NASHVILLE — Tennessee’s current-year budget shortfall is expected to hit $300 million when new revenue figures are released today, and the problem will likely grow only worse in coming months, officials said Monday.
Finance Commissioner Dave Goetz confirmed reports from legislative leaders, who say Gov. Phil Bredesen told them last week the current year $210 million shortfall is expected to swell to $300 million when March revenue figures are released today.
“The figure he (Bredesen) was looking at was a running total of what we know we’re short in the current year without April collections,” Commissioner Goetz said.
That will increase the size of cuts in the current fiscal year 2008 budget.
In January, the Bredesen administration laid out plans to reduce spending by $118.7 million in the current fiscal year. It proposed using another $45 million in savings from a delay in restarting TennCare’s medically needy program and another $37 million in unspent funds from the Cover Tennessee program to help resolve the shortfall.
Mr. Goetz also warned the effect of this year’s shortfall on Gov. Bredesen’s proposed $27.88 billion 2008-09 budget is more than $300 million because it is built on certain assumptions of growth in the current budget.
The figures to be released today represent March collections and are based on February economic activity. No other details were available.
Earlier Monday, Mr. Goetz and two other State Funding Board members glumly listened by phone to University of Tennessee economist Bill Fox, who outlined the impact a worsening national economic picture is having on state revenues.
“The news has generally been worse than we’d hoped,” Dr. Fox told the panel. “Oil prices have gotten higher and stayed higher than we thought it would. The housing downturn has certainly been more serious than I think anybody expected.”
He agreed with Federal Reserve Chairman Ben Bernanke’s assessment that the national economy appears headed toward recession.
“I would expect this particular recession to hit sales taxes more heavily,” Dr. Fox said, citing the declines in housing sales and noting that vehicle sales are at their lowest point since 1995.
“And you put that together and states that are sales tax dependent will see a tough year,” he said.
Goetz spokeswoman Lola Potter later said Commissioner Goetz recalled the state having had to cut close to $500 million from Gov. Bredesen’s first proposed budget for fiscal year 2003-04.
Tennessee, which has no general state income tax, is one of the most sales-tax dependent states in the nation with 57 cents of every state tax dollar coming from sales taxes.
A comprehensive update of the state revenue picture has been postponed to May 1 to let the governor and lawmakers better determine the total size of the shortfall.
That will let Gov. Bredesen and lawmakers to take into account April tax collections. April is when the state collects 25 percent of its two main business taxes — the franchise and excise taxes — the primary drivers of revenue growth in recent years.
Noting that that franchise and excise taxes are largely based on 2007 revenues, Dr. Fox said, “if April’s numbers come in with a big shorfall, then it’s going to be a very bad year.”
Mr. Goetz said the state will be looking at more cuts.
“The question is how far we go with it,” he said, noting Gov. Bredesen and lawmakers in May will be making “our last best effort to get through the next several months.”
