Bredesen denies political maneuver on tax break

On March 25, 2009, in News 2009, by Mark Norris

By ERIK SCHELZIG , Forbes.com March 25, 2009 Gov. Phil Bredesen insists he isn’t “playing any games” by linking his proposal to close a tax break for family-owned rental properties with keeping more than 300 public safety jobs on the state payroll. Bredesen calls the tax break an unfair loophole, and projects the state could […]

By ERIK SCHELZIG , Forbes.com
March 25, 2009

Gov. Phil Bredesen insists he isn’t “playing any games” by linking his proposal to close a tax break for family-owned rental properties with keeping more than 300 public safety jobs on the state payroll.

Bredesen calls the tax break an unfair loophole, and projects the state could collect $25 million a year if it were eliminated. In his budget presented to lawmakers Monday, the Democratic governor said that money would be used to pay for preventing prosecutors, public defenders and highway patrolmen from losing their jobs.

We just tied it to something that we thought ought to be restored with recurring funds over a much longer period of time,” he said. “That to me is just sort of explaining what you intend to do with the money if it’s given to you, rather than playing any games with it.”

Senate Majority Leader Mark Norris, a Collierville Republican and an advocate for increased public safety funding, wasn’t so sure.

“It’s the power of persuasion they’re attempting,” said Norris. “It’s carrot and stick.”

Senate Speaker Ron Ramsey, R-Blountville, agreed.

“It’s just a budgetary trick,” he said. “You can say that anything will pay for anything when all you’re really doing is pulling the money out of the bottom and sliding it over to that column.

“That doesn’t affect at all whether I’m for this or not,” he said.

A study by the state Revenue Department has found a total of about 3,200 businesses are registered as family-owned non-corporate entities, or FONCEs. They own a total of about $5.1 billion in properties that are exempt from corporate taxes, including more than $1 billion worth that are owned by investors who live outside Tennessee.

Bredesen wants to end the exemption because he considers it unfair to give family-owned rental properties special treatment not extended to similar businesses controlled by unrelated investors.

The proposal to end the exemption has raised concerns mostly among Republicans, who say it would be akin to a tax hike. But the governor’s willingness to consider a threshold to maintain the exemption for smaller investors has made a compromise more likely.

“We don’t want to put any burden on our small business owners and business people here in Tennessee,” said House Speaker Kent Williams, R-Elizabethton. “But if there’s a loophole, we need to close it.”

House Democratic Caucus Chairman Mike Turner, of Old Hickory, said public safety is a good area in which to spend the FONCE money.

“That’s as good as any place, it’s an important place,” he said. “I think it’s important they realize this is a loophole that the very wealthiest people are using.”

Bredesen said public safety wasn’t chosen to single out resistant Republicans.

“We’re cutting things across the board, including … something that will be seen as very painful,” Bredesen said. “Some of them are public safety, and some of them are things like children’s services and so on.

“If they wish to apply it somewhere else in terms of recurring funds, I’m happy with that as well,” he said.

But Norris said the governor has shown that he places a greater priority on issues like developing alternative energy from switchgrass and solar panels than on public safety.

“They must have done this specifically for my benefit,” he said with a laugh. “I’m having trouble getting them to fund my crime-fighting bills and they’re still into solar panels, so we’ll see.”