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Trying to avoid another assault by enraged income-tax protesters who poured through the Tennessee Capitol in July, Republican Gov. Don Sundquist, now the champion of those seeking a state income tax, is being charged by Tennessee populists with attempting to make a secret deal with the leadership of the state Legislature. Income-tax protesters are livid at what they consider Sundquist's duplicity, citing this excerpt from Sundquist's State of the State address in February 1999: "You will hear from those who say we ought to preserve special breaks for some businesses and impose an income tax on working Tennesseans. That's not tax relief; it's not tax reform; it's not tax simplification; and it's not tax fairness. All an income tax does is raise the tax burden on Tennesseans and create a way to finance the easy and endless expansion of government. Tennessee does not need a state income tax"

But, according to Sundquist press aide Sean Williams, "That was before he knew about the state's problems. He's admitted that he was wrong. He's trying to fund education and health-care needs in Tennessee." The trouble with that, say tax critics, is that when Sundquist delivered the speech he was not entering his first term but his second. He knew where the revenue came from and where it went.

So when Sundquist went back on his antitax pledge it sent tax protesters storming through the Capitol on July 12, breaking windows and causing other damage while legislators debated a state income tax. As American Indians among their numbers beat drums in rebellion, income-tax protesters made their views known in no uncertain terms. "The opinion of Tennesseans is very clear," Lloyd Daugherty of the Tennessee Conservative Union told Fox News. "No income tax! No income tax! No income tax!"

According to figures from the Federation of Tax Administrators, Tennessee is one of only eight states which has no real state income tax. Alaska, Florida, Nevada, South Dakota, Texas, Washington state and Wyoming are the the others still holding out on the state income-tax issue. Rhode Island's tax is pegged to federal tax liability (currently 25.5 percent but scheduled to decrease to 24 percent next year). Vermont's tax is calculated the same way, though if an individual's Vermont tax liability for any year exceeds that determinable under federal tax law in effect on Dec. 31, 1999, the taxpayer is entitled to a credit of 106 percent of the excess tax. Got that?

Indications are, however, that despite legislative denials, Tennessee may be the next state to drop off the list of eight. And Sundquist is the one who brought the proposal to the table. Tennessee's budget crunch is nearly without parallel as the state faces a $300 million shortfall. "Next year's budget is likely to fall as much as a $1 billion short," says House Democratic Caucus Chairman Randy Rinks (Savannah). "We're looking at cutting something like 12 agencies if this thing isn't resolved. Something's got to happen."

According to Dana Keeton, public information officer for the Tennessee Department of Safety, even the state police have felt the crunch. "We lost $5.3 million in the budget cuts. We're 35 to 40 officers short across the state and the events of 9-11 have strained our resources even more" she tells INSIGHT. A fall class of 50 new highway patrolmen canceled for lack of money was restored thanks to the federal Homeland Security Initiative. "Thank God for that program. We've had to call up reservists, and that with the overtime is a killer. The department's hurting; we're all hurting," says Keeton.

The major drag on the profligate Tennessee budget is the failed TennCare program, former governor and Clinton adviser Ned McWherter's experiment to assist Hillary Rodham Clinton's abortive attempt at health-care reform. The Clinton-inspired initiative has been nothing short of a disaster for Tennessee, say fiscal critics.

As early as 1999, the Nashville Business Journal was bemoaning fraud and abuse in the TennCare system. "The administration of Gov. Don Sundquist," said the Journal, "has managed the program so poorly that it can't even assure taxpayers that everyone presently enjoying TennCare's generous benefits actually qualifies." The Jackson Sun put it more succinctly: "Compensation problems; gaps in service to the poor. Add allegations of mismanagement, rapid turnover at the top of TennCare and fraud and abuse, and most Tennesseans know there's something wrong with the program."

Tennessee budget figures show that the state spends nearly $9 billion a year on health and human services, with the vast bulk going to TennCare. Allegations that individual state legislators have profited from TennCare are rife across the state. Yet TennCare is the one program where Sundquist would not tolerate cuts. In fact, of the $207 million that he approved in agency increases, $160 million went to try to bring the bleeding program into the black as a Republican governor, say critics, allowed a Clinton legacy to destroy the state budget.

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.

In the back of everyone's mind who follows the blood sport of Tennessee politics is the memory of that furious tax protest last July, prodded on by the state's conservative radio talk-show hosts, that swamped network news shows across the country with scenes of trashed offices, broken windows and state troopers manhandling irate citizens. The governor had tried to pre-empt the antitax rally by getting local authorities to close traffic on key avenues around the state Capitol, calling it a necessary street project. But if that was the case, bureaucrats chose to close the streets on the exact days scheduled for the rallies.