Posted on 04/25/2002 5:37:47 AM PDT by GailA
Sales tax bailout a no-go in House Stopgap fails, deficit grows
By Paula Wade wade@gomemphis.com April 24, 2002
NASHVILLE - House members rejected an urgent appeal Wednesday by Gov. Don Sundquist to pass a temporary one-cent sales tax increase to counter the state's ballooning deficit.
Sundquist, a longtime opponent of a sales tax increase, pleaded for the temporary hike because of the state budget crisis. The current-year deficit has grown from about $350 million to an estimated at $480 million - an amount greater than the sum of the state's readily available reserve funds.
"As much as I hate a sales tax increase and as much as I think it will hurt the state, I hate a constitutional problem even more," Sundquist told House Republicans.
The state's Constitution requires the General Assembly to maintain a balanced budget. The state's attorney general has warned that the failure to balance the budget exposes the state to numerous lawsuits and possible ouster suits against the entire membership of the General Assembly.
But when Democrats and Republicans tallied support for the temporary sales tax measure, there were 20 Republican and eight Democratic votes for it. No public vote was taken. A two-month, one-cent sales tax hike would have raised an estimated $120 million.
As a result, legislators expect to empty virtually all of the reserves, including the entire $178 million Rainy Day Fund, to meet payroll and close the state's books at the end of the fiscal year June 30.
This week's report by the state Funding Board showed a sharper-than-expected decline in franchise and excise taxes paid by businesses and a drop in the Hall Tax on investment income, all of which had key reporting deadlines on April 15.
"The news is not good and it's getting worse," state Comptroller John Morgan told the House Democratic Caucus, meeting in a hastily called session to discuss what to do about the larger shortfall. Legislators had been expecting a current-year shortfall of about $350 million, and were planning to raid almost all of the state's reserves, but to leave a $78 million balance in the Rainy Day Fund to guard against budget emergencies next year.
Morgan prepared a list of the state's readily available reserve funds, which total about $478 million.
Rep. Steve McDaniel, the House Republican leader, announced the tally of the membership to the House. "I have to say that I don't see any light at the end of the tunnel. Maybe a tiny one, but that just may be a train."
House Finance Committee chairman Matt Kisber (D-Jackson) said that while the state's financial crisis grows worse each day, "I don't think there's a genuine sense of urgency or a recognition that every member up here has a responsibility. There are a lot of members who just sense that someone else is going to take care of this."
Kisber explained that even massive furloughs or layoffs of state employees wouldn't make much of a dent in the deficit. "Because of the fact that we are so late into the year, even if we were to lay off state employees, it wouldn't make a difference because of the accrued sick leave and vacation time most employees have left to them."
On the House floor, Judiciary Committee chairman Frank Buck (D-Dowelltown) warned that lawmakers face possible ouster if they fail the one duty they have in the Constitution.
"I've been here 30 years and for the first time in my life I'm ashamed to be a part of this body.... Ladies and gentlemen, you ain't never seen the kind of wrath like there's fixin' to be if we go lay off state employees, shut down the government, and not send the money out to the local school systems.... We have a responsibility here. We're fixing to get to the doors of bankruptcy. For God's sake, we've got to do something."
The proposed tax increase began at Sundquist's weekly breakfast meeting with legislative leaders Wednesday morning. Sen Robert Rochelle (D-Lebanon) said some members indicated that they didn't know of the higher deficit projection released Monday.
Keep making those phone calls (emails are NOT always read, especially if it is to a PRO-income tax congress critter). 800-449-8366 + 1 + the last 4 digits of their Nashville office. You can find the phone numbers listed on the General Assembly's web site Click Here
Sounds like they are using pure scare tactics.
Parish the thought that you can lower the deficit by actually spending less. These socialist and marxists NEED to be ousted if they can't see that simple fact and will not act on it.
From The Tennessean:
Penny hike in sales tax lacks votes
By DUREN CHEEK
and BONNA de la CRUZ
Staff Writers
The state House flirted ever so briefly with a temporary 1-cent sales tax increase yesterday, but the idea was quickly abandoned after a head count showed only 28 of the 99 members would vote for it.
