by Joe Sullivan
In her book On Death and Dying, Elisabeth Kubler-Ross identifies five stages that a dying person goes through. They start with denial, then anger and lead finally to acceptance.
Apparently, a majority of Tennesseans are still in denial mode as to the fate that awaits their state if the Legislature can't raise at least $1 billion in new revenue to cover the deficit that looms in the fiscal year ahead.
Last week's virtual defeat of House Speaker Jimmy Naifeh's tax reform plan dealt a crushing blow to these efforts. Naifeh clings to hopes, as do I, that he can somehow resurrect his plan that would couple a 4.5 percent state income tax with the elimination of sales taxes on groceries, clothing and non-prescription drugs as its central features. But it strains credulity to believe that enough (namely, five) of the seven house members who deserted Naifeh when the moment of truth came last Wednesday can be prevailed upon to switch their votes in order to produce a 50-vote majority in the 99-member House. And even if they can, the tenuous 17-vote majority that was believed to be in place for the Naifeh plan in the 33-member Senate has since begun to slip away according to one of the slippers, Sen. Ben Atchley.
The pendulum appears to be swinging away from an income tax and toward the two other approaches to raising substantial revenue that have been batted around over the three years that the state's fiscal crisis has been mounting. These are: (1) an increase in sales taxes that are already among the highest in the land and on which the state is regressively overdependent; and (2) an extension of the sales tax to presently exempt goods and services.
The trouble is that neither of these approaches has come close to gaining legislative majorities in the past. Nor is there any likelihood that they will do so now unless proponents of the vastly more equitable income tax get behind one or the other of them, which they are loath to do. So another protracted legislative stalemate seems in prospect. (If I have to eat these words by the time this column appears, I'll be delighted to do so.)
What should turn the citizenry from denial to anger is the devastating impact that this stalemate is going to have on local governments and schools as well as universities. Under state law, cities and counties must adopt balanced budgets by the beginning of their fiscal year on July 1. Yet in the absence of sustained state funding, they won't be able to do so without big spending cuts or big local tax increases.
Unless and until the legislature comes up with the $1 billion needed just for sustenance, let alone enhancements, the only state budget which localities can key to is the DOGS budget (for Downsizing Ongoing Government Services). As originally prepared in February, the DOGS budget provides for a $775 million reduction in state spending. Along with eliminating two state departments (Tourism and Economic Development) and closing all state parks that don't pay their own way, this budget would cut $373 million from public school funding (K-12) and $93 million from higher education.
On a statewide basis, it's stated that the K-12 cuts would mean the layoff of 14 percent of the state's 66,000 teachers and a resultant increase in all class sizes by five students. For Knox County, it would mean a $19 million reduction in the $290 million school budget that County Executive Tommy Schumpert recommended to County Commission last week.
"For us to absorb cuts of this magnitude we would have to rethink our budget," Schumpert stated in his budget message to commissioners. In other words, all bets are off on his planned avoidance of a property tax increase. A 16-cent increase in the county's $2.96 tax rate would be required to offset the DOGS-day cut. A movement by school boosters to initiate a $25 per vehicle wheel tax in Knox County by referendum would offset about $9 million of the cut. But this movement is intended to boost school funding to the $299 level recommended by the school board, not offset a cut from Schumpert's lesser recommendation.
Without a local tax increase the jobs of some 300 non-tenured Knox schoolteachers would be in jeopardy and plans for meeting state mandated pupil/teacher ratio requirements would be thrown into a cocked hat. But the school board hasn't as yet made any plans for dealing with this contingency. "It would create a morale problem to get specific until we know more about where we stand," says school board member Paul Kelley.
Where UT's concerned, the DOGS budget would mean a $15 million cutback from the $160 million that was appropriated in the current fiscal year for the Knoxville campus. That stands in sharp contrast with the $19 million increase recommended by Gov. Don Sundquist. The imperiled increase includes $10 million to start restoring parity in faculty salaries that have fallen below all other Southern states. In addition, there is $7.5 million to fulfill a crucially needed commitment to UT's Centers of Excellence research program—a commitment on which the Legislature reneged last year.
Under the DOGS budget, according to Deputy Provost Anne Mayhew, "It would become clear that we couldn't make any of the improvements we've spent the last year talking about, and we'd have to think in terms of what programs we're going to cut out." Not only would none of the 100 faculty positions that have been lost over the past four years be restored but also, "We would almost immediately lose of some of our very best, highest profile faculty members," Mayhew laments.
Tuition increases might mitigate some of these damages. But UT has already raised tuition a total of 40 percent over the past three years, making it one of the highest cost and, hence, least affordable state universities in the South.
As originally proposed the DOGS budget would not cut what's known as state-shared revenues that cities and counties receive. These revenues include a share of state sales taxes and the Hall tax on dividend and interest income as well as gasoline taxes. The city of Knoxville is due to get $17 million of its $138 million operating budget from these sources, and Knox County is counting on $8 million.
Since the DOGS budget was prepared, however, the state's projected revenue shortfall for the fiscal year ahead has swung $200 million to the worse, according to Finance Commissioner Warren Neel. He warns that every type of state expenditure is subject to further cuts. Hence, City Council and County Commission are essentially flying blind when it comes to acting on budgets they must adopt within the next few weeks.
Along with the Naifeh plan, several other revenue-raising measures are pending in the Legislature. The prime ones (each of which would yield about $1 billion) are:
 A sales tax increase to a uniform statewide rate of 9.75 percent. Local option sales taxes, which can range up to 2.75 percent, would be abolished, but localities would be reimbursed for the resultant loss of revenues. Under this "hold harmless" provision, Knoxville and Knox County would be reimbursed at the 2.25 percent local option rate presently in effect here. The state would capture the additional half percent (the difference between 2.25 percent and 2.75 percent) that Knoxdom has failed to lay claim to.
Extension of the sales tax to just about every type of goods and services under the sun. Only healthcare, caskets, and industrial and farm equipment would remain exempt under a bill cosponsored by Reps. Bob McKee and Chris Newton. These two Republicans claim about 40 House supporters for their measure, which would reduce the statewide rate to 5.5 percent and leave local option sales taxes in place (but only on presently covered goods.)
Then, there is the Fowler plan. This complicated measure, sponsored by Sen. David Fowler, calls for a referendum in August in which voters would have the following two choices: (1) approve a state income tax in the course of rejecting a call for a constitutional convention; of (2) convene a constitutional convention to consider whether the state constitution should be amended to provide for an income tax while, in the meantime, putting in effect an extension of the sales tax along the lines of the McKee-Newton plan.
The Senate Finance Committee is due to consider the Fowler plan on Wednesday (after Metro Pulse's deadline) with a view to somehow making it simpler and hence more understandable to voters. Atchley also anticipates the substitution of a sales tax increase instead of its extension as "Plan B."
Among all these options, readers are urged to express their preference to their legislators. One way to do so is to respond to a survey being conducted by Sen. Bill Clabough that Metro Pulse is pleased to carry as a public service on page 16 of the print edition (also downloadable here). The more responses he gets, the more likely his survey is to have an impact on other senators as well.
May 30, 2002 * Vol. 12, No. 22
© 2002 Metro Pulse
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