- The Washington Times - Tuesday, June 13, 2000

It's no longer a question of whether Tennessee residents will pay higher taxes; it's merely a question of who takes the hit.
In a time of a economic expansion across the country, the home state of Vice President Al Gore is in increasing financial trouble.
A 1992 tax increase to fund education is paying for only a third of the program it is supposed to support, federal courts have ordered expensive improvements in the prison and mental health systems, and one of the nation's most ambitious universal health care programs is costing far more than anyone predicted.
"I still believe that taxes ought to be government's last resort, and I have not come easily to believe that Tennessee is at that point now," Republican Gov. Don Sundquist said in his annual state-of-the-state address. "But we are."
Mr. Sundquist, who was among the most popular governors in the nation when he was re-elected in 1998, now finds himself one of the most reviled. Despite his pledge not to impose a state income tax, Mr. Sundquist has proposed a 3.75 percent tax as part of a package to meet a budget shortfall of at least $300 million.
The move has been met with furious protests, angry ad campaigns and even occasional booing when the governor appears in public.
The state General Assembly has been less than gentle with the governor's proposal, even among Mr. Sundquist's fellow Republicans. Neither the House nor the Senate agreed to the new income tax.
Facing the difficult financial reality, however, both have backed new taxes and budget cuts, including a House proposal to impose a tax on energy and to boost taxes on alcohol and tobacco. The Senate is eyeing expanding certain business taxes and extending the sales tax to previously exempted areas.
"Those pro-government elites, those that favor big government spending, have chosen to grow government spending faster than personal income is growing in our state," said state Sen. Marsha Blackburn, a Republican from Brentwood and a leading critic of the governor's tax plan.
The two bodies met in a conference committee over the weekend in an unsuccessful effort to figure out how to raise revenue.
Hundreds of angry taxpayers besieged the state Capitol Saturday, driving their cars around the building and honking continuously for about seven hours as lawmakers met inside. A smaller contingent of protesters in automobiles surrounded the Capitol yesterday morning.
At the center of the tax debate in the General Assembly has been "TennCare," the 6-year-old universal health care system founded by Gov. Ned McWherter.
The $4.2 billion system has been wracked by problems, especially complaints from doctors and hospitals of late and inadequate payments. Blue Cross, the largest of the eight participating health maintenance organizations, has notified the state it will pull out July 1. That would be a huge blow since Blue Cross insured about half of the 1.3 million Tennesseans in the program.
"It's the worst-managed program I've ever seen," Hamilton County Executive Claude Ramsey, a member of the governor's task fore studying TennCare, recently told the Chattanooga Times.
It wasn't supposed to work this way.
At the time Mr. McWherter proposed TennCare, health care costs were spiraling, and many in government were looking to HMOs to reign in costs.
The Clinton administration proposed a sweeping national health care plan, similar to TennCare, but ran into widespread public opposition to the notion of nationalizing such a huge chunk of the private economy. The plan collapsed in Congress and played a role in the Democrats' devastating defeat in the 1994 congressional elections.
In the wake of that failure, the Clinton administration began looking at offering states more flexibility to use the existing Medicaid program, designed to offer health care to children and the working poor. The Department of Health and Human Services granted Tennessee a "waiver" to expand the program in 1994.
"We are looking at it very closely, because in conversations I've had personally with Governor McWherter, the idea that we could save money through better managing Medicaid and making health care available to the uninsured without lowering quality is exactly what health care reform is aiming to accomplish," first lady Hillary Clinton told the Memphis Commercial Appeal in late 1994.
"For the first time, we have the chance to provide affordable health coverage to every Tennessean without bankrupting our state," Mr. McWherter said at the time.
But now his successor, Mr. Sundquist, is struggling to save TennCare. He has proposed a series of management reforms and asked the General Assembly for $240 million to shore up the system. The bulk of that money will be to increase payments to health care providers.
The governor hopes the changes will lure Blue Cross back to the fold and draw in five new companies that have expressed interest in moving to Tennessee if conditions in TennCare improve.
"Where TennCare ran into problems is it grew so quickly," said Lola Potter, spokeswoman for TennCare. The state was rushing to sign up uninsured residents, and "I think we did some things that we know better now."
There have been some proposals to carve up TennCare, although none went very far in the General Assembly this year. But many members of the General Assembly are angry about the increasing cost one called it "a bottomless pit" and Republicans vow a spirited debate on the issue in the fall elections.
The $240 million payment to TennCare accounts for more than half of the budget shortfall, which the governor's income tax would address.
"TennCare is a major crisis within a larger crisis over taxes in Tennessee," Blue Cross President Tom Kinser told the Chattanooga paper.
The governor and TennCare officials, however, insist that universal health care is not to blame for the state's budget woes. If anything, they say, the program has saved the state money.
A new study by the state comptroller estimated that the old Medicaid program, in place before 1994, would now cost the state $1.3 billion per year, based on the rate of growth of the programs in other Southern states. Tennessee now pays $1.1 billion of the total TennCare cost, with most of the rest paid by the federal government.
And that $1.1 billion insures 1.3 million state residents, while the old system insured only 800,000 people.
"For all its faults and problems, TennCare has saved us money from the other system," said Alexia Levison, spokeswoman for the governor.
Instead, the fault for the state deficit lies with the outdated tax system, she said. The state government relies heavily on the 6 percent sales tax and a web of business taxes that date back to the 1920s.
Since the sales tax is the highest in the region, Ms. Levison said, businesses are encouraged to hide their profits by paying inflated salaries and bonuses, while consumers are encouraged to shop in nearby states.
Tax revenue from the sales tax and related business taxes has fallen steadily in recent years.
Meanwhile, the costs of other programs are straining the state budget. A 1992 education bill promised $1 billion per year in new education spending, but the half-penny increase in the sales tax designed to fund it has generated only $350 million per year.
Federal courts have taken over the state prison system, ordering millions of dollars in improvements and mandating the early release of prisoners. Prisons alone cost the state $400 million per year.
At the same time, courts have ordered improvements to state facilities to treat the mentally ill or disabled.
In addition to his income tax proposal, the governor has asked for a sweeping change in the sales and business tax system. He has proposed cutting the sales tax to 3.75 percent and dropping the tax on groceries. In return, however, he would extend the sales tax to services, which are currently exempt.
"Let's not wait for a financial catastrophe to do what we must," Mr. Sundquist said in a speech to sell his tax plan before the General Assembly rejected it. "We can see the iceberg up ahead, we have time to turn the ship."

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