Administration asks 2 percent budget cut plans

Despite a growing government budget surplus in Tennessee, Finance Commissioner Larry Martin has asked all department chiefs to submit proposals for cutting their spending by 2 percent in the next fiscal year.

In a memo to department and agency officials, Martin acknowledges “strong revenue growth” but cites enactment of a law earlier this year that cuts the Hall tax on investment income from 6 percent to 5 percent immediately and mandates full repeal in six years.

“At a minimum, reductions will be necessary to offset the phaseout of the Hall Income Tax,” the memo says. “In fiscal year 2014-15, collections for the Hall tax totaled $303.4 million. Because certain areas of the budget tend to outpace our average revenue growth, it would not be prudent to address tax cuts with revenue growth alone. It’s also important that we continue to look for savings and efficiencies throughout state government and bend the curve on government spending.”

In the memo, Martin instructs the departments to submit their general budget recommendations for the next fiscal year to the Department of Finance and Administration by Sept. 30. Gov. Bill Haslam will use them in fashioning a state budget proposal for submission the 2017 session of the General Assembly, which begins in January. The state’s fiscal year begins July 1 each year.

In the 2015-16 fiscal year, ended June 30, 2016, the state reported tax collections totaling $925 million more than anticipated when the budget was originally approved by the Legislature in 2015. In the 2016 legislative session, the original estimate was recognized as overly conservative and about $375 million of the surplus was allocated. But that still leaves more than $500 million in surplus money now accumulated for spending in the upcoming budget.

“Fiscal year 2017-18 will begin in 10 months (July 1, 2017) and end in 22 months,” says Martin in the memo. “Economists have warned of possible slowdowns in our national economy during that time period. With that possibility in mind, we are taking a conservative approach in our planning.”

Since Haslam took office in January, 2011, the administration has called each year for departments to propose budget cuts as state budgets are being developed. The 2 percent cut is the smallest ever proposed. Last year, in planning for the budget year now in progress, the administration called for departments to propose cuts of 3.5 percent, though — when the budget ultimately passed, the cuts amounted to less than 1 percent and, of course, were meshed with increases in other spending. A year earlier, departments were asked to propose cuts of 7 percent, which wound up being about 3.5 percent in the final version of the state budget.

Note: The memo is available by clicking on this link: Martin FY18 Budget Instruction Memo (2)