Mark Humphrey, Associated Press
NASHVILLE, Tenn. — Republican Gov. Bill Haslam announced Tuesday that his legislative priorities for the year will include securing reductions in the state's estate tax and a small cut on the sales tax on groceries.
Haslam's stance marked a reversal from statements made over the winter that he didn't believe the state could afford tax breaks amid a tough budget situation.
Improving revenues have now made the tax cuts possible, Haslam told reporters after announcing his legislative agenda at the state Capitol. Lawmakers earlier in the day got to work on this year's legislative session, with Republican leaders calling for rapid adoption of redistricting proposals.
The governor's plan to increase the inheritance tax exemption on the first $1 million of estates to $1.25 million would affect about 200 taxpayers and cost the state $14 million in lost revenue. Haslam said his plan is to eventually raise the state exemption to the federal level of $5 million.
"There's a whole lot of people who used to live in Tennessee who don't anymore, because it's cheaper to die in Florida," Haslam said. "They're taking capital and creating jobs in other places."
House Speaker Beth Harwell, R-Nashville, applauded the governor's decision to begin chipping away at the estate tax.
"I think it's the right step to do," she said. "It really is a tax that hurts our ability to grow here in Tennessee, because people leave this state to avoid paying the inheritance tax."
The governor's call for reducing the state's sales tax on groceries from 5.5 percent to 5.3 percent would cause a loss in about $18 million in annual state revenues — or an average of about $2.84 annual savings per Tennessee resident. Haslam said he wants to reduce that tax to 5 percent in the next three years.
"That's the only way to really touch every Tennessean in a significant way," he said. "So we felt like it was important to do both at the same time."
House Minority Leader Craig Fitzhugh said he agreed with the efforts to reduce the both taxes, but noted that "far and away the one that has the most effect is the food tax."
The Ripley Democrat said his colleagues are still digesting other elements of the governor's agenda, including bills to change hiring and pay rules for state employees, create more cash incentives for businesses locating in Tennessee and give local school districts more flexibility on how they compensate teachers.
The administration would also change rules governing class size. Education Commissioner Kevin Huffman said the state would keep current classroom maximum, currently set at 25 students in elementary schools. But those schools would no longer have to maintain an average of no more than 20 students per class.
"They could take those savings and use it to pay for the kinds of things they think will improve student performance," Huffman said.
Officials with the Tennessee State Employees Association said they oppose Haslam's plan to do away with workers' rights to bump more junior colleagues in the event of layoffs or other staffing changes.
"There is honor in serving for longer and longer periods," said Robert O'Connell, the TSEA's executive director. "You say goodbye to all of the benefits of experience if you lay somebody off who's got the most experience."
Haslam said he also would restructure 22 state boards and commissions. The changes would include creating the position of executive director at the Tennessee Regulatory Authority that would be appointed by the governor.
Haslam's plan also would give the governor the power to name the executive director of the Tennessee Higher Education Commission, which oversees the University of Tennessee and Board of Regents systems.
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