by Darlene Schlicher, House Republican Press Secretary
posted May 9, 2002
Tennessee can expect "modest economic growth next year" according to University of Tennessee's financial expert and economist William Fox, but the state's revenue growth picture will continue to be dismal. Fox appeared before lawmakers and the State Funding Board in a joint meeting on Capitol Hill, to lay out his predictions of what to expect from Tennessee's economy over the next year, including his forecast for state revenue collections.
Fox was joined by State Finance Commissioner Warren Neel, Comptroller John Morgan and other constitutional officers who outlined the fiscal challenges that Tennessee faces economically due to the national recession and poorly performing business taxes. In his monthly report, Neel said that although sales tax collections increased last month by .89 percent, franchise and excise taxes continued to plummet with a decrease of $52.3 million or a negative 17.79 percent for the month. Also performing poorly this year is the Halls Income Tax, which is down a negative 25.8 percent over last year's collections due to poor market conditions. Neel said the year-to-date tax collections are $146.5 million less than the budgeted estimates and $117 million less than the general fund estimate.
"This is a manufacturing recession caused by a slowdown in investments. We have been hit very hard by it, at the heart of Tennessee," said Fox as he predicted a slow recovery scenario. "I have never seen a year more difficult to forecast than this year. A 20 percent reduction in corporate taxes is extraordinary and way out of line with any history."
Fox said that although Tennessee has been in a recession, "consumer spending on durable goods has spiked and dampened the effects." He said, "car and housing sales are at historic highs during this recession," which he credited to low interest rates. "Most consumers never knew there was a recession," he said.
The Funding Board ended up projecting that state revenues will grow between 1.8 and 2.3 percent for the fiscal year that begins in July. The forecast was more cautious than the 3 percent estimated by Fox, due to the need to err on the conservative side in the likely case the state's reserve funds are depleted to pay for this year's revenue shortfall. Neel said the current year's shortfall is $480 million.
On unemployment, the economists said that Tennessee joins every Southeastern state in the nation, except Louisiana, in experiencing job decline. The state at 5.6 percent unemployment, however, is still below the national jobless rate of 6 percent. Memphis and Northeast's Tri-cities have been hit hardest by unemployment. Knoxville has fared best maintaining positive job growth, followed by Nashville, and Chattanooga.
TennCare Bureau answers audit findings
Tennessee's TennCare Chief John Tighe answered an array of questions on Capitol Hill this week regarding a Comptroller's report released last month critical of the state's eight-year old health care program. The audit was conducted by the office of Comptroller John Morgan and acts under the "Single Audit Act" as the report that goes to the federal government in their monitoring of the program for federal funds.
One of the major problems cited in the audit was an insufficient computer program to assure communication between various agencies, departments and MCOs. The audit also revealed that almost 20,000 enrollees either had out-of-state addresses or P. O. Box numbers that are not allowed under the rules since addresses must include a street name to make sure the enrollee is indeed a Tennessee resident. It was also critical of benefits being given in error to people who are on the rolls twice; prisoners, who are not entitled to receive the benefits; and state employees, who should have access to insurance. The problems represent some of the criticisms that have been found under previous audits.
Tighe said, "TennCare must meet major challenges even though it is constantly in flux and under public scrutiny. We must rely on the audit to make sure we are constantly improving. Every audit finding is assigned to an individual and has a plan to overcome it."
Tighe took issue with some of the report's findings and said a Nov. 2001 court order had stymied reverification efforts. He also said that the report was for the fiscal year ending in June 2001 and that many changes in TennCare had taken place in the meantime.
Of the almost 20,000 enrollees that were unverified state residents, Tighe said there were now around 8,800 who were out-of-state and that some of these were legitimately on the rolls like students, those receiving medical treatment out-of-state, or those helping a parent or a child who lives in another state. He said the Fraud Unit will continue to investigate all out-of-state enrollees.
Of the state employees who are on TennCare, Tighe said that there is an exception to allow coverage for those making $15,700 or less with two dependents. On the duplicates, he said the Bureau is working to merge the rolls and are actively recovering any money expended to the MCOs for this reason. He also said prisoners who are out on parole or medical furlough are eligible for TennCare benefits. He said the Bureau has recouped payments that were made due to fraud or error. Finally, an information, or communications system, is to be operational by October 2003 according to Tighe and will alleviate some of the critical data management problems.
It is the drug component that is a major concern for the future of the TennCare program according to Tighe and Morgan, as it claimed $2.5 billion last year and is 25 percent of its total expenditures. Tennessee is first in the nation in drug utilization so drug costs are a concern for private insurance programs in the state as well. Tennessee is in the top several states for stroke, lung disease and heart attack.
"If we can't get a handle on drug costs, the program (TennCare) can't be sustained," said Comptroller John Morgan. The average cost is approximately $250.00 per member, per month for pharmacy.
TennCare is a $5.3 billion program that serves 1.2 million Medicaid-eligible, uninsured or uninsurable Tennesseans with health care benefits. The federal government pays for approximately two-thirds of the program.
Bills in Brief
Flat tax -- Legislation that would impose a 4.5 percent flat tax with exemptions of $15,000 for single, $30,000 for married filing jointly, $1,500 per dependent and 50 percent of capital gains, moved from the Finance and Calendar and Rules Committees this week to the floor for final vote by the full House of Representatives. The plan, also called the "Naifeh plan" for its sponsor House Speaker Jimmy Naifeh (D-Covington), repeals the Hall Income Tax, removes all sales tax on grocery food, clothing and non-prescription drugs. It also provides for a 6 percent limit on the state's spending from taxes with an automatic rebate. The plan nets approximately $1.1 billion. The bill is being held "on the House desk," meaning it can be brought up for a vote at any meeting of the full House of Representatives.
