August 4, 2004

Another Lie Exposed

Tennesseans recall that, during the four-year battle over a proposed state income tax, those who favored such a tax claimed over and over that our current tax structure created a "structural" imbalance in the state's budget. Moody's Investors Service said yesterday that, in effect, that was a lie. Here's the key part of the story from Nashville City Paper:

Moody’s Investors Service has revised Tennessee’s credit outlook from negative to stable and has affirmed the state’s general obligation debt rating of Aa2.

"The state's economy and finances have been strained in recent years leading to a reliance on non-recurring revenues to fund ongoing operating expenses,” according to a report released by Moody's.

"[But] [t]he revised outlook reflects improvements in the state economy that have strengthened state finances, together with actions taken by the state to stabilize its financial condition and create structural budget balance. In addition, the state has initiated reforms in an attempt to alleviate expenditure pressure from TennCare, the state’s healthcare plan."

Moody's credits the state for taking "steps towards eliminating [its] structural deficit," but also notes that even after raising taxes by $900 million during the 2002 legislative session, the legislature still didn't reign in spending enough, causing another $250 million budget deficit the next year as a result of "greater than expected expenditure growth." As the legislature and the governor have complete control over how much money is spent, the only reason spending grew more than expected is, the legislature and governor chose to spend it.

The only "structural" budget problem facing Tennessee is elected officials who spend too much, and a constitutional cap on spending growth that, as currently structured, is ineffective.