Tennessee revenue shortfall could pass $1 billion

NASHVILLE — Tennessee’s general fund revenue shortfall could grow to more than $1 billion by June 30 under official revenue projections adopted Friday by the State Funding Board.

Officials estimated the budget’s general fund shortfall will fall between $884.6 million and $1.02 billion for the 2008-09 fiscal year. With only minimal growth projected, that will reduce the base budget between $712 million and $1.01 billion in the upcoming 2009-10 budget that Gov. Phil Bredesen will present to state lawmakers in February.

“This is unprecedented in terms of the size of the hole that we have here,” Finance Commissioner Dave Goetz said. “We are looking at a reduction of real purchasing power of a significant amount.”

Like the rest of the nation, Tennessee is caught up in a deepening economic recession. Mr. Goetz said the state is looking at cuts of 15 percent to 20 percent in most agencies except for education K-12 and “a very few things that absolutely must be accomplished.”

“At that number ($1 billion), it’s hard to avoid losses of services and impacting employees in some fashion,” Mr. Goetz said. “We will do our best to continue delivering services to the best of our ability.”

Noting that families and businesses are suffering as well, Sen. Andy Berke, D-Chattanooga, said, “We are going to have to search every portion of the budget to find any area that we can without slashing the most essential services.”

Sen. Berke agreed with fellow Democrat Bredesen’s directive that K-12 be protected as much as possible.

Cuts to schools would in effect be “sacrificing our future,” he said. But the senator added that the other choices are grim.

“Given the massive problems that we are having, there simply aren’t going to be good choices,” Sen. Berke said. “There’s only going to be a tough decision between two bad choices.”

Lt. Gov. Ron Ramsey, R-Blountville, the Senate speaker, groaned over the estimates, telling a reporter, “You can stop right there. My stomach’s getting upset.”

He said officials thought they were being pretty conservative in the spring when they passed a budget with little growth, but they now are experiencing negative growth.

“It’s going to be tough,” he said. “There will be some places where we will disagree, (but) when you’re talking about cutting $800 million to $1 billion, it’s tough to disagree.”

He said the state should “live within our means and not raise any taxes.”

Gov. Bredesen has said the same, although he has talked about closing off a tax loophole for family-owned businesses that hold commercial real estate. Lt. Gov. Ramsey has said that would amount to a tax hike.

Mr. Goetz, meanwhile, said the state is hoping to get some help for the TennCare health care program from a proposed federal stimulus package expected to boost Medicaid payments to states. But he noted Tennessee still will need to use “several hundred million dollars” from its budget reserves. No figure was given.

Faced with declining revenues this spring, lawmakers slashed general fund spending in Gov. Bredesen’s proposed 2008-09 budget to $9.5 billion, almost a half billion dollars below the original amount. Projections adopted by funding board members reduce that to between $8.48 billion and $8.62 billion.

Next year, the general fund is expected to grow to between $8.64 billion and $8.78 billion. The general fund accounts for spending in most agencies but does not include highway spending, federal funding and bonds.

The state’s former budget director, Bill Bradley, who still consults for the state part-time, has been with the department since 1962 and said he hasn’t seen this magnitude of cuts envisioned before.

“No, never,” Mr. Bradley said.