TENNESSEE CENTER FOR POLICY RESEARCH Feb. 4, 2010
PolicyBrief No. 10-02
Attaining a Balanced Budget for the State of Tennessee
Additional cuts and privatization would make tax increases unnecessary
by Justin Owen, Daryl Luna & Drew Clark
With the state facing more than a $1 education, and transportation. TennCare
billion budget shortfall, Governor Phil would take up nearly one-fourth of the
Bredesen addressed lawmakers this budget, while K-12 education and higher
week, outlining his plan to balance the education would account for 19 and 13
state budget. The plan calls for reductions percent of the total, respectively. Six
in various state departments, coupled percent of the budget would be
with tapping into the state’s reserve, or comprised of transportation spending.4
rainy day, fund. Certain tax increases are
also included.
The current economic downturn has led
to significant revenue shortages during
the current fiscal year. Instead of making
cuts during the last legislative session,
Total:
lawmakers covered much of the budget $28.41
deficit with $4.5 billion they received in billion
federal stimulus dollars.1 While there is
discussion of a second federal stimulus to
alleviate states’ budget woes, the current
plan does not factor in the expectation of
this money. That said, it is possible that if
federal money is received, it will be used
in lieu of a portion of the projected cuts.
An Overview of the Proposed Budget
The proposed 2010-2011 state budget Expenditure Cuts and Increased Taxes
totals $28.41 billion, a 5.1 percent decline
from the current fiscal year.2 However, The proposed budget cuts come in
the state portion of the budget that is not various forms: $400 million in new cuts
funded from federal money is $12.44 have been proposed, including certain
billion, a 1.9 percent increase from the previously expected cuts that were
current fiscal year.3 The top three delayed by the 2009 federal stimulus
categories of funding include TennCare, money; $394.2 million will be freed up
which is the state’s Medicaid program, from reductions in recurring
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p: (615) 383-6431 f: (615) 383-6432 info@tennesseepolicy.org www.tennesseepolicy.org
expenditures; $202 million will be pulled would come via a change in the law on
from the state’s reserve fund; and taxes Real Estate Investment Trusts, or REITS.
will be increased by $72 million.5 Altogether, these cable and business taxes
are expected to generate $50 million in
Bredesen claims that it would not be revenue.13
feasible to make across-the-board cuts in
government programs.6 Instead, he has The state has approximately $900 million
proposed a nine percent reduction in in its rainy day and TennCare reserve
most departments, while others will be funds, which operate as savings accounts
asked to cut less. The average department for times of budgetary constraint. The
would face a six percent budget governor seeks to withdraw $202 million
reduction. The following reductions will from the rainy day fund. Of this amount,
make up the $394.2 million in cuts.7 $57.4 million would go to education,
$21.2 million on health issues, $13.2
Program Budget Cuts million for mental health, $24.9 million
TennCare $200.7 million for Children’s Services, $34 million to
Corrections $6.3 million retain 394 current state employees, and
Children’s Services $15.9 million $51.2 million on other programs.14
Non-BEP Education $20 million
Mental Health $9.4 million
Several programs would be funded for the
Environment & Conservation $4.9 million
Revenue $1.5 million next two years in non-recurring dollars,
Health $11 million meaning that they would receive no funds
Higher Education $64.3 million after two years and potentially face
Miscellaneous $60.2 million elimination.15 Those programs are below.
