When Gov. Phil Bredesen gives his final State of the State address Monday night, his reputation for financial acuity will be put to its greatest test.
The worst economy since the Great Depression has caused an unprecedented decline in state tax receipts, and Bredesen must convince legislators of the wisdom of accepting the deep spending cuts that he will recommend.
For 19 straight months, state tax collections have come in less than the year before — a condition economists lament as negative growth. In all, the state suffered a $1 billion loss in year-over-year revenue. Even after legislators cut $230 million in last year’s session, a new shortfall of $170 million already has opened in the current $29 billion budget, and officials are struggling to keep it in balance.
Making matters worse, the state’s share of federal stimulus money is running out. Bredesen used $520 million of that money to delay some cuts last year, so those reductions will go into effect over the next year on top of whatever new cuts the legislature is forced to make.
The administration has kept the lid on details of Bredesen’s plan, leaving it to him to make his case Monday night. Up to $400 million in additional reductions may be necessary, according to some legislators. Bredesen warned the cuts in services will not go unnoticed by the public, and legislators are bracing for anguished constituencies.
“You can’t get from where we are to where we need to be without doing things that people are noticing,” he said. “And remember that we really have two years’ worth of cuts to deal with. Because of the stimulus funds, there were a number of cuts that were actually made, legally, last year, but which really haven’t come into effect yet. So there’s really kind of a double hit here in terms of the cuts.”
Bredesen has ruled out tax increases, ensuring that he will become the first Tennessee governor in modern times to complete two terms without raising the state sales tax.
Because state government always has operated conservatively, Tennessee is better off than many other states. In the past year, 48 states have faced shortfalls totaling a record $193 billion, according to the nonprofit Center on Budget and Policy Priorities.
Tennessee is among 28 states that have restricted health care programs for poor people. Among this state’s cuts, the Bredesen administration has frozen enrollment in CoverKids, Tennessee’s health care program for children.
At least 36 states have cut funding to public colleges and universities, forcing layoffs of faculty and staff in addition to tuition increases. Tennessee staved off higher education cuts last year with federal stimulus cash, but funding reductions and new tuition increases are almost certain this year.
At least 24 states, including Tennessee, have cut programs for the elderly and disabled. Tennessee has reduced community-based services for the mentally disabled and nursing services for some disabled adults.
At least 42 state governments have cut their work forces. Bredesen has dropped more than 2,000 state positions, about 5 percent of the state work force, and some 1,500 employees have accepted buy-outs for early retirement.
The governor confirmed last week that he will lay off more state workers this year, but he declined to say how many.
He said he will eliminate some jobs to create new efficiencies but other cuts will be “involuntary in the sense that these are layoffs that are painful right now, and you hope at some point in the future … [the jobs] could be retrieved, but we need to do things to get through the budget.”
In a Catch-22, economists say that by cutting services to balance their budgets, state governments actually could wind up delaying any recovery by reducing overall economic activity.
Bredesen, who cannot run for re-election because of term limits, said he wants to leave the state in sound financial condition for his successor. But with no recovery in sight, the state’s finances almost certainly will remain on life support long after he exits. Even after the economy rebounds, Tennessee may be one of the last governments to get back on its feet. That’s because the state relies on the sales tax, which grows slower than the economy.
“Gov. Bredesen is widely considered a skillful fiscal manager,” said Middle Tennessee State University political scientist Mark Byrnes. “[But] no matter how well Bredesen handles the budget this year, his successor will inherit a tough situation. It’s almost enough to make me wonder why some people are trying so hard to get elected to the office.”
In an election year, lawmakers will be loathe to upset voters by cutting popular services. So they will be tempted to raid the state’s $800 million in emergency reserves, most of which is in the “Rainy Day” fund. They reason that these financial conditions qualify as a torrential downpour.
House Speaker Kent Williams, R-Elizabethton, said last week he thinks the state should spend roughly half of its reserves to prevent what he called “vital social service agencies” from shutting down.
“My philosophy has always been, if your children are going to go hungry or your family is going to suffer medically, you don’t keep money in your savings account,” he said. “I look at it like we’re protecting our children, and we’re protecting those who can’t help themselves.”
But Senate speaker Ron Ramsey, R-Blountville, who is running for governor, insisted it’s fiscally irresponsible to spend that much out of the state’s reserves.
“We need to keep some money laid back because we haven’t seen the light at the end of the tunnel yet,” Ramsey said. “I’m sure this has sunk in with some of our members just how bad this is. We can’t be like Washington, D.C. We can’t print money. There are going to be some tough decisions.”
For coverage of Bredesen’s address, visit nashvillecitypaper.com