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Tennessee: Bredesen warns state budget shortfall could hit $800 million

By: Andy Sher
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Phil Bredesen

NASHVILLE — Gov. Phil Bredesen warned Monday that Tennessee tax collections plummeted $200 million below projections during the first quarter of the state’s fiscal year, raising concerns the revenue shortfall could hit $800 million by June 30.

“It’s bad,” Gov. Bredesen said. “It clearly is time now to make some of those further cuts in expenses.”

State general fund revenues for September fell $80 million below projections, bringing the funding gap for the first quarter of the fiscal year, which includes July and August, to $200 million, Gov. Bredesen said. Just three weeks ago, the governor had projected a $300 million to $600 million shortfall by June 30.

The governor said he was awaiting first quarter totals before ordering departments to begin new rounds of cutting. He noted that a previous directive for departments to slash 3 percent for next year is “probably unrealistic in this environment. We’re going to have to be changing that.”

Gov. Bredesen also indicated the state will be spending some of its $750 million “rainy day” contingency reserve fund to “get rid of some of the worst effects.” But he said cuts are necessary because “you just can’t make the problem go away with reserves. You’d run through them in a year, and then you’d have nothing left.”

Lawmakers this spring slashed the governor’s original 2008-2009 budget by some $468 million because of declining revenues caused by national economic problems. At the governor’s urging, lawmakers also enacted a voluntary buyout program accepted by about 1,500 state workers. Higher education funding has been cut, as well.

Complete state revenue figures are expected to be released on Wednesday, while Gov. Bredesen next week begins holding his annual, open budget hearings.

Tennessee is by no means alone as it grapples what “could be the worst fiscal storm to affect the states in decades,” said Arturo Perez, a fiscal expert with the National Conference of State Legislatures.

“At this point, Tennessee has plenty of company across the country with regards to underperformance in revenue,” Mr. Perez said.

With the nation’s economy in a tailspin, the Nelson A. Rockefeller Institute of Government reported last week that real tax revenues in 31 states fell in the July-September quarter when inflation was factored in.

Tennessee House Republican Leader Jason Mumpower of Bristol, who with a newly won 50-49 GOP majority expects to become the new House speaker next year, said members “recognize the grave seriousness of the situation that we face and are ready to face it.”

But Rep. Mumpower noted, “Tennessee families are facing an economic crisis in their own households” and expect lawmakers to be responsible. He said the state’s problems are “going to require give and take on everybody’s part — a lot of give and take.”

Gov. Bredesen and lawmakers have said they do not intend to rely on tax increases to deal with shortfalls. But the governor said if the shortfall indeed hits $800 million, the situation will require “some very painful action.”

The state’s general fund provides money in areas ranging from TennCare to K-12 education but does not include transportation funding, which comes largely from dedicated fuel taxes, and money shared with local governments.

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