Shredding the Safety Net:
The Effects of the Proposed Budget Cuts on Tennessee Families and Communities

A report prepared by Tennesseans for Fair Taxation and Tennessee Alliance for Progress.
Released in conjunction with Tennessee Partnership on Organizing Public Policy

Read the full report here (PDF, 1.4 MB)

Executive Summary

Background

The state of Tennessee is in the midst of a monumental fiscal crisis.

Facing a budget shortfall of $480 million this fiscal year and an estimated $600 million deficit next year, Governor Bredesen has proposed immediate 9% spending cuts in most state departments. These deficits, ironically, come on the heels of the largest tax increase ($933 million) in state history, passed last July. The drop in Tennessee's sales tax revenues can be attributed to three phenomena: the current sluggish economy; our evolution from a goods to service-based economy; and increasing numbers of consumers purchasing goods out of state, both on the Internet and in border states to avoid paying sales tax.

Tennessee now has the distinction of having the highest sales tax rate and the third most regressive tax structure in the nation-and we are paying the price for it!

On the plus side, we welcome Governor Bredesen's careful examination of state priorities. We endorse his decision to require the Tennessee Department of Transportation to make cuts along with other state departments. We support his effort to transfer services from expensive outside contractors to more cost-effective state employees. His reluctance to lay off state employees is also appreciated. However, the proposed budget cuts put Tennessee's children, educational systems, environment, safety and security at risk, and will have a lasting negative impact on the quality of life in Tennessee. They will hurt economic growth in our state and will harm some of Tennessee's most vulnerable citizens such as at-risk or abused children, the elderly, and the deaf.

We have identified nine key areas where the effects of the budget cuts will be felt most strongly. Following is a brief summary of each area:

I. Education, including Higher Education

The reality is that Tennessee is already 49th in education spending per capita. More cuts will continue to weaken the system. Proposed reductions of nearly $39 million from K-12 education will affect summer programs, preschool and tutoring programs for at-risk children, and under-performing schools. Higher education will be slashed more than $100 million, including millions of dollars in cuts to the state's medical schools.

II. Public Safety and Security

The budget cuts will hit the Department of Safety the hardest in number of positions cut. In a state that ranks eighth highest in murder rates per capita, the budget proposal slashes funds for investigations of drug crimes and processing of evidence for violent crimes. Cuts of millions of dollars for probation and parole officers will mean less supervision and less rehabilitation, resulting in higher crime rates. The Department of Commerce and Insurance will lose 36 positions, 13 of them filled, quite likely resulting in less enforcement of insurance consumer fraud. Eleven positions are being eliminated in the Fire Academy.

III. Environment

Tennessee is currently 42nd in environmental spending per capita and all four of our metropolitan areas rank among worst in the nation for ozone pollution. Under the proposed budget, $6 million is being cut from Environment and Conservation, and all of the wetlands and park acquisition funds are being diverted to the general fund. Air and water quality will sink to new lows.

IV. Health and Mental Health

Tennessee is 44th in overall health of its citizens. To date, 160,000 adults and children have already been removed from the TennCare rolls. Cuts will be made to the Alcohol and Drug Abuse Services and local health services, including the Department of Mental Health and Mental Retardation. Three thousand will remain on waiting lists for mental retardation services in the community.

V. Jobs and Income Support

Tennessee is 1st in personal bankruptcy, 8th in number of children living in poverty, 10th in the number of families living in poverty, and 44th in high tech jobs. A $14.6 million cut in Human Services will mean elimination of jobs in child support services and community services. Centers for the deaf are facing budget cuts of nearly 70%, which means some centers may close or curtail interpretative services to the deaf. State and federal Temporary Assistance for Needy Families (TANF) funds slated for welfare reform will be slashed by more than $47 million in one year's time. This comes at time when welfare caseloads have increased from 56,000 to 68,000 families. There is a documented correlation between lower education and welfare expenditures and higher violent crime rates. Tennessee's high crime rates may increase even more as a result of these cuts.

VI. Children's Services

Tennessee is not the best place to live if you're a kid. It ranks among the top ten worst states for condition of children. In 2000, nearly 33,000 cases of child abuse were reported in Tennessee. Money for early childhood education and child abuse prevention will be cut. Juvenile Court Prevention Grants, intensive probation and other services designed to help at-risk youths will be cut.

VII. Provision of State Services

Tennessee has the 16th largest state population, the 41st largest state government and ranks 42nd in the average salary of state government employees. In 2002, state employees earned 82% of market pay; half earned less than $25,000 per year. Nonetheless, layoff notifications began to go out to state employees on April 1. With nearly 1,000 positions targeted for abolishment, workload pressures on state employees will get more intense and the public will suffer from lack of government services.

VIII. Transportation

Tennessee Department of Transportation has a very large share of the state budget. The governor is cutting TDOT's budget by 9% or about $65 million. Some efficiency could be achieved if TDOT would consider using more state employees instead of expensive outside contractors for some of its work. More of TDOT's funding could also go towards the building of mass regional transit.

IX. Local Government

Local government will face cuts on two fronts: the 9% cut of state-shared taxes totaling $60.7 million and additional losses they will suffer as a result of cuts in other state departments. Reductions to local governments in state shared taxes make up about 17% of the total budget cuts, with varying effects on each local government. Cuts in local funding will require locals to either raise the property tax or cut services, or both.

Solutions

There is no quick fix for the state's current fiscal dilemma. There are, however, practical solutions that will help mend our tattered safety net rather than shred it to pieces. We suggest a combination of individual options to help solve some of Tennessee's current budget crisis and a comprehensive reform plan that will fix the broken tax structure that perpetuates the state's perennial financial crisis.

Steps in the right direction:

• Maintaining funding in programs with highly favorable federal matching fund ratios;
• Allocating the Hall income tax more equitably across the state, based on population and need;
• Basing annual car registration fees on the value and/or fuel efficiency of the vehicle; and
• Implementing stronger cost-benefit rules for initiating contracts; showing potential savings over the use of state employees before contracts can be initiated; and using more state employees rather than higher cost contractors to perform more of the state's work.

Comprehensive solution:

Fixing our outdated tax structure by passing broad tax reform will create a more equitable and balanced system that actually reduces taxes for most and ensures adequate revenues for all. Tennesseans for Fair Taxation has put forward this common-sense solution with "The Tax Relief and Reform Act of 2003," which:

• Eliminates the state and local tax on grocery food;
• Eliminates the state and local tax on nonprescription drugs;
• Reduces the state sales tax by 2% (sin taxes remain at current levels);
• Eliminates the Hall tax on investment income; and
• Establishes a two-tier income tax, exempting the first $15,000 for individuals or $30,000 for married couples, plus $2,500 deduction for each dependent.

Eighty (80) percent of Tennesseans pay less tax with this balanced approach. Equally important, the bill raises $830 million, enough to prevent the 9% across-the-board cuts. Common-sense tax relief and reform is the solid foundation Tennessee needs in order build healthier families and stronger communities throughout the state.

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