Tennesseethe Journal the Weekly Insiders Newsletter on Tennessee Government, Politics, and Business Vol
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TennesseeThe Journal The weekly insiders newsletter on Tennessee government, politics, and business Vol. 46, No. 49 December 18, 2020 State surplus, likelihood of 2nd federal stimulus boost outlook What a difference six months make. million to the state’s 345 municipalities and 95 counties. The outlook was dire when lawmakers left town after Under Lee’s initial proposal, the grants would have been passing an austerity budget in June. Yet tax collections limited to infrastructure, maintenance, utilities, public have since far exceeded expectations, with the general safety, disaster recovery, and virus-related expenses. fund surplus reaching $557 million through November. Those guidelines were later abandoned as the pandemic intensified, allowing local governments to use the Officials had warned that with various federal coro- money to make up for revenues lost due to COVID-19. navirus relief measures set to expire by the end of the calendar year, the bottom could fall out of the revenue Online sales tax. Revenue collections in Novem- stream. But now congressional negotiators appear close ber reflected economic activity in October, the first to striking a deal on another stimulus package that month for the state’s more inclusive requirements for could soften the expected blow to the state’s finances in online retailers to collect sales taxes on behalf of the the second half of the fiscal year. state. Previously, only companies with at least $500,000 in annual Tennessee sales were required to The evolving deal in Washington could include comply. The threshold has now been reduced to direct payments of up to about $600 and unemploy- $100,000, capturing a far larger number of retailers. ment enhancements of $300 per week, which could boost spending to the benefit of sales tax-reliant states The rules now also apply to third-party vendors sell- like Tennessee. Another $325 billion would got to small ing their wares through “marketplace facilitators” like businesses. However, talks about funds to backstop Amazon or Walmart. And local-option sales taxes are state and local budget shortfalls had yet to reach a being charged at the actual rate of up to 2.75% in the cit- breakthrough with the deadline for finalizing a deal ies or counties from which the items are ordered, rather approaching this weekend. than a uniform 2.25% set in the late 1980s. The original The challenge for Gov. Bill Lee’s administration will online sales tax requirements, which went into effect in be to keep lawmakers’ expectations in check as they wait October 2019, came just in time to capture the massive for the full economic effect to become clearer. And if the shift from retail to online sales during the pandemic. surplus is no longer expected to be eaten up by sluggish Total state sales tax collections were $122 million consumer activity, the governor will need to have a plan above November estimates and posted a 7.1% growth in place for spending down the extra funds in a way rate over the same month last year. Local-option sales members of the legislature find fair. taxes were up nearly 11% compared with the same year- Dumping the bulk of any excess collections into ago period, with 92 counties posting double-digit gains Rainy Day Fund reserves might be fiscally responsible, and just three posting negative rates: Davidson (-8%), but it wouldn’t do much for members eager to demon- Putnam (-7%), and Moore (-4%). strate to constituents how their legislative prowess is When the new online sales tax rules passed in March, converted into funds for their home districts. And legislative analysts projected they would generate $85 because the surplus is considered one-time money, it million in state revenues for the current budget year, couldn’t go toward recurring expenses like tax cuts or and $113 million a year going forward. An additional restoring the teacher and state employee raises that $38 million was estimated to go to cities and counties. were canceled for the current budget year. According to the Revenue Department, taxes collected There is support forming within the Cordell Hull from marketplace facilitators in November totaled $23 Building for disbursing a large chunk of any surplus million, while local governments received $8.5 million. through another grant program for cities and counties. It remains to be seen how much of the latest collections A similar arrangement approved in June provided $210 are driven by pandemic-related purchasing trends. THE TENNESSEE JOURNAL (ISSN 0194-1240) is published weekly except for one week in June, one in September, and Christmas week by M. Lee Smith Publishers®, a divi- sion of BLR®,100 Winners Circle, Suite 300, Brentwood TN 37027, 615/373-7517 or 1-877-826-5297. Periodicals