The Department of Safety would face no Department Program
cuts. Instead, the shortfall would be offset • Coordinated School Health
by increasing the driver’s license fee from Program
Education • Career Ladder extended
$3.90 to $5.75 annually.8 Further, to
contracts
reduce departmental burdens, driver’s • Family Resource Centers
licenses would be renewable every eight • Grants to Federally Qualified
years instead of the current five.9 Health Health Centers
• Diabetes Prevention Program
In addition to the tax hike on driver’s Mental
• Community Mental Health
licenses, the state plans to increase the Recovery Services
Health
• Alcohol & Drug Services
tax on cable services and equipment.10
• Home visitation programs
Also included is a tax increase on Children’s
• Juvenile Justice Prevention
interstate and international Services
Grants
telecommunications services sold to Intellectual • Family Support Services
businesses. That tax would go from 7.5 Disabilities Program
percent to 9.5 percent.11 The governor • Human Resource Agency
also proposes that hotels charge guests a Human grants
sales tax on items the guests receive Services • Community Action Agency
grants
during their stay.12 A final tax measure
2 Attaining a Balanced Budget for the State of Tennessee
Additional cuts and privatization would make tax increases unnecessary
The final prong of fixing the gaping experiencing a seven percent growth rate
budget hole is to lay off 1,363 state in its health insurance costs.20 By simply
employees, though the governor wishes permitting state employees to opt for a
to retain more than 394 of these high-deductible health insurance plan
employees temporarily. The nearly 1,000 with a health savings account, the state
remaining layoffs would come from could save $15.9 million a year, and that
“bringing staffing ratios in line…or closing is based on just 10 percent of employees
an unneeded facility” where utilizing the plan.21
appropriate.16
The state continues to fund a Pre-
Tax Increases Avoidable Kindergarten program that shows no
demonstrable positive impact on children
The proposed budget has elements of that participate. The state could save
common-sense governance in that it more than $90.9 million a year if this
reduces the size of government, makes program was eliminated.22
needed cuts in wasteful spending, seeks
to drive down costs by improving The state could take these few simple
efficiency, and relies less on the reserve steps and entirely remove the need to
fund and tax increases. Despite this, increase taxes on Tennesseans. In
several additional measures could be addition, these measures would bring in
taken to reduce the need to raise taxes on additional revenue that could be used in
Tennesseans during these tough lieu of dipping as far into the state’s
economic times. reserve fund as the governor proposes.
The state could lease the 11 financially Prime Time for Privatization
insolvent golf courses it owns. The state
loses some $2.3 million annually to Several state programs could be
maintain these golf courses.17 Leasing the privatized during this time of financial
courses would not only eliminate this turmoil. Many other states have
waste but bring in much needed revenue privatized services and saved millions of
to offset ongoing budget shortfalls. The dollars. During Jeb Bush's tenure as
state should also suspend taxpayer Florida governor, the state was able to
funding of art programs, which reaches save over $550 million through
some $7.4 million yearly.18 The state privatization and managed competition
could sell the airplanes and helicopters it initiatives. In 2008, the state reviewed
owns (while retaining those that are used 551 outsourced projects and estimated
for universities’ aerospace programs), that they will provide a lifetime benefit of
which have a total resale value of $11.4 over $8 billion to the state.23
million. Such a move would also free up
an additional $1.5 million in annual Nevada's proposed privatization of the
maintenance costs. 19 state mail system is estimated to save the
state $400,000 per year.24 Similarly, the
Reforming the state employee health privatization of Louisiana's electronic
insurance plan could also save the state payments system could save $660,000
money. Currently, the state is annually.25 In Massachusetts, privatizing
3
11 service plazas on the Massachusetts easily be eliminated and replaced by the
Turnpike has been estimated to be worth private sector, relieving budget woes and
almost $300 million.26 returning funds back to taxpayers.
In 2009, the Tennessee Department of The most likely candidates to take up the
Human Services privatized child-support causes if these programs are privatized
enforcement services for Shelby County in are civic groups, churches, and other
the nation's largest contract for such nonprofit organizations. These
services.27 Although this is a positive first organizations would be able to effectively
step, there are many more opportunities and efficiently meet the needs of
in Tennessee for privatization. Tennessee communities.
For instance, rather than simply seek For example, the Office of Coordinated
efficiency in the driver’s license system, School Health (OCSH) was founded with
the state should consider privatizing the the intent to encourage healthy lifestyles
service. A study conducted by the while combating any health problems
nonprofit Cascade Policy Institute which could impair academic success.30
determined that mere partial Besides a redundancy of goals with those
privatization of the Oregon Driver and of the Department of Health, the OCSH’s
Motor Vehicle Services would save goals can be met by the nonprofit and
between $34 and $43 million a year, a 55 business communities. A number of
to 67 percent total cost reduction.28 organizations such as the YMCA and
health food and exercise companies have
Based on these figures, turning over a a clear, vested interested in equipping
similar portion of the Tennessee students for healthy lifestyles. Absent
Department of Safety’s Driver License OCSH, the state of Tennessee could still
Issuance division to the private sector enjoy the benefits of providing healthy
would save the state between $18.5 and lifestyles for our children but in a manner
$22.5 million annually.29 that does not strain the state budget.
