Improving Revenues Prompt House Democrats to Float Food-Tax Cut, Scholarship Bump

Tennessee House Democrats have seized on the recent string of positive revenue collections and see them as a way to reduce the state sales tax on food and provide more college scholarships — at a time the economy overall continues to sputter and Gov. Bill Haslam has warned of less money coming from Washington.

Democrats held a press conference at Legislative Plaza on Thursday to announce a bill meant to bring economic relief to families struggling to buy groceries and pay for burdensome college tuition rates.

The legislation could not be taken up until lawmakers reconvene in January, but proponents of the bill said the time to talk about it is now.

“When folks see revenues better than expected, you’ll have special interest groups lining up to catch the governor’s ear, to catch legislators’ ear,” Rep. Craig Fitzhugh, D-Ripley, the House minority leader, said.

“We’re trying to say we’re taking a stand on what we believe to be a broad-based possible use of what we hope to be excess revenues beyond what was budgeted in 2011-12.”

The state recently released tax collection figures for June, representing consumer spending in May, and they were shown to be above estimates for the 11th consecutive month.

Sales tax collections specifically exceeded estimates for the 15th straight month. But even with the rally in revenue collections, Finance and Administration Commissioner Mark Emkes expressed concern in the latest report about recent national economic indicators and said revenue collections will have to be closely watched.

The Democrats chose optimism on revenues.

“The estimates upon which our budget was based have been exceeded thus far,” Fitzhugh said. “We are optimistic and think that our economy is recovering. We expect that to continue.”

The measure (HB2164), as proposed, would nail down the amount of surplus funds — those that come in above official state estimates — and devote one-half of those funds to need-based scholarships. The other half would go toward a reduction of the state sales tax rate on food for the next fiscal year. If the bill were adopted by the legislature it would go into effect July 1, 2012.

Under the proposal, each April, the heads of the finance and revenue departments would certify the exact amount of surplus revenue the state had collected, and from that total half would go to an account with the Tennessee Student Assistance Corporation to be used to help families on college costs. The University of Tennessee recently increased tuition at its campuses by 9.9-15 percent, and the Tennessee Board of Regents raised tuition at its schools by 8.8-11 percent.

The other half would be used to adjust downward the sales tax rate on food. The rate would be determined by the size of the surplus and would remain at the lower rate until either the Legislature raised the rate or it fell again under the proposed legislation. The current state sales tax rate on food is 5.5 percent.

“As you know, we continue to struggle in Tennessee. Our unemployment rate remains high, our sales tax rate is high. We’ve just raised tuition on our college students, in double-digits mainly, across the board,” Fitzhugh said.

The state Department of Labor and Workforce Development announced Thursday that Tennessee’s unemployment rate for June was 9.8 percent.

A spokesman for Republican Gov. Bill Haslam said it’s a bad time to spend more money.

“The governor has talked about the ‘new normal’ we are operating government in, and now isn’t the time to start spending money,” David Smith, press secretary for Haslam, said.

“With the federal government in the midst of debating the debt ceiling issue, there is an expectation there will be significant impacts on state governments in the form of a continued decline in federal funding to the states.”

Haslam has made that case recently to Tennesseans. Governors at a recent meeting of the National Governors Association had the same take on the subject. U.S. Sen. Bob Corker, R-Tennessee, told TNReport last week it is “way, way, way premature” to discuss what the long-term effects of the budget issue in Washington would have on states.

But bond rating agencies are beginning to back up concerns that states could be affected by the federal picture. Moody’s Investors Service recently said five states with top bond ratings, Tennessee among them, could face downgrades in their own ratings due to their dependence on federal funds.

House Majority Leader Gerald McCormick gave the Democratic proposal a thumbs-down. He said in a formal statement the Democrats “are finally starting to realize lower taxes are the key to economic growth. However, given the fact they are consistently in favor of higher taxes and a state income tax, I think it’s apparent they’re just playing political games once again.”

Rep. Johnnie Turner, D-Memphis, and Sen. Reginald Tate, D-Memphis, introduced a bill in February that would have repealed the sales tax on food and would have established a graduated income tax. But the bill was quickly withdrawn.

In a statement released Thursday night, Lt. Gov. Ron Ramsey, R-Blountville, dismissed the Democrats proposal as “typical craven political posturing by a minority trying desperately to maintain the semblance of relevance.”

“While the new revenue numbers are encouraging, the last few years have taught us that we cannot afford to be cavalier with the contents of our treasury,” said Ramsey. “I’d love to eliminate the food tax and I hope and pray that Tennessee will soon be in a position to do just that. But a revenue blip does not a surplus make.”