postage paid at Franklin TN and at additional mailing offices. POSTMASTER: Send address changes to THE TENNESSEE JOURNAL, P.O. Box 5094, Brentwood TN 37024-5094. Copyright 2020 M. Lee Smith Publishers, a division of BLR. Photocopying or reproducing in any form in whole or in part is a violation of federal copyright law and is strictly prohibited without the publisher’s consent. Editor: Erik Schelzig ([email protected]) • Vice President/Legal: Brad Forrister • Editorial Coordinator: Savannah Gilman The robust online sales tax collections have been to drum up support for their own bids. Wilson, 75, told catching the eye of lawmakers and interest groups. The Tennessean his decision was influenced by a surgi- Before the COVID-19 crisis, some Republicans wanted cal heart procedure last week, though he has been mull- to use the new revenue to pay for a reduction in the 4% ing retirement for about five years. The comptroller, sales tax on groceries. But the economists credited the treasurer, and secretary of state are elected to their posi- so-called food tax with bolstering the state’s revenue tions by a joint convention of the House and Senate, an picture when consumers ended up spending more on arrangement laid out by the state constitution that has groceries during the pandemic while eschewing other long chafed members of the 33-seat upper chamber purchases at brick-and-mortar stores and restaurants. because it places it at a numerical disadvantage. More recently, state Sen. Brian Kelsey (R-German- Wilson. When Republicans gained a joint majority town) has floated the idea of dedicating online sales tax in the General Assembly in 2008, several candidates money to making up for revenue lost by local govern- emerged to become treasurer and secretary of state. But ments due to the elimination of the Hall tax on earnings there was only ever one GOP candidate for comptroller: from stock sand bonds. Meanwhile, the business com- Wilson, a former environment commissioner and later munity wants to ensure its calls for a reduction in the deputy to then-Gov. Don Sundquist. It didn’t hurt that state’s 6.5% excise tax on corporate income aren’t for- the independently wealthy Wilson had also been a key gotten. Apparently fading from the priority list, how- financial backer of successful Republican efforts to gain ever, is last session’s effort to cut privilege taxes for the a majority in the General Assembly. remaining professions required to pay them. Wilson, a lawyer and expert in taxation and finance, Jobs and income. The University of Tennessee served as the point person on those issues during Sund- estimates the state will lose 116,000 jobs this calendar quist’s second term, most notably for the failed effort to year. A report by the school’s Boyd Center for Business impose a state income tax in Tennessee. While Republi- and Economic Research projects a modest rebound in cans had long credited their rise to their rejection of the 2021, but warns pre-pandemic employment levels income tax, they didn’t appear very interested in re- aren’t likely to be restored until the third quarter of litigating the matter when they held a public interview 2023. Certain areas of the state economy could take lon- of Wilson while he was seeking the new gig. ger to recover, such as manufacturing and the leisure Wilson said he had acted on behalf of the administra- and hospitality sector. tion at the time, not himself. When asked what he per- Personal income grew 4.2% this year, though that is sonally thought about a state income tax, he replied he attributed to federal transfer payments like stimulus didn’t believe it was “appropriate for the people of Ten- checks and enhanced unemployment benefits. The UT nessee.” He wasn’t pressed about whether he had felt economists expect that rate to slow to 1.1% in 2021, the same way during the Sundquist years. though the report was prepared before the prospects of Since taking office, Wilson has brought a humorous another round of stimulus checks became likely. touch to the job, often referring to himself as “your Farewell to the beloved beloved comptroller” and defraying pointed questions Wilson won’t seek seventh term as from reporters by jokingly calling them “truth-seekers.” Wilson and Mumpower, 47, often sport matching cos- comptroller, endorses Mumpower tumes and delight lawmakers by delivering pizzas to the When the 112th General Assembly convenes next floor during the last days of the session. month, one of its first tasks will be to elect a successor to Election. While the top job in the Comptroller’s Comptroller Justin P. Wilson, who announced he won’t Office pays $209,520, Mumpower’s current compensa- seek a seventh term. Wilson is endorsing his deputy, tion is hardly paltry: The deputy makes $191,400 per Jason Mumpower, to become just the fourth person to year — just $7,400 less than the governor.