In any event, the specific programs that Similar programs could also be privatized
will be up for elimination after two years while needs still met. For example, the
should be considered for privatization. Department of Children’s Services Home
Government involvement in the provision Visitation Program sends nurses and
of goods and services to the community is other healthcare professionals to the
often detrimental to action by the private homes of poverty-stricken expectant
sector. In the absence of government mothers. Several nonprofit groups share
intervention, the private sector will meet this goal of healthy pregnancies and
needs efficiently without placing undue infant care, and rather than crowd out
burdens on taxpayers. these efforts, the state should allow these
groups to step in and advance their
The programs receiving non-recurring missions.
dollars for the next two years are no
different. Each of these programs could
4 Attaining a Balanced Budget for the State of Tennessee
Additional cuts and privatization would make tax increases unnecessary
Each of the programs that are being involvement is neither necessary or
considered for non-recurring funding prudent.
could easily be privatized through
philanthropic acts, civic organizations, Rolling the Dice on TennCare Cuts
churches, charities, and other nonprofit
groups. Whether it be the Family Support A serious concern with the proposed
Services Program, Community Action budget is that it relies heavily on cuts in
Agencies, Alcohol and Drug Abuse TennCare. The nearly $201 million worth
Services, Community Mental Health of cuts cannot take place without
Recovery Services, the Diabetes approval from the federal Center for
Prevention Program, or any other number Medicare & Medicaid Services, which sets
of government programs, privatization the rules for the TennCare program.31 So
makes since. The private sector is ready far, the Center has not approved the
and willing to lend a helping hand. The proposed reductions. These cuts should
state simply needs to remove its influence not be taken for granted until that
and allow groups throughout the private approval is received. Rather, lawmakers
sector to do what they do best. should begin working on a contingency
plan in case they are forced to find $201
In fact, the private sector is already million in cuts elsewhere. Privatization
providing the goods and services in a and outright elimination of other
number of the state’s programs. A good programs would resolve this problem.
example is the Family Resource Center
Initiative (FRCI), which is a program to Conclusion
help families with assistance in a variety
of ways. This assistance, however, most Lawmakers should make additional cuts
often comes from nonprofits in the and privatize certain programs that could
community who are connected to families best be handled outside of government.
through the FRCI. The FRCI merely acts as This would allow them to avoid attempts
a mediator in what amounts to later in the session to once again rely on
unnecessary bureaucracy. This is another federal stimulus dollars instead of making
shining example of the private sector difficult but necessary cuts. The move
meeting the needs of the community. It is would also protect the reserve funds in
time for the state to allow the private case future revenues remain below
sector to act without unnecessary projections.
government interference.
By making the cuts outlined above, the
In every matter of governance, it is state would save taxpayers millions of
important to ask whether an activity is dollars. This would prevent the need for a
the proper role of government or whether tax increase on Tennessee families during
action can be properly carried out by these tough economic times. Further, it
those outside government. The objectives would reduce future budgetary items in
of the programs proposed to receive non- the event that revenues remain stagnant,
recurring funds can and will be met by making a balanced budget easier to
the private sector. Therefore, state achieve. Finally, it would help establish a
5
contingency plan if the TennCare cuts are About the Authors
not approved by the federal government.
