Extra money makes it harder to pass state budget

The state could have $300 million more than it expected in tax collections by the end of the budget year in June. And the same amount again is expected in projected revenue growth next year.

The governor proposed a 40-cents-per pack increase in the state’s cigarette tax before the state’s revenue bonanza became clear. He has since suggested a staggered hike ? 25 cents this year, and 15 cents the next ? to raise money for education.

But he’s having a hard time persuading Republicans to agree to the full 40-cents tax. Bredesen has rejected a Republican proposal to phase in a 30-cent tax over four years.

The unexpected extra money “kind of threw a monkey wrench into the whole process,” Bredesen said. Republican Senate Speaker Ron Ramsey agreed: “This would have been much easier if we hadn’t had the $300 million surplus.”

Under one scenario for resolving the impasse, Senate Republicans say they could agree to a cigarette tax ? as long as it’s less than 40 cents. In exchange, they would get a two-month holiday on the state’s 6 percent sales tax on groceries.

The sales tax holiday would apply only to this November and December, so it would be considered a one-time hit. The cigarette tax, by contrast, would come in every year, meaning the state could plan to use the money for recurring education costs.

But Bredesen appears as unenthusiastic about the food tax holiday as Republicans are for his full 40-cent increase in the cigarette tax.

“The road they’re headed down is like a teenager that finds himself with 20 extra dollars on Friday and just can’t wait to spend it,” Bredesen said.

The two-month food tax cut would cost the state about $130 million, according to Ramsey’s projections. Bredesen instead wants to place the bulk of the one-time money ? $200 million ? in the state’s rainy day fund. That’s on top of the $36 million he already earmarked for the reserve fund in his budget proposal in February.

Ramsey agrees that the state should sock away more money for the reserve fund, but that taxpayers deserve duty-free groceries in the last two months of the year. Ramsey said his Republican colleagues are adamant that any compromise would include tax relief.

“If they feel like they want to take money out of the reserve fund to give the tax relief, I will say that I think that is crazy,” Bredesen said. “But if they can get it passed, they will get it passed.”