News of a surplus shifted lawmakers into overdrive

By Richard Locker, Commercial Appeal
June 24, 2007

Money changes everything We think we know what we're doin' We don't pull the strings It's all in the past now Money changes everything --Tom Gray, Cyndi Lauper

NASHVILLE -- The long 2007 Tennessee General Assembly finally turned productive in May -- just after lawmakers discovered that state tax revenue was up. Way up.

Gov. Phil Bredesen and the legislature agreed to pump a record increase of $588 million into education. That includes $320 million more for school districts statewide for pre-kindergarten through high school education and $48 million more for higher education operations.

About $72 million of the new money for K-12 schools will start flowing to the Memphis and Shelby County school systems when they reopen in August. It will rise to $114 million a year when the program is fully funded in two or three years.

And in a tobacco-producing state that wouldn't ban smoking in all government buildings until 2006, lawmakers made headlines by enacting a smoke-free workplace law that seemed unlikely to pass when health groups proposed it last December.

There are some exemptions to the ban, which goes into effect on Oct. 1, but most public indoor spaces -- including restaurants -- are covered.

There was a little something for everybody in this year's legislative action, from tax cutters to tax spenders:

A 42-cent per pack increase in the cigarette tax goes into effect on July 1, raising the tax to 62 cents. The revenue will pay for most of the increased spending on schools plus $21 million in grants to farmers and $10 million a year for trauma-center hospitals like the Regional Medical Center at Memphis.

A tax-relief package includes a half-cent cut in the sales tax on food starting on Jan. 1; two more three-day sales tax holiday weekends in August and next April; a property tax freeze for moderate-income homeowners age 65 and up; and expanded eligibility for property tax rebates for lower-income seniors and disabled veterans.

Legislators also approved a $38 million crime-fighting package to address that urgent problem, and "invested" hundreds of millions in Tennessee's future -- in biofuels research, land conservation on the Cumberland Plateau, corporate tax incentives for new equipment and expansions in the state, and scores of local projects across Tennessee.

Memphis gets two new development zones -- in the Graceland and Mid-South Fairgrounds areas -- where taxes generated in the zones will help finance redevelopment. The city also will receive $2 million more for the Memphis biotech initiative in the medical center area and design money for two major new buildings at the University of Memphis, plus $7 million to expand the U of M campus west to Highland.

By the time the legislature closed June 12, most participants ranked it among the most productive in years.

"In a lot of ways, it is the culmination of four years of hard work to put us in the position we were in this year," Bredesen said. "I think we proved that we can manage in the tough times. This session proves we can maintain our discipline in the good times as well."

The governor and legislators added $250 million to the state's savings account for use when revenues slow down again. The "Rainy Day Fund" will have a record $750 million at the end of fiscal year 2008 next June.

Other signature acts of 2007 included:

Increases ranging from $50 to $500 in lottery-funded scholarships, which 60,000 students qualified for in the school year that just ended. For students not qualifying for lottery scholarships, the legislature added $14 million to the state's need-based grant program, which will help an additional 6,500 students.

A little-noticed renewal and overhaul of the state's basic welfare program, Families First, including elimination of an 18-month time limit on benefits.

New laws to protect animals from humans, and humans from dogs.

Immigration bills designed to make Tennessee less attractive to illegal immigrants.

Different from the start

The 2007 edition of the Tennessee General Assembly was destined to be different.

On opening day Jan. 9, the Senate elected its first Republican speaker in 140 years, Sen. Ron Ramsey of Blountville. After 36 years under Democratic speaker John Wilder, the GOP took operational control of the upper chamber, while the House remained majority Democratic.

Four months later in May, the state Funding Board revealed that state government was awash with its biggest revenue surplus in memory.

Not much happened between January and May. But money changes everything.

As early as last summer, the governor and financial officials began expecting a rosier fiscal picture -- enough revenue growth to fund solid improvements in targeted areas like education.

It was a welcome change after four bitter years of fighting over an income tax in the previous administration, followed by four more years of fiscal retrenchment, slashing TennCare and very limited spending increases.

Bredesen started laying out his plans last fall, with a call for free community college for high school graduates who score at least 19 on the ACT (a proposal that did not pass). He expanded them in February with a $250 million education package that focused on full state funding for at-risk children in local schools and on districts with high enrollment growth.

To help fund the plan, he asked lawmakers to raise the state tax on cigarettes from 20 cents to 60 cents a pack. They eventually raised it to 62 cents, with the $10 million a year generated by the extra 2 cents going to trauma center hospitals like The Med.

Then the state Funding Board revised upward its revenue projections in early May for both the current fiscal year and the one that starts July 1. The bottom line: State government expects to have between $700 and $800 million more in fiscal year 2008 than the state budget for fiscal year 2006-07 was based on.

With the windfall, Bredesen and legislators revised their focus. Republicans and Democrats embraced a wholesale overhaul of how the state funds public schools. In the end, everybody took credit for everything. But what really happened was filled with irony:

Republicans pushed for tax relief, which Democrats resisted initially. But Republicans disagreed on what kind of tax relief. House Republicans called for a larger cut in the sales tax on grocery food, which some of their Senate colleagues favored. Others wanted a complete removal of the sales tax on food during November and December.

Democrats still smarting over the tax-reform wars argued that they had tried to abolish all the food tax a few years ago, and the GOP opposed it then. When the surplus grew as large as it did, an agreement was reached for the permanent half-cent cut, to 5.5 percent.

Senate Republicans pushed to expand the governor's original education bill, driving its cost up. And when it came time to wrap the tax relief, the crime bills, the education spending and everything else into a record $27.9 billion budget, a large majority of Republicans voted for the big spending increase.

But not one of the 16 Senate Republicans and only 13 of the 46 House Republicans voted for the cigarette tax increase that helped pay the bill. House Democratic Caucus chairman Randy Rinks of Savannah called the Republicans "hypocritical" for voting to spend big money but not for the taxes to pay it.

When House Democrats proposed a plan to allocate $20 million for projects in all legislators' home districts, House Republicans cried "pork." Senate Republicans liked the idea but didn't want legislators choosing the projects. Instead, local agencies should apply for the grants, they said.

All but six House Republicans applied for grants for their districts, but the legislature ended up enacting a distribution plan using the Democrats' guidelines but with Secretary of State Riley Darnell, a prominent Democrat, in charge of doling the grants out.

Senate Democratic Leader Jim Kyle of Memphis insisted Republicans were complicit in the tax increase, even if they didn't vote for it. The GOP-controlled Senate Finance Committee sent a 20-cent tobacco tax increase bill to the Senate floor despite Kyle's promise to try to raise it back to 40 cents on the floor.

"They didn't fight the bill. They sat back and let us do the heavy lifting. Some of them were downright giddy about the amount of money going back to their districts," Kyle said.

Senate Republican Leader Mark Norris of Collierville took a different view. "This was our first session under new management. We began the process of getting tax relief to Tennesseans -- not as much as a more substantial Republican majority would have.

"And we completely rewrote the governor's education plan. His original plan was anemic and accomplished very little. It was the Republican-led Senate Education Committee that improved it," Norris said.