NASHVILLE, Tenn. (WTVF) — Tennessee's state budget faces a potential $1 billion shortfall because of the COVID-19 economic downturn, and some popular spending proposals will likely be on the chopping block, NewsChannel 5 Investigates has learned.
Among those items that will be considered, according to a prominent Republican lawmaker, will be the $38 million set aside for Gov. Bill Lee's controversial school voucher program.
"I think it has to be looked at," said Sen. Bo Watson, R-Hixson, the chair of the Senate Finance Committee.
"Obviously, to the administration, that is a key item to them. But I think, in fairness, if you are going to look at everything, then you are going to look at everything."
Under the state constitution, Tennessee must balance its budget every year.
Officials are anticipating that the economic shutdown has been devastating to state tax collections, although the exact magnitude is not known yet because it takes about two months, for example, for sales taxes collected by merchants to be deposited into the state's coffers.
But the economics are not good.
In April 2019, the NFL draft drew thousands to downtown Nashville, attracting tourists who pay sales taxes and pumping millions of dollars into Tennessee businesses that pay taxes on their profits.
This April, downtown Nashville was a virtual ghost town.
"I don't think anyone is going to be surprised that we are going to run short on revenues," Watson said.
A recent internal analysis by the legislature's Fiscal Review Committee concludes that, in the fiscal year that ends June 30th, the state is likely to come up short about $516 million.
An even greater unknown, Watson said, is the state's 2020-2021 budget.
Lee initially filed a $40.8 billion dollar budget.
But after the crisis first hit, the legislature passed a budget of $39.8 billion -- roughly, the amount of this year's budget.
That revised budget cut the proposed pay raises for teachers in half -- from a 4 percent increase down to 2 percent -- and chopped the recommended pay hike for state employees from 2.5 percent to 1.5.
NewsChannel 5 Investigates asked Watson about talk that "there may be a need to cut another billion dollars from that."
"That's certainly possible," the Senate Finance chair answered.
TN Senate Finance Chair @SenBoWatson discusses difficult budget decisions facing state lawmakers in the wake of the #COVID19 economic downturn. pic.twitter.com/Jl0Uc2Yned
— Phil Williams (@NC5PhilWilliams) May 14, 2020
"Again, some of that depends upon how we are able to utilize some of the federal dollars."
Some are pushing Congress to let state governments use federal stimulus money to fill budget holes created as a result of the COVID crisis.
NewsChannel 5 Investigates asked Watson, "Do you think that pay raises for state employees and teachers are on the chopping block?"
"I think they certainly have to be part of the discussion," he responded.
"It's a bit of a contradiction -- if we have as many Tennesseans who have had to go on unemployment and being furloughed -- for you to then turn around and be doing pay raises for state employees."
Lee's finance commissioner has already ordered a hiring freeze and cut non-essential purchases as the administration tries to anticipate what will happen with the budget.
"What we are left doing is trying to create scenarios around a difficult economic environment, but one we've never seen before," said University of Tennessee economist Dr. Bill Fox.
Fox advises the legislature on its budget.
He said the COVID-19 economic shutdown has no historical precedent to guide lawmakers.
"You can imagine an environment in which a number of companies have had zero or very little revenues for at least two months," Fox told NewsChannel 5 Investigates.
"When we figure out their corporate profits tax for calendar year 2020, it's going to be significantly lower than we would have thought three months ago or than it was in 2019."
Behind the scenes, some lawmakers are talking about possibly raising some revenues, by expanding the number of businesses that are required to collect sales taxes on online sales - much like Amazon and other big companies do right now.
Watson said he's not sure that right now is the time to begin talking about new revenue.
Also still to be worked out, the Senate Finance Chairman, is whether lawmakers will need to pass a new budget or whether they can leave it to the governor to adjust state spending as necessary.
