Haslam Says State Facing $160 Million In Budget Reductions Due To Declining Revenues; No Raises For Teachers, State Employees

Monday, March 31, 2014

Governor Bill Haslam said Monday the state is facing $160 million in budget reductions due to declining revenues.

He said that will mean no pay raises for state employees or teachers.

Governor Haslam said, "Earlier this month, former Florida Governor Jeb Bush was in Nashville and joined Senator Lamar Alexander and me for a great discussion about education and workforce readiness. As I said to the audience of business leaders during the event, I don’t know of a more critical issue facing states than making sure citizens have the necessary skills and training for high quality, good-paying jobs.

"Let me turn to the budget. Later this week I will file an amendment to the fiscal year 2014-15 budget that identifies $160 million in reductions due to an ongoing decline in revenue collections and an additional $150 million to close the funding gap in the current budget for fiscal year 2013-14.

"The revenue collection decreases were caused by two things. First, a dip in sales tax collections after a modest holiday shopping season, followed by a long, cold winter that has kept shoppers indoors. Our state depends heavily on sales tax, and because so much commerce has shifted online without us being able to collect a majority of the taxes owed, that continues to have a negative impact on our budget year in and year out. For example, in fiscal year 2012-13, the state had an estimated revenue loss of nearly $332 million due to online commerce. Second, franchise and excise taxes, also known as business tax collections, which are often volatile, are down $215 million. This is a result of overpayments by businesses last year that are now resulting in credits and refunds.

"Budget reductions obviously aren’t much fun to report, but we are managing state government well and are making responsible choices to ensure a balanced budget. It is important to note that Tennessee’s economy continues to be strong. Tennessee businesses are performing well and continue to make decisions to create more jobs here."

Governor Haslam on Tuesday announced details of his proposed amendment to the FY 2014-2015 budget, identifying $160 million in reductions due to an ongoing decline in revenue collections and an additional $150 million to close the funding gap in the current budget for FY 2013-14.

While the budget amendment includes reductions, it keeps funding increases intact for key areas such as the Department of Children’s Services and the Department of Intellectual and Developmental Disabilities. The amendment proposal also preserves funding for the Basic Education Program’s (BEP) salary equity fund.

“Tennessee’s economy continues to be strong even as revenue collections have come in under estimates,” Governor Haslam said.  “Tennessee businesses are performing well and continue to make decisions to create more jobs here. What we’re seeing is a drop in business tax collections, which is a result of the reconciliation of overpayments that were made in the past.

“Our state also depends heavily on sales tax, and because so much commerce has shifted online without us being able to collect a majority of the taxes owed, that continues to have a negative impact on our budget year in and year out.”

The revenue collection decreases reflected in the budget amendment include a dip in sales tax collections after a modest holiday season, followed by a long, cold winter that has kept shoppers indoors.

In addition, Tennessee is currently not able to collect the entire amount of sales tax owed to the state from purchases made online. In FY 2012-2013, the state had an estimated revenue loss of nearly $332 million due to online commerce.

Franchise and excise taxes, a type of business tax, are often volatile and are down $215 million due to overpayments by businesses last year that are now resulting in credits and refunds.

Revisions to the governor’s budget proposal include:
  • Savings from automating TennCare’s eligibility system - $6.5 million
  • Contract reductions to Families First vendors - $4.75 million
  • TennCare provider rate reduction - $18.5 million
  • Eliminating pay increases for state employees and teachers - $72 million
  • Reducing next year’s funding for Higher Education to the current funding level, eliminating proposed increase - $12.9 million
  • Reduction of the BEP Growth Fund - $5 million
  • Recognizing savings in the Career Ladder program - $4 million
  • Reducing proposed funding for the Rainy Day Fund by $4.8 million, which preserves an investment of $35.5 million bringing the state’s savings account to $491.5 million on June 30, 2015.

The governor’s amendment eliminates a proposed increase to health insurance premiums for state employees and teachers to provide them some compensation.

Governor Haslam presented his original budget proposal, SB 2596/HB 2501, on Feb. 3.  It was based on revenue collections from November 2013 and was put together in mid-December when Tennessee budgets are historically done.

The $150 million gap in the current FY 2013-14 budget will be closed by capitalizing on efficiencies departments have been making throughout the year and by right-sizing several reserve funds.  Rainy Day Fund dollars will not be used.

The budget amendment will be filed this week.  Finance and Administration Commissioner Larry Martin will begin presentations to both finance committees on Tuesday.

 




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