Tennessee state budget (2008-2009)

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State Information


State officials announced that Tennessee was facing a $543 million budget gap for fiscal year 2009 after state revenues missed projections by $61 million in January 2009. If revenues continued to fall, it was expected that the gap could widen to as much as $1 billion by end of FY 2009.[1] According to the Center on Budget and Policy Priorities, Tennessee could have faced a $712 million deficit for FY 2010.[2]
Despite incoming federal stimulus funds that could have delayed 2,300 job cuts Gov. Phil Bredesen said that layoffs of state employees were still possible.[3] The governor was expected to present his spending plan for FY 2010 by the end of March 2009. However, during the governor's state of the state address he said that he was hopeful that Tennessee could pull itself out of the deficit as the state did in 2003. In 2003, Bredesen managed the state through the fiscal crisis without raising taxes or making cuts to education. "Here in 2009, with our strong reserves, we are in a better position to weather the storm, but the principles we have employed together over the years will serve us well again," said Gov. Bredesen.[4]

Impact of budget woes

See also: State budget crisis, 2009-2010
  • According to the Department of Labor and Workforce Development, more than 147,000 people had filed initial unemployment claims as of March 2009, compared to 68,000 in March 2008. The unemployment rate was at 8.6 percent, compared to the national rate of 7.6 percent. At the beginning of the recession, the state had $600 to $700 million in unemployment funds; funds had drained to $269 million.[5]
  • The state cut $58 million from higher education’s budget in early 2009 and had plans to cut an additional $180 million in FY 2010's budget. However, it was possible that federal stimulus funds might prevent cuts to higher education in for FY 2010.[6]
  • The state’s budget crisis was forcing $42 million in cuts to the state's corrections program. The Department of Corrections had a budget of $645 million in 2008. It cost $60 a day to house a prisoner. However, some state officials proposed creating more halfway houses throughout the state in order to reduce the overall cost to the state to house prisoners. It costs $25 to keep someone in a halfway house for a day. The proposal, if passed, was estimated to cost the state $410,900 to begin the pilot program.[7]
  • The University of Tennessee was considering cutting 777 jobs at its five campuses statewide in light of a $66.5 million reduction in state funding for 2009-2010. The university was also considering increasing school tuition.[8]
  • Rutherford County leaders said that despite the state's economy this was the right time to build two new schools because bids for construction of new school buildings were coming in lower than prior years. However, the county halted the project and postponed work for one year because the county had not been able to raise property taxes.[9]

Budget background

See also: Tennessee state budget

Tennessee's budget process begins in August of each year when the Commissioner of Finance and Administration issues budget instructions to all departments and agencies of state government. Agency budget requests are submitted by October 1. During October and November, the governor meets with the departments and agencies to hear their budget proposals for the following fiscal year.[10] Following the hearings the governor issues a budget recommendation for the upcoming fiscal year to the legislature. Both the House and the Senate are required to make any necessary changes or adjustments to the budget until the bill is passed in both houses. Lawmakers must pass a balanced budget before the fiscal year begins on July 1 of each year.[11]

  • Tennessee has no general income tax.[12]
  • Tennessee's tax structure has the majority of its tax revenue coming from the sales tax, the largest portion of which funds K-12 education.[13]
  • For FY 2009, out of the state's tax revenue the state spent approximately 48 percent on education; 4 percent on resources and regulation; 12 percent on law, safety and correction; 3 percent on the general government; 32 percent on health and social services; and 1 percent on business and economic development.[13]
  • For FY2009, state tax revenue was comprised of 57 percent sales tax, 2 percent motor vehicle tax, 7 percent gasoline tax, 3 percent income and inheritance tax, 5 percent gross receipts and privilege, 14 percent franchise and excise tax, 3 percent insurance and banking tax, 6 percent from other taxes, and 3 percent from tobacco, alcohol and beer tax.[13]

Budget figures

The following table provides a history of Tennessee's expenditures and gross domestic product (GDP).

