$1 billion in new cuts may be looming, governor says

PDF: Tennessee Department of Correction

NASHVILLE — Gov. Phil Bredesen and top aides said Monday they are preparing for a “worst-case” budget scenario next year in which up to $1 billion must be slashed — on top of $515 million in previous cuts.

“I want to be clear to everyone,” the governor said Monday as he kicked off five days of public budget hearings on the upcoming 2010-11 budget. “There’s nothing about trimming fat in what we’re doing this year. We’re very much into muscle and bone.”

Among the bone-deep cuts are $82 million in recommended improvements to the state’s $3.9 billion Basic Education Program funding formula for K-12. The improvement programs include coordinated school health programs and extended contract payments to teachers under the Career Ladder program.

“Unless the economy gets a whole lot better, I wouldn’t count on those,” Gov. Bredesen said.

After listening to most of the budget hearing online, Hamilton County Schools Chief Financial Officer Tommy Kranz said presentation seemed like a “what if” discussion where no decisions have been made.

“Based off the economy today, the dire situation that everyone is facing ... they’re going to have to look at everything,” Mr. Kranz said.

If the hypothetical cuts were made, Hamilton County’s would again receive about $13.5 million in BEP funding — the same amount as last year.

Although the district received no new BEP funding last year, they did receive extra to account for inflationary growth, plus an increase based on higher enrollment. The cuts Gov. Bredesen talked about Monday would eliminate inflationary growth and any extra money for new students.

Hamilton County Board of Education Chairman Kenny Smith said it was premature to speculate how the school system would handle BEP cuts. But less money from the state would mean more cuts locally, and the trickle-down effect would be challenging, he said.

“If we do have to take a hit on BEP, it just means more cuts for us in a tough budget year,” he said. “There’s no magic wand out there. We’ll have to adjust to it because we have to have a balanced budget.”

For the past two years, Hamilton County Schools has faced large budget gaps that forced layoffs and school closings. In fiscal year 2009, the shortfall was about $12 million, and about $20 million in fiscal year 2010.

With state revenues still tanking and most federal stimulus dollars expected to end June 30, Gov. Bredesen has asked departments and agencies to show how they would cut 6 percent in the 2010-11 fiscal year, which begins July 1.

Departments also were asked to submit plans to trim 3 percent more in case economic conditions worsen.

During budget presentations, the governor several times referred to cuts of $1 billion. Asked later to elaborate, state Finance Commissioner Dave Goetz said that “what we’ve done is outline what could be the worst-case scenario.”

The budget cuts makes assumptions about costs for the BEP, funding employee health care increases, the amount of money needed to shore up the state pension fund and putting it all “against a continually declining revenue circumstance,” Mr. Goetz said.

Gov. Bredesen said “it’s obviously early in the year to know that, but (under) that gap, expenses tend toward the high sides and the revenue tends toward the low side.”

“That number could be $800 million or $1 billion in addition” to the $515 million to $520 million in cuts delayed until the 2010-11 budget, he said.

Under one worst-case scenario presented by Correction Commissioner George Little, 9 percent cuts — or about $53 million — would mean releasing nearly 3,300 nonviolent felons that the state now pays local officials to house in county jails.

Six percent cuts would result in the early release of 2,155 felons from local jails, he said, while another 1,078 would be let out early under the additional 3 percent scenario.

“This isn’t scare tactics,” Mr. Little said. “This is sort of the calves coming home. … We would not propose these sorts of very serious and weighty options if we weren’t in such dire circumstances.”

Gov. Bredesen told Mr. Little the move would be a “dramatic step.”

The cuts of up to 9 percent could come on top of 12 percent reductions totaling about $750 million in the current 2009-10 budget.

Only about $230 million or so of those cuts are taking place this year, with federal stimulus funds being used to put off the remaining $515 million to $520 million in cuts until July 1.

Staff writer Kelli Gauthier contributed to this report.