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VOL. 41 | NO. 15 | Friday, April 14, 2017

Tennessee House, Senate pass Haslam's gas tax proposal

By Sam Stockard

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The House and Senate are nearly ready to send the IMPROVE Act to Gov. Bill Haslam, passing it with relatively wide voting margins after months of debate.

Only one adjustment is needed in a measure providing property tax relief for veterans, the disabled and elderly before the measure can be sent to Haslam.

The Senate voted 25-6 for the gas tax/tax cut package after the House backed it with a 60-37 vote in a marathon meeting.

The Senate’s version includes an amendment increasing property tax relief for veterans to $175,000 on their county property value, matching the amount approved by the House in a separate bill. The House could concur either Thursday or Monday and send the entire bill to the governor for his signature.

“It’s a very important day,” said Senate Majority Leader Mark Norris, who rewrote the governor’s bill to make it reflect a net tax reduction.

Norris, a Collierville Republican, pointed out the Legislature hasn’t raised the fuel tax since 1989 and this move would enable the state to reprioritize its spending, returning surplus tax dollars to taxpayers while ensuring it continues to pay for road work through the transportation fund without taking on debt.

“It does matter who governs,” Norris said, “and, by golly, it matters how we govern.”

Lt. Gov. Randy McNally said the bills passed by the House and Senate represent a “clear and undisputed tax” for Tennessee, the largest one in state history.

“It is a remarkable achievement,” McNally said. “Both plans protect our user fees, ensure our continued fiscal stability and maintain our Triple-A bond rating.”

The Senate acted about two hours after the House of Representatives adopted the fuel tax/tax cut plan designed to fund $10.5 billion in 962 backlogged transportation projects. The House turned back a proposal to use general fund sales taxes for infrastructure work for transportation funding, an effort Norris said would have taken about $350 million from the general fund.

The House voted 60-37 in favor of the IMPROVE Act, which includes the combination of fuel tax and fee increases, with nearly every Shelby County lawmaker supporting it. In an earlier 38-58 vote, an amendment using sales taxes from auto sales failed.

The bill passed after more than 70 amendments were either withdrawn or defeated in a meeting that lasted more than five hours.

“This is a momentous day in Tennessee, as the General Assembly has voted to move our state forward on building the transportation infrastructure we need to remain competitive economically and improve the quality of life of our residents," Nashville Mayor Megan Barry said. "I want to thank the entire Davidson County delegation for voting in support of Governor Bill Haslam’s IMPROVE Act, which contained the critical local option component that will let voters determine the future of transit in the Nashville area.

“I want to especially thank Governor Haslam, House Transportation Chairman Barry Doss, Senate Republican Leader Mark Norris, House Democratic Leader Craig Fitzhugh, the Middle Tennessee Mayors’ Caucus, and the many other groups and individuals who worked hard to pass this bill. While there is still work to be done to reconcile the legislation, I am confident that Governor Haslam will have the opportunity to sign this bill into law.”

The plan will raise the gas and diesel taxes over three years, in addition to vehicle fees, and offset them with reductions in franchise and excise taxes on businesses, the Hall tax on interest and dividends and the food tax, cutting it to 4 percent from 5 percent. Funds from the gas tax would go to the state’s transportation fund and to cities and counties for road and bridge projects.

Rep. Joe Towns pointed out cutting the food tax “puts us in a competitive posture,” one that could keep people from going across the border to Mississippi and Arkansas to buy groceries.

Tennessee is “on a roll” economically and educationally and should avoid “tilting” in another direction, Towns, a Memphis Democrat, added.

“God forbid if something happens to our infrastructure,” Towns said. He argued that an economic downturn could affect the state’s ability to finish a $10.5 billion backlog in 962 road and bridge projects if it depends on the general fund to pay for them.

Memphis Democratic Rep. G.A. Hardaway voted against the bill after stating his concerns about its impact on “poor folks” in his district. Hardaway said he would work with the Haslam Administration in 2018 to ensure transportation spending goes toward ethnic groups and woman and to come up with a plan to phase out the food tax.

