Comptroller Report says Tennessee is Fiscally Sound

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.

“This report further clarifies the challenges in front of for the next decade,” said Senate Finance Committee Chairman Randy McNally (R-Oak Ridge).  “It particularly defines the multi-faceted financial impact that meth has on our state, in addition to the toll it takes on so many Tennessee families.  The General Assembly is looking at several ways to address this huge public safety and budget concern.”

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.

Senate approves bill allowing citizens in certain communities to vote on whether to allow wine in grocery stores

Legislation that would let Tennesseans in certain communities vote on whether to allow the sale of wine in retail food stores via a local referendum was approved 23 to 8 by the State Senate on Thursday.  The referendum bill, sponsored by Senator Bill Ketron (R-Murfreesboro), applies to communities that currently allow retail package stores, liquor-by-the-drink establishments or both.

Thirty-six states, including six of Tennessee’s border states, allow the sale of wine in retail food stores.

“I strongly believe that Tennesseans deserve the opportunity to vote on this issue,” Sen. Ketron said. “Currently, municipalities decide whether to allow retail package stores or liquor-by-the drink in their communities, so it makes sense to also take the issue of where to sell wine to the voters.”

In order to place the referendum on the ballot, a petition must be presented to the county election commission where the referendum is to be held. The petition must include signatures from 10 percent of the jurisdiction’s population that voted in the last gubernatorial election.  The first opportunity that a referendum could be on the ballot is November 2014.  If approved by the voters, wine sales in food stores could begin on July 1, 2016.

Senate Bill 837 defines retail food stores as grocery stores, convenience stores and “big box” stores with at least 1,200 square feet, as long as 20 percent of their taxable sales is food.  Businesses in areas authorized to sell wine must receive a retail food store wine license and participate in the Tennessee Alcoholic Beverage Commission’s Responsible Vendor Program.  This program requires retailers’ employees to complete training on the responsible sale of alcoholic beverages. The legislation also calls for mandatory carding for package stores and requires all transactions must be face to face, rather than through a “self-checkout” system.

“We have taken extra precautions to ensure that underage sales do not occur” added Ketron.  “This legislation puts additional requirements into place across the board to keep that from happening.”

Other provisions of the bill include:

  • package stores, which are currently limited to the sale of alcohol, will be permitted to sell other items like mixers, glasses, corkscrews, food, beer and cigarettes beginning July 1, 2014;
  • the hours for retail food stores would mirror package store hours of 8:00 AM to 11:00 PM Monday through Saturday, with no Sunday sales;
  • beer wholesalers may also be licensed as an alcoholic beverage wholesaler; and
  • allows wholesalers to operate in counties with population of more than 120,000.

The legislation is pending action in the Finance Subcommittee in the House of Representatives.

World’s Oldest Firearms Manufacturer Picks Tennessee to Locate New jobs

Lawmakers joined Tennessee Gov. Bill Haslam and Beretta USA officials this week to announce the company will expand its U.S. operations by building a new firearms manufacturing plant in Tennessee. Beretta, global manufacturer of high-quality sporting and military firearms, will invest $45 million in a state-of-the-art manufacturing and R&D facility and create 300 new Tennessee jobs.

Company official Jeff Reh attributed the selection to Tennessee’s reputation as a strong supporter of Second Amendment rights, along with state’s business-friendly climate, low tax rates and cost of living, and education efforts.  “We started our search by looking only at those states that we felt had a consistent history and likely future history of respecting Second Amendment rights,” he said.

Beretta is the world’s oldest manufacturing dynasty, operating since 1526 in Italy.  The company manufactures the U.S. Armed Forces M-9 pistol, the standard sidearm of U.S. soldiers since 1985.  The company is expected to complete construction on the facility, which will be located in Gallatin, this year and will make firearms for both their sporting and tactical product lines.

“We are convinced we could find no better place than Tennessee to establish our new manufacturing enterprise,” said Franco Gussalli Beretta, Executive Vice-President and Director of Beretta U.S.A. Corp.  “We look forward to building operations here and being part of your community for many years to come.”

“This is a huge investment in Tennessee and we are very pleased that Beretta is coming to Sumner County,” said Senator Ferrell Haile (R-Gallatin).  “The word is spreading that Tennessee is a great state to do business and we hope to see many more jobs coming to our area.”

Over the past several years, the General Assembly has passed a number of initiatives to create and grow jobs including tort reform to provide predictability to business and workers’ compensation reform to create a streamlined system for employees and employers.  As a result of these and other efforts, the state ranks first in the Southeast and 10th in the nation for personal income growth, and first in the Southeast and 5th in the nation for job growth.

