May 11, 2007

State's Surplus Surges Again

Tennessee's tax revenue surplus grew by $72.2 million in April. The surplus now stands at $257.2 million with three months left to go in revenue collections for the 2006-07 fiscal year. Reducing the state's sales tax rate on food by one cent would would reduce revenue to the state by an estimated $78 million.

Here's the press release and data from the Tennessee Department of Finance & Administration.

Nine months into the fiscal year, this year's revenue surplus is $30.5 million ahead of last year's surplus nine months into the fiscal year. Ttate ended fiscal year 2005-06 with a surplus of $411.2 million, and is likely to top that this year.

However, the legislature and the Bredesen administration may not legally spend very much of the surplus revenue yet. The state constitution's Copeland Cap limits growth of the state budget to an annual rate based on the growth of the state's economy, and total appropriations from state tax revenue in the current-year budget (2006-07 fiscal year) were $100,000 below the cap.

In order to enable the Bredesen administration to spend more than $100,000 of this year's revenue surplus in this fiscal year, which ends June 30, the legislature would first have to pass legislation authorizing spending to exceed the cap.

Legislation has been pending since February to do just that. Filed by House Majority Leader Gary Odom, and state Sen. Jim Kyle, the Democrats who carry the Bredesen administration's legislation in the General Assembly, the legislation would authorize state government to exceed the growth cap by $11.5 million in the current fiscal year (2006-07) and similar legislation authorizing state government to exceed the growth cap by $12 million in fiscal year 2007-08. The dollar amounts in those pieces of legislation can be amended - and no doubt will be as this year's revenue surplus and next year's projected revenue both continue to skyrocket. The second piece of legislation, affecting the 2007-08 fiscal year, will almost certainly have to be amended as Gov. Bredesen's initial budget proposal for 2007-08 was $30 million over the Copeland Cap, months before the latest eye-popping surpluses and revenue projections.

The legislature has voted to exceed the Copeland Cap 12 times in the past 22 years, by a cumulative $3.275 billion dollars. And because exceeding the Copeland Cap in a given year sets a higher baseline upon which next year's allowed budget growth is calculated, all of those over-spending decisions combined now cost Tennessee taxpayers more than $3.275 billion annually, thanks to the ratchet-up effect of busting the budgetary growth cap.