Standing at a podium before a few dozen people at a downtown insurance conference last week, Gov. Bill Haslam couldn’t help but crack a joke about why people are so interested in talking to him.
“Most people knocking on our door want more money,” he quipped.
But the state’s money situation is serious business. The governor was meeting last week with high-ranking officials trying to craft next year’s roughly $31 billion budget proposal at a time when tax dollars are rolling in, along with higher estimates for government costs.
Although the state expects to cash in on hundreds of millions of extra tax dollars, it’s not going to be enough to completely avoid budget cuts next year if the governor wants to move on some of his priorities, according to top officials.
Haslam, who is charged with pitching his budget plan early next month, has already hinted at his list of budget desires for 2013: covering costs for the growing number of inmates housed in local prisons, adding funds to the Department of Child Services to hire and improve pay for case workers, and following through on promises to focus on higher education to better train people for in-demand jobs.
Last month, commissioners from each state agency presented the governor with plans to cut as much as 5 percent from their bottom line — reductions he maintains are highly unlikely across the board. Knowing that, many agencies leaders in their next breath asked for more money to fix up programs that could use more resources.
At first blush, it appears the state would have some extra money to play around with to fund those ideas. Since July, the state has already sucked up almost $70 million more that it planned on for everything from taxes on food, tobacco and alcohol to those on investments and businesses.
The state’s funding board is expecting Tennessee to take in $369 million more revenue in the budget cycle that begins July 2013, according to the governor’s office. The catch is almost all that money will get eaten up by increased costs in TennCare, the state’s Medicaid program, contends Haslam.
Organic cost increases to TennCare and expenses associated with plugging in the Affordable Care Act will amount to about $350 million alone, he said.
“It’s literally sucking up all the money in state government,” said Haslam about the program that covers 1.2 million Tennesseans, largely low-income children, pregnant women, elderly and the disabled and takes up almost a third of the state budget.
House Speaker Beth Harwell said she too wants to tread carefully around TennCare funding.
“We have to be conservative, and because we don’t know exactly what increases in our health care costs are going to entail, we have to set that money aside,” she said.
That’s not the only budget challenge on the horizon. Add to that the pending threat from Washington, D.C., that the country may go over a so-called fiscal cliff if officials don’t strike a compromise to avoid automatic cuts in federal funding. If those cuts stick, it could mean pulling $100 million federal dollars out of Tennessee for programs like special education and unemployment insurance, according to the state’s budget officials.
Some of the toughest budget decisions will be about where, if anywhere, the state can spend any of remaining dollars it has left.
“When people feel that you have choices, that’s where the argument starts,” said Haslam, who expects this year’s spending plan to be very challenging. “We will have some more choice as we had in our first year, but not as much as people think because of what TennCare is going to do to the budget.”
Democrats suggest drama over higher TennCare costs are overblown and doubt the budget situation will result in much in the way of cuts.
“There’s just no question that our revenues have rebounded,” said House Minority Leader Craig Fitzhugh, D-Ripley. “I believe, certainly, that we would have the ability to have at least a status quo budget where we don’t have to have any more reductions.”
Meanwhile, lawmakers are poised to consider reducing the amount of money the state collects every year. Lt. Gov. Ron Ramsey wants to raise exemptions for those who have to pay tax on income from stocks and dividends, known as the Hall income tax. Meanwhile, lawmakers will have the option to follow through this year on the governor’s pledge to eventually reduce the tax on food to 5 percent from 5.25 percent.