Cuts, not new taxes, expected to shore up budget

Tennessee Tax Collections

With tax collections falling short of projections, state officials in both Tennessee and Georgia said Monday that budget cuts may be needed to offset the impact of the faltering economy.

In Tennessee, sales tax collections fell below year-ago levels for a second straight month in February, marking the first back-to-back monthly downturns in more than six years, according to state figures released Monday.

Dave Goetz, Tennessee’s commissioner of Finance and Administration, said tax collections since last summer are $203 million below what originally was forecast, requiring the state to trim any discretionary spending plans this year.

“We may have to look for more savings in the current fiscal year,” Mr. Goetz said Monday. “But we have faced tougher conditions and managed our way through.”

In Georgia, Gov. Sonny Perdue said state tax collections grew only 0.5 percent in February after an unexpected 7.1 percent drop in revenue the previous month. Gov. Perdue told reporters Monday the slowdown requires him to reduce the budget forecast for the balance of this year by $65 million and cut next year’s budget forecast by $245 million from original projections.

The governor said he is recommending cuts of $40 million from equipment and technology spending and $25 million in funding for new school buses during the balance of the current fiscal year.

“We will not repeat the mistakes of the past and wait too long to tighten our belts when the economy signals that it may be softening,” Gov. Perdue said in a statement.

Taxable sales in both Tennessee and Georgia have grown by less than 2 percent during the first seven months of the current fiscal year, and the trend in the past couple of months has been even less.

Dr. William Fox, director of economist forecasting at the University of Tennessee’s Center for Business and Economic Research, said the state’s funding board will meet April 7 to prepare its economic forecast for the next budget year.

“Certainly, the last two months have been troubling,” he said. “We’ll be watching the March results very closely to see if this is a short-term aberration. But these results are heavily linked to what we are seeing in the economy from the slowdown in housing, construction and consumer spending.”

February sales tax collections in Tennessee also reflect, for the first time, the reduction in the state sales tax rate on food adopted by the Tennessee Legislature in 2007 during better economic times. On Jan. 1, Tennessee’s state sales tax on food dropped from 6 percent to 5.5 percent, which cost the state more than $3 million a month in tax collections, Dr. Fox said.

BY THE NUMBERS

* $20.8 million — Tax shortfall in February from original projections in Tennessee

* $203 million — Tax shortfall so far this fiscal year from original projections in Tennessee

* $65 million — Reduction in projected revenue in Georgia for current fiscal year

* $245 million — Reduction in projected revenue for the next fiscal year in Georgia

Source: Tennessee Department of Finance and Administration, Georgia Department of Revenue