$120M budget hole left to fill

On May 16, 2010, in News 2010, by Mark Norris

Senate GOP kills most of Bredesen’s plans to up revenue

By Tom Humphrey, KnoxNews.com
May 16, 2010

NASHVILLE — Senate Republicans have killed in committee most of Gov. Phil Bredesen’s plans for raising revenue with changes in the state’s tax code while approving new tax breaks for businesses that develop “brownfields” or face major repairs because of flood damage.

That move was one more step in the increasingly contentious and sometimes complex maneuvering over deciding on a $28 billion state budget for the fiscal year that begins July 1. A final decision appears at least two weeks away.

As the Bredesen “technical corrections” bill entered the Republican-dominated Senate Finance Committee on Thursday, it would have generated an estimated $138 million in new revenue. As it left, it would generate just $18 million, leaving a $120 million hole in Bredesen’s proposed state budget.

Stripped from the measure, which is sponsored by Senate Democratic Leader Jim Kyle of Memphis, were an array of proposals that the Bredesen administration has characterized as equalizing taxes. Republicans characterize them as tax increases and have declared their opposition.

The provision that would have generated the most revenue, an estimated $85 million, called for charging the same sales tax rate on single items costing more than $3,200. Currently, the sales tax on the cost of an item over that amount is lower than the tax on the first $3,200 of the cost. Motor vehicles, boats and manufactured housing would be exempt from the higher rate.

The second highest revenue-generating provision would have raised about $21 million by eliminating tax breaks now in place for cable television. The governor contends that would equalize taxes faced by satellite TV, a competitor of cable TV. The cable industry, however, argues the lower taxes they now enjoy offset expenses that cable faces, such as franchise fees paid to local governments.

Other eliminated provisions dealt with such things as the tax on free food given by hotels and motels to their guests and dry cleaning fees paid by tuxedo rental companies. Remaining are provisions that Republicans accepted as closing $18 million worth of loopholes in present taxation of entities including real estate investment trusts.

There was virtually no debate on stripping the $120 million of revenue from the bill — SB3901 — that was basically a follow-through on a commitment made by Senate Speaker Ron Ramsey and other Republicans.

There was lengthy and sometimes testy debate, however, on the tax break provisions — especially over Senate Republican Leader Mark Norris’ ultimately successful efforts — to require that the state comptroller or other officials chosen by the Legislature give approval to granting of specific breaks to companies.

Kyle charged that the efforts were part of Republican legislators’ efforts to erode the power of the executive branch to manage state government and create a “very cumbersome” approval situation, granting “veto power” over decisions to Legislature-appointed officials.

Norris insisted the moves were simply a matter of “checks and balances” and granting “unfettered discretion to these political appointees” of the governor, a reference to the state’s revenue commissioner and commissioner of economic and community development.

Kyle, on behalf of the Bredesen administration, proposed the tax break for flood-damaged businesses, which would apply only when reconstruction costs were $50 million or more. Damage estimates at Nashville’s Opryland Hotel from recent flooding have been estimated at between $50 million and $100 million.

Basically, the proposal — adopted without argument except over who is involved in the approval process — calls for reducing the state sales tax by 6.5 percent on materials used in reconstruction work.

Sen. Tim Burchett, R-Knoxville, proposed the amendment creating a new tax incentive for railroads that develop “brownfields,” or sites that have faced pollution problems in the past and require cleanup work. Norfolk Southern has moved to develop a facility in Jefferson County where cargo would be transferred from trains to trucks and vice versa.

Some critics of the plan, notably including state Rep. Frank Niceley, R-Strawberry Plains, have urged the facility be instead located on “brownfield” property in Knox County.

“We’ve got some major brownfields in Knox County and people are afraid to touch them,” said Burchett, who has won the Republican nomination for Knox County mayor. “It’s just a good idea and there are safeguards so there would be no back-room deals.”

Burchett said the proposal, which was approved with arguments over the oversight provisions, would apply statewide and was not targeted to any specific situation. On the other hand, Revenue Commissioner Reagan Farr said, “It’s disingenuous to say this isn’t tied to a railroad project … but that doesn’t make it a bad bill.”

As explained by Comptroller Justin Wilson, the provision would provide a state tax credit equal to 50 percent of the price of purchasing a “brownfield” for development.

Norris voted against the provision, saying he was concerned about potential costs to the state.

Legislators are expected to spend the coming weeks arguing about how to cover the $120 million budget hole. Senate Finance Committee Chairman Randy McNally, R-Oak Ridge, has outlined a tentative Republican plan for covering the hole with cuts — including elimination of a proposed 3 percent salary bonus for state employees and teachers and diverting money from land preservation programs supported by environmental activists.

But McNally and others stressed that the proposal is subject to change.

In the House, meanwhile, Democrats and Speaker Kent Williams have declared they want to dip more into state reserve funds so that fewer cuts are required than proposed by Bredesen, much less the Senate Republican plan that goes beyond the governor in cutting.

While the maneuvering goes on this week, the Senate will not meet in a floor session again until Monday, May 24.

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