New Finance Chairman Balances Own Wishes with Aims of New Governor

New Tennessee Governor Bill Haslam must submit a state budget to the legislature by March 1st. The proposed spending plan will include cuts in order to be balanced. That’s not just a matter of accounting – it also raises political questions.

Williamson County Republican Charles Sargent is the new chairman of the House Finance Committee. He’ll have to deal with a budget that has more needs than money to pay for them. And he’ll have to respect many of aims of Governor Bill Haslam.

“The governor-elect has already said he preferred not to cut state employees because we’re trying to keep a job work force, and we’re gonna have to look at different areas of the budget. Between TennCare and additional initiatives in education we’re gonna have to just look to see where some of this monies will come from.”

Sargent says any cuts to the state budget will have to be carefully crafted. He’s not a fan of across-the-board reductions.

“I don’t believe in just saying we’re gonna cut everything three percent, or four percent, or whatever the percentage is. I believe that we have to look at each department and not just do a flat cut.”

When one state department is reduced more than another department, the people affected by the deeper cuts usually complain. Who gets cut, is a political question.

The accounting question is how to balance the budget against expected tax collections. Those collections have increased a little in the past half year.

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Sargent is beginning his eighth two-year term in the state House. He has previously served on the Finance Committee. He says – very cautiously – that state revenues appear to be improving.

“The revenues are increasing every month, at a slow pace, but we do see the turn has been made, and revenues for the past six, seven months have slowly been going up.”

Later in the spring the state Funding Board will make an official guess as to how much revenue will come in during the fiscal year that begins July 1.

The legislature will have to decide if that figure is right – and cut the expected expenditures to match the expected income.

Most recent revenues

Under state accounting standards, December is the fifth month of the fiscal year for purposes of counting revenues. In other words, December tax collections represent business activity in November.

Finance Commissioner Mike Morrow said last week that those December collections outpaced budget estimates – for the fourth consecutive month.

Morrow says:

“The positive growth occurring in sales tax and corporate tax collections is particularly encouraging, and gives us reason to believe Tennessee’s economy is on track to recover from the worst recession on record. It is especially pleasing to this administration knowing we are leaving a budget in balance, and a year-to-date revenue surplus available for the next governor and general assembly.”

Sales tax collections drive the state’s revenue stream. In December sales taxes were up $6.3 million more than the estimate. The more important figure is that sales tax year-to-date growth rate is 3.75 percent. In real money, that’s only $56.5 million more than the state had expected.

Franchise and excise taxes – the “property” and “income” taxes paid by businesses – were also up in December, but F&E taxes have been volatile in recent years as businesses try to estimate what their annual tax liability will be – and many businesses transfer income to other states where the tax liability is less.

This summary from the Tennessee Department of Finance and Administration:

Year-to-date collections for five months were $98.9 million more than the budgeted estimate. The general fund was over collected by $78.4 million and the four other funds were over collected by $20.5 million.

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