That left members scratching their heads about how to take care of an estimated budget shortfall for the current fiscal year that has escalated to $480 million.
House Democrats and Republicans caucused separately to discuss the proposal, which grew out of the regular Wednesday morning meeting that the legislature's leadership has with Gov. Don Sundquist.
Sundquist said he supported the temporary sales tax proposal as a ''cushion'' and also supported a companion proposal that would require a 60% vote of both houses to make the sales tax permanent.
The House yesterday set in motion a proposed constitutional amendment that would require any increase in the sales tax, as well as a state income tax if one is in place, to be approved by a three-fifths majority in each chamber. Any new or expanded exemptions, credits or deductions would also require a three-fifths majority in each chamber.
When asked by a reporter, ''What do you do now?'' Sundquist replied, ''Pray.''
Sundquist, who supports an income tax, said it looked as though lawmakers would have to raid all the state's reserve funds this year and then pass a high enough tax for next year's budget to replenish the reserves.
House Speaker Jimmy Naifeh said the sales tax increase had to be passed yesterday for it to go into effect on May 1. The plan would have given the state an additional $160 million for the two months left in the fiscal year and would have expired at the end of this calendar year.
House Republican leader Steve McDaniel said there were 20 votes for the sales tax increase in the 42-member Republican Caucus. But House Democratic Caucus Chairman Randy Rinks said only 10 of his 57 members said they could vote for the measure.
Rep. Frank Buck, chairman of the House Judiciary Committee, made an impassioned appeal on the House floor for an end to the budget impasse. ''For the first time in my life I am almost ashamed of being a member of this body,'' he said.
Buck said legislators had sworn to uphold the state constitution, which requires a balanced budget, and would be subject to ouster if they failed to do so.
''The time is ticking and ticking and ticking, and we are going to be at the doors of bankruptcy, for God's sake.''
Estimates are that the state will end this fiscal year with a $480.6 million shortfall, largely because of less-than-anticipated collections of the franchise and excise tax paid by businesses and of the Hall Income Tax. Collections of the franchise and excise tax are only 77% of estimates, he said.
The State Funding Board will meet around May 8 to come up with new estimates on all revenue collections.
The Senate narrowly approved a temporary sales tax increase earlier this session but got no response from the House.
Jim Kyle, D-Memphis, vice chairman of the Senate Finance Committee, said, ''The House has reaffirmed they are not in the position to pass the sales tax.''
Sen. Bob Rochelle, D-Lebanon, said, ''I think the day's event emphasized just how bad things have gotten in Tennessee and how the action of last year has turned out to be such a horrendous mistake,'' referring to the use of one-time tobacco settlement funds to balance the budget.
Rochelle said the inability of the House to muster more than 28 votes for the sales tax increase ''shows the depth of commitment to tax reform by many legislators'' who support an income tax plan.
Click Here
By Tom Humphrey, News-Sentinel Nashville bureau April 25, 2002
NASHVILLE - An attempt to zip an increase in the state sales tax through the Legislature - organized by Gov. Don Sundquist and key lawmakers - fizzled as fast as it developed Wednesday.
Legislative leaders said collapse of the effort clearly means reserve funds will be raided to balance the current year's budget. It could also translate into new hope for House Speaker Jimmy Naifeh's push for enactment of a 4.5 percent state income tax.
The instant sales tax plan came out of a breakfast meeting between the governor and legislative leaders. They agreed to schedule votes during the afternoon on a temporary increase in the sales tax from 6 to 7 percent.
The move was prompted by revised estimates that the state's budget shortfall will reach $480 million - previous estimates pegged the number at $350 million - in the current fiscal year, which ends June 30.
Under the plan, the House - where resistance to a sales tax increase has been strongest - would have voted first and then sent the bill to the Senate for immediate action.
The quick move, Naifeh and others explained, was aimed at allowing the increased rate to take effect May 1. Estimates were that the increase would bring in at least $100 million in May and June.
One version, endorsed by Sundquist, ended the higher rate June 30. Another version kept the rate until Dec. 31.
When the House met Wednesday afternoon, members promptly voted to suspend normal rules to allow rapid action. The House then recessed to allow separate meetings of the Republican and Democratic caucuses.
