News of the death of Tennessee tax reform may have been exaggerated

Is the idea of tax reform in Tennessee - including the possibility of a state income tax - really dead?

House Speaker Jimmy Naifeh, who unsuccessfully tried to push tax reform through the House last spring, doesn't see the issue resurfacing.

"I think the only way we will have tax reform will be through a constitutional convention," said Naifeh, D-Covington. "We did pass that last year in the House, and the Senate did not pass it. In my opinion, that's the only way we would have tax reform. I don't foresee anyone bringing up an income tax bill in this next General Assembly or next year."

But there is evidence suggesting the concept of tax reform is hibernating and could awaken in Gov.-elect Phil Bredesen's first term.

•In a news conference held only days ago in Nashville, outgoing Gov. Don Sundquist - who failed in an attempt to enact tax reform in his second term - said that despite campaign rhetoric to the contrary, Bredesen will have to contend with the idea of tax reform. Sundquist will soon announce his appointments to a commission the legislature created earlier this year to study the state's tax structure, which is weighted heavily on collecting sales taxes.

•The state's revenue collection for the first three months of the 2002-2003 fiscal year did not come close to meeting budget estimates. The general fund had a $29.7 million undercollection, according to the Tennessee Department of Finance and Administration. Sales tax collections in October alone were $11.4 million less than estimated. Undercollections also were reported in franchise and excise taxes.

•A recent poll conducted by the Middle Tennessee State University College of Mass Communication found majority support for a state income tax plan that includes sales tax cuts. The poll of more than 600 people also found that few consider the income tax as "a dead issue that will never be raised again."

•Tennesseans for Fair Taxation (TFT), a statewide organization supporting tax reform, claims that only four incumbent legislators out of the 24 who had voted to support tax reform lost their re-election bid on Election Day.

"I don't think anyone in TFT is claiming that on Election Day there was a great mandate for an income tax," said TFT Board Chair John Stewart. "But if you look at (tax reform) as a package - and it's very hard to get people to do that - where the sales tax is reduced and a low flat income tax is added, most people pay less tax, and we've had a very hard time getting that message across. A clear majority of Tennesseans would end up paying less to the government than they are paying now."

Bredesen campaigned against an income tax and promised to restructure certain parts of state government to get a handle on finances.

Two area Republican state senators, Rusty Crowe of Johnson City and Ron Ramsey of Blountville, expect Bredesen to live up to that promise.

"I think the income tax is definitely dead," said Crowe. "The votes are certainly not there in the Senate, and I am almost certain they are not there in the House. After we analyze the tax base and all the exceptions, if we can come up with enough exceptions that should be part of our sales tax system it is very possible that we could lower the overall rate by broadening the tax base."

Ramsey said governors normally work within existing revenues in their first term.

"After they run for re-election, then they could propose new taxes," Ramsey added. "But I don't foresee Bredesen proposing any new taxes to speak of during his first term. I don't see how he can do that politically and get away with it."

http://www.tennessean.com/government/archives/02/11/25304467.shtml?Element_ID=25304467

More revenue, savings help state end fiscal year on firmer footing By SHEILA WISSNER Staff Writer

Despite hand-wringing earlier this year, the state ended the fiscal year June 30 in better shape than expected, state figures showed yesterday.

That's because the state took in $114.3 million more in revenue than officials had projected in the spring, and state departments spent about $45 million less than had been budgeted, state Finance Commissioner C. Warren Neel said.

Those numbers allowed the state to keep its rainy day fund at the same $178 million level as the prior fiscal year and leave another $11.3 million to use in this year's budget. The state also has other reserves that remain intact, including the state's multibillion-dollar pension fund.

The state's operating budget still was more than $200 million in the hole at the end of the fiscal year; however, officials were required to make up the difference by taking money out of reserve funds, including the crime victims' compensation fund and the Tennessee Housing Development Agency reserve.

''We have been through some very difficult times in the last three years,'' Neel said. ''But I think, given that, the governor has been very conservative, very frugal, even to the point that it's pained all of us, but he has done it because I think the numbers said we should do it.''

Last spring, legislators were presented a gloomy picture showing the state was collecting less money than needed to balance the 2001-02 budget. Estimates of the shortfall ranged as high as $500 million.

Tax collections came in stronger in June than expected, which helped the budget picture, Neel said. The final shortfall figure was in the $360 million range, or $315 million when the $45 million that departments saved is subtracted. The state had programmed $110 million in department savings into the budget, but departments saved $155 million instead.

Those savings were made by holding the line on hiring new people, keeping vehicles another year rather than replacing ones wearing out, and other measures, Neel said.

The remaining shortfall was covered with various reserve funds, including $76.5 million from the crime victims' compensation fund, $30 million from the highway fund and $36 million from the Tennessee Housing Development Agency reserve.

A $31.2 million surplus from the prior fiscal year was used, and money was taken from contingency reserves that were no longer required, such as a $26.2 million reserve that had been set aside to cover an investment loss that never materialized

This one got me this morning from the KNS I'ts just as we knew and that Rep David Davis said during the last session.

Rep (David Davis), with the agreement of Crowe and Patton, said a shortfall in the current budget of upwards of $350 million is a "real deficit,'' while past budgets "artificially" inflated expenditures to produce a deficit. (The Kingsport Times 2002)

Less than half the new revenue produced by the tax increase is available for new spending. Nearly 60 percent of the extra money expected this year through the increase and economic growth is being used to fill the financial hole created by tricked-up budgets from the three previous years. Among other problems, those budgets relied on one-time money to pay for ongoing programs.

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