Souring economy hitting state hard
By LUCAS L. JOHNSON II
Associated Press Writer
NASHVILLE (AP) — As much as $380 million more may have to be cut from the Tennessee budget this year, the State Funding Board was told Tuesday.
University of Tennessee economist Bill Fox, the General Assembly’s Fiscal Review Committee and the Department of Revenue talked to the panel about the state’s revenue outlook during a souring economy.
The projected shortfall ranged from $271 million to $380 million for the current year. That’s on top of the $180 million drop Gov. Phil Bredesen had projected in February. Last week, he said that this year’s budget cuts may have to be about $500 million, a figure that is within the range of the experts’ projections.
For the budget year beginning July 1, analysts predicted $420 million to $560 million less than Bredesen’s budget proposal.
Analysts attributed the bleak numbers to the plummeting housing market, high oil prices and lower than expected sales tax revenue. For instance, April’s sales tax dropped by 5.5 percent, the biggest decline since 1961.
“The economy has clearly turned much worse than anyone anticipated,” Fox said.
The board will use the expert testimony to issue its official revenue projection on Thursday. State lawmakers and the governor will use that figure to finalize next year’s budget.
The board also received estimates on how much money will be available for lottery scholarships. There’s a difference of as much as $10 million between figures presented to the board in December and those projected on Tuesday.
Lawmakers discussing proposals to lower the cumulative grade point average needed to keep a lottery-funded scholarship hope the estimates will help them decide which proposal is the most feasible.
Under current rules, a student must be enrolled full time in college, have a GPA of at least 2.75 after the freshman year and a cumulative 3.0 GPA for subsequent years to keep the merit-based HOPE scholarship.
Many lawmakers on both sides of the aisle and Bredesen believe reducing the required cumulative GPA to 2.75 would allow more students to keep the scholarships — and stay in school to finish their degrees.
The tight budget year has some lawmakers arguing for a more frugal approach.
Lawmakers were expecting to have about $37 million available to them without dipping into the state’s nearly $460 million in lottery reserves. Tennessee Higher Education Commission officials estimate that permanently reducing the retention GPA to 2.75 would cost the state $17 million, nearly half the lottery’s projected revenue.
“One of our top priorities is to make sure that we make fiscally responsible decisions regarding the lottery funds,” said Senate Education Chairwoman Jamie Woodson, R-Knoxville. “We’ll really just need to work toward the best bill possible given the financial circumstances we’re in.”
Nevertheless, after being told about the lottery fund projections, House Education Chairman Les Winningham said he’s not ruling out an attempt to permanently reduce the retention GPA.
“We’re still looking at it,” said the Huntsville Democrat.
Despite the difference in lottery money, Erin O’Hara, THEC’s research director, said lawmakers still have excess funds available to them.
“It’s a smaller amount of excess funds, but there are still excess funds,” she said.
Published in The Messenger 4.30.08