"As much as I hate a sales tax increase and as much as I think it will hurt the state ... I hate a constitutional problem even more," Sundquist told the Republican gathering.
After the caucus meetings, the House went into session while members were privately polled on the stopgap plan.
House Republican Leader Steve McDaniel of Parker's Crossroads said 20 of the 42 Republican representatives said they would vote for the plan. But only eight or 10 of the 57 Democrats were willing, said House Democratic Caucus Chairman Randy Rinks.
After getting that report, the idea of an instant vote was abandoned.
"It kind of got disjointed along the way," Naifeh said.
He and Rinks said many legislators saw no advantage in voting for a tax increase that would not resolve the state's problems.
"We've put ourselves into this situation, and the only solution now is something long-range," Naifeh said.
State Treasurer Steve Adams has identified about $400 million in various reserve funds that he said could be reasonably used to balance the budget. The biggest single chunk is $100 million of the $178 million held in a "rainy-day fund.
Other funds on Adams' list range from those held for payments to victims of criminal violence to one maintained by the Tennessee Housing Development Agency.
"I regret to inform you that we continue to slip down that slippery slope that we've been sliding on for three years now, and, quite frankly, I don't see any light at the end of the tunnel," McDaniel said in a floor speech. "Well, maybe a little dim light - but that could be a train."
House Finance Committee Chairman Matt Kisber, D-Jackson, said his committee would hold hearings next week on other revenue plans - with Naifeh's tax package at the top of the list.
Tom Humphrey may be reached at 615-242-7782 or humphrey@edge.net.
Temporary sales tax increase collapses in House
From staff and wire reports
NASHVILLE - Tennessee's House of Representatives made apparent what many had already assumed - balancing the current fiscal 2002 budget will require depleting most of the state's reserve funds.
A plan to temporarily raise the sales tax by 1 percent to help bail the state out of its budget troubles collapsed as quickly as it arose Wednesday in the state House.
Gov. Don Sundquist and legislative leaders have grown increasingly concerned as the latest estimates show the 2002 revenue shortfall could hit $480 million, up from earlier estimates of $350 million.
Deficit spending is not permitted in the state constitution, and short-term bonds can't be issued unless legislation is in place to repay the bonds within the current fiscal year.
The Senate passed a measure on March 11 to temporarily raise the sales tax by 1 percent from April 1 through June 30, but the House took no action on the bill at that time. The bill remains held on the House clerk's desk.
However, after hearing the latest deficit forecast, House leaders quickly offered a similar proposal to raise the sales tax from 6 percent to 7 percent effective May 1 through the June 30 end of the fiscal year. That would have raised about $120 million in new revenue.
The House met in Republican and Democratic caucuses in the afternoon to consider the latest deficit figures and count votes before returning to the floor session.
Democrats had only eight votes, while Republicans managed 20 for the sales tax plan. It takes 50 votes to pass a measure in the House.
"We've got so many members who want to fix the problem for the long term that they won't vote to patch it again on the short term," said House Democratic Caucus Chairman Randy Rinks, D-Savannah.
Rep. Ken Givens, D-Rogersville, said the House Democratic reception to a sales tax plan was more than chilly.
"They just about nailed Speaker (Jimmy) Naifeh to the wall in there," Givens said of the caucus meeting.
When asked if there was another option, Sundquist said: "Pray."
The State Funding Board reported Monday that franchise and excise taxes, the state's second largest source of income after the sales tax, have come in at only 75 percent of estimates through nine months.
If that range continues, the current year deficit could hit $480 million.
The new shortfall estimate may force the governor to empty the $178 million rainy day fund and require the General Assembly to redirect $121 million dedicated by law to other purposes, such as the Victims of Criminal Injury Compensation Fund.
Rinks said raiding the reserves was a temporary fix.
"Nothing we have done lately is good financial policy. Our bond rating speaks to that," he said. "We're really walking a tightrope."
The state's credit rating, or bond rating, has been downgraded each of the past two years by the major rating agencies because the state has passed budgets without long-term solutions to its budget needs.
State Finance Commissioner Warren Neel said he doesn't think bond rating agencies will approve of the move.
