Tennessee tax fight a warning to others: Tennesseans of all political stripes are taking sides on a proposal to implement a state income tax. Spenders have run up a huge $1 billion state budget shortfall

According to conservative Nashville radio talk-show host Phil Valentine, "TennCare is the monster that has wrecked budget after budget. It consumes an ever-increasing slice of the budget pie each year." The problem, claims Valentine, is that "[r]ecent data available on Medicaid and poverty rates show that about 86 out of every 100 poor residents nationwide receive Medicaid. In Tennessee, that number is a shocking 151 recipients of TennCare for every 100 poor residents." Valentine says that, according to his research, 25 percent of all Tennesseans are on TennCare.

The Tennessee Bureau of Investigation (TBI), the agency charged with investigating TennCare fraud, has pointedly avoided prosecuting any but those at the lowest level of allegedly rampant corruption. TBI Director Larry Wallace, who has been widely criticized as too political and against whom numerous allegations of corruption have been reported, allegedly was reappointed in 1998 because he kept a Sundquist relative from being prosecuted in a TennCare fraud case. The nominating committee, made up of members of the Tennessee District Attorney General's Conference, recommended TBI Deputy Director Jeff Long. But within moments of the committee's recommendation, Sundquist reappointed the free-spending Wallace without comment.

"At first," a source close to state government tells INSIGHT, "Sundquist tried to lead resistance to the runaway spending, but he did it all wrong. He then broke his word and tried to force a flat, state income tax down the throats of the legislators and the people. And he got just what he should have expected -- slammed up against a wall. Now he's not even leading." Tennessee House Minority Leader Steve McDaniel (R-Parker's Crossroads) puts the best face on it he can, saying: "The governor has tried in the past to lead with proposals, but this time he's left it up to us to resolve it"

And the state income-tax issue in Tennessee is not a partisan one. State legislators from both sides of the aisle have stood up against the measure. Democratic Reps. Tim Garrett and Ben West have joined with Republicans such as Sen. Marsha Blackburn and Reps. Mae Beavers and Charles Sargent to oppose the income tax, while leading Democrats such as Sen. Robert Rochelle have championed it. At the same time, many legislators seeking re-election are loathe to commit on the income-tax issue.

But Sundquist holds a lot of cards, and he's the one who has brought Tennessee to the brink of joining 42 other states with income taxes. He's also the one trying to pass the buck to the Legislature for a secret deal, say tax critics.

Sundquist is pressing the leadership in the General Assembly to cook the deal in advance and behind closed doors, say state Capitol insiders, because he doesn't want a repeat of the circus during the last special session called to resolve the budget crisis. But working it out in the dark violates at least the spirit of Tennessee's sunshine law, a highly placed but confidential source tells INSIGHT. The sunshine law dictates that all governmental bodies making official decisions must do so in a public forum, where citizens and the press are allowed to observe. This would be open and shut, say critics, except for vague provisions that give the General Assembly some leeway.