Tennessee: State budget shortfall could reach $600 million

The worsening economy could create up to a $600 million shortfall in this year’s state budget and force “painful cuts” in government programs, Gov. Phil Bredesen said today.

Gov. Bredesen said the financial crisis is cutting Tennessee’s tax collections well below budget forecasts and will require the state to both cut spending and tap its budget reserves.

“This certainly is the most serious economic problem in my adult life and, in some ways, is the most dangerous,” the governor said in an editorial board meeting today with reporters and editors of the Chattanooga Times Free Press.

The credit crisis and related plunge in stock prices during the past month is likely to worsen the downturn in sales, especially big ticket items such as automobiles and appliances, Mr. Bredesen said. Tennessee state government derives nearly two thirds of its state tax collections from sales taxes.

State revenue collections during the first two months of the current fiscal year were $141.9 million less than the budgeted estimate, according to the Tennessee Department of Finance and Administration. Mr. Bredesen said he fears that the sales decline will be even worse in the next couple of months as consumers react to rising unemployment and falling stock prices.

Mr. Bredesen said he will likely cut some state grants, continue the freeze on employee hiring and trim some programs to cut spending. If the budget shortfall exceeds $300 million, Mr. Bredesen said he will tap some of the state’s reserve funds, including the $750 million rainy day fund and another $550 million in TennCare reserves.

But the governor cautioned the Legislature not to rely upon those one-time reserves to make up for all of the shortfall.

See tomorrow’s Chattanooga Times Free Press for complete coverage.