Rep. Ron Lollar, a Bartlett Republican, said he voted for an amendment that made the bill so it could be debated fairly but voted against the overall bill, noting his constituents oppose an increase in the gas tax.

Gov. Bill Haslam’s IMPROVE Act, also dubbed the 2017 Tax Cut Act, carried by Rep. Barry Doss through the House, calls for a three-year phase-in of six cents on the gas tax, pushing it to 27.4 cents per gallon and 10 cents more on the diesel tax, raising it to 28.4 cents per gallon. In addition, it would place a $100 fee on electric cars, add $5 to the state’s vehicle registration fee and give local governments the option to raise a set of six taxes to pay for mass transit projects through voter referendum.

To offset those fuel and vehicle fee increases, Doss, a Lawrence County Republican, told lawmakers the combination of reductions in business, Hall and food taxes would total more than $400 million compared to a $350 million increase in fuel taxes and vehicle fees, he said.

“It’s creating an environment in Tennessee where businesses want to be,” Doss said, telling lawmakers cuts in business taxes will lead to more jobs and higher pay.

The plan ran into heavy opposition from lawmakers who contended it would hurt the middle class, forcing them to pay for decreases in the franchise and excise taxes as well as the Hall tax on interest and dividends.

“The only way to get this money is to put it on the backs of the hardworking people of Tennessee,” said Rep. Jerry Sexton, a Bean Station Republican who has accused House members of “hypocrisy” for backing the proposal and “ramming” the plan through the committee process.

More than 70 percent of Tennesseans say they do not want the tax, Sexton said. Twenty-four companies will pay $1 million less in franchise and excise tax, while working families will see only $2.19 extra each month.

“They’re going to foot the bill for the Hall income tax and the F&E tax. I’m for cutting the Hall tax and F&E tax but not on the backs of hardworking people,” Sexton said.

Other opponents also called the fuel taxes a “dinosaur tax” because of increasing vehicle mileage and other factors, such as lower taxes in surrounding states.

“I really feel like this is going to be a Band-Aid, I really do,” said Rep. Ryan Williams, chairman of the House Republican Caucus.

Opponents such as Rep. Andy Holt, a Dresden Republican, was among those saying the Legislature should use its surplus - $1 billion in one-time funds and about $970 million recurring extra funds – instead of raising fuel taxes and motor vehicle fees.

Holt said he favors cutting those taxes but through separate legislation, a move Doss said he opposes.

“What I am opposed to is increasing gas taxes at a time of economic surplus when people don’t want it,” Holt said, noting voters will remember the increase when they go to the polls.

Doss, though said, “While we’re having a surplus is the exact time to solve our infrastructure problem.”

The Lawrence County Republican also pointed out about half of the transportation funding would be paid for motorists and truckers who travel through the state.

Rep. Mike Carter, an Ooltewah Republican, argued that changing the franchise and excise taxes to a single-weighted formula is crucial to helping Tennessee draw employers and keep workers from leaving the state.

He pointed out Polaris was set to invest $100 million and create 2,500 jobs in Clarksville but opted to go to Alabama because its business taxes are lower. Another company in the Chattanooga area also was forced to send more than 100 highly-paid employees out of state because of the effect of franchise and excise taxes, according to Carter.

“If we’re going to cut somewhere, that’s where we cut,” Carter said.

He called the combination of fuel tax increases and tax reductions “Washingtonian” but ultimately supported the measure.

The proposal by Rep. David Hawk, a Greeneville Republican, to net about $335 million annually for transportation would have taken a percentage of the sales tax on vehicle sales, instead of using a gas-tax increase.

“We are bringing forth a common-sense approach to better fund what we have deemed a priority,” Hawk said, arguing such a move would enable the state to increase money for transportation while living within its means. “This is an easy way to do it.”

Rep. Judd Matheny, a Tullahoma Republican, backed Hawk’s plan, saying it puts “predictability” into the funding and limits the growth of government by taking surplus money and plowing it back into the economy.

“The average voter doesn’t like this,” Matheny said of the gas-tax increase.

Sam Stockard can be reached at sstockard44@gmail.com.

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