Last week Joe Dumas wrote an informed reply to my most recent missive about
the funding crisis in which we find ourselves.

The crux of his arguement was that "our state doesn't have a revenue
problem, it has a spending problem."

Now, I too don't mind having low taxes and I agree that TennCare has cost
the state more than Medicaid did but I respectively disagree with him if he
indicates we don't have a revenue problem.

Some more facts for you to digest:

The state budget is based on a projected revenue growth of 2.5%.  August
collections were up 2.8%, September collections were down 1.45% and October
collections were down 12.71%. September 11 was a big factor in this but we
should all remember that currently economists are saying we've been in a
mild recession since last March.

Current estimates are for a shortfall of $300 this year and a deficit of
$800 million for 2002-2003.

Repeating some previous figures:

State and Local Taxes as a percent of personal income: Tennessee is 50 of 50.
State and local taxes per capita: Tennessee is 48 of 50.

These figures still don't address the fact that we may spend too much in
this state do they?

Tennessee was 48 of 50 in total expenditures per capita by state government
in 1998.  This situation has not changed dramatically since then even with
TennCare.  If one compares the cost for TennCare in Tennessee to the cost
for Medicaid in the SLC States (NC,KY,Ark,Va,Miss,Ga,SC, Al), TennCare in
2001 cost about $200 million more.

If we bring TennCare in line with the other states, the savings will amount
to 1/4 of the projected deficit for 2002-2003.  The Governor has proposed
reforms that are being hotly debated but will, most likely, produce some
savings.

Should we require the State to spend it's money more wisely?  Of course.
Should TennCare become more efficient?  Should we investigate whether DOT
funds can become available?  Yes.  Are there other spending problems?
Probably.  Will totally reforming the way state government operates
alleviate the deficit problem?  Probably not.

Think of this.  If we can operate without a deficit we will still not make
any progress in funding P-12 and higher education adequately.  We'll have
what we have now which is pitiful state support for education.  Figures
pertaining to the pathetic state of Tennessee's support for education are
available on the TACTE website.

Recently, the TEA research division prepared an interesting powerpoint
presentation (also on the website under State Budget Crisis Impact on
Education) with the following review of the revenue side of the problem.

-Tennessee has an inelastic tax system
-Tennessee has a structural deficit problem
-Tennessee does not tax service expenditures
-Tennessee has a major tax leakage problem
-Tennessee has a very regressive tax system (8th worst)
-Tennessee is a low tax state

They conclude that Tennessee must have comprehensive tax reform in order to
develop a revenue system that will keep pace with the growth of the economy
and that any proposal should be a package of reforms which include: a major
reduction in the state sales tax, removing the state sales tax from food,
completing the job of business tax reform, and implementing a modest
flat-rate income tax.

We may not agree with their all their conclusions (or even like TEA) but
they are worth considering as are spending adjustments.

The problem is massive.  We cannot simply address the deficit and expect
the K-12 and higher education systems to improve, and they must improve.
Simply fixing TennCare (removing more than 180,000 people from the rolls?),
closing more parks, finding money from the DOT, limiting enrollment in
higher education, cancelling building programs and limiting maintenance
funds for higher education, eliminating extended service pay for teachers,
etc. may be part of the solution but at what cost?

It seems to me that massive problems require comprehensive solutions.  It
would be appropriate that we urge our elected officials to actually act on
them in contrast to seeking solutions using nonrecurring revenue such as
tobacco settlement money.  Several (perhaps) state representatives and
(hopefully) one or two senators will be present at the legislative forum
being hosted by our students in the Tennessee Room tomorrow at one o'clock.
 You might want to be there.

For your consideration.

Dan Baker