Nashville: Loss of $15 million tax provision could deepen cuts

NASHVILLE — Bredesen administration officials said Wednesday they are faced with cutting another $15 million from next year’s budget after a provision that would end a tax break for certain family-owned businesses was pulled from the Revenue Department’s “technical corrections” bill.

“It leaves us with a $15 million hole in the budget,” Finance Commissioner Dave Goetz said, noting the state already is having to slash $468 million from Gov. Phil Bredesen’s originally proposed 2008/2009 budget.

Losing the $15 million will force additional cuts, Commissioner Goetz warned.

“We wouldn’t, in essence, be reducing 2,000 positions from state government already if we had an easy place to go,” he said.

Earlier, Senate Democratic Leader Jim Kyle of Memphis said the provision, known as Family-Owned Non-Corporate Entity, or FONCE, would be removed from the “technical corrections” bill, a term given to a traditional end-of-session catch-all economic development and revenue bill. The FONCE provision would have eliminated a tax break passed in 2000 for commercial real estate holdings for family-owned, limited-liability companies.

Senate Finance Committee members passed the bill after removing the FONCE section from it. The bill still raises about $12 million to $13 million in revenue, Revenue Commissioner Reagan Farr said.

Commissioner Farr said he will continue to work on a compromise or another revenue source and can use another bill to do so. But Commissioner Goetz said expressed doubt.

“We’ll see, but I don’t anticipate that really being likely at this point,” he said. “Weirder things have happened. It will be difficult to replace the anticipated funds.”

Sen. Kyle alluded to an army of lobbyists battling the FONCE provision, saying it had “gotten many people hired to be lobbyists in the state of Tennessee in opposition of said bill, and they have been working diligently to try to defeat that.”

Groups opposing the provision include the National Federation of Independent Business, restaurateurs and others. Gov. Bredesen earlier this week called the FONCE provision a “small loophole” for the wealthy, but Jim Brown, NFIB’s executive director in Tennessee, disagreed.

In other action Wednesday, Hamilton County lawmakers lined up to support Gov. Bredesen’s plan to use money from reserves and other budget cuts to create a $100 million economic incentive “contingency” fund for what Mr. Goetz has described as “some potential large economic-development projects.”

Chattanooga is on a short list of potential sites in Tennessee and Alabama for getting a Volkswagen plant. Gov. Bredesen earlier this week balked on saying whether the German automaker was a possibility in developing the fund proposal.

“I would certainly say on this $100 million (for incentives in the budget), the delegation from Hamilton County really, really ought to think long and hard about helping us with it,” he said.

Rep. Vince Dean, R-East Ridge, said he is backing the proposal.

“You’ve got to picture this as an investment and this would certainly be an investment in our community and the state as a whole,” he said.

Rep. Richard Floyd, R-Chattanooga, said, “we need a huge investment in that Enterprise South. And I hope and pray that we get it.”

Enterprise South is seen as a likely spot for a Volkswagen plant in Chattanooga.

While some legislative critics and state employees have criticized creating the contingency fund at a time of budget cuts, Sen. Bo Watson, R-Hixson, a Senate Finance Committee member, said it would “only be used in the event that a large economic opportunity presents itself to the state.”

“If there is a large economic development opportunity available to Hamilton County, of course, I would like to see that,” he said.

Sen. Andy Berke, D-Chattanooga, said, “I am committed to working hard to bring jobs to the district. And I understand what value that would bring to our entire state.”

Rep. Tommie Brown, D-Chattanooga, a House Finance committee member, said, “I certainly understand we’ve got to continue with the economic development. We’ve got to have jobs and create jobs and jobs that will pay livable wages, and that’s what they’re trying to do.”