Legislators are weighing Gov. Bill Haslam’s proposal to raise fuel taxes at the same time they raise concerns about a slight cut in the grocery tax, further impact on local governments of a Hall tax break and a proposed major business tax reduction.

“Nobody’s bought into anything yet,” says Rep. Ron Lollar, a Bartlett Republican who chairs the Shelby County legislative delegation.

Lollar says the governor made a strong presentation to legislators before making his pitch to the public, especially by saying an increase in fuel taxes would hit those who drive through Tennessee as well as state residents.

But Lollar says he needs clarification on where the state stands in regard to business taxes, and he’s concerned about the effect a further Hall tax cut would have on local governments.

“When you start mandating for cities and pulling (funds) away from the cities, you leave them no choice,” Lollar says.

Nashville Mayor Megan Barry applauded the governor's plan.

“I appreciate Governor Haslam’s leadership on the issue of transportation infrastructure in Tennessee and the inclusion of a local option for voters to approve dedicated transit funding in his legislative package," she says.

"I believe Nashvillians are willing to pay for a mass transit system that meets the needs of our growing community if given the chance to make that decision. Over the coming weeks and months, we will continue to advocate on behalf of Governor Haslam’s comprehensive transportation legislation that will keep Nashville and Tennessee moving forward.”

After two years of study, Haslam introduced the IMPROVE Act to an overflow crowd in the old Tennessee Supreme Court chamber, a combination of $270 million in annual tax cuts and a comprehensive set of fuel-tax changes expected to bring in $278 million and start carving into a road project list now estimated at $10.5 billion.

The plan would tack seven cents on Tennessee’s 21.4-cent-per-gallon gas tax and 12 cents on the state’s 18.4-cent diesel tax, in addition to adding $5 to registration fees for the average car.

The proposal also would put a yearly user fee on electric vehicles and increase charges for vehicles using alternative fuels. A 3 percent charge would be placed on rental cars, and the Legislature would need to amend state law and prohibit open containers in vehicles to tap $18 million in federal dollars the U.S. Department of Transportation is withholding.

One of the biggest sticking points could be a measure to tie fuel taxes to the Consumer Price Index to keep up with inflation, though the amount would be capped. Several legislators said the package has so many “moving parts” it is difficult to digest.

But Haslam held out a carrot to local government leaders by offering a method for holding referendums to raise funds for local transportation and mass transit projects.

In order to sell his plan to Republican legislators, Haslam hopes to cut half a percent on the 5 percent grocery tax to bring in $55 million, reduce franchise and excise taxes on businesses by a total of $113 million and trim the Hall tax on investments by 3 percent over the next two years to net another $102 million. The Hall tax is to be phased out by 2022.

Sen. Lee Harris called the governor’s proposals on infrastructure and public transit “encouraging.”

“Democrats and many others have been pushing for solutions to solve our road issues,” Harris said. “In my county alone, the state has $874 million in backlogged road projects, like the Lamar Avenue project, which has been shovel-ready for 15 years.”

The minority party also filed bills previously to expand public transportation by giving local governments options to raise revenue, Harris said, pointing toward Haslam’s endorsement of the idea.

Harris said he is pleased by the plan to cut grocery taxes, as well, calling it “broad-based reform” with the potential to give Tennesseans some relief, although he called it “minor.”

Further reductions in the Hall tax are expected to “raise concerns” for local governments statewide that depend on that money for law enforcement and other vital services, he says.

“Unlike cuts to taxes on groceries, Hall income tax cuts only help a very limited number of individuals, around 4.3 percent of Tennessee households and, in some counties, like mine, less than 1 percent of households pay the tax,” Harris says.

Germantown was reaping anywhere from $2 million to $2.8 million annually from the Hall tax, which it put back into capital improvement projects such as roads, bridges, drainage and parks. It represented 12 to 15 cents on Germantown’s property tax of $1.935 per $100 of assessed value.

Mayor Mike Palazzolo previously said, “About 82 percent of our property is residential, so when we look at revenue streams we’re dependent on, if we lose one, we would have to go to our core, and that would be the property tax.”

Making his argument

Haslam contends, because of better performing vehicles and inflation, Tennessee motorists are paying only about half the amount they did when the gas tax was passed in 1989. The average driver will pay only about $4 more a month, he says.

Even though the state is expected to have a total of $2 billion in recurring and non-recurring surpluses this year, Haslam says a comprehensive plan is needed to secure transportation funding for the long term.

“We’ve lowered the cost of government and experienced revenue growth so we’re lowering the cost of food and bringing business taxes on manufacturers more in line with our neighbors,” Haslam says. “At the same time we have to ensure we have a transportation network that is not only highly ranked but also debt-free, just like it was given to us.”

The governor says all funds from the fuel taxes and fees he is proposing would go to the transportation fund for 962 projects in all 95 of the state’s counties, along with $39 million to cities and $78 million to county governments.

The fiscal 2017-18 budget also would contain $120 million to pay back the transportation when funds were taken from it by former Gov. Phil Bredesen to balance the budget in 2007.

Transportation Commissioner John Shroer says the fuel tax increase would enable the state to start on and complete $10.5 billion worth of projects over the next decade or so.

“Without that money, it will take decades to make that happen,” Schroer says.

The con

Andrew Ogles, executive director of Americans for Prosperity, a conservative group opposing Haslam’s plan, says he will offer a plan to bolster the transportation fund without raising taxes.

At the same time, Haslam says franchise and excise taxes need to be reduced to make Tennessee more competitive in economic recruiting. He contends the state is “increasingly at a disadvantage when recruiting companies” and said the state lost five to six potential deals within the last few months.

Lollar says that argument runs counter to claims within the last couple of years that Tennessee ranks third or fourth in the nation as the most sought-out state by industries.

“Now we’re hearing companies won’t come to Tennessee because the taxes are too high,” Lollar says.

Sam Stockard can be reached at [email protected].