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March 22, 2017 12:00 PM, EDT

Tennessee Gov. Bill Haslam's Gas-Tax Bill Advances Through House Panel

Office of Gov. Haslam/Flickr

Republican Gov. Bill Haslam's plan to recharge Tennessee transportation spending with the state's first gas-tax increase in 28 years inched through a key House panel March 21 after two hours of heated debate.

The bill, which borrows heavily from the Senate Republican version, includes cuts to the state's sales tax on groceries, corporate manufacturers' taxes and taxes for wealthier Tennesseans through cuts to the Hall income tax on stock dividends and interest.

After a two-week delay that already has thrown consideration of Haslam's state budget off course, House Transportation Committee members voted 11-7 for the governor's IMPROVE Act.

The governor's effort to raise new funds for transportation, which pays for interstate, highway and bridge construction, as well as maintenance through a dedicated fund derived from fuel taxes, has been complicated all along by huge surpluses in nonhighway taxes that feed the state's general fund.

Senate Republicans insisted he do a tax swap cutting surplus taxes. In the House, a hard-right faction balked at raising taxes at all and has fought to fund road improvements with excess sales tax revenues.

GOP senators' views largely have prevailed. The cuts now include a 20% reduction in the existing sales tax on groceries, bringing the rate down from 5% to 4%, more than Haslam wanted.

There are other cuts to corporate income taxes for manufacturers and the Hall Income Tax on more wealthy Tennesseans. Another provision in both bills would restore some state aid on local property taxes for veterans and the elderly.

"Praise Jesus, we've got more money than what we need, but we have to go raise taxes to fix our roads," charged Rep. Jerry Sexton (R-Bean Station), who voted against the measure. "That's sad, isn't it? I just hate that so bad."

Sexton said it's a "farce" to argue that tax cuts in Haslam's package are larger than the fuel-tax increases. He also warned that with a Republican governor and GOP control of the House and Senate, people will know "when you go to pump, Republicans did it to you. Don't blame the Democrats."

Earlier this week, Haslam and Senate Republicans got a boost from Americans for Tax Reform chief Grover Norquist, who said the dollar value of the tax cuts represented a net reduction in levies even with the fuel tax increase.

The bill raises the gas tax by 6 cents per gallon to 27.4 cents and diesel by 12 cents to 30.4 cents. That's less than Haslam originally requested.

During the March 21 hearing, Republican critics tried to counter Haslam and his supporters' arguments that roads need to be funded by fuel taxes because they are in effect user fees. So an amendment offered up by Rep. Dale Carr (R-Sevierville) sought to divert some $360 million in sales taxes from vehicle sales.

That drew a critique from Rep. Eddie Smith (R-Knoxville). Smith pointed out that fuel taxes, which pay for projects as it goes and issues no bonds for them, largely remained stable during the 2008 recession and its aftermath. Vehicle sales plummeted, he noted, saying relying on that revenue was no way to pay for roads.

Carr's amendment failed. However, an amendment that would lift the fuel-tax increases if the Republican-controlled Congress raises federal fuel levies did pass.

The bill, as it  stands, would raise an estimated $250 million for Tennessee to help tackle an estimated $10.5 billion backlog of 962 interstate, highway and bridge projects.

Cities and counties would, respectively, see $35 million and $70 million.

Earlier March 21, the Senate State and Local Government Committee unanimously approved the transportation bill to the Senate Finance Committee, its last stopping place before coming to the House floor.

The committee added one new provision. It would allow the state's 13 largest counties to hold public referendums asking voters to approve measures to raise money specifically to pay for transit projects.

With the House and Senate versions now largely the same, supporters were breathing a little easier.

Earlier, Haslam told reporters it would be helpful if the two chambers' bills were substantially the same.

"If the bill takes two very different forms, one in the Senate and one in the House, I think that's a dead end," the governor said. "I would like to get it in the best form now and get that passed."

Meanwhile, the governor said delays in the bill already have prompted his administration to postpone releasing final changes to his original budget proposal because of the uncertainty hovering over the legislation involving hundreds of millions of dollars.

The release of the budget amendment was scheduled for the week of April 4.

"There's just too many things that impact the budget," Haslam told reporters after addressing Tennessee Farm Bureau Federation members, who have endorsed the transportation plan. "It all depends on what the path from here looks like."

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