In Brief…

KIDS COUNT — Fourth grade reading scores of Tennessee students improved more over the past 10 years than those of students in most other states, according to KIDS COUNT Data Snapshot: Early Reading Proficiency in the United States.  The data snapshot  compares 2003 and 2013 National Assessment of Educational Progress (NAEP) fourth grade reading scores.  The percent of Tennessee students who tested below fourth grade reading proficiency on the NAEP assessment decreased by 11 percent between 2003 and 2013, a larger decrease than in all but six states and the District of Columbia. This report is based on NAEP data released in November. Earlier analysis of NAEP data found Tennessee students had improved from 2012 to 2013 on fourth and eighth grade reading and math scores to a greater degree than any other state. This improvement marked the largest single-year increase since information became available for all states in 2003.

Veteran’s Home Named for Hero – The full Senate approved a resolution, sponsored by Senator Mark Green (R-Clarksville), to name the Tennessee State Veterans Home in Clarksville in honor of Brigadier General Wendell H. Gilbert.  Gilbert graduated from West Point and is a veteran of the Vietnam conflict.  During his service, Brigadier General Gilbert received the Legion of Merit with 1 Oak Leaf Cluster; Bronze Star with 1 Oak Leaf Cluster; Meritorious Service Medal with 1 Oak Leaf Cluster; Air Medal; Army Commendation Medal with1 Oak Leaf Cluster; National Defense Service Medal; Vietnam Service Medal; Vietnam Gallantry Cross with Silver Star and with Bronze Star; and 4 Overseas Bars.           After retiring from the U.S. Army, General Gilbert served as Tennessee’s Commissioner of Veterans Affairs, Deputy to Governor Don Sundquist for Homeland Security, and Vice-President for Development and University Relations for 17 years at Austin Peay University.  All members of the Senate signed on to sponsor the resolution.

Sinkholes / Consumers —  State Senators voted this week in favor of legislation protecting consumers and insurors in cases involving sinkholes.   Senate Bill 880, sponsored by Senator Jim Tracy (R-Shelbyville), clarifies sinkhole coverage shall be made available for purchase by policyholders in Tennessee.  It creates objective standards to determine if a covered sinkhole loss has occurred based on determination of building standards approved by ANSI, which is the most widely-recognized accrediting agency for building standards.  If initial inspection indicates that a claim is sinkhole-related, the insurance company cannot deny the claim unless it obtains a certification from a qualified engineer or geologist concluding that the loss is not sinkhole-related.  The legislation aims to protect consumers from unscrupulous third parties that might take advantage of the property owner’s situation.  The bill is pending action in the Government Operations Committee in the House of Representatives.

Task Force / Education Funding – Governor Haslam has appointed a task force to study the Basic Education Program (BEP), which is the state’s funding formula for K-12 schools.  The most recent revision to the BEP, known as BEP 2.0, was adopted in 2007. The formula takes factors such as local property and sales tax revenue into account when calculating how much money Tennessee school districts will receive from the state each year. A number of districts, both large and small, have raised questions and concerns about the formula and whether it distributes funds in a fair and equitable manner.  The task force will meet over the course of this year and will make recommendations to the governor by the end of the year.

Workplace Safety Report –Tennessee has improved the number of fatalities and missed days from work as a result of injuries and illnesses according to a workplace safety report released by the Tennessee Department of Labor and Workforce Development this week.  The 100 fatal work-related injuries recorded in Tennessee during 2012 represented a 17 percent decrease from the 120 recorded during 2011, according to the 2012 Tennessee Census of Fatal Occupational Injuries and The Occupational Injuries and Illnesses Survey collected by the Tennessee Department of Labor and the U.S. Bureau of Labor Statistics. The 120 total for 2011 was a decline from 138 in 2010.  The 2012 total of 100 fatalities was the lowest total for the state during the previous 10 years and was significantly below the 10-year average. Fatal occupational injuries from 2003 to 2012 averaged 133. The fatality total of 100 recorded during 2012 is a 25 percent decrease over that number.


Synthetic Drugs — The full Senate approved legislation this week adding the synthetic cannabinoids, quinolinylindolecarboxester and propylindazolecarboxamide, to the state’s Schedule I controlled substances law.  The General Assembly has passed legislation to ban other chemical compounds used in synthetic drugs; however, unscrupulous chemists manufacturing the drugs continue to modify molecules in the organic compounds to avoid prosecution.   Senate Bill 1508, sponsored by Senator Brian Kelsey (R-Germantown), aims to keep these drug compounds, which produce a dangerous hallucinogenic effect, out of the hands of Tennesseans.

Private Traffic CheckpointsLegislation to ban state and local police from participating in traffic checkpoints conducted by private contractors in Tennessee has received final Senate approval.  Senate Bill 1485 sponsored by Senator Mike Bell (R-Cleveland), aims to stop any prospective checkpoints conducted by private research contractors from doing random checkpoint DNA tests on Tennessee drivers.  The practice has been reported in at least 30 U.S. cities where drivers said they were pressured into providing saliva samples or to submit to a blood test.  Affected drivers claim they were forced off the road by employees of the contractor who were accompanied by local law enforcement agencies with flashing lights for a supposedly “voluntary” DNA tests.


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