Last summer, Tennessee residents staged a rambunctious protest outside the state Capitol in Nashville to decry efforts by state leaders to raise taxes as a way to shore up a growing budget shortfall and finance the governor’s plan for statewide preschool.
After weeks of negotiations, the legislature, banking on an economic rebound, rejected Gov. Don Sundquist’s demands for new taxes—as well as his preschool plan—and instead tackled the crisis with some tricky budget maneuvers and by spending most of the state’s revenue from the legal settlement with the nation’s tobacco companies.
It didn’t work.
Today, Tennessee must cut $350 million from its current budget and faces a daunting $1.2 billion budget deficit in fiscal 2003. As a result, the Democratic-controlled legislature and Republican governor agree that, even though it’s an election year, the state must increase revenue—likely from new taxes.
Across the nation, many other states are moving in the same direction, analysts say. Most states are studying new taxes, budget cuts, or tapping reserves as they build fiscal 2003 budgets. The picture is a far cry from the good times of recent years, which allowed lawmakers to give generous increases to education, while also trimming taxes.
“What we’re seeing is small growth, if any, in general education spending and a shrinkage in the side programs,” said Mike Griffith, an analyst with the Education Commission of the States in Denver. If the economy continues to slide, he warned, legislatures might have no choice but to consider new taxes or deeper cuts in education.
A report released last month by the National Conference of State Legislatures showed that 45 states and the District of Columbia face revenue shortfalls in the coming fiscal year. At least 30 have made reductions in their current budgets, and 13 or more are looking to use at least part of their tobacco-settlement funds to meet those shortfalls. And at least 19 are considering new taxes.
While it is true that education funding remains a top priority for most governors, there’s simply not enough money to continue increasing, or, in some cases, hold funding level for state education budgets.
Arturo Perez, a senior policy analyst with the Denver-based NCSL, said, “It’s not simply a situation where states are trying to balance the budgets of the current fiscal year, they now have a budget gap they have to resolve in the upcoming year.”
Taxing Issues
The notion that states are looking for new ways to handle their budget problems was hammered home at an NCSL conference this month in Palm Springs, Calif., where lawmakers gathered to talk about school finance.
Looking across a room of state legislators and policymakers, school finance expert John L. Myers posed a question: “How many of you are going to fund education the same way you have over the last few years?”
None of the roughly 35 people in the room raised a hand.
Sen. Dwayne Umbarger, a Republican from Thayer, Kan., who was at the conference, predicted bluntly in an interview after the session that “there will be a tax increase” in his state.
Kansas Gov. Bill Graves, a Republican, already has proposed increases in tobacco, motor fuel, and sales taxes to raise about $95 million to avoid cuts in next year’s K-12 spending.
And even though the state expects a $600 million shortfall in the next fiscal year, the public wants more attention to education, said Mr. Umbarger, who is the chairman of the Senate education committee. Nonetheless, that may not be enough to pave the way for the new taxes.
Last year, Sen. Umbarger and others on the Senate education committee proposed a three-year sales tax increase of two-tenths of a cent to help pay for education. It failed, thanks in part to spending scandals in a couple of school districts, the senator said.
This year, persuading lawmakers to raise taxes may not be any easier, but the demands for school spending may finally sway some colleagues, Sen. Umbarger said.
“We’re going to do something in education regardless,” he said.
It’s the same battle many lawmakers elsewhere are facing.
For the third time in his eight years in office, Alaska Gov. Tony Knowles, a Democrat, has proposed a state income tax. His plan, which faces strong opposition from the GOP-controlled legislature, would raise $350 million in the next fiscal year and would be part of a three- year plan to raise $1.2 billion, said Bob King, Mr. Knowles’ press secretary.
Mr. King said that more state revenue through modest tax increases can justify Gov. Knowles’ proposed $32.7 million spending increase for education, plus a $212 million, two-year school construction bond issue in fiscal 2003.
Meanwhile, Oregon Gov. John Kitzhaber, a Democrat, is at loggerheads with the Republican-controlled legislature over how to close a $715 million state deficit.
He wants to raise certain state fees and taxes to help protect school spending while the legislature, which is controlled by Republicans, wants to dip into school trust funds, in part, to close the huge gap. (“Gov. Kitzhaber, Lawmakers at Odds Over School Funds,” Feb. 20, 2002.)
Elsewhere, one of the nation’s newest governors, Mark R. Warner of Virginia, could find that winning his election in November was child’s play compared to helping battle-ready lawmakers resolve the $1.2 billion shortfall in the state’s $25 billion budget.
Mr. Warner, a Democrat, announced last week that he will lead a campaign to raise the state sales tax to generate money for education, and to allow local jurisdictions to approve sales-tax increases for transportation costs—if the GOP-led legislature puts the issue to a vote this fall.
“The people of Virginia see these unmet needs all around them,” Gov. Warner said in a statement. Mr. Warner has also proposed layoffs and other state cuts to avoid larger shortfalls in the next two years.
Some states are looking to school construction as a way to revive their ill economies. While Florida reduced state aid to local school districts, it also passed a $274 million construction bond issue in a special session last fall. Georgia and Delaware are also considering providing more school construction funds, said Gale F. Gaines, the director of legislative services for the Southern Regional Education Board, based in Atlanta.
Troubled Waters
Meanwhile, the crisis in Tennessee is dominating the media there. Last week, lobbyists and special- interest groups began converging on the Tennessee state Capitol once again—some supporting new taxes to avoid cuts in state programs, others decrying the tax proposals.
Gov. Sundquist, who is finishing his second term and cannot seek re-election due to term limits, believes more people are slowly beginning to stomach the idea of new taxes.
While his plan calls for a new, flat-rate income tax that would take 3.25 percent off Tennesseans’ total incomes, Mr. Sundquist has been receptive to other plans.
Given the state’s current situation, the Volunteer State’s governor may finally get his way. After all, he vetoed the past two budgets, protesting that they overestimated revenue projections and ate up the tobacco-settlement funds. Both times, the legislature overrode his vetoes.
Money isn’t the only problem, however. The legislature, which last year used more than 60 days of its 90-day limit for two- year sessions, has been unable to meet to figure out a budget plan. Lacking time to convene a lengthy session, Gov. Sundquist and legislative leaders have been meeting weekly in groups to discuss a variety of plans.
“What we’re seeing is that members of the General Assembly are starting to feel that doing nothing can be as costly as doing something,” said Alexia Levinson, a spokeswoman for Gov. Sundquist.
But some believe that sentiments within the state still might not embrace new taxes.
“I think there are a growing number of people who realize that we have reached a crisis situation,” said Andy Womack, a Democrat who chaired the Senate education committee for six years before retiring last year. “But I’m not sure if there’s a consensus that it requires additional revenues.”
Sen. Marsha Blackburn, a Republican, believes the income-tax plan violates a state constitutional ban on such legislation.
Besides, she contends that the state could save plenty by eliminating bureaucracy and duplicative programs within the department of education and state board of education.
“A reallocation of the money we have is important,” she said.
