April 8, 2008

Bredesen Budget Crisis Deepens

Revenue data released this morning by the Tennessee Department of Finance & Administration indicates the state's revenue crisis is going to be twice as bad as the Bredesen administration had previously indicated. With eight of 12 months of revenue now in the books, the state's revenue shortfall has ballooned to $268.1 million, and the state is now headed toward a fiscal year shortfall of as much as $400 million.

The administration blames the growing fiscal crisis on sluggish growth in sales and business tax collections, but that's misleading.

The truth is that, last year, the administration lied to the legislature and claimed that its budget request was a mere $53.7 million over the state constitution's "Copeland Cap," a limit on the year-over-year growth of the state budget.

But an administration official admitted under questioning on the House floor last May that the administration was not following the constitution and state law in how it calculated the Copeland number. The state Attorney General later confirmed that the administration's method of calculating the Copeland Cap number was illegal.

The Copeland Cap, an amendment to the state constitution approved by Tennessee voters in 1978, says state spending can not grow faster than the rate of growth of the state's economy, measured by the growth of incomes of the people of Tennessee. The goal is to keep spending growth at a level where the people's income growth can afford it without a tax increase.

This current fiscal year budget includes $723 million in spending over the Copeland Cap. The Bredesen administration hid most of that excessive spending - some of it financed by a tax increase on cigarettes - by deliberately ignoring the constitution and state law on how the cap number is to be calculated. The administration calculated the growth cap number based on the previous year's revenue, rather than based on the previous year's spending, as state law and the constitution clearly specify. The state had a huge revenue surplus last year, so using revenue rather than spending allowed the administration to set a higher baseline for calculating the cap.

If the administration followed the law, it would have revealed that the budget was actually over the cap by $723 million.

The constitution requires the state to exceed the Copeland Cap if the legislature passes a law stating the exact amount by which the cap will be exceeded, but because of the Bredesen administration's lie, the legislature passed a law allowing $53.7 million in over-cap spending. That means that this year's current budget includes $669.3 million of illegal spending. If there's one salutary impact of the revenue shortfall it is this: It will force the administration to cancel some of that illegal spending, and that will set a lower baseline for calculating next year's Copeland Cap spending limit.

Had the administration restrained its spending spree to live within the Copeland Cap, Tennessee today would have a revenue surplus, and would likely end the current fiscal year with more than $300 million in surplus, unbudgeted, revenue.

The "revenue shortfall" is artificial, created not by a decline in tax revenues - which continue to rise and will be higher this fiscal year than in any previous fiscal year in the state's history. The "shortfall" is driven by the Bredesen administration's decision to spend $723 million more this year than the state constitution's budget growth formula permits.

The wisdom of the Copeland Cap in tying spending growth to income growth is simple: If spending rises faster than the average incomes of Tennessee taxpayers, tax rates will eventually have to be raised. This year's budget was only balanced - on paper - with a a 22-cent per pack increase in the cigarette tax, projected to bring in nearly $250 million. Through eight months, tobacco tax collections are running $52 million below those projections.

For an explanation of how the administration overspent the cap by $723 million but hid most of it from the legislature and the public, read this. For the attorney general's opinion, click here.

The Tennessee Center for Policy Research recently sued the Department of Finance & Administration's public information officer, Lola Potter, for ignoring the think tank's open records requests for more than nine months. What information was the TCPR seeking? Records related to the administration's handling of the Copeland Cap.

The Bredesen administration is going all out to deny the public the truth about its overspending and its illegal budgeting practices - blaming you, the taxpayer, for not buying enough or smoking enough, when the truth is it is the administration's own overspending that has created the state's current fiscal crisis.