December 15, 2004

Priorities

Tennessee's State Funding Board, a group of economists and lawmakers, projects Tennessee's tax revenue will grow by about $300 million in fiscal year 2005-06 (which doesn't begin until July 1, 2005). A few months ago, they had projected it would grow by about $400.

Three years ago, The Tennessean, would have reported this as a looming budget "deficit" and editorialized in favor of then-Gov. Don Sundquist's call for a tax increase and a new state income tax. But not anymore. Now, with a governor in office who has opposed raising taxes, the paper reports it simply as matter of setting spending "priorities."

And they're right. The truth is, forecasters expect revenue to meet projections this fiscal year, and to grow by between 3.65% and 4.4% in fiscal year 2005-06, which would bring in an estimated $284 million to $344 million in new money for the state during that budget cycle.

That's reasonably healthy revenue growth, and will come on top of this year's revenue growth, and provide the state plenty of money to balance the budget, provided the governor is able to reform TennCare or pull the plug on it.

I've written often about the State Funding Board, which has a lousy track record at revenue forecasting. As I wrote two years ago this week:

Why is it when revenues don't match estimates, it is always portrayed as the fault of the revenue? Isn't it really the fault of those who made the estimate?

After all, tax revenue is the natural result of the natural economic activity of 5.6 million Tennesseans. The estimate is an artificial number created by the five-member State Funding Board - the governor, secretary of state, comptroller of the treasury, state treasurer, and commissioner of the Department of Finance and Administration - who are aided by testimony from three economists. In the past four years, the board - dominated by pro-income taxers - has selectively heard only from economists who are either openly in favor of or not publicly hostile to the income tax.

Gov. Bredesen's focus on balancing the budget with the available revenue by setting priorities instead of demanding tax increases is the right approach.