Fiscal year Expenditures (billions) GDP (billions)
2000 $32.0[14] $174.9[14]
2001 $34.3[14] $180.6[14]
2002 $36.6[14] $191.5[14]
2003 $39.2[14] $200.3[14]
2004 $41.8[14] $214.8[14]
2005 $42.7[14] $224.2[14]
2006 $44.3[14] $235.8[14]
2007 $46.2[14] $243.9[14]
2008 $48.3[14] $252.3[14]
2009 $50.5*[14] $260.9*[14]
  • NOTE: The figures for FY 2009 had not been finalized at the time this data was compiled.

Ideas about why the crisis occurred


Gov. Bredesen's State of the State 2009
  • In February 2009 state officials said that the state was facing its seventh month of declined state revenue. Overall, February revenue was down $69.7 million to $668.4 million. “February also marks the twelfth negative growth month for sales tax collections out of the last fourteen months, reflecting a continued weakness in consumer confidence and the state's overall economy,” said Dave Goetz, commissioner of the Department of Finance and Administration. The general fund was down $61.1 million, and the four other funds were down $8.6 million.[15]
  • Sales tax collections were down $53.8 million from the estimates for February 2009. Franchise and excise taxes were $4.3 million below the budgeted estimate of $37.7 million. Gasoline and motor fuel collections were down by 5.7 percent, but were $293,000 above the budgeted estimate of $70.9 million. Tobacco tax collections were $1.2 million more than the budgeted estimate of $23.6 million.[15]
  • According to state records, a total of about 3,200 businesses were registered as family owned non-corporate entities, or FONCEs. They owned a total of about $5.1 billion in properties that were exempt from corporate taxes. The governor called the tax exemption a "huge tax avoidance scheme." He said it was unfair to give family-owned rental properties special treatment not extended to similar businesses controlled by unrelated investors. State records showed $1 billion worth of commercial rental properties that qualified for a controversial tax break were owned by investors who lived outside Tennessee.[16]

Proposed actions

Governor Phil Bredesen

In March 2009 Gov. Bredesen announced a proposal to raise the taxable wage base and increase tax rates for unemployment insurance across the board. State officials said that without the tax increase the state's unemployment rate would drain the fund of money by 2010, forcing the state to go to the federal government for aid. Should the proposal be approved, businesses would need to pay an average of $110 a year per employee more than the current premiums. The fund had $600 to $700 million prior to the recession, but as of March 2009 the account was at $269 million.[5]

Despite the governor's proposal to raise the taxable wage base and increase tax rates, Bredesen continued to emphasize Tennessee's need to stay "business-friendly." The state had no general income tax and that's exactly how Bredesen suggested the state stay. In the past, officials had proposed establishing a general income tax, but in a visit to Bradley County the governor said, “When times get tough, businesses look to places with a productive work force. They look to places with low taxes, low costs of doing business. Tennessee is in a very good position in that regard.”[12]

The governor was expected to present his spending plan for FY 2010 by end of March 2009 in order to take into consideration any federal stimulus funds that might help the state close the budget gap.[17]

Republicans

Some Republicans said that they were against the governor's 2009 proposal to close the books by using bonds to pay for millions in state obligations to help build Volkswagen in Chattanooga and Hemlock Semiconductor in Clarksville, which the governor said would also bring numerous jobs to the state. Instead, Republican lawmakers said that they would rather use any available stimulus funds to address the deficit than using bonds.[18] Frank Niceley called the bond bill a "shell game" because the state had already appropriated money for the projects in 2008. He also questioned the motivation for drawing big investments from out of state. "This would be I think the first time we sell bonds to fund economic development projects. I don't think that's the way to run a state, especially when we're facing a depression," he added.[19]

