Despite years of fruitless funding pleas and unproductive political wrangling, state higher education officials and some state lawmakers seem to share common ground on one issue.
The cloud of economic uncertainty hovering over Tennessee is not going to lift anytime soon.
“It is really hard for me not to become agitated whenever I discuss the financial condition of this state and the general assembly’s inability to do anything to fix the problem,” said John Gnuske, professor and economic research director at The University of Memphis.
While there is a widespread consensus among the general assembly that some sort of tax reform is necessary to bolster the state’s stagnant economy, local lawmakers said the political stalemate that stymied progress during last year’s unprecedented 62-day legislative session has carried over to this year.
Lawmakers are now faced with balancing a state budget that is currently $1.2 billion out of balance, and reforming the states tax structure to fill the growing financial void.
Lawmakers must also fill the $350 million hole left in last year’s budget, which led to deep budget cuts in social services and public priority institutions, such as public universities and colleges.
But with only a few days of floor activity left open to the general assembly, lawmakers and U of M economists said they doubt any effective tax reform measure will be passed before the session adjourns for the year.
“We need to make changes, but the way things are going, I do not think we are going to get it done,” said state representative Kathryn I. Bowers (D-Memphis).
The general assembly took this week off after a breakdown between the House and Senate during tax reform talks last Wednesday. The general assembly will reconvene on Feb. 25.
While lawmakers have narrowed the possible new tax plans down to eight, the only one that can help pull the state out of a financial crisis, according to Gnuske, is also the one that has been met with stiff opposition in the general assembly.
“An income tax is the only option (lawmakers) have,” said Gnuske. “They have nothing left to cut, and economically, it will be a driving force in generating the revenues needed for Tennessee.”
U of M business professor David Ciscel, in agreement with Gnuske, said that passing sweeping tax laws during an election year will be a hard sell in Nashville.
“Economically, (passing an income tax) is the only thing to do, but its not going to get anyone elected,” said Ciscel. “They’re just going to have to decide between what’s in the best interest for the state and what’s in their best interest.”
The budget package introduced last week by Gov. Don Sundquist includes a tax proposal that calls for the enactment of a flat-rate income tax and a reduction in the state’s reliance on the sales tax.
Currently, Tennessee is one of only six states that do not have a broad-based income tax. Instead, Tennessee relies heavily on a sales tax, which has grown into one of the highest sales-tax burdens in the nation.
“It’s not rocket science to figure out that the current tax structure does not work,” Gnuske said.
Tennessee is not alone in its deep financial troubles.
A report issued by the National Commission of State Legislators indicated that 46 states in the union are reporting pending budget cuts for the fiscal year 2002-2003.
However, most states have only begun to face statewide deficits, while Tennessee has been cutting funding for years and failed to prosper during the economic boom in the 1990s due to its tax structure, according to Ciscel.
“It’s the Tennessee three-step,” Gnuske said. “For every one step the state takes forward, they take another two steps back.”
In addition, lawmakers have been unable to reverse the economic downslide, despite working to correct the financial crisis for the last four years. Recently, lawmakers have introduced several bills for review solely to boost funding for higher education.
The bills include raising the gas tax by one cent and lifting the widely debated constitutional ban on a state lottery.
However, state lawmakers said the bills are not likely to get much attention this year.
“Everything has been put on the back burner until we can fix the budget,” said Senator Jim Kyle (D-Memphis).
For the time being, those bills are more of a “show-horse, than a workhorse,” said Kyle.
“A good indicator of the financial health of a state is its spending on education,” said Gnuske. “Education is usually spared from budget cuts, and that is certainly not the case in Tennessee.”
While higher education officials in the state are hoping to be spared from the budget ax next year, Charles Manning, chancellor of the Tennessee Board of Regents, said he has become “cautiously optimistic that lawmakers will miraculously find a way not to reduce spending for higher education.”
He also said that if lawmakers don’t find any new money to fund education, “a lot of things are going to come to a screeching halt.”
“I don’t think the citizens really understand the dire financial situation in the state, but hopefully when this new budget is passed, they might see the light,” said Gnuske.
