State legislators meet to resolve potential shortfalls

By Megan R. Harrell
Star Staff

   Democratic and Republican leaders are working together to resolve Tennessee's revenue shortfall. About 20 legislators met at Gov. Don Sundquist's home last week to discuss the budget. The Commissioner of Finance, Secretary of the State, Comptroller, and government officials were among those present.
   In their deliberations, lawmakers tried to determine what they can do about Tennessee's possible $1.2 billion revenue shortfall for 2002. There could be a number of contributors to the state's bleak economic outlook, but Rep. Ralph Cole (R-Elizabethton) believes he knows exactly where the revenue shortfall came from.
   The national recession plays a role in Tennessee's shortfall this year, but Rep. Cole holds the General Assembly is responsible. The General Assembly may have over projected revenue in 2002 by as much as $350 million.
   In 1998, the Funding Board began testifying before the State Finance Committee about a potential recession, and ensuing revenue shortages. The Funding Board advised lawmakers to revise its revenue system that was based on sales taxes. The state is currently operating on the same 80-year-old revenue system.
   Some legislators believe the General Assembly would not be facing the budget problems it is today if it had heeded the advice of the Funding Board years ago. "We could have fixed this three years ago with legislation," Rep. Cole said. "We could have brought in $400 million. It was enough then, and we could have brought the same amount in for the next two years. If you add that up it amounts to the $1.2 billion that we need now."
   Tennessee could now be feeling the repercussions of a number of decisions lawmakers made in the past few years. The state's constitution requires that the budget be balanced every year. Legislators used $750 million of tobacco funds in order to balance the budget last year. The money was intended to go to farmers and health care as part of a compensation for federal anti-tobacco legislation.
   Rep. Cole estimates that inflation and court decisions will be lacking an additional $2 million this year. When the over projections, tobacco funding, inflation and court costs are added they amount to $1.2 billion in possible revenue shortfall.
   The state has also suffered a loss in revenue at the hands of technology. Congress will not allow Tennessee to charge sales taxes on items that are bought and sold on the Internet. Lawmakers are discussing ways to recover revenue losses from unlikely competition such as, eBay.
   "The state is going to have to eliminate some of the services that the people of Tennessee deserve and demand, and that also trickles down to the counties and cities which will be unable to provide services that are demanded," Rep. Cole said.
   Lawmakers are looking at a number of possible solutions to offset the shortfall. Sen. Doug Henry, Chairman of the Senate Finance Committee, has proposed a state property tax for the past three years, and is looking at the same prospect again this year. However, if the proposal is made it is expected to meet with a great deal of contention, as many legislators believe state property taxes are already too high.
   An expansion of sales taxes to include items that are not currently taxed has also been explored by legislators. The proposal would impose sales taxes on attorney, architect and physician's fees along with other goods and services. This tax proposal was made last year but did not receive any votes on the house floor.
   Rep. Cole does not believe any of these proposals will pass in the General Assembly as they now stand. That is why he is standing behind the elimination of sales taxes on groceries, clothing and non-prescription drugs. He has been working for two years to have the sales taxes lifted.
   "I think that everyone in the General Assembly will support the elimination of these sales taxes," Rep. Cole said. "It has been part of the income tax proposals this past session, and now the income tax is not on the table, so we might as well go ahead and help the people of Tennessee by getting the sales tax removed and hopefully see shopping centers crop up along the borders."
   Cole hopes to see people from the eight states that border Tennessee come to shop where there are no sales taxes. He believes that once shoppers come to the state to buy non-taxed goods they will also buy goods that remain at a 6 percent sales tax rate.
   "I can see how it would help our revenue situation, but I am not naive enough to believe it will overcome the entire shortfall," Rep. Cole said. "It is a step in the right direction."
   If the General Assembly is going to take action on the revenue situation it will have to do so before the end of April. The decision will have to be made during the remaining 19 days the Assembly is able to meet this session.