No Budget Cliffhangers

Somehow, great budget train wreck still allows deferred taxes and industrial incentives

Last summer I suggested that the doom and gloom about the state budget was overstated. Gov. Phil Bredesen resented candidate Bill Haslam's constant assertions of looming disaster, and the governor denied that the state budget was about to run off a cliff.

Experienced budget watchers said revenue projections were being low-balled—it was the only sensible thing to do considering the state of the economy. But revenues have exceeded projections for several months now. Bredesen also explained that while he spent one-time federal money on one-time projects, he didn't use the money to cover ongoing expenses.

Not only has the state budget not "run off a cliff," somehow the state has been able to purchase a mega-site in West Tennessee for industrial development, keep up obligations to locate the Volkswagen plant in Chattanooga, spend almost $100 million to locate an Electrolux plant in Memphis, $35 million for a chemical plant in Cleveland, and buy Lambuth University in Jackson to create a University of Memphis campus. This in addition to the millions to move Nissan's headquarters to the Nashville suburbs.

Wouldn't it be great if we had people from Knoxville or upper East Tennessee in positions of power in Nashville so maybe we could get some of these projects? Oh, wait. Maybe our day will come soon.

(But what does it say about Knoxville's leadership in recent years when Chattanooga, Nashville, and West Tennessee get project after project representing hundreds of jobs?)

The state's revenue is also doing well enough for the administration to agree that Amazon doesn't have to collect sales tax and turn it over to the state, like all other in-state retailers do.

State hospitals have extended a self-imposed tax on themselves in order to get Medicaid matching funds. The Obama administration has decided that it underpaid Tennessee's share of Medicaid (TennCare) expenses by $80 million. One suspects this is some hidden (from Congress) stimulus money to help states strapped by health-care costs. They found people being paid by TennCare that were eligible for Medicare, so they took it out of a different pot.

Government budgeting is more art than science. Revenues do not come in on a regular basis; some taxes are collected at certain times of the year but not monthly. Sales taxes rise and fall at the consumer's whim. Predicting total revenues can be done, but usually by some folks with green eye shades in back rooms who have done it for years—not the officeholders who come and go.

The most difficult part of government budgeting is pensions. Decades of service, contributions, investment results, and payouts are a constantly shifting scenario. When Haslam left office he warned City Council that there is a shortfall in the city pension fund. This caused much concern and someone, somewhere will eventually get around to solving the problem. But the identified problem came after the stock crash before the government bailouts. Stocks have rebounded and the market has recovered. But pension funds lag in building back. It takes longer to get back than it does to fall.

Part of the reason is that when investments fall, payouts to retirees continue in a defined benefit plan. So the fund is depleted while investments begin to recover. I suspect a new, more up to date, actuarial study of the city pension fund would reveal that the shortfall is much less than feared and it will get better going forward as the market continues to be stable.

So the good news is that the state budget and the city pension fund aren't as bad off as feared.

But let's remember that voters approved a pension for Knox County deputies and the ballot initiative stated clearly it required an 8-cent property tax increase to pay for it. But the county borrowed the money instead. The property tax has not been increased this century. That's a good thing. But when it comes to Knox County's debt and pension obligations, it's as bad as advertised.

I don't think even the guys with the green eye shades can solve it.