A Look Ahead to the 108th General Assembly

This week, the members of the new 108th General Assembly of the State of Tennessee convened in Nashville. With a Republican supermajority in control of both houses, this legislative session is expected to get off to a fast start and, with some high-profile exceptions like gun-related bills, to focus on efforts to further improve the state’s business climate and boost jobs growth. The bill filing cutoff date for both houses is projected to be February 14. Senate committees will start closing the last week of March. Senate and House leadership is hoping to conclude legislative business by April 19.

At the request of House Speaker Beth Harwell, with an eye towards increasing efficiency and reducing costs, members of the House have agreed to limit the number of bills filed to 15 per legislator with the exception of administration and budget bills. Additionally, Speaker Harwell restructured committees and announced new leadership assignments yesterday morning before adjourning for a two week recess.

Here are a few of the business-related issues we expect will be on tap this legislative session.

Workers’ Comp Reform

After putting off reform for one year and hiring consultants to make recommendations on the issue, Gov. Haslam will most certainly include workers’ comp reform in his legislative package. While the consultants’ report proposed major changes, it did not include a recommendation sought by some large employers that Tennessee adopt a law similar to one in Texas that would allow employers to self-insure or opt out of the workers’ comp program. The opt-out option is heavily opposed by the insurance lobby. While trial lawyers and organized labor interests will no doubt try to block most changes, they are unlikely to get their way on most issues.

Healthcare Legislation

There is a lot going on, including:

A. State Healthcare Exchange – In December, Gov. Haslam announced that, like most states, Tennessee will not create a state health exchange. The Governor indicated that he was unwilling to obligate the state to create and run its own exchange when many federal requirements have yet to be announced, and because of concern the state could be stuck paying for unfunded federal mandates. (He also indicated that a statewide exchange is a political non-starter in the legislature.)

B. TennCare Eligibility Expansion – Will Tennessee expand eligibility for the TennCare program to all persons up to 138% of federal poverty line? As a sweetener, the federal government promises to reimburse the state for 100% of the cost of expansion for the first three years, then to gradually reduce the federal share to 90%. While the expansion would benefit the state’s hospitals and healthcare industry, both Lt. Gov. Ramsey and Speaker Beth Harwell have said they are inclined to oppose expansion.

C. Hospital Coverage Assessment – As in past years, the Tennessee Hospital Association will seek passage of another “coverage assessment” to drawdown funds from the federal government to fund TennCare. Gov. Haslam’s 2013-14 budget proposal would keep the hospital assessment at its present rate of 4.52%. The assessment, when matched with federal funds, generates approximately $1.3 billion for the TennCare program. More than 40 other states use the same approach. U.S. Sen. Bob Corker, however, has proposed ending this practice as part of his larger effort to cut federal spending; he calls the assessment a “massive bed tax gimmick.”

D. Certificate of Need (“CON”) – The CON process that regulates the development of new healthcare facilities will also be under scrutiny in 2013. The HSDA will wind down in 2013 and sunset next year unless renewed by the legislature. Last September, the Senate Government Operations Subcommittee held a hearing on the CON process and determined that everyone is generally in agreement that the HSDA will be extended in the 2013 session for four additional years. While it was not directly stated, it is known that the battle is expected to occur over the substance of the CON law, specifically covered services. The group practice physicians want to make changes though it is unknown exactly what they want to change about the current CON law. The concern is that they may want to remove certain covered services from the purview of the CON program which may have the effect of eliminating the major function of the HSDA and the “heart” of the CON law.


A. Lower Sales Tax? – After signing bills into law in 2012 that repealed the gift tax, adopted a phase out of the inheritance tax, and reduced the sales tax on food by a quarter-cent, Gov. Haslam is expected to propose the reduction of sales tax on food by another quarter-cent. The cut would reduce the state tax rate on unprepared food to 5%.

B. More Income to Be Exempt from the Hall Tax? – Lt. Gov. Ramsey is likely to introduce a bill to further expand the exemption to the Hall income tax. The current exemption applies to seniors 65 and older whose total income from dividends and interest is less than $26,200 and to couples who receive less than $37,000 in total income. A complete repeal of the Hall income tax is unlikely to occur this year.

C. Will the Hotel Occupancy Tax Be Expanded? – Hospitality interests are expected to lobby for a law that would require third-party travel websites to pay hotel occupancy taxes on their service fees. Companies such as Priceline.com pay taxes on discounted prices they pay for hotel rooms, rather than on the final price paid by the customer. The issue came up last year after a U.S. District Court ruled that Tennessee’s current hotel occupancy tax applies only to the room rental rate, not to service fees, commissions or other charges related to hotel reservation expenses. Those who oppose expanding the tax argue that increasing Tennessee taxes on travel facilitators will make the state less competitive for travel and tourism and will give hotels an edge in price wars.

Spirits, Wine and Beer

In terms of marquee interest in the public’s mind, legislation to allow grocery stores to sell wine will be introduced again. The spin this year from the national grocery store chains is a local option referendum, allowing each county to decide whether retail liquor stores will lose their monopoly on the sale of wine in Tennessee.

Tennessee maintains, and has since the end of prohibition, a so-called three-tier system of distribution and sale of wine and spirits. Distillers (Jack Daniel, George Dickel and other smaller in-state distilleries) may sell only to licensed wholesalers who by law have brand monopoly in geographic regions. In turn, retail liquor stores and restaurants may purchase only from licensed wholesalers. Led by the retail liquor stores and supported strongly by the distillers and wholesalers, opposition to permitting the sale of wine in grocery stores is unrelenting.

In addition to the wine-in grocery-stores issue, the proliferation of craft distilleries may lead to the introduction of legislation to provide definition to the contents. For example, just what distilled spirit is in the bottle labeled “Tennessee White Whiskey?”