Democrats

In March 2009 a Tennessee Democrat filed a bill to resurrect the state's discussion on the implementation of a state income tax. Sen. Reginald Tate called for the implementation of an income tax in order to lower taxes on food and sales and end the "over-reliance on sales taxes." Democrats across the state argued that the bill could save, for example, a family of four who made $35,000 about $700 a year. The last proposal for a state income tax was in 2002. The group Tennesseans for Fair Taxation said that they were in favor of a graduated state income tax, but added that they also supported the elimination of the grocery tax and the lowering of the sales tax to 6.75 percent. Tate noted that the income tax was imperative to Tennessee's economy because, "Tennessee's tax system does not produce minimally adequate revenues, even when economic activity is high."[20]

Economic stimulus package

Tennessee was expected to receive approximately $4.5 billion from the $787 billion economic stimulus package.[21] According to White House officials, the stimulus bill was estimated to create or save 70,000 jobs.[22] In February 2009 Gov. Bredesen said that he was wary of some of the funds because some provisions in the package for unemployment benefits would force states to expand their programs permanently, even though the stimulus funding only lasted for two years. “We are evaluating this piece of money, whether it makes sense for us to take it,” he said. “We may well be one of the states that say we can’t take on that portion of it.”[23] However, in March 2009 the governor announced that he would accept all of the unemployment funds. “We have worked through all the issues on that,” Gov. Bredesen said. “Tennessee is going to accept 100 percent of all the unemployment insurance compensation.”[24]

According to preliminary reports, Tennessee was expected to receive:[6]

  • $141 million for unemployment insurance benefits[24]
  • $572.2 million for highways and bridges
  • $771.6 million in stabilization funds for education
  • $171.6 million in stabilization funds for the state in general
  • $174.2 million for Title I grants to local schools
  • $229.4 million for special education
  • $1.1 billion for Medicaid
  • $71.98 million for mass transit capital grants

Budget transparency

Tennessee has a statewide, official spending database online, "Open Government for the State of Tennessee."

In addition, thanks to Tennessee House Bill 246 (2009), a spending transparency site mandated by the legislature was expected to be available by January 1, 2010. As Nebraska's treasurer Shane Osborn pointed out in his letter to Tennessee's legislators, "In the current economic climate, it is as important as ever that citizens have the ability to easily navigate the state budget, giving them access to information on how government is spending their hard-earned income."[25]

Legislation

In 2007, Senator Jim Tracy and Representative John Mark Windle introduced the Taxpayer Transparency Act of 2007 (SB 1066 and HB 915). This legislation would have created a public website that listed every entity receiving Tennessee grants and/or contracts over $5,000 and for what purposes the money was being disbursed.

A fiscal note issued for SB 1066 and HB 915 put a $3.6 million one-time price tag on upgrading the state’s existing financial software to allow for the creation of the spending database. The note also projected annual costs of over $500,000.

Transparency advocates noted that this cost estimate ignored low-cost alternatives and lessons from the launch of USASpending.gov. The Congressional Budget Office estimated that implementation of USASpending would cost about $4 million initially in 2007 and about $15 million more over the 2007-2011 period (although actual expenses came in at a much lower number).

Government tools

The following table is helpful in evaluating the level of transparency provided by a state spending and transparency database:

Criteria for evaluating spending databases
State database Searchability Grants Contracts Line item expenditures Dept./agency budgets Public employee salary
Tennessee: TN.gov N
600px-Red x.png
Y
600px-Yes check.png
Y
600px-Yes check.png
Y
600px-Yes check.png
N
600px-Red x.png
Y
600px-Yes check.png

Limitations and suggestions

While the "Open Government for the State of Tennessee" transparency site did have searchable salary information as of 2009, its list of vendor payments and expenditures was in .pdf form and not readily searchable.

