May 19, 2005

Hey, Look! A Surplus!

The Tennessean and the Nashville City Paper have both finally noticed that the state is running a large revenue surplus this fiscal year - and both are out today with reports that that Gov. Phil Bredesen is already making plans to spend it.

The Tennessean reports:

Better-than-expected tax collections will allow state officials to spend an extra $272 million next year — about two-thirds earmarked for TennCare, with the remainder going to step up industrial recruitment, hire more probation officers, and help identify sick livestock, among other items.

The money also will let Gov. Phil Bredesen give state workers a permanent 2% raise, a change from his initial offer of a 1% raise and a 1% bonus.

...The windfall comes thanks to a rebound in sales tax collections, state Finance Commissioner Dave Goetz said. Last January, state finance officials projected tax growth at about 4%. Instead, collections have come in at a healthier 4.5% growth rate, Goetz said.

So far this fiscal year, revenue officials have collected $91 million over projections and expect to collect another $40 million for the two months until the fiscal year ends June 30, Goetz said.

Althought the Nashville City Paper also is six days late telling its readers about the surplus, at least reporter Skip Cauthorn does a much better job explaining the source of the $272 million figure:

The General Assembly, which is hoping to adjourn within the coming two weeks, was presented a budget amendment by the Bredesen administration laying out spending recommendations for the roughly $141 million surplus in this year’s budget and $132 million in projected growth for the coming fiscal year.

The excess funds are available because of an upswing in sales tax revenues and new projections set by the state Funding Board last month.

Instead of rebating that to taxpayers via a tax reduction, as would be required under a Taxpayers Bill of Rights, or saving it for a rainy day, the Bredesen administration is rushing to spend every dollar of it.

On top of that, the notoriously inaccurate and often politically compromised State Funding Board - an arm of the executive branch of state goverment whose membership includes the governor, secretary of state, comptroller of the treasury, state treasurer, and commissioner of the Department of Finance and Administration - has revised its forecast for revenue growth next fiscal year, adding another $132 million in mythical money for Bredesen to spend.

Not one dime of that $132 million has actually been collected, and we won't know for another year if the new projections are accurate, but Bredesen also is rushing to spend almost every dollar of that money too. Only $10 million will be allocated to the state's rainy day fund.

Spending revenue surpluses and budgeting based on rosy revenue projections is the same kind of fiscal recklessness engaged in by previous Gov. Don Sundquist. After a few years of that, the state couldn't sustain the spending and Sundquist proposed a state income tax.

The City Paper puts the Bredesen budget for next fiscal year at $25.7 billion, while the Tennessean puts it at $25.1 billion. Either way, it is increasingly clear that Bredesen is following Sundquist's pattern of rapid spending growth. Whether he'll also propose an income tax in a second term, as Bredesen has pointedly refused to rule out, remains to be seen.

UDPATE: From an emailed "Capitol Hill Update" sent from state Rep. Charles Sargent comes further clarification of the budget figures. The Tennessean's $25.1 billion figure is wrong.

In this week’s action on the budget, the governor filed an amendment to his $25.1 billion state budget in the House and Senate Finance Committees which would add $264 million to his original budget plan due to better than expected revenues, and spends an additional $180 million for TennCare and for safety net efforts for those who lose coverage. ... The state now expects to take in $131 million more in the current fiscal year than has been budgeted and another $138 million next year. Originally the state’s revenue growth rate had been estimated to be 4 percent. The funding board recently adjusted that rate to a 4.5 percent growth rate as revenues are $91 million over projections thus far, with another $40 million expected. These revenues are in addition to the $325 million in new money that already had been projected at the beginning of the year. When additional federal funds are included, total state budget money is expected to be about $25.7 billion.