State-shared revenues major concern for local governments

By Kathy Helms-Hughes

   The loss of state-shared revenues which local governments depend on to fund fire and police protection, schools and other vital services is an area county and city officials will watch closely when Tennessee legislators attempt to balance next year's budget.
   Carter County Executive Truman Clark he is concerned about state revenue going down as the national economy spirals.
   "I do not expect a lot of surplus money to have any increases to amount to anything within county government. Beyond that, you have to wait and see what the economy does about bringing in the taxes and see if eats into the revenue side of the budget," he said.
   "Sales tax seems to be off a little. It's not off bad enough to get overly concerned at this time. It will take a period of about three to four months to tell, really. But the revenue can affect the budget just as much as the expenditure side does."
   Clark said he recently listened to a radio program which mentioned that the surplus at the federal government level is disappearing very fast because of the economy.
   "Of course they can run in the red, but the difference is local governments -- state government -- cannot run in the red. They have to balance those budgets. They have to be balanced between what they have and what they spend. They can't spend in the red," he said.
   The worst thing the state could do would be to borrow money to operate on, Clark said. "When you're looking at the long range, you never want to do that. Of course, that's my opinion, but when you have to balance that thing, you certainly don't want to dig that hole deeper next year because if you borrow that money, you have to pay that back, plus the fact that you've got additional expenditures that you've not budgeted for. What are you going to do next year -- borrow additional money? You have a never-ending cycle."
   Money from the county general fund is used to fund the majority of county services, from roads to schools.
   "About 27 percent of the general fund is property tax. Other money comes from fees and state-shared revenue," Clark said.
   Since county commissioners turned down a property tax increase and voters refused to pass a wheel tax earlier this month, county offices will have to live on what they've got, according to Clark.
   "There could be some cuts coming. I'm not sure of that. It depends on if the economy goes down. More than likely you're going to stay basically the same: You're not going to have an increase in anything -- any additional services, any additional people, any additional wages for people.
   "We can tell by projections that it's not going to be a bonanza next year. It's probably going to be a 'bare bones' budget. People are maybe going to have to roll some of their budget requests back to whatever the revenue is that's coming in. It's just a tightening of the belt a little bit.
   "You cannot put budgets higher than you have revenue. I've had some people come over and say, 'I've got money in my budget.'
   "For them to have it in their budget doesn't mean anything to me. I have to have it in hand; I have to have the cash. They don't have to worry about that.
   "I told one of them, 'I don't care if you've got a million dollars in your budget. If I don't have the money, you're not going to spend it because I'm not giving you a purchase order.'
   "That's the way it works. It's a matter of balance," Clark said.
   Overall, money in the county general fund will continue to be tight "until people quit spending as much as they have every year," Clark said. "It's just a nationwide thing for everybody. We're all in the same boat."
   Elizabethton City Manager Charles Stahl said the state revenue issue was in existence before Sept. 11 and is certainly of concern for local governments.
   "Until the General Assembly is able to address the revenue shortfall, they're going to be looking carefully at all budgetary items, not only in next year's budget but the year after. The concern I have is over state-shared revenues.
   "While there has been no indication that they are targeted for elimination at this point, there's also no indication that they are going to be not part of the equation as far as possible cuts. I think we have to realize that and anticipate the worst-case scenario," Stahl said.
   The General Assembly must look at a variety of areas to balance the budget, according to Stahl. "I think we are fooling ourselves if we assume that state-shared revenues might not be an area of some consideration.
   "It's my understanding that there's already been some legislation that has frozen state-shared revenues at existing levels, which would mean we aren't getting any more than what we're getting. But at least for the moment we're not targeted to get any less than what we've been getting," he said.
   Looking at the national scene, Stahl said, "I think we need to be realistic. There are some unemployment indicators up, companies aren't hiring, state sales tax collections which are being distributed to local governments are lower than anticipated.
   "I think it's fair to say that the next fiscal year for the next budget year and perhaps even the remainder of this fiscal year are going to be tough times for Tennessee local governments, not only because the budget situation in Nashville will not be resolved in the next six months but also, I think, the national economy certainly remains in question."
   The City of Elizabethton receives $130,000 from the Hall's tax, Stahl said, and is projected to receive $852,000 in state sales tax, $410,000 in gas tax share to the city, and some smaller amounts in state-shared revenues and grants.
   "But with those revenues alone, you're seeing essentially over $1.5 million in funds to local government" which would be difficult to replace, according to Stahl.
   "If they eliminate the sales tax or reduce the sales tax, what is the future of the local-option sales tax? Will it be preserved or will it be eliminated? And if it is eliminated by the General Assembly, would there be another revenue to replace it?"
   State-shared revenue is essentially 12 percent of the city's general fund budget.
   "To replace $1.5 million, I think the tax burden that you would have to address would be a severe one. Responsibly speaking, I don't see how you could easily replace that revenue and you would almost have to look to the budget to cut the budget proportionally or to a degree to make it balance if that were to take place," Stahl said.
   "It would be irresponsible on my part not to anticipate any possibility over the next six to 18 months," he said, because the state budget situation may not be resolved by July 1, 2002.
   "It would be great if it was, but then again, if it was, would it be addressed in a manner that safeguards state-shared revenues to local governments?
   "I know that our local legislative delegation -- Rusty Crowe and Ralph Cole -- will fight hard to make sure those state-shared revenues to local governments are preserved, but does the majority of the General Assembly feel that way and how will it shake out at the state level?" Stahl questioned.
   Whatever happens will have a direct impact in some form on local governments in Tennessee, according to Stahl.
   "Unless there are some things that dramatically change around in the national economic scene, we're going to be taking a very conservative approach on local government in the next year to year and a half," he said.