MURFREESBORO, January 9, 2016– As we head into the 110th General Assembly, and talks arise surrounding a possible gas tax hike, funding for the BEP, and other budgetary items, I keep hearing from folks either in person, via Facebook, or via email about Tennessee having a budget surplus. It is my hope that offering a general summary will provide constituents with a clearer picture of the situation.
First and foremost, Tennessee, financially, appears to be in decent shape on the surface. We have less debt per capita than any other state. We don’t have any debt on our roads. We are second in the nation and first in the southeast in job growth. Our bond rating is AAA, and our Rainy Day Fund is over 600 million and climbing. Additionally, our tax revenue growth is out pacing projections. All of those are positive indicators and Tennessee is accomplishing these goals with the second lowest tax burden in the nation.
I qualified the previous statement with “on the surface”, as there are some concerns that are looming that could potentially bring a negative impact to our state. Nationally, the Obama recovery has been anemic at best. Tennessee, with the above mentioned indicators and under conservative leadership, has been well positioned to weather the poor recovery. However, nationally, labor participation rate is at an all time low, the U.S. is facing 20 trillion in debt, and historically, we are due for another recession. All of these can impact our Tennessee budget, as federal monies account for over 40% of our budget.
With the aforementioned in mind, Tennessee has had an unusual circumstance these previous two years in that we have encountered massive surpluses in our budget. Last year we had 925 million in a non-recurring surplus and 750 million in a new-recurring surplus. This year we have 977 million in a non-recurring surplus and 850 million(or more) in a new-recurring surplus.
To better define the situation, a non-recurring surplus essentially results from some one time taxes and unspent funds in the previous year’s budget. For example, if Tenncare (or any other agency) is budgeted to spend 1 billion for the year, but spends 900 million, then we have a 100 million non-recurring surplus. This surplus may be reallocated back to that agency in the next year or allocated elsewhere. Bottom line is that it means that Tennessee managed to spend less than was planned which is a good, conservative use of taxpayer money.
New-recurring surplus reflects growth above projections. If our budget projects 20 billion in collections and a 3% growth rate, but we collect 20.85 billion with an actual growth rate of 4.5%, then we have a new-recurring projected source of revenue. Compared to many other states, we have conservative growth projections and are outperforming the projections. Some states project 5% growth and spend accordingly, but end up with a 3% growth rate and a budget shortfall.
The 925 million non-recurring surplus and 750 million new-recurring surplus from 2015-16 was “spent” in the 2016-17 budget. Some of it went to the rainy day fund. Some went to repay TDOT. A lot went to education and raises. One can readily access the complete budget from TN.gov. One should note that I offered up a budget amendment to hold back 150 million of new-recurring revenue to deal with TDOT, but my amendment was shot down in committee. I did not, and still do not see why one would spend every dime of a surplus knowing that there is a potential issue with funding for transportation on the horizon.
As we enter the 2017 legislative session, conversations are occurring surrounding how best to effectively manage the surplus. The uncertainty of how a Trump administration will impact our state is in question. Tennessee still has debt to be paid off. We have an underfunded Rainy Day Fund. The issue of transportation funding is looming. And we have the potential pitfall of another recession in the future. All of these issues, and more must be taken into account as we move forward. My constituents should know that I will continue to fight for them and their families at the Capitol.