Fiscal crunch hits Tennessee, Virginia governments

Hank Hayes • Jun 19, 2008 at 12:00 AM

Tennessee and Virginia are among a growing number of states experiencing fiscal problems after several years of relative stability, the National Governors Association and the National Association of State Budget Officers reported Thursday.

In their “Fiscal Survey of States,” NGA and NASBO found that state governments in both Tennessee and Virginia did some major budget trimming while dealing with sluggish revenue growth.

NGA and NASBO said Virginia enacted $769.3 million in budget cuts, while the Center for Budget and Policy Priorities said Tennessee dealt with a budget gap of about $500 million.

Next year, NGA and NASBO said, could prove to be “more troublesome” for state governments than 2008.

“Fallout from the housing market decline, coupled with dramatic increases in the price of energy, is having a negative impact on state revenues, particularly corporate and sales tax revenues,” NGA Executive Director Raymond C. Scheppach said in a conference call with reporters.

States’ revenue collections were up 1.7 percent in fiscal 2008, with 15 states exceeding their original revenue projections, 14 states meeting their projections, and 20 states falling below their projections, the NGA-NASBO survey said.

“While the situation that we have found in this report is not as bad for states as it was during the post-9/11 downturn, it’s certainly a weakening situation and we’re very concerned about the future,” said NASBO Executive Director Scott D. Pattison. “Thirteen states have had to make cuts following passage of their budget this year to the tune of $5 billion.”

States’ largest revenue sources are personal income taxes, corporate taxes and sales taxes, said Pattison.

States’ largest expenditure for fiscal 2008 was health care, which accounts for nearly one-third of total state spending. Medicaid alone comprises about 22 percent of total state spending. With a projected growth rate of 8 percent annually through fiscal 2018, health care spending will continue to strain state budgets, according to NGA and NASBO.

The survey noted that about half of the nation’s governors included proposals to expand health care coverage for the uninsured in their proposed fiscal 2008-09 budgets. Approaches include using traditional Medicaid expansion, expanding the State Children’s Health Insurance Program, and using public-private partnerships to increase coverage.

Total year-end balances — ending balances and the amounts in budget stabilization funds — showed a decline. At their peak in fiscal 2006, state balances totaled $69 billion — a very healthy 11.5 percent of expenditures. In fiscal 2007, total balances dropped to 10.5 percent of expenditures, the NGA and NASBO survey said.

After the survey was released, NGA called on Congress to address the impending funding shortfall in the Highway Account of the Highway Trust Fund as soon as possible.

The Office of Management and Budget (OMB) projects a $3.2 billion deficit in the account in the next fiscal year, while the Congressional Budget Office (CBO) estimates a deficit of $1.1 billion.

An NGA letter sent to congressional leaders said: “The difference (between OMB and CBO estimates) is attributable to assumptions about outlays, but one fact remains the same: failing to address the shortfall will require cuts in state spending equivalent to approximately four times the amount of the deficit due to the lag between state obligations and federal outlays. Therefore, enactment of a federal solution to this problem is necessary to preserve highway investment and provide the predictable, long-term federal funding on which highway projects and state transportation budgets depend.”

For more go to www.nga.org.

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