State rakes in record amount of taxpayer dollars, board says

By John Rodgers, NashvilleCityPaper.com
May 10, 2007

The State Funding Board reported Wednesday that Tennessee could have about $700 million in unanticipated tax money that it can spend, a record amount of revenue that sets the stage for lawmakers to make final decisions on the state budget.

Two different pots of money are combined to reach the $700 million, which can be spent in addition to Gov. Phil Bredesen’s $27.5 billion budget he proposed in February.

State finance officials estimated that Tennessee would have a maximum of about $350 million in recurring new dollars, which are traditionally spent on repeating expenses like education.

That maximum of $350 million is in addition to about $400 million that the funding board said the state had earlier this year in unexpected recurring tax dollars. Bredesen’s proposed budget targets spending that $400 million.

In a separate pot of money, finance officials estimated that the state would have about $344 million — the maximum amount — in unanticipated nonrecurring funds or one-time money that it usually uses to fund one-time expenses.

Altogether, it is a record amount of unexpected revenue for Bredesen’s administration and the state, said State Finance Commissioner Dave Goetz.

“This has never happened before,” Goetz said, pointing to 21 percent growth of corporate taxes as the primary driver.

The unanticipated millions leave lawmakers with decisions to make on issues like how much they plan on — if at all – increasing the cigarette tax to fund education, cutting the sales tax in food, upping state employees’ pay raises and pining away in the state’s savings account.

“This does provide us with some unanticipated additional funds,” Goetz said. “It gives us the opportunity to focus on education and on the taking of the rainy day fund to some newly recommended levels. Both of those are good investments.”

Bredesen recently proposed a $475 million education overhaul, which he would like to fund about $283 million worth of this year.

Bredesen has wanted to fund about half of that $283 million through the tripling of the state’s per pack cigarette tax, which would raise about $144 million for K-12 education. The other roughly $140 million would be funded through the unanticipated recurring dollars.

“The question is how much of this can we fund with no new taxes,” said Senate Republican Leader Mark Norris (R-Collierville), of Bredesen’s education plan. “A considerable if not all could conceivably be funded with no (new) taxes.”

With the new dollars, Goetz said the proposed 40-cent per pack increase in the cigarette tax may not be needed immediately but will be “over time.”

“It depends on what you want to fund,” Goetz said of the cigarette tax’s immediate necessity. “Yes, it could be put to good use to help drive the BEP changes further, again tied with some strong accountability.”

Goetz said the administration is working on how much above the $283 million of Bredesen’s “BEP 2.0” plan that they could fund.

Sen. Douglas Henry (D-Nashville), a member of the Senate Finance Committee, said he is in favor of the 40-cent cigarette tax hike.

Henry has a simple explanation toward how to spend the unanticipated millions.

“Put the recurring in education,” Henry said. “Put the nonrecurring in reserves.”

Members of the funding board, which include Goetz, the state comptroller, treasurer and secretary of state, would like $250 million of the nonrecurring funds to be added to the state’s rainy day fund.

That would increase the savings account to roughly $750 million with the ultimate goal to get it to 11 percent of state revenues, which would be about $1.1 billion. It is currently at a record high of about $497 million.