Haslam Expects Federal Belt-Tightening to Squeeze Tennessee

Gov. Bill Haslam said Thursday that state and local governments should be prepared for less money coming from Washington as Republicans and Democrats feud over federal debt issues. He reasoned that Tennessee will take a hit regardless of how the matter is resolved.

In a speech to the Rotary Club in Fayetteville, Haslam also left the door open for possible expansion of pre-kindergarten classes in Tennessee, although not soon. He pointed to reasons for his regional jobs approach in the state and said while he thinks the economy is improving it is still “a long way until we get out of the woods” financially.

After making brief remarks, Haslam took questions from the audience and was asked what impact the budget battle in Washington could have on the state.

“I do think it will get worked out, but there will be less money coming out of Washington than there used to be,” Haslam said. “There just will be. For all programs. Whether that’s money aimed toward education or health care or building roads or helping folks with mental health issues or workforce development issues. There will be less Washington dollars going forward.

“That’s why I say while we’re working our way out of some budget issues we’re not out of the woods yet, because we still have some economic challenges, and I’m not sure what the Washington changes will mean for us.”

President Obama and Democratic leaders in Congress have been deadlocked with Republicans over a debt-reduction plan.

Haslam pointed to warnings about the state’s bond ratings even though Tennessee has strong ratings from the three major bond agencies — Moody’s, Fitch and Standard & Poor’s.

“We would love to have three AAA ratings, because we have a great balance sheet as a state,” he said. “They kind of sent a warning out to all the states, saying, ‘We’re thinking about downgrading every state’s debt because we’re worried about the federal government.’”

Haslam said since states receive a large amount of revenue through federal funds, the federal budget issue would have a domino effect on all states. The governor will be traveling to visit the rating agencies in a few weeks.

After his appearance, Haslam said he had talked recently with both Sen. Lamar Alexander, chairman of the Senate Republican Conference, and Sen. Bob Corker, who has been especially vocal on getting the nation’s debt under control, about the impasse in Washington.

“It depends on what day you catch them about their optimism about where we are on it,” he said. “At times they get a little frustrated with the politics of that, but I don’t know that I have any insight there beyond what anybody else does.”

When asked Thursday about the state’s pre-K program, which currently operates on a limited basis, Haslam hinted he might like to add more pre-K classes.

“Right now, I’m in favor of leaving it where it is,” he said. “We funded it in the schools where it currently exists. I actually think there’s a chance we will expand it down the road. But I think we’re waiting for more data to come in and our revenue situation to change.

“To put it in every school would cost us about $300 million, and we just don’t have it right now.”

Haslam said the lack of funds makes the decision easy to wait for more information about the effects of pre-kindergarten classes. He said the delay could mean more time to figure out where pre-K is effective and where it may not be effective. The issue has become politically charged in Tennessee, with many Republican lawmakers wanting to draw the line on pre-K, pointing to a series of state-funded studies that indicate limited long-term impact on students’ performance.

Since Fayetteville, in Lincoln County, is in a border county with Alabama, about 30 miles north of Huntsville, Ala., the issue of sales taxes and how they apply across state lines came up Thursday. Further, Haslam said Tennessee loses an estimated $500 million-$600 million each year in revenue because of Internet sales.

“I’m confident everybody in this room has bought something off the Internet recently, and you probably bought more this year than last year, and you’ll probably buy more next year,” he said. “So we have to address that issue.”

He renewed his call for Congress to step in and settle the matter nationally.

Haslam pointed to Lincoln County’s proximity to Huntsville, saying in some ways the county has more in common with Huntsville than Nashville, which has implications when recruiting jobs. But he said he didn’t think borders should stop economic development partnerships.

“There are a lot of things happening in northern Alabama we can partner with them on, and we’ve had some very preliminary conversations about how we might make that happen,” he said.

Haslam’s comments came the same day House Minority Leader Craig Fitzhugh, D-Ripley, announced he had appointed a task force dedicated to creating more jobs in the state.

Haslam said when he speaks to business leaders they comment frequently on how nice people in Tennessee are but that the state’s ranking in the 40s among the 50 states in education is “the one drawback we have.”