TN TAX BATTLE: Budget thriller takes new twists

Budget thriller takes new twists By Richard Locker and Paula Wade locker@gomemphis.com wade@gomemphis.com June 28, 2002 NASHVILLE - A Senate committee Thursday blocked an attempt to move the outline of a plan coupling sales and business tax hikes with limited spending cuts to the Senate floor for a vote.

The attempt by income tax opponents to bypass the Senate Finance Committee's usual review of the so-called CATS plan failed in the committee on a 5-6 vote. Its sponsor, Sen. Doug Jackson (D-Dickson), blasted the panel but pledged to try again. In the House of Representatives, Speaker Jimmy Naifeh said he hopes to bring up his 4.5 percent income tax proposal for another vote today. His plan has larger personal exemptions than a 6 percent income tax plan proposed by Senate Speaker John Wilder, and also removes all sales tax from grocery food, clothing and non-prescription drugs.

"We have been working all day to contact those members who've given us an indication they could vote for the tax reform plan," said Naifeh (D-Covington), who said his efforts have been boosted by the signals that Senate leaders may be ready to support an income tax in some form.

But the momentum that suddenly surfaced on Wednesday for Wilder's 6 percent state income tax plan also stalled - over concerns that it would shift more of the state tax burden from business to individuals.

As a result, officials spent Thursday fine-tuning its provisions to try to keep the existing balance by raising the corporate excise and franchise taxes. It is expected to be reviewed today.

With the clock ticking toward Sunday's midnight deadline for a new budget and still no break in the legislative stalemate on taxes, both houses of the legislature approved on the second of three required readings a bill to keep essential services operating if a budget is not adopted.

"We're working on contingency plans, the essential services plan,''state Finance and Administration Commissioner Warren Neel said.

Jackson said he was urged by Senate Democratic leaders Ward Crutchfield of Chattanooga and Joe Haynes of Nashville to try to move the CATS plan directly from the Finance Committee, where it lacks full support, to the Senate floor, where Jackson said he believes it can pass. But when the vote was taken, he fell one vote short.

"This is brinkmanship and there are leaders in the Senate gambling on the future of Tennessee," Jackson said. "They've been working for three years on an income tax and now they're asking for more time. When does it end?''

"We've gained some votes, but we've had setbacks as well," Naifeh said of his income tax plan, which won 45 House votes - five short the required 50 - on May 22. The House on Thursday approved and sent to the governor the bill to allow the use of 34 government reserve accounts to balance the current year's budget. The bill, approved 82-5, also grants legal immunity and workers compensation coverage to any state employee who volunteers to work if state government shuts down.

Adding to the overall tension in the House, a long-running feud between Jackson-Madison County General Hospital and Memphis-based Methodist Health Systems erupted on Capitol Hill with a bill to circumvent the state's new health facilities regulatory board and give Methodist Hospital in Jackson permission to expand.

The bill, sponsored by Memphis Democrats Sen. John Ford and Rep. Kathryn Bowers, would grant Methodist's Jackson hospital permission to operate a neo-natal unit and cardiac unit - issues that have been tied up in legal proceedings for four years. The bill's chief lobbyist is Betty Anderson Naifeh, wife of the House Speaker.

Contact Nashville Bureau chief Richard Locker at (615) 255-4923 or Nashville Bureau reporter Paula Wade at (615) 242-2018.

Tennessean

BILL STEBER / STAFF Rep. Matt Kisber, left, chairman of the House Finance Committee, talks with Sen. Jim Kyle, vice chairman of the Senate Finance Committee, and John Morgan, state comptroller. TWO INCOME TAX PLANS MAY come to a vote TODAY.

Sales tax plan rejected; proponent may take idea to Senate floor

By BONNA de la CRUZ Staff Writer

A stopgap tax package, billed as an alternative to a state income tax, was rejected yesterday by the Senate Finance Committee, as advocates of two separate income tax plans said they might ask for votes today.

State lawmakers are facing a Sunday deadline to approve a budget and avert an almost total shutdown of state government. They need $877 million to fund the present-day level of services.

