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Tennessee Real Estate Tycoons Enjoy $45 Million Tax Loophole While State Revenues Crater


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Raising taxes has never been a fast track to success in politics. But it's getting a little ridiculous when state lawmakers refuse to make commercial real-estate tycoons pay their fair share, especially during an economic meltdown when budget cuts are threatening sick people and college students.

Those wealthy developers enjoy tax breaks that cost the state $45 million a year, thanks to what Gov. Phil Bredesen rightly calls "a fairly outrageous loophole" in the law.

Revenue Department surveys show 2,700 businesses are structured as "family owned non-corporate entities" to take advantage, escaping corporate taxes on roughly $5 billion in property and $500 million in profits.

The governor tried to close this loophole to mitigate the previous round of budget cuts at the end of the last legislative session. A couple thousand state employees lost jobs, pre-kindergarten kids lost classrooms, the medically needy lost drug insurance and the state's natural lands lost protection.

Fat cats, however, emerged unscathed as Democrats and Republicans joined together in a rare display of bipartisanship to save rich people's money.

Bredesen isn't giving up, vowing to make closing the loophole one of his priorities in next year's session to help stave off more state layoffs.

"Obviously in this environment, anything we can do to protect the tax base becomes even more important," the governor said during his gloomy, just-completed budget hearings. "It would be sinful to lay off people so that this exemption can be preserved."

Bredesen is grappling with a budget shortfall that's expected to hit $800 million. It's gotten so serious there's talk of closing a prison. The governor has ordered department heads to cut their operating budgets by as much as 15 percent.

That means $1 billion from TennCare, the state's Medicaid program. Already, administrators are restricting nursing care to some of the sickest people on the health insurance rolls ("Bredesen targets Tennessee's sickest people again in budget cuts," Nov. 5).

Universities face unprecedented reductions. The higher education system is $90 million below last year's funding, with more cuts on the way. Officials are considering laying off faculty and staff and eliminating classes. Tuition increases are certain. The University of Tennessee's veterinary college might lose accreditation for lack of money.

The state is yanking away a "safety net" for about a thousand severely mentally ill people who are being bounced off TennCare. Bredesen was taken aback during the budget hearings when Mental Health Commissioner Virginia Trotter Betts asked for $27 million for that service.

"Let me just cut to the chase on this thing," he told Betts. "I don't have $27 million to give you, so you can forget about that."

Betts apparently couldn't believe her ears and stubbornly launched into another sales pitch: "In this perilous time where individuals are losing jobs and losing health insurance, we think it's really important that we work really hard to try to find some way to have a safety net for individuals who are poor and otherwise uninsured."

"I agree," Bredesen shot back. "These are tough times. I've got a real problem. I don't have as much money as you want. I can't get around that problem...

"It will be bloody. You cannot do this by trimming a little here and taking away a little overhead there. You've got to stop providing some services you are providing some way or another. You can't get from here to there without doing that."

Under such dire circumstances, lawmakers should jump at the chance to close a gaping corporate tax loophole. But you can count on most Republicans to defend rich people's right not to pay taxes, and Democrats aren't likely to feel any differently about this one.

That's because these particular tax dodgers can afford to hand out campaign cash and hire influential lobbyists.

The Revenue Department won't disclose the names of businesses taking advantage of the loophole. But one of its most prominent beneficiaries is widely thought to be Jack May, the developer who owns Belle Meade Plaza and Belle Meade Office Park. He's the smart guy who wants to turn tranquil Bells Bend into a second downtown.

One of May's new best friends is state Rep. Gary Odom. In the last session, Odom was the main lawmaker responsible for killing the governor's attempt to close the loophole. Later, May and the rest of the Bells Bend development crowd gave campaign cash to Odom, who then gave it to Democratic lawmakers running for reelection, who then voted to make Odom their new leader in the House.

It doesn't take a genius to connect those dots or to predict that the loophole will stay open.


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