NASHVILLE — Republican Gov. Bill Haslam on Wednesday proposed hiking Tennessee gas and diesel taxes for the first time since 1989.
The governor argued the proposed increases will help provide $278 million more a year in new funding needed to cut backlogs on maintenance and new construction on hundreds of road, highway and bridge projects statewide.
But in an effort to get fellow Republicans in the GOP-run General Assembly on board in light of huge state surpluses in non-transportation revenues, the governor is also recommending a corresponding $270 million in cuts.
The governor is asking for a 7-cent-per-gallon boost in the state's gas tax, pushing the current 21.4-cent levy to 28.4 cents per gallon. He wants a 12-cent-per-gallon boost for diesel, which is now 18.4 cents per gallon.
Another provision would match future price increases every two years to the Consumer Price Index, a measure of inflation, increase car registration fees by $5 for the average passenger car, a new 3 percent charge on rental cars and a new $100 fee on electric vehicles.
Cities would allow voters to decide whether to increase local sales taxes to pay for mass transit projects, a burning issue in Middle Tennessee.
At the same time, Haslam is recommending a 0.5 percent sales tax cut to the current 5 percent sales tax on grocery store food purchases.
And he wants to retool corporate taxes to accommodate major manufacturers such as Chattanooga-based Volkswagen and McKee Foods in Collegedale, making the state more attractive to new companies.
Another Haslam objective: Accelerating a previously approved six-year phase-out of the Hall Income Tax on interest and dividends.
The governor hopes to accomplish all of this through a single bill, which he calls the IMPROVE Act. That stands for Improving Manufacturing, Public Roads and Opportunities for a Vibrant Economy.
But Haslam acknowledged it won't be a slam dunk, and criticism is already coming from some quarters for different reasons.
"Hard stuff is hard to do, and I recognize that this is not an easy thing to do," Haslam said. "But I think that people understand that we have to do something."
Republican House Speaker Beth Harwell and Republican Senate Speaker Randy McNally issued statements praising the tax cuts but not specifically endorsing the proposed gas tax increase.
A potential 2018 candidate for governor, Harwell said she was "grateful" Haslam wants to cut taxes while also "calling attention to our infrastructure needs and today putting forward a plan to address them."
McNally said Haslam's plan "does what Republicans do consistently: It cuts taxes." The transportation aspect "attacks the funding issue in a responsible way," McNally said.
But the gas tax proposal is already coming under attack from Andy Ogles, head of the Tennessee chapter of Americans for Prosperity.
"I think at a time we're hitting a $1 billion surplus, we should be looking to cut taxes," said Ogles, who along with other groups successfully torpedoed Haslam's 2015 proposal to expand Medicaid.
Ogles said AFP-Tennessee will come forth with a different spending plan, part of which includes spending $2 billion on roads over the next 10 years with, he added, no tax increase.
"It's time to start returning that money to taxpayers, not looking for ways to continue to steal from taxpayers," Ogles said.
Rep. Gerald McCormick, R-Chattanooga, said last week that he was no fan of a gas tax increase. In terms of cutting taxes, McCormick, now chairman of the House Budget Subcommittee, said "I would lean towards sales tax so that the poor people can get the tax breaks just as the rich people."
Senate Minority Leader Lee Harris, D-Memphis, said while he is initially "encouraged by the cut to grocery taxes, which is the kind of broad-based reform that has the potential to give some relief, albeit minor, to all Tennesseans," he takes issue with the $102 million in proposed cuts to the Hall Income Tax on dividends and interests.
Those cuts, he said, "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."
Meanwhile, the Tennessee Chamber of Commerce, other local chambers, individual businesses, organizations of county mayors and county commissioners, as well as the Tennessee Municipal League, the Tennessee Trucking Association and road builders, are among those joining together to promote Haslam's overall plan.
Haslam estimates the state has a $6 billion backlog of previously approved projects and about $4 billion more in needs that will take decades under the current funding structure. Moreover, he said, Tennessee's 21.4-cent gas tax (1.4 cents goes to general government for fuel pump inspections and environmental work) is effectively worth 11 cents now, due to inflation.
But costs of building roads have soared even as motorists get far better mileage and pay less at the pump.
A state Transportation Department list shows 22 needed projects alone in Hamilton County, totaling an estimated $626.1 million. Among them is an estimated $171.5 million plan to add another lane on the often-jammed section of Interstate 24 near Interstate 59 in Georgia as I-24 moves east around Lookout Mountain to downtown Chattanooga.
Another plan on the table is the $65 million modification of the I-24/I-75 interchange in Brainerd and East Ridge.
Meanwhile, state Economic and Community Development Commissioner Randy Boyd said changes to the state's excise tax on corporate income are needed because it affects manufacturers, including massive auto companies such as Volkswagen in Chattanooga.
The tax is out of step with other states, Boyd and Haslam said, noting that among surrounding states, the state's reliance on a triple weighting of sales in calculating company income makes it the highest.
Some companies are bypassing Tennessee because of its excise tax, Boyd said.
The formula change would cut corporate taxes by $113 million. Haslam also is calling for trimming the state's sales tax on food sold in groceries by a half percent, affecting millions of Tennesseans. It brings the tax from 5 percent to 4.5 percent, resulting in a $55 million revenue reduction.
Contact staff writer Andy Sher at firstname.lastname@example.org or 615-255-0550. Follow him on Twitter @AndySher1.