The State Funding Board put estimates Wednesday of revenue growth at between 2.65 percent and 3.35 percent for the next fiscal year, but the phrase “cautiously optimistic” seemed to pop up at every turn.
These are times when economists and state officials are finally seeing some light after a prolonged recession. Pessimism has reigned for years. So even when the numbers turn upward, as they have in recent weeks, there’s a sense that even the most expert predictions come with fingers crossed.
Nevertheless, the outlook expressed from the board — made up of the state’s constitutional officers and the administration’s finance director, as well as the governor — is a far cry from the relentless reports of lagging tax collections month after month during the depths of the recession.
Mark Emkes, commissioner of Finance and Administration for Gov. Bill Haslam, said he is hearing encouraging things from the business world.
“Coming from the private sector, maybe I’m a little more optimistic. Maybe it’s because I watch Bloomberg and CNBC more than I should,” said Emkes, former president and CEO of Bridgestone Americas.
Haslam was one of the people who used the term “cautiously optimistic” about the revenue projections.
“I feel comfortable with that range,” the governor said Wednesday. “I’ve been encouraged by the recent numbers.”
Members of the Funding Board expressed continued concern, however, about high unemployment and instability of the sales tax stream. Secretary of State Tre Hargett saw worrisome signs of a gap between consumer confidence and actual sales tax collections.
“It’s very clear to me there is a recovery coming,” Comptroller Justin Wilson said. “The real issue is how much.”
It has been a week of considerable hand-wringing on the economic outlook and the state budget, which is still expected to include substantial cuts.
James White, executive director of the Legislature’s Fiscal Review Committee, told lawmakers Tuesday that “we still have a long way to go to get back to where we were.”
White told the Senate Finance Ways and Means Committee that, at best, the state won’t hit pre-recession levels of tax collections until 2013.
And that’s with the most optimistic expectation of growth.
White told the Finance committee that if there is 1 percent annual growth, the state wouldn’t fully recover its tax collections until 2018. If there is 2 percent growth, the state could reach pre-recession collection levels by 2015. It would take 3 percent growth to reach pre-recession levels by 2014, and it would be 2013 with 4 percent growth in collections, he said.
White told the committee that if the state wants to restore half of the budget reductions that have been made, it would have to see revenue growth next year of 19 percent — an unreachable number.
“That’s how far in the hole it is,” White said. “If you wanted to restore 100 percent, you’d have to have revenue growth of over 31 percent, which obviously has never happened.”
Nevertheless, as bleak as the state’s financial picture has been, White put the state’s predicament into perspective.
“In many states, they are looking at the abyss,” he said. “When the stimulus money ends, they don’t have a plan for what to do. We’ve been hit about as hard as most states, but in terms of dealing with it, we’re in much better shape than most states.”
Emkes said Wednesday cuts are still inevitable.
“We’re going to be sitting with the governor the next couple of weeks and looking at what makes sense,” he said. “There are so many good causes out there. That’s the sad part. All the causes are good, but we’re just going to have to set priorities.”
“There are a lot of unknowns out there,” McNally said. “The safest course for the state is to stick with the plan presented by the previous administration. If things turn up or down, you can make modifications at that point.”
Haslam’s predecessor, Phil Bredesen, laid out a multi-year budget plan before leaving office meant to make the process go relatively smoothly.
One of the major sticking points is the loss of federal stimulus funds. Haslam has repeatedly noted the loss of that revenue as a major factor in the budget process.
White told the committee Tuesday that jobs and housing starts are major factors.
“The fact we’re not adding a lot of jobs is acting as a brake that is limiting the ability of the state revenue and state budget to recover from the recession,” White said.
He noted that housing impacts sales tax collections, because when people buy a house they tend to buy furniture and appliances that feed the sales-tax base.
If there was one ray of hope in White’s presentation, it was when he told the committee he wanted to talk about the recession “we’ve just been through.” Speaking of the recession — the Great Recession, it has come to be called — in the past tense demonstrates the general mood that the economy has turned a corner. But White warned about the effects of underemployment, where people have lower-paying jobs than they did before.
Sen. Douglas Henry attended the State Funding Board meeting Wednesday. At one point on Tuesday, Henry asked White to compare the Great Recession to the Great Depression.
White told Henry the unemployment rate during the Great Depression was 25 percent.
“So the Great Depression was significantly worse than this,” White said.