Support for creation of the database

In 2008, the National Taxpayers Union endorsed HB 4034, saying, "It is imperative that you move forward with this legislation to enable Tennessee's residents to make sense of how their tax dollars are parceled out."[26]

Americans for Tax Reform issued a press release detailing the progress of transparency in Tennessee.[27]

Economic stimulus transparency

  • The Economic Recovery and Reinvestment Act of 2009 designated $787 billion to be spent throughout the nation. Of that $787 billion stimulus package, it was estimated that 69%, or over $541 billion, would be administered by state governments.[28]
  • Tennessee was expected to receive an estimated $2,929,163,793.[29]

Public employee salary information

See also: Tennessee state government salary

See also

External links

Additional reading

References

  1. Associated Press, "Tenn. budget gap grows to $543M in January," March 6,2009
  2. Center on Budget and Policy Priorities, "State budget troubles worsen," March 13,2009
  3. MSNBC, "Some states to use stimulus to forestall layoffs," February 20,2009
  4. State of Tennessee, "Remarks: 2009 State of the State Address," February 9,2009
  5. 5.0 5.1 Gannett Tennessee, "Tax hike may save jobless fund," March 16,2009
  6. 6.0 6.1 Chattanooga Times Free Press, "Tennessee: Stimulus could spare higher education — for now," February 19,2009
  7. Chattanooga Times Free Press, "Tennessee: State eyes cost-effective alternatives to prison," March 9,2009
  8. All Headline News, "U Of Tennessee Planning 777 Job Cuts To Cope With $66.5M Reduction In Funding," February 27,2009 (timed out)
  9. MSNBC, "Rutherford Co. Ponders Building Schools," March 15,2009
  10. State of Tennessee, "Budget Process," accessed March 16,2009
  11. Tennessee Department of Finance and Administration, "Budgetary Process," accessed March 16,2009
  12. 12.0 12.1 Chattanooga Times Free Press, "Gov. Bredesen on keeping taxes low," March 5,2009
  13. 13.0 13.1 13.2 State of Tennessee, "The budget, fiscal years 2008-2009," accessed March 16, 2009
  14. 14.00 14.01 14.02 14.03 14.04 14.05 14.06 14.07 14.08 14.09 14.10 14.11 14.12 14.13 14.14 14.15 14.16 14.17 14.18 14.19 U.S. Government Spending, "Tennessee state and local spending," accessed March 13,2009
  15. 15.0 15.1 Nashville Business Journal, "Tennessee tax revenue down 9% in February," March 6,2009
  16. Associated Press,"$1B of tax exempt properties owned outside Tenn.," March 4,2009 (dead link)
  17. Memphis Business Journal, "Bredesen creates post for stimulus spending," March 9,2009
  18. MSNBC, "Fighting Over Legislature Could Impact Jobs," February 25,2009 (dead link)
  19. Associated Press, "Bill to protect Tenn. state employees progresses," March 3,2009 (dead link)
  20. MSNBC, "Bill filed to discuss state income tax," March 1,2009 (dead link)
  21. The Chattanooga Times Free Press, "State stimulus up to $4.5 billion," March 7,2009 (dead link)
  22. American Recovery and Reinvestment Act, "Estimated job effect," accessed March 16,2009
  23. Chattanooga Times Free Press, "Perdue, Bredesen may reject jobless stimulus funding," February 24,2009
  24. 24.0 24.1 Chattanooga Times Free Press, "Tennessee to take stimulus money for unemployment," March 6,2009
  25. Treasurer Shane Osborn, "Letter from Treasurer Shane Osborn to Tennessee's Legislators," March 17, 2009
  26. National Taxpayers Union, "An Open Letter to the Tennessee House of Representatives: Taxpayers Support Online Spending Transparency (HB 4034)," March 14, 2008
  27. Americans for Tax Reform, "Transparency on the March in Tennessee," March 21, 2007 (dead link)
  28. National Taxpayers Union, "A Letter to the Nation's Governors: Ensure Transparency and Accountability by Posting Stimulus Expenditures Online," March 10, 2009
  29. Wall Street Journal, "Stimulus Spending by State," March 12,2009