made a show of walking up to the Hill to negotiate an end to the impasse, the leaders forced the head of the free world to cool his heels in the lobby as they huddled behind closed doors — brooding figures who had painted themselves into a corner, trying to figure out how he had outsmarted them and their best PR countermove.

Gov. Phil Bredesen’s original budget plan was balanced with the third year of major cuts, limited spending from state reserves, and a few small and selective tax and fee hikes that have raised anti-tax turbulence.
When they finally opened the doors, POTUS was leaving the Capitol, a pack of TV cameras in his wake, his victory assured by their dour intransigence.

It’s not nearly as dramatic, but the refusal by Republican leaders in the Tennessee legislature to consider some small hikes in taxes and fees to help close a $150 million state budget deficit — after three years of much larger spending cuts — is almost as comical.

How else can you describe leaders who sign off on a 3½ percent, $230 million tax on hospital revenue — called an “enhanced coverage fee” — but pronounce dead on arrival a proposed $1.38 tax increase on monthly cable TV bills that has been paid by satellite TV customers for a decade? Or who balk at what effectively is a $1.85 annual hike in the cost of a driver’s license (combined with lengthening the renewal period from five to eight years) which hasn’t increased in 22 years?

The taxes and fees proposed by Gov. Phil Bredesen are modest compared to two years of wholesale spending cuts and hundreds of millions more in cuts written into the $28.4 billion budget plan he presented to lawmakers in February.

His original budget plan was balanced with the third year of major cuts, limited spending from state reserve funds, and a few small and selective tax and fee hikes dedicated to reducing the magnitude of the cuts facing some targeted services.

The $71 million in taxes and fees included equalizing the sales tax paid by cable and satellite TV customers, increasing the driver’s license fee and closing some business tax loopholes.

The services they would fund include a radio-system upgrade to remove the dead zones where state troopers are out of contact with dispatchers; keeping more prosecutors and public defenders at work, and avoiding closures of driver’s license testing stations.

Senate Republican leaders declared the cable tax DOA and most of the fee increases comatose.

Since February, state tax revenue has continued to decline. The state has now reported 23 months of actual declines in monthly revenue compared with the same month a year earlier.

There has been some offsetting good financial news — the federal government decided Tennessee won’t have to repay millions of dollars in questioned Medicaid payments, and K-12 school enrollment grew slightly less than projected.

But the net result of taking the taxes and fees off the table, the budget developments on the positive side and the continued revenue declines is a gap in the budget plan for the fiscal year starting July 1 of $130 million to $150 million. Lawmakers are now engaged in a prolonged process of deciding how to close the gap.

After deciding against further budget cuts, Bredesen advanced another tax measure last month to help close the gap: abolishing the ceiling on which local sales taxes are paid on big-ticket, single-item purchases. In Shelby County and across Tennessee, that would add a 2¾ percent tax on the amount of a single-item purchase above $3,200, with vehicles, boats and housing exempted.

Republicans also declared that idea dead before arrival — despite the governor’s assertion that it would be paid mostly by businesses rather than individual consumers.

Senate Republicans, led by Speaker Ron Ramsey of Blountville and Majority Leader Mark Norris of Collierville, are working on an alternative budget plan with more cuts than Bredesen is proposing. They have not disclosed the details.

Senate leaders oppose spending more from reserve funds, partly because Ramsey hopes to win this year’s governor’s election and wants a healthy reserve balance next year to deal with inevitable future deficits.

House Republicans want a combination of more cuts and the expenditure of more reserve money than Bredesen has proposed, and seem more willing to consider closing some of the tax loopholes that Bredesen has suggested — but not tax hikes.

Aside from all this is a plan advanced by the Tennessee Hospital Association and approved by both houses of the General Assembly that will impose a 3½ percent tax on hospitals for one year, to draw down federal Medicaid money on a $2-to-$1 match. If approved by the federal government, the tax will avert a $659 million cut Bredesen has proposed in TennCare payments to medical providers, including hospitals.

A majority of Republicans joined virtually all Democrats in passing the “fee” that hospitals lobbied on themselves. The bill requires hospitals to pay the fee themselves and not pass it on to patients.

Nine Republicans and one Democrat voted against the hospital fee. Of the 10 “no” votes, eight were from Senate or House members who are either running for higher office or facing serious re-election challenges this year.

Ramsey, running for governor, cast the most notable “no” vote, given his earlier statements in favor of the hospital tax.

“I think we can see the need for that,” he said when the hospital association presented its plan in March. “I understand that if these cuts go into effect that the governor has proposed, then it would be devastating to hospitals. If we go through with these cuts, that money already appropriated to Tennessee would stay in Washington, so this is really just figuring out a way of getting the money that’s already been appropriated to us for our TennCare program.”

When the Senate approved the fee April 29, Ramsey would say only that he voted “no” because “the timing wasn’t right for me to do it right now.”

Angst over small fee hikes was nowhere more evident than it was last week over a $1-a-year fee on animal vaccinations, proposed to avoid $1 million in cuts at the state Health Department.

“The Tennessee Veterinary Medical Association has a sincere concern that this bill is going to decrease the number of pets vaccinated for rabies across the state,” Chattanooga veterinarian Dr. Randy Hammond told a House committee Wednesday.

“You actually think people won’t get their animals vaccinated for rabies because of a dollar?” asked House Speaker Kent Williams, R-Elizabethton. The committee advanced the proposal to the next level for review.

On the same day, a Senate committee delayed for a week action on the driver’s license fee hike.

“There’s amazement on the part of House members and the governor that even that is not moving ahead, when what you’re doing is keeping troopers on the road, keeping driver’s license offices open and functioning at least as well as they do now,” state Finance Commissioner Dave Goetz said afterward.

“There’s very specific things that are necessary to be funded there, and we don’t understand what they think the alternatives are.”

While these fee increases are the focus of considerable anti-tax rhetoric, the hidden impacts of continued budget slashing are starting to surface.

Tuition and fees paid by college students and their families have shot up in recent years as state appropriations for higher education declined. Last week, a Board of Regents committee began reviewing tuition and fee hikes proposed for this fall.

The preliminary range under discussion: 6 percent to 10 percent for each of the next two years at universities, and 7 percent to 11 percent at community colleges, depending on how much of the state funding cuts the regents decide to replace with student revenue.

By focusing on holding the line against $2 fee hikes here and there, lawmakers hope voters won’t notice the tuition increases that cost some Tennesseans hundreds and eventually thousands of dollars — or the long lines they’ll face at driver’s license stations.

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