Plunging revenues send Tennessee officials scrambling

NASHVILLE — What a difference a year makes when it comes to Tennessee government’s budget.

Flush with cash from a roaring economy and a new tobacco tax increase, Tennessee lawmakers and Gov. Phil Bredesen last year embarked on making hundreds of millions of dollars worth of new investments in K-12 education and higher education, new capital building projects and other programs.

Fast forward to 2008 when Tennessee and the rest of the nation are teetering on the brink of recession.

Plummeting state tax revenues already had forced officials to consider eliminating employee pay increases and other cuts when word came of another expected $150 million blow, leaving the Bredesen administration reeling.

The governor now says he will have to take even more drastic measures, including “serious” employee layoffs.

“This recession has just turned out to be deeper than people thought in December and January when we were preparing the first budget, and frankly, the last several months have been kind of painful,” Gov. Bredesen said.

Underscoring the severity of the problem are Thursday’s latest fiscal projections from the State Funding Board: The state must cut $314 million to $384 million from the current budget. That comes on top of $180 million in reductions already accounted for.

Even worse news lies ahead: The state must slash another $468 million to $585 million from Gov. Bredesen’s proposed 2009 budget that takes effect July 1.

While the governor’s total proposed fiscal year 2009 budget is $27.88 billion, huge chunks of that are federal funding, dedicated state revenues such as road funding and shared funding with cities and counties.

So the brunt of cuts, officials said, will be borne in programs funded by the state’s estimated $9 billion general fund.

“It’s a bad year to be voting on your first budget,” said Sen. Andy Berke, D-Chattanooga, elected last fall in a special election. “We’ve got to the point where we’re going to affect people’s lives in ways that are devastating to them. And I undersand the responsiblity that we have.”

Efforts to reach Rep. Tommie Brown, D-Chattanooga, a House Finance Committee member and the Hamilton County delegation’s longest-serving member, were unsuccessful.

Sen. Bo Watson, R-Hixson, a Senate Finance Committee member, said he is astonished by the sheer breadth of the shift between last year and this year.

“It’s a billion dollar swing,” said Sen. Watson, still in his first Senate term. “If you’re up $500 million (last year) and you’re down $500 million (this year), it’s a billion swing.”

State Comptroller John Morgan agreed.

“The shortfall is huge,” he said. “What seemed to be too good to be true last year, turned out, hey, it wasn’t true. Nobody anticipated the things happening that happened.”

The housing market downturn, historic hikes in gas prices and an economic slowdown combined to put the state financial footing on the skids.

State sales taxes, the main funding source in a state with no general state income tax, have fallen off. Business tax collections are less this year than last year, Mr. Morgan said.

Gov. Bredesen last week estimated the state has about $1.6 billion in reserves. But he said he doesn’t want to use money from the state’s $750 million rainy day fund to cover ongoing expenses such as offsetting employee layoffs since he doesn’t know how long the economic downturn will be.

Such talk has officials with the Tennessee State Employees Association, which represents the state’s estimated 45,000 state workers, on a tear.

“Our number one suggestion is, don’t have any new improvements in the budget for 08/09,” said Jim Tucker, the organization’s executive director.

“Number two, if you got a billion in reserve funds, the least you can do is soften the revenue shortfall until the economy improves,” he said.

On Friday, the governor met with Cabinet members “to bring them up to speed on the events of the week — funding board meeting, the estimates and where the budget stands,” Bredesen spokeswoman Lydia Lenker said in an e-mail on Friday. “He’s still working on the details of the budget.”

House Speaker Jimmy Naifeh, D-Covington, said leaders are interested in providing incentive packages to encourage early retirements and explore the idea of one-time bonuses from reserves to employees who now face no pay raises.

Leaders also appear to be content to let Gov. Bredesen take the responsibility and the political heat for fashioning cuts.

Lt. Gov. Ron Ramsey, R-Blountville, who is the Senate speaker, said so far he is largely in agreement with steps that Gov. Bredesen, a Democrat, plans to take.

“I’ll have to hand it to him, he’s taking an approach that I think I would like to take, that we’ll make the cuts that needed to be made and that we’ll balance the budget with existing revenues,” he said.