NASHVILLE — A top state economist warned lawmakers Wednesday that Tennessee faces what is likely to be its worst economic downturn since the 1982 recession.
“The outlook summary (in) one word is grim,” said Dr. Matt Murray of the University of Tennessee’s Center for Business and Economic Research, pointing to plummeting housing sales, mounting job losses, falling consumer spending and nosediving state taxes.
The one thing Tennessee appeared to have in abundance was bad economic news as Dr. Murray, state Treasurer Dale Sims, Comptroller John Morgan and Finance Commissioner Dave Goetz painted an ugly picture of the state’s woes to the General Assembly’s Fiscal Review Committee and the House Finance Committee.
Commissioner Goetz reiterated comments made by Gov. Phil Bredesen earlier this week that the state’s current fiscal year shortfall is ballooning and likely to be somewhere between $515 million and $780 million by June 30.
The latest blow was October’s general fund tax collections, which fell $72 million below projections, bringing fiscal year 2009’s first-quarter losses to $200 million. Sales tax collections were $40.9 million below projections, records show.
“No one knows how long this is going to last and how deep it’s going to be,” Commissioner Goetz said. “We will have to recommend actions to be taken that will allow us to stretch our savings and to continue to provide levels of service to the best of our abilities.”
But he said “no one can tell you where that point is going forward.”
Gov. Bredesen said this week he is looking at a combination of cuts and use of part of the state’s $750 million “Rainy Day” contingency reserve. He noted state agencies will be asked to submit budget reduction plans beyond the 3 percent figure ordered this summer. Commissioner Goetz refused to say later whether the new target may call for reductions up to 10 percent.
But the commissioner warned lawmakers that, with state unemployment levels of 8.5 percent to 9 percent now expected next year, Tennessee’s unemployment trust fund could wind up “in an insolvent state” unless unemployment taxes on businesses are increased.
Treasurer Sims described how the economic meltdown on Wall Street has affected the Tennessee Consolidated Retirement System, a pension fund for state employees, teachers and many local government workers and retirees.
The fund had a market value of $31.5 billion on June 30, but has lost nearly $5.8 billion on paper through Nov. 7, Treasurer Sims said. He emphasized those are paper losses and that the pension fund’s cash flows remain strong and no retirees are in danger for the foreseeable future.
“If the market works as it has over the past century, the market will be OK,” Mr. Sims said.
But he cautioned that in 2010, when the state conducts its next scheduled examination of the fund, it could require increased contributions to maintain it.
Finance Committee member Rep. Tommie Brown, D-Chattanooga, said “it is awesome to see the impact it (the economic downturn) will have on Tennessee.”
Despite the dismal figures, Gov. Bredesen and lawmakers are ruling out a tax increase.
As cuts come, Rep. Brown said, she will “be there doing battle for children and poor and middle-class families.”
Andy Sher is a Nashville-based staff writer covering Tennessee state government and politics for the Times Free Press. A Washington correspondent from 1999-2005 for the Times Free Press, Andy previously headed up state Capitol coverage for The Chattanooga Times, worked as a state Capitol reporter for The Nashville Banner and was a contributor to The Tennessee Journal, among other publications. Andy worked for 17 years at The Chattanooga Times covering police, health care, county government, ...