A grim state budget (at last) ...

A grim state budget (at last) ...

June 20th, 2009 in Opinion Times

Reaching agreement in the Legislature on a new state budget wasn't an easy process.

First, the precipitous monthly declines in state tax revenue forced the governor to wait until the near the end of the legislative season to attempt to fix a budget. Then he delivered a jaw-dropping $1.4 billion cut, or roughly 10 percent less in state spending than the ending fiscal year's spending of $13.5 billion in the state portion of the budget.

Even then, his proposal was sidetracked by Senate Speaker Ron Ramsey's transparent effort to position himself as the state's most myopic Scrooge for the 2010 gubernatorial primaries by trying to slash critical infrastructure and educational investments even further.

But, yes, the Legislature finally did its duty Thursday after Republicans ended up accepting most of the really important elements of Gov. Bredesen's more rational proposed budget -- though not without doing major mischief on the chief infrastructure funding initiative.

That proposal would have authorized $350 million in bond issues to repair scores of structurally deficient bridges around the state. Gov. Bredesen proposed the bonds on the basis of demonstrated need and market timing. General revenue bonds, which are paid off like a long-term mortgage, constitute the state's typical funding mechanism for major capital projects: As older bonds are retired, new bonds are issued to continue expensive infrastructure work.

And the timing this year is especially important. The state needs stimulus spending to boost hiring, which spurs the ripple effect of higher retail sales, higher state tax revenue and spin-off jobs. Given the fall-off in construction and lower-than-usual interest rates, moreover, states also can get more bang for their buck by starting infrastructure work now to take advantage of lower contract and labor costs, and lower interest rates on their bonds.

Indeed, state planners estimated the bridge-bond work would generate 16,000 jobs, more than $700 million in new revenue, and more than $57 million in local and state sales taxes.

Sen. Ramsey, who's scrambling to stand out against more favored candidates for the GOP gubernatorial nomination, ignored all those benefits. Instead, he led a revolt against issuing more bonds on the grounds that they would raise the state's interest costs on debt too much in a period of declining tax revenue due to the recession. He gave the same reason for opposing another $138 million in bonds for capital projects in higher education, including $47.5 million for a long-promised and much anticipated new library for UTC -- a project originally requested in 1990 and now ready, at last, for ground-breaking.

It took a frustrated Gov. Bredesen to say what he really thought -- that the Ramsey-led bloc's opposition was "stupid" and subject to a veto if written into the budget legislation -- before Senate Republicans reconsidered.

Still, the GOP senators chopped the $350 million for bridge-bond funding into four $87.5 million chunks, to be spread over four years, subject to legislative approval each year. That clearly defeats the purpose of issuing the entire amount now to accelerate hiring and take full advantage of lower interest and contract costs. It also sets up the issue for extended debate every year. That's neither cost efficient, nor wise.

Senate Republicans also backed off a range of other threatened cuts. In place of these cuts, Senate Republicans got the House to consent to a demand that the governor cut an additional $55 million in spending if monthly tax revenue falls below specified levels.

In all, the governor and the Legislature have now reduced the state-funded portion of the state budget for the new fiscal year, which begins July 1, to $12.1 billion for 2009-2010, down from $13.5 billion for the current fiscal year. That amounts to a cut of 10 percent in year-to-year spending. And at $1.4 billion, it's more than double the amount the state anticipated last October that it would need to cut.

Many of the cuts already have been implemented, or are scheduled to take hold through attrition of 717 state jobs if the economy doesn't improve. With Tennessee's overall unemployment level now over 10 percent, the highest rate in 25 years, and expected to rise still more, this makes the budget situation as grim as anyone would have imagined when the nation's financial crisis took hold last fall.