"I can't imagine what a bond rating agency will do when they look at this," Neel said. "They will probably have a very hard time believing we are going to run this state without any rainy day reserve at all."
Rep. Keith Westmoreland, R-Kingsport, said the legislature has made a decision by default.
Since the budget must be balanced according to the state constitution, reserve funds are as good as gone.
"If we're going to do a job of cleaning out the state, we might as well do it well," Westmoreland said. "And it looks like we're going to do it really well. But all this really does is place us in a situation where we've really got to do something because of the revenue shortfall apparent in even a continuation budget."
After cleaning out reserve funds, legislators would still need $900 million in new taxes or spending cuts to pass a continuation budget mirroring this year's service level in fiscal 2003.
This is incredible. It's hard to imagine that more Republicans are willing to vote for the tax increase than Democrats. I just can't believe that these folks don't have the courage to do something.
They should just suck it up and cut spending.
*Offering up a prayer to St. Jude,,,, giving thanks that I don't live in TN*
Translates to:
We spent a bunch of money that we didn't have and got caught. We therefore have to go steal some more money
Well now they know what it's like to be a taxpayer. Listen to the 'tax & spenders' squeak! A word to TN legislators: "Let them (gov't program recipients) starve".
I don't know many of the particulars of TN state politics, so this idea may sound crazy --
Unwilling to raise taxes, why don't the legislators reduce spending?
...would be renewed forever!
There's no such thing as a "temporary" tax.
Uh... Cut expenses?
The Nashville City Paper
By Joe White
The state House of Representatives Wednesday briefly tried to pass a temporary one-cent sales tax. Instead the trial run self-destructed in public.
In the aftermath, House Finance Committee chair Matt Kisber declared that next Tuesday the committee meeting would be open for any member who wants to present a revenue bill “with any specificity.”
The drive started Wednesday morning at the meeting of legislative leaders with Gov. Don Sundquist, peaked in House caucus meetings in the early afternoon and melted down as political party whips counted votes during a floor session.
At the Democratic caucus, House Speaker Jimmy Naifeh Wednesday afternoon argued in favor of bringing a temporary sales tax hike to the floor to help cover a shortfall expected to total as much as $490 million by June 30.
Naifeh pointed out that his own plan, a long-range plan including a 4.5 percent flat rate income tax, would not help address the shortfall, which - unofficially - is now expected to grow beyond the scope of the various reserve funds which were (up to Monday) expected to cover it.
Comptroller John Morgan summed up the new situation: State administrators expected a shortfall at the end of the fiscal year of about $350 million, due to flat or no growth in sales tax.
But three new factors swelled that shortage, Morgan said.
The excise tax, a 6 percent business “income tax,” fell off dramatically after Sept. 11 as companies reassessed their potential profit for the calendar year, he said.
The franchise tax, a “property tax” for businesses, took a hit when the recent federal stimulus package gave accelerated depreciation to investments made after three years. Those losses are estimated at $100 million this year and will accumulate for the next three years, Morgan said.
And businesses have simply become better at shielding their companies from state business taxes, moving profits to other states where they are taxed at a lower rate, he said.
Although the state Funding Board made no official change in its outlook, the expectation of additional shortages gave new life to the sales tax bill passed in the Senate earlier this year to generate short-term revenue.
Naifeh told House Democrats, “This morning when we were talking about the increase in the short run, we talked about a temporary tax for two months, May and June.” But such a tax would have to be passed today, he told them, to become effective May 1. The House and Senate don’t meet again until May 1.
The House returned to its chamber to work off a mundane calendar, and party whips rapidly assessed the votes for the temporary tax. “Not even close,” muttered a Democratic functionary.
As Nashville Rep. Mike Turner told the caucus, “If I’m gonna vote for a sales tax I’m gonna catch as much grief for two months as if it’s for a year.”
And several members noted that citizens don’t believe in “temporary” taxes, resulting in more re-election trouble for incumbents.
With no votes in sight for the short-term solution, the House Finance Committee killed plans to meet the same day to send the bill to the floor. Kisber said the committee would be open for alternative plans Tuesday.
“I’ll be the first one in line, if it suits the committee and this House,” Naifeh promised.
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