April 24, 2008
Tennessee can weather the storm of
economic downturn by acting responsibly and frugally
Senate Finance Chairman Randy McNally
On May 1, our State Funding Board released a gloomy, revised economic forecast for Tennessee. Included in it was a $314.5 to $384 million downward revision of state revenues for the current budget year, which gave many people pause, especially since we’ve become accustomed to revisions that go in the other direction in the last few years. Also revised downward by $468 to $585 million was the projected revenue for the 2008-09 fiscal year, which will start in July. Additionally, the Board estimated available dollars for use in expanding the scholarships on a recurring basis should be adjusted downward to $12 to $15 million due to lower than expected lottery ticket sales.
This was not the news we had hoped to hear. It was obvious that the numbers show that Tennessee is not going to escape the effects of a weakening national economy, in the wake of the sub-prime mortgage crisis, the cost of fighting the war on terrorism, and rising energy costs. However, as far as our financial stability goes, we need only weather this economic storm, as the economy tends to be cyclic. Fluctuations in the economy have become a natural “ebb and flow” part of our economy. There are two main extremes to
fluctuations in the economy – recession and expansion. Political responses to these economic fluctuations are also now a part of modern life.
As gloomy as our current economic forecast appears, it does not signal doom for our state’s economy as we look “around the corner” to 2009. Federal budget forecasters predict the economy will adjust to these cyclic changes and begin to rebound by the first quarter of next year. For one thing, the key economic indicators remain relatively strong. Unemployment continues to be at low levels both on the national and state levels. Our state’s economic prospects also continue to look favorable. Forbes and the Tax Foundation both have rated Tennessee in the top 20 states as far as our business climate. Site Selection magazine rates us in the top 10 in the nation. This is
We have also worked very hard over the years to build up our state’s savings account and to keep our bonded indebtedness low to buffer us from economic downturns. At $750 million, we have one of the highest “Rainy Day Funds” in the nation, which is the state’s reserve fund to protect us in times of financial crisis. We have less bonded indebtedness than almost any other state. In addition, we have a constitutional requirement for a balanced budget. All of these factors will make it easier for Tennessee to rebound than other states when the economy begins to turn around nationwide.
In order to ride out this storm, Tennessee must act responsibly and frugally this year as we prioritize spending. Cutting the proposed budget will not be a pretty task. The budget already represented a decrease in state funding from the 2007-08 fiscal year. We must put our money into education, public safety, and innovative economic development. These are the kinds of priorities that encourage economic growth, and bring us the most bang for our buck. On education, there are two items in the budget that I want to protect most. The first is the inflationary increase for K-12 education, which is $85 million. The other is the $86.4 million for the second phase of our Basic Education Program (BEP) 2.0. These are very important expenditures for the future of our state.
At the same time, we must resist any temptation to use one-time revenues for recurring expenses. Although this is a tough financial year for Tennessee, we can balance our budget and provide essential services that meets the needs of our citizens, as we weather this storm. This will help us to be well-positioned to ride out the bumps in the economy until it turns around.