The Senate Finance Committee voted down a business and sales tax proposal called Continuing Adequate Taxes and Services, dubbed the plan, but its sponsor, Sen. Doug Jackson, D-Dickson, said he would bring it back.

''A cat has nine lives, and we've only used one,'' Jackson said shortly after the 5-6 vote. The plan would generate $766 million by raising the sales tax to 8.75% statewide, imposing $200 million of new business taxes and increasing cigarette and alcohol taxes.

Jackson asked the Senate committee to approve the plan in concept and said he would add details in an amendment on the Senate floor, from where the plan then would be sent back to the committee.

Sen. Jim Kyle, D-Memphis, said that legislators ordinarily did not vote on ideas and that Jackson's proposed process was ''convoluted.'' Sen. Bob Rochelle, D-Lebanon, said he would not participate in what he termed a ''charade.''

Afterward, Jackson said two key Senate supporters on the committee — Joe Haynes, D-Goodlettsville, and Ward Crutchfield, D-Chattanooga — told him that would be the only way to get the bill out of the committee to the Senate for a vote. Another member who had promised his support reneged, he said.

Two income tax plans remain on the table. They are:

• House Speaker Jimmy Naifeh's 4.5% income tax, which would raise $970 million and roll back some sales taxes.

• A 6% income tax that abolishes the state's 6% sales tax. A 2.75% local sales tax would remain in place. The plan still lacks a vote or two in the Senate for passage, Sen. Jerry Cooper, D-Morrison, said.

The ''6 and 0'' plan by Lt. Gov. John Wilder and Kyle was being tweaked yesterday in part because initial estimates that it would raise $1.2 billion were wrong.

Also, a component that would impose a 9.75% tax on amusements, restaurant bills, rental cars and hotel charges — which tourists would typically pay — is likely to be lowered to 8.75%, the rate now in effect in parts of the state, Kyle said. In exchange, taxes on business property and profits probably will be raised, Kyle said.

Dave Goetz of the Tennessee Association of Business said the state already had the third-highest franchise tax in the nation. Corporations pay 25 cents per $100 of property value.

Committee's rollcall vote

Here is the Senate Finance Committee roll call on the Continuing Adequate Taxes and Services proposal, which was defeated with five members voting yes and six voting no.

Yes: Ward Crutchfield, D-Chattanooga; John Ford, D-Memphis; Joe Haynes, D-Goodlettsville; Micheal Williams, R-Maynardville; Douglas Henry, D-Nashville.

No: Ben Atchley, R-Knoxville; Tim Burchett, R-Knoxville; Bill Clabough, R-Maryville; Gene Elsea, R-Spring City; Jim Kyle, D-Memphis; Bob Rochelle, D-Lebanon.

http://www.knoxnews.com/kns/politics/article/0,1406,KNS_356_1235181,00.html

Senate panel rejects CATS Finance Committee's vote is 6-5

By Tom Humphrey, News-Sentinel Nashville bureau June 28, 2002

NASHVILLE - A Senate committee on Thursday rejected the patched-together package of taxes known as "CATS," while the latest state income tax proposal was rescheduled for a vote today.

"This game of brinkmanship has got to come to an end," said Sen. Doug Jackson, D-Dickson, sponsor of the CATS plan. "We're at the midnight hour."

Despite an upsurge in such commentary, most indications were that the Legislature's budget impasse will continue into the weekend, butting against the actual deadline of midnight on Sunday.

Without some sort of budget by then, state government would effectively shut down. A pending proposal would allow some "essential" functions - such as the operation of prisons and mental institutions - to continue in operation through Friday, July 5.

Jackson asked the Senate Finance Committee on Thursday to send his CATS plan - the acronym stands for Continuing Adequate Taxes and Services - to the Senate floor for a vote even though it is subject to further changes.

Sen. Robert Rochelle, D-Lebanon, denounced the effort as a "charade" that is "signaling a total breakdown" in the normal legislative committee system.

When the bill came up for a vote, six senators voted to kill CATS, while only five senators supported it.

"A cat has nine lives; we've only used one," Jackson said afterward, promising to otherwise try to bring the bill to a vote of the full Senate.

