NewsTracker Tax and Budget

Governor Predicts Program-Specific Cuts from Feds

Gov. Bill Haslam said he expects the federal government to target programs instead of issuing across-the-board funding cuts to states as part of efforts to reduce the deficit this fall.

The governor made the prediction the day after his administration finalized contingency plans for 15 percent and 30 percent federal funding reductions in each state department.

“This is in the unlikely event that the federal government cuts that much. We don’t think they will, but we think it’s smart of us to say, ‘What happens if they do?’” the governor told reporters at the Blue Grass Country Club in Hendersonville after an economic development roundtable with local business owners.

“I actually think if the cuts come from the federal government, what they’ll cut is programs,” Haslam continued.

In light of the ongoing debate about the national budget, a Congressional deficit reduction committee expects to lay out a plan by Thanksgiving to reduce the budget by $1.2 trillion over 10 years. The reductions were part of a deal to raise the debt ceiling approved earlier this month.

The governor’s office plans to release details of its backup plans Friday or Monday, according to an administration spokeswoman. Roughly 40 percent of the state’s budget is made up of federal funds.

The budget work comes ahead of Haslam’s planned visit to bond rating agencies in September. Moody’s Investors Service announced in July that Tennessee could lose its AAA status because of the federal budget drama and the state’s dependence on federal funding.

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State Prepares Budget Cuts for Future Guv

As candidates for governor bicker over the size of Tennessee’s budget shortfall next year, Gov. Phil Bredesen’s administration has asked state agencies and departments to shave 1 percent and 3 percent from their annual budget requests.

The state would probably still be short on cash with the reductions, Dave Goetz, commissioner of the Finance and Administration Department, told a legislative committee. He expects Tennessee will fall about $45 million short, an amount equal to a reduction of 1 percent. The state would save $160 million by enacting the 3 percent cut.

Bredesen leaves office in January, but the governor’s top budget officer says the cuts will set up the state’s incoming chief executive with at least one pre-arranged option for balancing next year’s budget.

“We’re leaving as square a set of guidelines as possible,” said Goetz. “Nobody needs to be running around with their hair on fire.”

The two major candidates for governor cannot agree on the scope of next year’s budget picture. Republican Bill Haslam says the state will face a $1.5 billion budget hole when federal stimulus dollars run out, but Democrat Mike McWherter says those numbers are way too high.

The candidates elaborated during Tuesday night’s gubernatorial debate at Tennessee Tech University in Cookeville.

“We’re going to have a billion dollars-plus less in revenues next year,” Haslam said.

And while he didn’t offer specifics as to what he’d target in the way of reductions to state spending next year, Haslam said his experience as mayor of the state’s third-largest city has taught him “you don’t go in and make one huge cut anywhere.”

“We actually cut the city of Knoxville’s budget by making thousands of different cuts in a lot of different places,” he said. “The first thing to ask is, ‘Should government even be doing this?’”

Haslam said he would investigate “whether we’re doing things as effectively and efficiently as we can.”

McWherter, on the other hand, suggested that while the state’s financial picture is far from rosy, it isn’t nearly as bad as it could be — and for that matter, as bad as it is in many other states.

“(Halsam) wants to terrify you into thinking that our budget is going to be in a huge hole once the stimulus money runs out,” McWherter said, adding that he thinks the legislature and Bredesen have done a good job “matching recurring expenses with recurring revenues.”

“Yes, our budget might be less than it is this year … but they’ve done a very responsible job, Republican and Democratic alike, of being able to match those revenues with those expenses,” he said.

The key to turning things around, said McWherter, is to put as many people back to work as possible — something he said his proposal for offering tax incentives to businesses that hire new employees would do.

Goetz, the chief financial officer for the term-limited Democratic governor, says next year will indeed be difficult, but the state is prepared.

“I know there’s been a lot of public discussion here about how big’s the hole, and what’s the next person going to have to do,” Goetz told the legislature’s Joint Fiscal Review Committee Wednesday. “I believe, working together, we’ve left the next administration a plan that they can follow.”

This year’s budget is just shy of $30 billion, with $12.1 billion funded from the state. Goetz says the 2010-11 spending plan includes $189 million worth of expenses, programs and projects that are paid for with one-time stimulus money and other federal dollars that are slated to end next year.

Because of those cuts, next year will be tough, said Sen. Randy McNally, who chairs the Senate Finance, Ways and Means committee.

“There’ll be lots of pressure on us to restore things to the budget that have been funded with one-time money,” said McNally, an Oak Ridge Republican who chairs the Senate Finance Ways and Means Committee.

The reductions would target the agencies’ recurring budgets with specific aims at reducing personnel, overhead and operating costs, but exempt several education programs and other spending initiatives. The ultimate decision of whether those cuts will stick will be up to the new governor and General Assembly.

Last year, Bredesen asked the same departments to prepare plans to slash both 6 percent and 9 percent from their budgets. Cuts in many of those departments were upheld.

Tax collections have dropped since mid-2008 but slowly began growing again in April.

Revenues are still shaky, though. Collections of sales, excise and other taxes were up 3.08 percent from this time last year, but still fell $5.4 million below budgeted estimates, Goetz said.

The state’s revenue collections tapped out at $749.3 million in August, making it the fifth month in a row the state collected more than the year before.

Officials believe the shaky but slow growth may indicate that the state’s economy is beginning to recover.

However, Tennessee’s finances are behind.The August collections still fell $35 million below the level two years ago, and Goetz predicted revenues won’t fully recover until 2014.

Mark Todd Engler contributed to this report.