Bredesen speech doesn’t mention proposal to close FONCE loopholes, raise HMO taxes

On March 23, 2009, in News 2009, by Mark Norris

Ken Whitehouse, NashvillePost.com March 23, 2009 Gov. Phil Bredesen outlines plans for scaling back the size of state government. Josh Anderson for The City Paper Gov. Phil Bredesen unveiled his proposed budget for fiscal year 2009-2010 in an address Monday to a joint session of the General Assembly, calling it “the greatest test of our […]

Ken Whitehouse, NashvillePost.com
March 23, 2009

Gov. Phil Bredesen outlines plans for scaling back the size of state government. Josh Anderson for The City Paper

Gov. Phil Bredesen unveiled his proposed budget for fiscal year 2009-2010 in an address Monday to a joint session of the General Assembly, calling it “the greatest test of our stewardship.”

While the multi-year proposal outlined the use of approximately $5 billion in federal funds provided by the “American Recovery and Reinvestment Act,” or commonly referred to as the stimulus package, Bredesen did not mention two proposals that will be closely scrutinized.

The first is a continuation of last year’s FONCE battle, an effort by the Bredesen administration to close a “tax loophole” on “family-owned non-corporate entities.” Bredesen and team are recommending that FONCE exemptions be amended to exclude commercial rents. Budget estimates project the changes would generate approximately $25 million annually.

In a game of hardball by Team Bredesen, they are saying that failure to pass FONCE legislation will force the elimination of 329 jobs in law enforcement. That includes 85 staff members of the District Attorneys General staff, 25 staffers from District Public Defenders’ offices, and over 100 State Troopers.

Another proposal that will affect HMOs is an increase in the premium tax they pay the state. The tax rate would rise from 2 percent to 5.5 percent — an increase that would bring in approximately $139 million annually and trigger federal matching funds. The administration contends it will avoid the need of cutting $300 million out of TennCare.

Proposal ramps down state spending

The four-year proposal, which addressed plans for closing out the current budget year, details the $29.34 billion budget for fiscal year 2009-2010 — of which includes $11.48 billion in state dollars — and outlines state spending for the two subsequent budget years.

Bredesen’s proposal fully funds the Basic Education Program, the state’s funding formula for K-12 education, in each year, and ramps down spending in the discretionary and non-BEP areas of the budget to achieve a reduction of approximately 12 percent on average at the end of the four-year period.

According to the administration, the plan also “saves jobs by limiting layoffs and defers the need for possible furloughs, as Recovery Act funds provide more time to plan reductions and realize reductions made through natural attrition; Fully funds the economic development projects currently underway; Keeps the employee pension fund actuarially sound and the state health insurance program fully funded; and, Maintains healthy cash reserves while ramping down state spending to achieve continued balanced budgets that match recurring revenues to recurring expenses.”

A plan for federal stimulus funds

During his address Bredesen included an overview of stimulus funds being received by the state. According to the governor, “federal legislation clearly directs approximately $2.9 billion of the total, or approximately 58 percent, for pre-determined purposes intended primarily to alleviate suffering and stimulate the economy.”

Examples provided by the administration include $490 million for the food stamp program, an additional $318 million for unemployment insurance, and $573 million for road and bridge infrastructure.

“While these are programs we technically administer in various ways, they do not directly affect the discretionary state budget except insofar as they improve the general economy,” Bredesen said. Some of these funds pass through the Tennessee state budget, while others are paid directly to non-state agencies, including $524 million that will be paid directly to local school districts primarily based on their proportions of low-income and special education students.

Legislators seem pleased

Senate Majority Leader Mark Norris (R-Collierville) seemed pleased with Bredesen’s speech but said that he and his colleagues would be pulling out their pencils and double-checking the numbers.

“It was a good speech,” Norris said, “[Bredesen] is effectively dealing with a difficult situation. The increased use of debt is noteworthy and will be scrutinized. As for the change to HMO rates, I don’t anticipate a big fight but we will all be double-checking the numbers.”

Lt. Gov. Ron Ramsey (R-Bristol), himself a candidate for governor in 2010, concurred with Norris’ sentiments saying “I am worried about doubling our bonded indebtedness, but overall it is a good budget approach. I am concerned about the use of recurring and non-recurring funds, obviously I have a keen interest going into 2011.”

Democratic State Rep. Craig Fitzhugh (Ripley), chairman of the House Finance Ways and Means Committee said that Bredesen’s address “had quite a bit of substance.” He said that “using non-recurring funds over a four-year period is difficult. There will be a 12 percent reduction in the size of state government, something that isn’t an easy task. If we can get this economy going again in the next two-years it will be easier. Overall, I was pleased with the governor’s speech.”

Click here for the full text of the governor’s speech.

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