"This is the only plan, when you talk to legislators and run the numbers, that can get 50 and 17" votes, said Jackson, referring to private nose counts.

Fifty votes are needed for a bill to pass the House, and 17 are needed in the Senate.

Other private nose counts indicated the new "6-and-0" income tax plan, backed by Sen. Jim Kyle, D-Memphis, and Lt. Gov. John Wilder, could pass the Senate Finance Committee and is apparently within a single vote of having 17 on the Senate floor.

The Kyle-Wilder bill was to have been brought to the Senate Finance Committee for a vote Thursday, but that was postponed until today.

State Comptroller John Morgan, who drafted the plan, said there had been miscalculations in projecting it would raise $1.2 billion in new state revenue for the coming fiscal year. He and some legislators said that may mean revising some provisions within the bill.

The bill would levy a flat-rate 6 percent state income tax and repeal the present general 6 percent state sales tax. However, the sales tax would remain at an increased rate of 7 percent on selected items - including alcohol, tobacco, restaurant meals and "amusements," such as tickets to sports events and concerts.

Also, local governments would still impose a sales tax at a rate of 2.75 percent, which would be uniform statewide.

The CATS bill, as described in its most recently revised version, has a dozen components ranging from an increase in the state excise tax paid by businesses to higher levies on alcohol, tobacco, vending machines and cable TV.

Jackson told the Finance Committee that if the bill were to be approved on the Senate floor, he would bring it back to the committee for another vote. He acknowledged that would be an unusual procedure but said the present unusual times warrant such action.

The bill would be available on the Senate and House floors if efforts to pass an income tax and other budget options fail, he said. That has become a real possibility, he said.

"The CATS proposal should be viewed as a life preserver - something you grab right at the last moment before you go down," Jackson said.

An income tax has been consistently spurned for more than three years, he said, but proponents are "now saying just give me another five days" - a reference to the pending "essential services" budget that would allow some government functions to continue until July 5.

In another development, the House on Thursday gave final approval to a bill that allows use of special reserve funds to cover a $475 million deficit in the current fiscal year's budget. The bill now goes to Gov. Don Sundquist, who supports it.

Included in the reserve-raiding bill is a provision that grants protection from lawsuits to state workers who continue on the job even when they are not being paid.

State Attorney General Paul G. Summers said workers who volunteer their services after a shutdown would be subject to personal lawsuits for any mishaps that occur on the job. Normally, the state government is responsible for paying damages for any liability faced by state employees, but that immunity legally evaporates when they are not being paid, Summers said.

In the 5-6 committee vote on CATS, only one East Tennessean voted for the bill - Sen. Mike Williams, R-Maynardville. Among those voting "no" were Sens. Ben Atchley, R-Knoxville; Tim Burchett, R-Knoxville; Bill Clabough, R-Maryville; and Gene Elsea, R-Spring City.

Tom Humphrey may be reached at 615-242-7782 or humphrey@edge.net.

I just got the following email from Phil Valentine (Nashville talk show host & anti-income proponent) as an update on the tax situation.

Dear FOP:

Some of you have wondered why we haven\'t been down at the Capitol protesting. A couple of reasons. The first is, by our count, they just don\'t have the votes to pass an income tax in either chamber. The second is, we don\'t feel that it\'s right to call protesters down there day after day if we have a reasonable belief that the income tax won\'t make it to the floor for a vote. Many of you were down there for hours in the hot sun and I just couldn\'t see calling you out to fry again if nothing was happening. We\'ve made our point loud and clear over the last few weeks and they know we can be back on a moment\'s notice but we need to conserve our resources.

Remember that last year\'s fight went well into August. If that\'s the case, we want fresh troops when the call comes for a vote. As we approach the end of the fiscal year on June 30th, anything could happen. Just keep in mind that we are in constant contact with all the key players in both chambers of the general assembly. If there\'s some movement toward a floor vote we will immediately alert you. Stay close to NewsRadio 1510WLAC and your computer. We will alert you via the radio and the FOP list when something breaks. When we call it will be the real deal and we need to descend on the Capitol like a swarm of locusts.

We\'ll keep you posted.

Regards,

Phil Valentine
NewsRadio 1510WLAC

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