IMPROVE act nurtures unintended consequences


The much debated IMPROVE Act that emerged from the Tennessee General Session this year that targeted sustainable infrastructure funding has some smaller municipalities scrambling with the reality that the tax cuts in the bill impact their discretionary spending. Locally, the City of Whitwell has certainly crunched the numbers to discover that the net effect on their budget, as the law stand right now, actually increases the total revenue from the state, but dramatically reduces the discretionary funding.

In the top of the 110th Tennessee General Assembly earlier this year, a Governor Bill Haslam-driven legislation sought to increase and maintain revenue for the state’s aging infrastructure. The IMPROVE (an acronym for Improving Manufacturing, Public Roads, and Opportunities for a Vibrant Economy) Act was intended to increase fuel taxes in the state with that additional revenue to be specifically earmarked for roads, bridges, and other infrastructure goals. Suffering a profound blowback from legislators and constituents, the bill was amended to include several tax cuts including sales taxes on food and the complete phase-out of the Hall Tax. The hiccup comes when those tax cuts’ impact on community revenues are calculated end up hurting more than the road money was helping.

State representative Rick Tillis (Diet 92) spoke to the proposed changes to the existing law. Tillis began, “The Hall Tax was a tax on returns of investments, so the legislature has been chipping away at that since 2016. That affects the local cities because they get a percentage.” Tillis went into the proposed fix. “So what Barry Doss is proposing is taking a certain percentage of sales tax and giving it directly to the cities to help replace the tax cuts that the state took away from them. So, we’re reducing taxes, which is good, but we’re looking at ways to replace the tax that the state affected without raising any taxes. The current proposal seeks to divert existing tax revenue from the state sales tax to, at least, soften the blow that some municipalities are taking.” Doss was the sponsor of the original IMPROVE Act as well as the apparent spearhead of the proposed supplemental legislation. Reportedly, Doss’ proposal also includes taking five percent of the current fuel tax allocations and distributing it on an equal basis to municipalities. As it stands today, the total allocation of the gas tax is contingent on a per capita basis. This component seeks to carve a small percentage to be distributed equally between municipalities.

The City of Whitwell explored the impact of the original legislation and learned that the gas tax revenue would yield the city over $16,000 for roads. However, they show that they will lose $15,903 in other funding as a result of the tax reductions incorporated into the IMPROVE Act. Because of the specificity of the use of the gas tax on roads, the net surplus is almost irrelevant because the reduced revenue would have been in discretionary spending for the city.

The official language of the proposal is still being ironed out. Legislators are keeping an eye on the proposal and look to move on it in the bottom of the legislative session which starts in January.