Impact of tax breaks kept confidential

The confidentiality granted state Department of Revenue records prevents legislators from learning whether the estimates used in adopting tax credit legislation are accurate, the executive director of the Fiscal Review Committee told lawmakers last week.

Krista Lee’s comments came in an annual report by committee staff to the watchdog panel, which is charged with overseeing the effectiveness of state spending in general, on whether the estimates on the cost of legislation presented at the time a bill passes — they’re called “fiscal notes” — prove true after a review in later years.

One of the bills reviewed was enacted in 2012, sponsored by Sen. Mike Bell, R-Riceville, and then-Rep. Eric Watson, R-Cleveland. Now recorded as Public Chapter 937 of 2012, it granted a tax credit of 1.75 percent on investments in an “environmental project” that exceed $100 million — provided the corporation taking the credit agreed to forego taking a separate tax credit for job creation.

At the time, Fiscal Review staff accepted a Department of Revenue estimate that the new law would cost the state $12.5 million, spread over a seven-year period, but save the same amount over the period because the company or companies would be foregoing the jobs credit tax break.

“It seemed odd,” Lee told the committee, that legislation would be needed for something that was “a complete wash” for both the state and the company or companies involved. So the staff picked the bill as one to review on the outcome three years later.

“What we found is, we still don’t know,” she said, though it appears “one or more” companies took advantage of the law.

Because taxpayer information is kept confidential under a separate state law, Lee said, the Department of Revenue declined to identify the company or companies using the law or provide any information on what has happened since it was put into place.

Responding to questions from Rep. Johnny Shaw, D-Bolivar, Lee declined to suggest a way to get around the problem, though expressing hope that “some resolution” could be found that would avoid putting the Department of Revenue in “a bad situation” while still informing legislators — and residents. One notion floated otherwise is to allow disclosure to Fiscal Review staff, provided that they are also bound by the same confidentiality restrictions imposed on Revenue staff insofar as identifying a taxpayer goes.

Other bills reviewed by staff on the accuracy of fiscal notes showed mixed results, though in the estimates made at the time of passage of legislation was generally, if not specifically, on target.

For example, the Department of Transportation contended in 2012 — and Fiscal Review staff agreed in writing the fiscal note — that setting up a “yellow dot” medical information program in Tennessee would not cost the state anything since federal grants were expected. The program calls for providing motorists with a decal containing a coded listing of medical conditions they have, which can be used quickly by emergency medical personnel in the event of an accident.

As it has turned out, that was correct. In fact, TDOT has actually received more federal grant money than anticipated — more than $150,000 in the first two years — and 50,000 “yellow dot packets” have been distributed, Lee said. On the other hand, she said it was suggested at the time that private donations to the progrram might be received — but none has been forthcoming.

Another example: A 2013 bill allowed TDOT to post bid requests for highway projects online rather than have them published in newspapers. The fiscal note at the time suggested this would save the state $261,000 per year. In 2014, it actually saved “about $200,000,” Lee said, and TDOT says there was no increase in the number of bids submitted for projects so that is “a good win for the Legislature.”