When the Times Free Press reported on Dec. 29 the county school board's unanimous vote asking that the state fully fund the Basic Education Program, House Majority Leader Gerald McCormick of Chattanooga replied: "We would love to fully fund the BEP. But the money's not there."
But to paraphrase the Gershwins' lyric, "That ain't necessarily so."
The BEP is intended to ensure proper funding for K-12 schools, thus the board's request for $12 million over the current allocation of $133 million. McCormick's dismissiveness aside, state officials must look beyond the status quo.
Budgets are all about needs, priorities and funding but Tennessee's tax system complicates all three. It relies heavily on the sales tax to pay for most services, including education, corrections, and the construction and maintenance of roads and bridges.
Gov. Bill Haslam will present his fiscal 2016 budget to the General Assembly in February, and the debate could be contentious. Haslam and legislators know it's important to fund needs as fully as possible. Question is, do they have the will to do so?
The state Department of Revenue may not yet know whether the resurgent national economy will boost Tennessee's (and Hamilton County's) sales tax revenue. But the sales tax vulnerability to the national economy's boom-and-bust fluctuations means Tennessee needs a more reliable stream of revenue.
Question is, can Tennessee continue its heavy reliance on the sales tax as currently structured and maintain essential state services at the levels needed and the public desires?
Haslam's decision not to raise the sales tax is wise, given that we are one of 10 states with a high rate. And when counties add their own levies, the problem gets worse. Hamilton County's 2.75 percent rate means that citizens here pay a combined rate of nearly 10 percent. Worse, the tax is cruelly regressive: Low- and middle-income families pay a disproportionately higher percentage of their income in sales taxes than wealthier ones.
The situation is not entirely grim. The sales tax base could be expanded by eliminating some of the exemptions added over the years. Broadening the tax base would provide more revenue, reduce the tax regressiveness, and perhaps make it possible to reduce the sales tax rate.
But there is another potential problem: the expected effort by some legislators to repeal the Hall income tax levied on interest and dividend income from investments. The Hall tax is considered regressive for retirees but there's a stark fiscal challenge. The tax produced more than $156 million for the state in fiscal 2014 (and nearly $84 million for Hamilton County and cities here).
Pro-repeal legislators have an obligation to tell us how they would make up for the state's loss of that revenue. If they think the loss of that Hall income could be offset by reduced spending, that seems equivalent to putting the state budget under a pillow and waiting for the "budget fairy" to do his magic.
Repealing any exemptions would not be easy, and some, such as those for nonprofit organizations, are essential given their valuable work for the less fortunate.
However, in its 2003 edition of "The Structure of State Taxes in Tennessee," the Tennessee Advisory Commission on Intergovernmental Relations presented a timely warning:
There has been "little change in Tennessee's tax system over the past several decades aside from rate increases ... [but] dramatic changes in the economic environment within which the tax system operates. ... [T]he sales tax base is eroding ... and the future of business taxation also has an uncertain future." The state's taxation system has strengths and weaknesses, but the TACIR's analysis suggests more of the latter.
Michael Loftin is former editorial page editor of The Times.