NASHVILLE-As he prepares to unveil a state budget that makes hundreds of millions of dollars in painful spending cuts, Gov. Bill Haslam says circumstances have thrust Tennessee into a "new normal" where government must make do with less.

"All of us are having to look at the way we do business," the Republican governor said last week as he offered Nashville business leaders and reporters a thematic peek at the State of the State address he will deliver to state lawmakers Monday.

With recession-battered state revenues not expected to bounce back to 2008 levels until 2014, Haslam noted Tennessee also faces the loss of federal stimulus funds when his 2011-12 budget takes effect July 1.

"I think local and state government having restricted revenue is the new normal," said Haslam, who took office Jan. 15. "We're all going to have to learn to operate in a very different environment."

State of the State addresses long have given the state's chief executives a highly visible stage to set forth their budget and policy priorities and outline a vision for where they would like to take the state. Haslam told reporters last week he will take advantage of that.

In addition to discussing budget challenges, he plans to advocate his proposed education reforms of teacher tenure rules as well as opening the doors to more charter schools. He also will highlight his plans to improve the state's business climate by capping jury awards in medical malpractice and other personal injury litigation.

But the state budget, currently estimated at $31.27 billion in state and federal funds, likely will dominate.

The Haslam administration hasn't specified what cuts it will make specifically, but Senate Speaker Ron Ramsey, R-Blountville, said he doesn't "think the cuts are going to surprise anybody."

"I'd have to say without seeing it would probably have relatively easy selling in the Legislature," he said.

House Minority Leader Craig Fitzhugh, D-Ripley, said knowing what's coming in terms of cutting areas such as children's services doesn't make things less painful.

Still, some areas have been able to prepare, he noted. Federal stimulus funds have allowed higher education institutions to adjust to about $290 million in state cuts over the past two years, Fitzhugh said.

Lost revenues

Like most state governments, Tennessee was hit hard by the Great Recession. Total state tax revenues plummeted 9.85 percent, or $1 billion, to about $10.02 billion from fiscal year 2008 to the fiscal year 2010 budget that ended last July, according to an analysis prepared by the General Assembly's Fiscal Review Committee.

The state has cut about $1.4 billion in spending and 4,000 positions, but about $896 million in state cuts were delayed temporarily.

Most of those - about $709 million - would go into effect July 1. Last year, Bredesen and lawmakers agreed to put about $186 million in a "core reserve" that would allow the new governor, Haslam, the ability to extend certain essential services for the 2011-12 budget that takes effect July 1.

Core reserve funds include $15.28 million for certain school health programs and $15 million for extended contracts for K-12 teachers. Haslam said he would "probably" make use of this core reserve.

Among non-core areas slated for cuts - unless Haslam makes changes - are federally qualified health care centers ($4.6 million), mental health peer support centers ($2.37 million), a family support program that helps the mentally retarded remain with their families ($7.1 million) and Juvenile Justice Court Prevention grants ($5.2 million).

State revenue has picked up, but Haslam faces other budget challenges. The state still will have a projected $185 million deficit on July 1.

Moreover, most state agencies face additional cuts of 1 percent to 3 percent, or up to $160 million, in the new budget. Those details will be revealed Monday.

One disaster the governor appears to have avoided in large measure is with TennCare.

The state was faced with the loss of $717 million in state and federal dollars in the $8 billion program unless the Tennessee Hospital Association agreed to extend a state assessment fee on many of its members. The 3.52 percent fee raised $210 million for TennCare and another $80 million for pool payments to hospitals.

Hospitals did agree. In fact, they are boosting the fee on themselves to raise more federal matching funds. Continuing the fee won't completely solve all of TennCare's problems - some one-time federal money is going away - but if approved by lawmakers, it provides a temporary cure for many of them.