"Best interest of the child" -- Judges would have to put in writing why their decision in child custody cases is in the "best interest of the child" under legislation approved by the full House of Representatives this week. The legislation, sponsored by Rep. Bob Patton (R-Johnson City), requires that judges deciding contested custody cases write out the positive reasons why one parent can do a better job parenting, rather than listing the negative reasons why the other parent should not have custody. Currently, judges do not have to furnish such a written finding, which makes it difficult for an aggrieved parent to prove a case upon appeal if the Appeals Court does not know upon what basis the lower court judge made their decision.
Selective Service Registration -- Legislation was approved this week by the full House that would authorize the Department of Safety to transfer information to the selective service registration regarding those young men ages 18 to 26 who are not registered. Federal law requires all young men to register for the selective service at age 18 under the Military Selective Service Act. This legislation would simply provide ease in facilitating that registration. This bill aims to let all young men know of this requirement in order to have a fair and equitable selective service, where all who are eligible are registered. The driver's license process will work to achieve this goal. The bill is sponsored by Rep. H.E. Bittle (R-Knoxville).
Sex Offender Registry -- The full House of Representatives voted this week to add those convicted of "solicitation of a minor" to Tennessee's Sex Offender Registry. The bill seeks to add those convicted offenders to the Registry that use such devices as the Internet and electronic mail to prey on children.
Natural areas -- The full House of Representatives has approved a bill that adds four new Natural Areas and expands five existing Natural Areas to the state's Natural Areas Act. The areas represent biologically and scientifically unique and important areas across the state. The bill also allows the Department of Environment and Conservation to register lands along the designated scenic rivers with owners who voluntarily agree to maintain them in a natural state.
Government Contracts / Accountability -- The House of Representatives approved legislation this week that calls for greater accountability in contracting. The bill, which is sponsored by Rep. Stancil Ford (R-Morristown), requires that contracts for construction management services are through a request for proposal (RFP) process only. The contracts for school construction work under the supervision of a construction manager must also be through the competitive bid process. The bill would make it illegal for construction managers to make a bid for any phase of a project that they are overseeing and permits the school system, at its own discretion, to perform work on the project with its own employees. The comptroller will conduct a study on the impact of the act and on the use of construction managers in the school building projects and report to the General Assembly by January 2005.
Unlicensed crematories -- Sending a body to an unlicensed crematory in another state would be an offense with a civil penalty of up to $500 under legislation approved by the House Commerce Committee. The bill was designed to address such cases like the tragic finding of over 300 bodies on the grounds of a crematorium in North Georgia. Many of the bodies sent there were from Southeast Tennessee. The bill requires Tennessee funeral homes to only use licensed crematories. They must also maintain or keep a copy of the crematory's license and inspections.
Immigrant license law -- The House Finance Ways and Means Committee voted this week to revise Tennessee drivers licenses issued to non-U.S. citizens. Under the bill, unless a driver's license applicant can provide a Social Security number or INS documentation, they will not be furnished a standard Tennessee driver's license with the five-year renewal cycle. The new license furnished to the non-citizen would be a driver's license certificate granted on a one-year basis that states "For Driving Purposes Only." The bill attempts to put better processing practices in place to "clean up" the law passed last year that allowed non-U.S. citizens to get a Tennessee driver's license.
Water Resources Information Act -- The House Finance Committee has approved a bill that allows the Tennessee Department of Conservation to analyze regular water withdrawals that are over ten thousand gallons per day. The bill, which is sponsored by Rep. Joe McCord (R-Maryville), allows the department to collect and compile water quantity data and report on the status of the state's water resources and future water planning efforts. States are becoming more competitive for water resources in the Southeast, with rapidly growing populations. This bill will provide information to plan for Tennessee's future water needs.
BEST Program / prepaid college plans -- The House Education Committee approved legislation that would make the Baccaulareate Education System Trust (BEST) plan subject each year to the appropriations act. The program is a pre-paid college savings plan that allows for the purchase of college tuition at today's cost. The result of the committee's action would mean that the program would be frozen each year unless the General Assembly provided for it in the budget. State Treasurer Steve Adams, who oversees the program, said when the plan was started tuition was rising at a lower rate than earnings on interest, stocks or dividends. Since 1998, however, tuition has risen from 9.78 per year to 13.28 during 2001. Treasurer's earnings last year for the plan were 4 percent due to poor market conditions. Adams said funds for the people who are in the program are "in no danger whatsoever." He said that any further investment, unless present economic circumstances change, would require additional state funds for what had been meant to be a self-funding program. If the budget act does not trigger the program's activity, the BEST plan will be frozen on July 1 for new contracts and August 1 for those already in the plan.
Resolution honors Senator Thompson -- The full House and Senate have passed a resolution honoring retiring U.S. Senator Fred Thompson (R-Tennessee). The resolution says, "Senator Thompson has for many years been a prominent and highly influential figure in the political, social and civic lives of American, and he has served his constituents in numerous capacities, always working diligently at his elected duties and expending the necessary effort to understand the opposing sides of complex issues." The resolution thereby "honored and commended Senator Fred Thompson for his eight years of meritorious service to Tennessee and the United States of America as a member of the United State Senate." Senator Randy McNally (R-Oak Ridge) is the bill's sponsor.
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