Tuesday, September 23, 2014 · 2:25 p.m.
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Gov. Bill Haslam delivers his State of the State address to members of the Tennessee General Assembly. (Photo: Staff)

Gov. Bill Haslam covered portions of his $32.7 billion budget plan for the upcoming fiscal year and attempted to rally support from state lawmakers, delivering his third annual State of the State address Monday.   

The governor's $32.7 billion proposal for the 2014 fiscal year is an increase from last year's financial plan, which was passed at a total of $31.5 billion.

Appearing before a joint session of the General Assembly, Haslam took an optimistic tone toward issues facing the state, suggesting Tennesseans have "a lot to brag about." Totaling 43 minutes, the governor's speech hinged on a theme of why Tennessee's "different" approach is successful. 

"So what makes Tennessee different?" Haslam asked, beginning his remarks. "Why are we coming out of one of the worst recessions this country has ever seen in a place of strength? I believe it's because we think differently. We have a long history of fiscal restraint that crosses party lines. We have been deliberate about not spending money that we don't have and making a concerted effort to save for the future."

Steady increases in state revenues leave Haslam and his administration expecting at least $797.8 million in recurring revenues for the upcoming year. Along with regular revenue streams, the state is expecting more than $17 million in added revenues to be paid by entities like Amazon, which will start paying sales tax to Tennessee beginning in January of next year.

During his speech, the governor alluded to how those funds would be spent, without mentioning areas where he planned to propose cuts.

Haslam wasted little time before acknowledging the Republican supermajority now inhabiting both chambers of the General Assembly, quipping that he first needed to address the "elephants in the room." 

The governor then charged lawmakers of both parties to work against fighting internally and "focusing solely on playing partisan politics."

"I think that makes caricatures of us and sells us all short," he said.

Over the course of his address, Haslam detailed a number of items that will dominate activity in this year's legislative session, from continued efforts at reforming education to adjustments to the Affordable Care Act.

Although the governor mentioned his plans to introduce a school voucher program, as well as the debate it was expected to generate, he refrained from giving any specific details as to what the program might look like. At no point in his speech did the governor mention the word "voucher."

"I expect this proposal will be hotly debated, but after taking a careful look at the issue and how a program might work in Tennessee, I believe a limited approach that gives more choice to parents and students stuck in difficult situations makes a lot of sense," he said. "If we can help our lowest-income students in our lowest-performing schools, why wouldn't we?"

According to an Associated Press report, legislation was filed in the Senate Monday that would limit the voucher program to 5,000 students in the school year beginning this fall, growing to 20,000 students by 2016.

In addition to vouchers, much of the governor's remarks focused on both K-12 and higher education. Haslam told legislators that Tennessee had the second-largest increase in expenditures on K-12 education in fiscal year 2010, beating the national average in state education funding by 9 percent.

With regard to the state's colleges, Haslam said that the "time is right" to focus on postsecondary institutions, committing $307.3 million to capital outlay projects at the state's higher education institutions. He also suggested measures would be brought forward to address tuition costs. 

"We have to make a college education more accessible, and we have to make sure that we have quality education programs," Haslam said.

The governor said that the Tennessee Board of Regents and the University of Tennessee System had pledged to limit tuition increases to no more than 6 percent on four-year schools and no more than 3 percent at the state's two-year schools, adding that it would "provide relief" for families.

On the issue of whether he would expand the state's Medicaid program, TennCare, under a key provision of the new health law, Haslam said he would take a deliberative approach to considering whether to expand the program to cover more Tennesseans. Haslam said he was hesitant to take on any additional costs from an expansion because of an already high amount of spending on TennCare, but was also sympathetic to state hospitals and residents who might struggle without an expansion. 

"There are hospitals across this state, many of them in rural communities, that are going to struggle if not close under the health care law without expansion, and that's not something to take lightly," he said. "Most of us in this room don't like the Affordable Care Act, but the decision to expand Medicaid isn't as basic as saying, 'No Obamacare, no expansion.'"

The governor's comments generated applause from several lawmakers.

At least 46 percent of this year's new revenue allocations are expected to be swallowed by costs stemming from TennCare. And with an influx of new enrollees as a result of new insurance requirements, costs for adding beneficiaries are expected to hit at least $350 million more this fiscal year.

"I am hesitant to commit additional dollars to Medicaid when it's already eating up so much of our budget, and we have to remember what the state went through seven years ago when it made the difficult decision to cut a lot of people from the TennCare rolls," Haslam said. 

The governor also alluded to his plans for overhauling the state's workers' compensation system but did not elaborate on the proposal in-depth. 

"We spent last year working with stakeholders to find ways to improve our system with a focus on fairness to both the employee and the employer, and we believe the workers' comp bill we're proposing does just that," he said. 

Haslam's budget outline includes a 1.5 percent salary increase for state workers—marking the third consecutive year wages have been raised. In addition, Haslam suggested nearly $27.9 million would be marked for additional possible pay increases, following a salary study. The pay increases would be distributed based on worker performance as outlined in the TEAM Act—a package of civil service reforms signed into law last year.

In total, dollars marked for salary increases total nearly $60 million.

"Our employees deal with complex issues," Haslam said. "As we raise the bar in terms of expectations, we also have to be ready to pay them more."

Along with salary increases, Haslam's budget proposes $35.8 million in recurring funds be marked for teacher salary increases and $18.6 million to be put toward raises for the state's higher education employees. 

Haslam touted his calls for a continuation of a reduction to the state tax on groceries, from the current 5.25 percent tax rate to 5 percent. The rate had been reduced from 5.5 percent last year, and the budget proposal projects the continued adjustment will save $21.2 million for taxpayers.

The governor's financial plan also includes a measure to continue an increase of the exemption level on the state's inheritance tax, projected to save taxpayers $18.7 million. Eventually, the tax will be phased out entirely.

Haslam was hesitant to mention the portions of his budget dealing with the proposed elimination of state positions, which make up part of $139.7 million marked for spending reductions. Prior to drafting the budget, Tennessee Finance Commissioner Mark Emkes requested state agencies submit a "thoughtful and realistic" plan to reduce their costs by 5 percent. 

The cuts account for 299 positions, both filled and vacant, and marks the seventh consecutive year in general fund positions being decreased. It also represents a 5 percent cut in the number state positions in three years.

In addition, Haslam proposed that $100 million be added to the state's rainy day fund, bringing it to a total of $456 million. Haslam said his ultimate goal was to bring the fund back to prerecession levels. 

"We've seen the realities of rainy days, and it is our responsibility to make sure the state is prepared for them in the future," he said. 

In closing, Haslam charged lawmakers to not get caught up in their own issues and miss the greater purpose for their work in Nashville. 

"It's our job to identify and focus on the real problems," he said. "We have this rare opportunity to make a difference. I know you feel like I do, that every day we come to work in this building is a blessing and a privilege."

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