Despite good financial status, state has immediate and long term challenges

(NASHVILLE, Tenn.), January 30, 2014 – The fiscal health of Tennessee state government is sound, according to a report released to lawmakers by Comptroller of the Treasury Justin Wilson this week.  State law directs the Comptroller to make quarterly reports to the Fiscal Review Committee concerning the state’s financial affairs.  The report comes as the Governor prepares to deliver his budget to the General Assembly on Monday night.

Wilson attributed Tennessee’s good financial status to the state having a balanced budget amendment, low state debt, a sound retirement plan, manageable post-employment benefit obligations for state employees, and an appropriately funded unemployment benefit trust fund.  In contrast with many other state governments and Washington, “Tennessee is financially healthy,” he said.  “This favorable financial position is in large part a result of the willingness of the General Assembly to enact budgets that have forgone, reduced, or eliminated expenses, as well as the ability of the administration to create efficient operations.”

Financial Challenges — The Comptroller, however, warned lawmakers that due to less than expected revenue growth and continued concerns regarding actions that could be taken at the federal level, the state faces both immediate and long range financial challenges. While Tennessee has experienced significant revenue growth over the past couple of years, prognosticators say collections could fall $107 to $171 million short of the projections used for the current budget year.

The state’s Funding Board projects modest growth for the remainder of this fiscal year and next.  The moderate growth in the coming fiscal year is expected to be absorbed by cost increases in TennCare and funding the growth in the BEP, the state’s funding formula for K-12 education.  “This means that the state must reduce or eliminate existing programs or expenses in the coming year approximately equal to the cost of any new or expanded program or tax cut,” the report said.

“Absent some truly catastrophic event, the state can, for the foreseeable future, continue to provide basic services to citizens, though not necessarily at current levels,” Wilson continued.  “The challenge is what to do to keep Tennessee a very low tax state with a strong financial status and how to do that dealing with declining federal funds.”

Tennessee’s 2013-2014 budget, at approximately $32.7 billion, is funded by approximately $15 billion in state appropriations, $12.9 billion in federal funds, and $4.8 from other revenue sources.  Programs substantially funded by federal funds include Food Stamps, Temporary Assistance to Needy Families, Unemployment Insurance, Title I Education, and several environmental programs. Some of these programs, such as SNAP (food stamps), are funded almost entirely with federal funds; others such as TennCare, our Medicaid program, require a state match.

Wilson pointed out that federal assurances of continuing promised funding do not always materialize, although the local government obligations, which rely on the federal assurances, continue. “As federal spending is far outpacing federal revenues, federal funding of state-administered programs is at substantial risk of cuts or even elimination. The consequences of such cuts are as yet unknown,” he said.

Governor Haslam produced a plan for appropriate state action in the event of a significant reduction in federal government funding. This plan was partially implemented during the development of the 2013-2014 enacted budget. The administration reduced the federal revenue estimate by $71.8 million according to the report.

Other key points in the Comptroller’s report are:

• Tennessee has the lowest taxes in the Southeast and one of the lowest nationally;
• The state’s general obligation debt has decreased over the past year;
• Although Tennessee has maintained a debt-free transportation system, which is a significant accomplishment, the state should acknowledge that there is also an $8.5 billion backlog of projects;
• Counties in the state continue to be affected by sluggish revenue growth and an increasing demand for services may have to consider difficult proposals about whether to cut expenditures or implement tax increases.  (Total county-related debt increased by more than $1.1 billion from 2009 to 2012 and many counties are deferring principal payment and other obligations to future years.); and
• The illicit production of methamphetamine is a serious public health and safety issue; creating considerable fiscal problems, not only for the state but particularly for local communities.

Methamphetamine Costs — The report says that between January 2010 and September 30, 2013, 1,305 children were placed in Department of Children’s Services’ custody due to exposure to methamphetamine production and/or use, at a total estimated cost of $30 million.  The Tennessee Methamphetamine and Pharmaceutical Task Force, in addition to at least $1,000 for initial toxicity testing, estimate the remediation cost of a single home can range from $5,000 to $25,000.  This is in addition to medical costs associated with burns and exposure to chemicals, as well as the government resources used in fighting methamphetamine production.  The cost of treatment for badly burned meth victims can exceed $1 million.

Government Accountability – In other information contained in the report, citizens can now view debt information on county governments by accessing the  Transparency and Accountability for Government (TAG) application available on the Comptroller’s website.  The user-friendly resource now provides access to statistics on outstanding debt for each of the 89 counties audited by the Division of Local Government Audit.  TAG provides citizens with a quick look at where county government money comes from and where that money goes. The upgrade to the TAG application also includes an enhanced county-compare functionality that allows a user to evaluate revenue, expenditure, and debt information for up to 95 counties at one time.