State: McKay backs off tax reform

TALLAHASSEE -- Senate President John McKay on Tuesday pulled the plug on a plan to eliminate $1-billion in tax exemptions to fund education, but held out hope for significant tax reform this year.

It was the first sign of a breakthrough in a stalemate that has overshadowed every other issue in the 2002 Legislature.

Senators said a projected growth in tax collections from the unexpected economic rebound, along with shifts in some other accounts, allows the Legislature to increase school spending by $880-million without a controversial plan to kill tax breaks.

Sen. Don Sullivan, a St. Petersburg Republican and chairman of the budget subcommittee on education, said the extra revenue would produce a 6 percent increase for schools.

"I wanted education to be funded adequately, and with about $800-million we can fund education at a level so we can get through next year," said Sullivan, an architect of the plan to eliminate exemptions.

Last week's rosy revenue projections followed closely a decision by Senate Majority Leader Jim King, R-Jacksonville, the next Senate president, to oppose lifting exemptions, which he saw as a tax increase. King's decision slowed momentum for the plan, which was increasingly looking like a Democratic plan. The new revenue estimates offered senators a way out.

McKay brought the Legislature to a virtual standstill by insisting on an ambitious plan to ask voters to lower the sales tax from 6 percent to 4.5 percent and replace the lost revenue by removing nearly 100 exemptions. The governor opposed that plan, and the House soundly defeated its own version.

Still, McKay would not concede that his crusade is a lost cause. "Our desire is for significant sales tax reform," McKay said.

Lt. Gov. Frank Brogan has been looking for a solution to the tax issue, shuttling between House leaders and a McKay loyalist, Sen. Ken Pruitt, R-Port St. Lucie.

Brogan floated the idea of eliminating all tax exemptions over 10 years, but House leaders dismissed it. Like many business lobbyists, the House opposes the so-called sunsetting because it means exemptions would automatically die unless the Legislature keeps them alive.

"At this point, we have no agreement," Brogan announced at mid afternoon. House leaders, he said, "are just not amenable to the notion that you sunset all exemptions."

Gov. Jeb Bush and House Speaker Tom Feeney offered the Senate words of encouragement. But a budget deal at this late date probably means the session won't end on time March 22.

"The Senate has in front of it the chance to recast their budget with the new money that has come in and accomplish the objective that they want, which is a good one -- to increase funding for public education," Bush said. "They can take that concept and run with it and declare victory."

Bush has been uneasy about a bitter family feud among the Republicans who run the Legislature and how that might play out on the campaign trail.

The revenue experts last week said Florida would collect $644-million more than expected this fiscal year and next thanks to an improving economy. The rest of the new money would come from dipping into reserves and what McKay called "a little bit here, a little bit there."

Most of the new money, however, won't necessarily be there next year. That is the cornerstone of McKay's argument to restructure the tax system. He seeks to reduce the dependency on purchases by tourists so it becomes more stable and less prone to ups and downs.

"It's not a good way to run an airline," McKay said.

The budget stalemate appears likely to throw the legislative session into overtime. With eight days left in the 60-day session, the two chambers are not close to setting up the conference-committee process needed to resolve differences between their respective budgets.

The Senate is scheduled to take up the budget Thursday, with a final vote scheduled early next week.

Sullivan claims the Senate still has 21 votes to pass a one-year repeal of tax breaks, but added: "There was concern that we would not have as many Republicans voting for it as we would like."

About twice as many Democrats as Republicans were willing to repeal tax exemptions for skyboxes, lobbying, management consulting and other services.

Senate Democratic Leader Tom Rossin, D-Royal Palm Beach, assailed Bush and Republican legislators for a lack of leadership. He said the problem will be back in lawmakers' laps again next session.

"They're trying to get out of the ditch at this point. That's all they're trying to do," Rossin said of the Republicans.

-- Times staff writers Anita Kumar and Alisa Ulferts contributed to this report.

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