May 12, 2008

Bredesen's Budget Speech

Gov. Bredesen spoke about the state budget today. You can read the prepared text here (PDF file).

Tom Humphrey points out that while Bredesen seeks to cut $80 million out of a planned $100 million expansion of TennCare to cover thousands of medically needy Tennesseans, he didn't let the budget woes preclude him from proposing to stash $100 million in an "economic development contingency fund."

Bredesen mentioned the fund in the speech, though it isn't in the speech as prepared.

What's the fund for? I'm guessing it is to pay for whatever incentives the governor and his economic development department are already negotiating to give Volkswagen to build a new assembly plant in Tennessee. That seems to be pretty much an open secret, though Volkswagen has not even decided whether it will or won't build a plant in the United States. Three sites in or near Tennessee are under considering - in Clarksville, Chattanooga, and northern Alabama, any of which would be good for Tennessee's economy and Tennessee workers. VW is also said to be looking at a Michigan site, though few believe VW will pick a site that would have to be staffed by union labor.

John Rodgers at the City Paper also reports on the $100 million economic development fund.

As for the rest of Bredesen's proposals, it's worth remembering that much of what he is cutting - other than the plan to reduce the state workforce by 2,000 employees via buyouts - represents cutting planned increases. Next year's budget likely will be larger, and cost Tennessee taxpayers, more than this year's budget.

Gov. Bredesen has grown the state budget by about $1.5 billion a year since taking office - his predecessor grew it by about $1 billion a year.

Update: The Tennessean story on the $100 million economic development fund notes that "Tennessee has also pledged $35 million in training funds to the General Motors plant in Spring Hill this year to help prepare the work force there to build a new Chevrolet Traverse crossover utility vehicle."

The story suggests Tennessee could offer similar funding to Volkswagen. In April, VW announced that its first-quarter net profit rose by more than 25 percent globally on stronger sales, and the predicted a substantial increase in demand in 2008, according to this AP report.

VW, Europe's biggest carmaker by sales, earned $1.5 billion in the January-March period, on sales of $43.01 billion globally. VW sold 1.6 million cars in the first quarter of '08, 6.9 percent more than in the first quarter of 2007.

The Bredesen administration people quoted in the various stories point out that economic development is necessary for the long-term, and the state's fiscal woes shouldn't prevent the state from maximizing opportunities that come along. In part, they're right - the state should continue to attract companies, and using taxpayer dollars to build infrastructure to support economic development is good policy. I'm confident the $30 million or so that Tennessee invested to accommodate the Saturn (now GM) plant in Spring Hill in the 1980s has returned billions to the Tennessee economy. The right investments today will help Tennessee's economy grow in the future.

The history of economic development policy in Tennessee is something I know a lot about. I have followed the issue intently ever since the early 1990s when I wrote a series of stories for the Nashville Business Journal exploring how Kentucky was routinely winning battles with Tennessee to land new factories and other economic development plums when sites in both states made the short list. Kentucky was winning thanks to its policy package of well-designed economic development incentives created by the Kentucky legislature after much debate, and with public input - and those incentives were available to any company that met the well-defined criteria, even companies already doing business in the state.

Those stories at first prompted a "no changes - we're doing fine" response from the McWherter administration, but as more and more companies picked Kentucky - and as I and another NBJ reporter got executives at several companies to, on the record, explain why they chose the Bluegrass State over the Volunteer State, the McWherter administration eventually did make some changes to Tennessee's economic development policies and incentives, changes that laid the groundwork for the success Tennessee has enjoyed in economic development for the last decade.

Unfortunately, today the current administration's economic development "policy" - to the extent that it has one - is to open the checkbook and throw cash at out-of-state corporations considering moving to or opening a new facility, in Tennessee, and to do so with a mish-mash of "incentives" rushed into law via tax code "technical corrections" legislation passed in a rush at the end of the legislative session, often with little scrutiny or public debate.