Education Reform 

Tennessee’s dismal K-12 public education performance is often cited as one of the biggest obstacles to the state’s long-term economic growth and quality of life. Expect these two education reform proposals to be the most significant of the year:

A. Statewide Authorizer for Charter Schools – Last year, Nashville parents, in cooperation with Mayor Karl Dean, local city council members and state officials, recruited the high-achieving nonprofit charter school operator Great Hearts Academies to open several of their public charter schools in Nashville. The Metro Nashville School Board defied state law to block Great Hearts from opening. Faced with damage to the state’s ability to compete with other states for the best charter school operators, and aware of the conflict of interest local school districts face when asked to approve public charter schools that local parents might choose over district-run schools, the legislature appears poised to grant charter schools the option to be directly authorized by, and accountable to, a state authority.

B. School Vouchers/Opportunity Scholarships – School choice advocates are hoping Tennessee will be the latest state to allow per-student public funding to follow each child not only to whatever public district or charter school in which he or she enrolls, but also to approved nonprofit private schools. While voucher proponents are expected to include multiple limitations to their proposed voucher program (e.g., limiting each voucher to a fraction of the per-student funding that a public school would receive, limiting student eligibility by parental income level, imposing objective accountability standards, etc.) expect this initiative to face the same intense opposition as did Indiana’s voucher program.

Guns-in-Trunks – Round Two

Last year, the “Guns-in-Trunks” bill (aka, the Safe Commute Act), proposed giving gun owners a statutory right to store their firearm locked out of sight in their personal vehicle when in employer and business parking lots – regardless of any objection by the lot owner. The bill quickly exposed the tension between gun and property rights within the Republican majority. After concerted opposition from the business community and the support of key Republican leaders, the measure was successfully blocked last session.

After gun-rights advocates, including the National Rifle Association, spent more than $78,000 to help defeat and make an example of the third-ranking Republican in the House, however, some version of the bill is certain to return this session. While the Connecticut school shooting has revived the national debate about gun control, it is unclear whether that discussion will dampen, or further fuel, support for an expansive bill. While Gov. Haslam has said that he sees no “big need” to change state gun laws and will not include any gun bills in his legislative package, many opponents of a bill expect that some version will pass; the real fight is expected to be over the breadth of the bill. The business community will continue to oppose any legislation that fails to include an opt out or posting option as well as exemption from liability. The race is on to see whether Lt. Gov. Ramsey or an informal task force of House members selected by the Speaker will file and pass a bill first.

Lawsuit Reform

The Tennessee Bar Association (TBA) and other plaintiffs’ attorney interests have indicated that they will push this year to roll-back recent tort reform provisions, including the law passed last year that changed the statutory interest rate of court judgments (not set by contract or agreement) from a fixed 10% to a rate linked to the published prime rate. Efforts to overturn the caps on punitive damages and subjective non-economic damages are now well under way, including in federal court in Nashville.

Lawsuit reform measures that may be introduced this year include:

A. Innocent Employer Act – to prevent employers who have committed no wrongdoing from being automatically liable for punitive damages owed by an employee; and

B. Actual Damages Act – to reform the collateral source rule to prevent plaintiffs from claiming as damages amounts that have been discounted or forgiven (i.e., can’t claim “list price” for goods or services; only the actual price paid or owed). Expect the TBA and other trial lawyer interests to fight tooth and nail to block this key reform.

Judicial Selection 

After years of controversy over the “Tennessee Plan” system currently used to select the state’s 29 appellate judges (including the five justices of the Tennessee Supreme Court), the legislature, in an effort to avoid partisan contested elections of appellate judges, appears poised to give the voters the option of approving an amendment to the state constitution that would implement a selection system like that required by the U.S. Constitution for the selection of federal judges – the modified federal plan.

The Amendment Resolution must pass this Session by a two-thirds vote in both houses in order to be placed on the November 2014 general election ballot for ratification by the voters.

Under the proposed Modified Federal plan, the Governor would appoint each appellate judge, subject to confirmation by the legislature. To prevent the legislature from stalling a nomination as Congress is prone to do with presidential judicial nominations, if the legislature does not veto or confirm a Governor’s nominee within 60 days of appointment, the judge would be automatically confirmed. Voters could then retain judges for additional terms in yes/no retention elections at the end of each term. Judicial terms would continue to be eight years.

This Session, expect heavy lobbying to pass the modified federal plan amendment and to determine what “gap” legislation will be used between now and the November 2014 general election.

Fairness in Ticketing Act

Entertainment industry powerhouses such as Ticketmaster, Bridgestone Arena, Ryman Auditorium, Grand Ole Opry, LP Field, CAA, CMA, and dozens of artists have joined forces as the Tennessee Sports & Entertainment Industry Coalition to introduce the “Fairness in Ticketing Act” in an attempt to regulate what some perceive to be as deceptive practices by scalpers and secondary ticketing outfitters such as StubHub.

Under the Act, a ticket would no longer be the purchaser’s personal property but instead become a “revocable license.” The legislation would authorize venues and promoters to utilize any ticketing methods they see fit, including restrictive, nontransferable paperless tickets. The proposed bill would also establish transparency regulations on ticket re-sellers, such as requirements to disclose the face-value price, the asking price and whether the seller has the tickets in hand. Ticketmaster and other primary ticket issuers, however, would be exempt from these policies. Opponents argue that restrictive, nontransferable tickets take away customers’ ability to sell or give away tickets and strengthen Ticketmaster’s own secondary resale sites – TicketsNow or TicketExchange – allowing for absolute control of both the primary and secondary markets.