NASHVILLE — As Tennessee tax collections continue to falter, Bredesen administration officials have told state departments and agencies to draw up plans for a possible 3 percent cut in their operating budgets next year.
State Finance Commissioner Dave Goetz told officials in an Aug. 18 memo that “because of current economic conditions, we must assume that we may undercollect state revenue estimates in the current year, lowering the base for projecting 2009-2010 revenues.”
He warned that, even if most state taxes hit projected growth targets, the state still could face up to a $175 million shortfall in the current 2008/2009 fiscal year if sales tax growth is flat. The State Funding Board assumed a little more than 2 percent growth in sales taxes.
As a result, the commissioner said in the memo, “I am requiring you submit a 3 percent base reduction contingency plan as part of your budget request for 2009-2010.”
The instructions to come up with such scenarios are in addition to annual directions that departments limit requested budget increases to “mandatory increases” and find ways to offset those requested hikes.
In an interview Wednesday, Commissioner Goetz pointed to just-released state revenue figures that he said demonstrate how a still-sputtering national economy continues to hurt revenues.
Tennessee’s August revenue collections fell $56.5 million below budgeted estimates, records show. Sales tax collections, built on 2.37 percent growth, were $21.3 million less than estimated and, in addition, were 1.27 percent below a year ago.
State officials thought they were being prudent this spring by projecting that there would be no growth in the state’s two main business taxes — the franchise and excise taxes. Those taxes in recent years have seen double-digit increases. But instead of being flat, August business tax collections were $25.7 million below the $41.2 million estimate.
“Well, obviously, this month’s revenues were not very encouraging,” Commissioner Goetz said. “A $56 million revenue loss is not a good sign.”
He said officials “did try to anticipate some kind of downturn, but this may be deeper and longer than we had anticipated. But the whole purpose of the budget instructions — the reiteration of the hiring freeze — is to put management controls in place that allow us to weather this storm.”
Noting the state’s reserves remain at a record high, Commissioner Goetz also said it is possible revenue collections in the remaining 11 months in the fiscal year may improve.
“We have time to make this up,” he said. “We can just hope we are able to do so.”
Sen. Bo Watson, R-Hixson, a Finance Committee member, said he had not seen the Goetz memo, but he was familiar with the latest drooping revenue collections.
“I would suspect, based on the August revenues and the fact that we didn’t really meet any of the budget lines on revenue collections, that it’s probably prudent,” Sen. Watson said of the contingency plans to trim spending.
“I’ve been telling constituents that I’ve been meeting here in Chattanooga, in my district, that I anticipate as tough and as difficult a year next year as this year has been,” he said.
House Finance Committee Chairman Craig Fitzhugh, D-Ripley, said it is “very clear we’re tracking a little below even where we estimated. So unless things catch a little bump, we’re going to have a pretty tight year next year.”
Earlier this year, Gov. Bredesen reduced his proposed 2008-2009 budget by $468 million and cut the 2007-2008 budget, as well.