Justin Owen is the Director of Policy & General
Counsel at the Tennessee Center for Policy
At a time when Tennesseans are cutting Research. Daryl Luna and Drew Clark are research
their budgets to comport with less income associates at the Tennessee Center for Policy
and higher costs, so too should state Research.
government. The governor referenced the
principle of operating the state like it is a
“family budget” in his final State of the About the Tennessee Center for Policy Research
State address earlier this week.32 While
his proposal takes a step in the right The Tennessee Center for Policy Research is an
direction, it could reflect a bigger sacrifice independent, nonprofit and nonpartisan research
organization dedicated to providing concerned
just like families all across Tennessee are citizens, the media and public leaders with expert
currently making. empirical research and timely free market policy
solutions to public policy issues in Tennessee.
The Center generates and encourages public policy
remedies grounded in the innovation of private
enterprises, the ingenuity of individuals and the
abilities of active communities to achieve a freer,
more prosperous Tennessee.
Guarantee of Quality Scholarship
The Tennessee Center for Policy Research is
committed to delivering the highest quality and
most reliable research on Tennessee policy issues.
The Center guarantees that all original factual data
are true and correct and that information
attributed to other sources is accurately
represented. The Center encourages rigorous
Copyright © 2010 critique of its research. If an error ever exists in the
Tennessee Center for Policy Research accuracy of any material fact or reference to an
P.O. Box 198646 · Nashville, Tennessee 37219 independent source, please bring the mistake to the
(615) 383-6431 · Fax: (615) 383-6432 Center’s attention with supporting evidence. The
info@tennesseepolicy.org · www.tennesseepolicy.org Center will respond in writing and correct the
mistake in an errata sheet accompanying all
Permission to reprint in whole or in part is hereby granted, subsequent distribution of the publication, which
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constitutes the complete and final remedy under
properly cited.
this guarantee.
6 Attaining a Balanced Budget for the State of Tennessee
Additional cuts and privatization would make tax increases unnecessary
1 “Bredesen to accept all of stimulus money.” 28 Hazel, Patrick. “Privatize the Oregon DMV.”
Nashville News Channel 4. Mar. 6, 2009. Cascade Policy Institute. Jan. 1997.
il.html> (accessed Feb. 2, 2010). (accessed Feb. 3, 2010).
2 Goetz, Dave. Budget Presentation by Finance and 29 The Budget, p. B-264.
Administration Commissioner to House Finance, 30 “About the Office of Coordinated School Health.”
Ways and Means Committee, Feb. 2, 2010. Department of Education, State of Tennessee.
3 Ibid. (accessed Feb. 4, 2010).
5 Ibid 31 White, Joe. “State Senator Wants Another Option
6 Bredesen, Phil. “Tennessee State of the State if TennCare Cuts Not Approved.” Nashville Public
Address to Joint Convention of the General Radio. Feb. 2, 2010.
Assembly.” Feb. 1, 2010. (accessed Feb. 3, 2010).
7 Ibid. 32 Bredesen, “State of the State Address.”
8 Ibid.
9 Ibid.
10 Locker, Richard. “‘Difficult cuts’ in Bredesen’s
Tennessee Budget.” Commercial Appeal. Feb. 1,
2010. (accessed Feb. 2, 2010).
11 Ibid.
12 Goetz, Budget Presentation.
13 Locker, “Difficult cuts.”
14 Goetz, Budget Presentation.
15 Bredesen, “State of the State Address.”
16 Ibid.
17 “2009 Tennessee Pork Report.” Tennessee
Center for Policy Research. p. 7.
18 Ibid. at 8.
19 “An Idea a Day: 45 Ideas for a Prosperous
Tennessee.” Tennessee Center for Policy Research.
Item No. 16. (accessed Feb. 4,
2010).
20 Goetz, Budget Presentation.
21 Guppy, Paul. “Proposed bill would legalize
Health Savings Accounts for State Workers.”
Washington Policy Center. Feb. 2006.
(accessed Feb. 2, 2010).
22 “The Budget: Fiscal Year 2009-2010.” State of
Tennessee. p. B-93.
23 Gilroy, Leonard. “2009 Annual Privatization
Report.” Reason Foundation. p. 9.
24 Ibid. at 27.
25 Gilroy, Leonard. “Innovators in Action, 2009.”
Reason Foundation. pp. 15-16.
26 Ibid. at 20.
27 Ibid. at 22.
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