NASHVILLE -- The Great Recession may be over, but Tennessee and Georgia leaders say its painful aftermath lives on as they face the need for deeper cuts in upcoming 2011-12 budgets.
States are looking at a financial cliff because federal stimulus funds will disappear this year before state tax revenues have recovered from their worst pummeling in decades.
In Georgia, where state spending was slashed from $21 billion to $17 billion over the last three years, Gov.-elect Nathan Deal and majority Republican lawmakers are looking to cut an additional $1.5 billion to $2 billion.
"It'll be painful, and we're going to be looking -- just like we did the past couple of years -- to where we can streamline," said Georgia state Rep. Jay Neal, R-LaFayette, a House Appropriations Committee member.
Deal has said he wants to cut corporate taxes and recently indicated to the Atlanta Journal-Constitution that K-12 funding is likely to take a hit. He said about 60 percent of state spending now goes to education.
In Tennessee, Democratic Gov. Phil Bredesen and lawmakers have cut $1.5 billion over the past three fiscal years. State revenues make up about $10.4 billion of the state's $29.9 billion budget.
Tennessee delayed $900 million in cuts through stimulus funding. With that money running out, $709 million of cuts kick in when the new fiscal year starts July 1 and the rest take effect in the 2012-13 budget year.
The July 1 cuts include hundreds of layoffs and closure of a state prison and a development center for the mentally disabled, plus some $260 million in higher education cuts.
"We made the cuts from a legal standpoint, but practically speaking we're going to see the effects of those next fiscal year and we're probably going to hear from those affected pretty quickly," warned House Minority Leader Craig Fitzhugh, D-Ripley.
It's not clear what Gov.-elect Bill Haslam, a Republican, will do with the budget.
On the campaign trail, Haslam warned that state government faced a $1.5 billion cliff. He called the Bredesen cuts a "blueprint" and indicated he would make some changes.
But Haslam hasn't yet offered any specifics. He's required to present the 2011-12 budget on March 1.
Questioned last week, spokesman Davis Smith would say only that Haslam and his team are "monitoring the budget situation" and that Haslam had said in the campaign that "the state's fiscal issues actually present an opportunity to make government leaner and more efficient."
Smith said Haslam plans "a top-to-bottom review of state government" that will let the administration "maximize our assets and focus on high-priority initiatives."
During the campaign, Haslam also spoke of making a "thousand little cuts" to spending.
Regardless of what happens on existing cuts, Haslam and lawmakers face a number of potential problems.
Tennessee has a revenue shortfall of about $185 million. Much of that could be eliminated as revenues begin to come back.
But other pressures could result in cutting as much as 3 percent, or $160 million, from the upcoming budget. Much depends on revenue estimates. But estimates that were due in December were delayed by the State Funding Board.
Growth of 4 percent in fiscal 2011-12 and 2012-13 would bring Tennessee revenues back to where they were before the recession, state fiscal experts have said.
House Republican Majority Leader Gerald McCormick, R-Chattanooga, said he is "encouraged by the revenue figures that are coming in a little bit better" than earlier estimates.
"It's my understanding that Gov.-elect Haslam wants to go item by item and make small cuts in a lot of places," McCormick said, pointing to news accounts. "Again, I think we need to get his views on it before we go in and take an ax to the budget legislatively."
Still, if he had his druthers, McCormick said, "there may be some areas that we really don't need to have the state as involved as they are." But that may not be fair to press on a new governor who is still evaluating things, McCormick said.
Another complication is the impact on TennCare if a one-year assessment on hospitals to offset planned cuts in the state's health insurance program for the poor is allowed to expire.
Money from the 3.52 percent fee raised about $300 million in the current year and drew down $506.5 million in federal matching funds.
The assessment expires July 1. Hospitals are likely to ask lawmakers to extend it -- they've called the roughly $700 million in cuts to hospitals that would otherwise occur unthinkable.
But the Tennessee Hospital Association could balk at a proposal by Bredesen to expand the fee.
An expansion would replace $121.5 million in stimulus-related TennCare funding that goes away July 1. That would draw an additional $321.2 million in federal matching funds.
Without both renewing and expanding the fee, TennCare's $8.29 billion budget would take a hit of about $1.1 billion, administration officials say.
Contact Andy Sher at asher@timesfreepress.com or 615-255-0550.