State Budgets

State of the State: Tennessee

If lawmakers agree to the spending-heavy budget plan touted by Governor Bill Haslam, Tennesseans will pay more at the pump but could save more while shopping and could earn a tuition-free college degree.

Governor Haslam’s $37 billion budget proposal for fiscal year 2017-18 includes many big-ticket items, such as $100 million in pay raises for K-12 teachers, $132 million for the state’s reserve fund and a $57.8 million expansion of Tennessee’s free community college program. A gas tax hike was also among the many controversial parts of the governor’s wish list.

“Even with all of the progress and unprecedented opportunity, we know that we have to do more,” Governor Haslam said, announcing his plan for Tennessee to become the first state to offer tuition-free community college for all adult residents (rather than just the high schoolers covered under the current Tennessee Promise program). The “Tennessee Reconnect Act” makes all 13 of the state’s public community colleges tuition-free for all residents (including adults) who meet certain eligibility requirements.

Earlier this month, Haslam proposed raising the state’s gas tax by 7 and 12 cents per gallon for unleaded and diesel, respectively. Predicted to raise $278 million in new revenues, the Governor plans to use the hike to pay for more than $10 billion in infrastructure projects, many already authorized by the General Assembly.

Responding to critics of the gas tax hike, the governor said, “I have never thought that it was a good plan,” he said, “to pay for a long-term need, like $10.5 billion in… road projects, with a short-term surplus.” The governor also stated that residents would not bear all the burden of the increase and estimates that non-Tennesseans and trucking companies would account for more than half of the revenue.

However, Tennessee has a surplus of nearly $2 billion, including $975 million in new recurring revenues. As one of 31 states with its own “prevailing wage” law, which prevents real price competition among bids for government contracts, Tennessee’s infrastructure projects likely cost taxpayers far more than they should. Instead of extracting more money from taxpayers through a gas tax hike, the governor and lawmakers should prioritize the money already available and more efficiently execute the core functions of government.

The governor also called for passage of his recently announced broadband initiative. This initiative aims to give $45 million in grants and tax credits to service providers over three years to spur increased broadband access in rural areas. These targeted tax carveouts, while perhaps well intentioned, make tax burdens higher for everyone else and benefit only a select few.

Trying to soften the blow of his costly infrastructure ambitions, Governor Haslam also proposed a one-half percentage point cut in the state’s sales tax on groceries, which follows a previous reduction of the same size. He claims this new cut would save Tennesseans $55 million annually. The governor also highlighted that his proposal fully funds the cuts to the Hall Income Tax, which is already on track to be eliminated by 2022.

Unfortunately, rapid growth in spending coupled with higher tax burdens threatens the state’s economic competitiveness. The governor proudly announced, “The Tennessee we can be provides not only access to opportunity but the tools to be successful.” If he wishes to fulfill this promise, the governor should work with lawmakers to find more pro-growth tax and budget reforms and avoid falling into the tax-and-spend routine snaring so many states.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

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