State to Lay Off 700 in Addition to Eliminating Unfilled Positions

State Finance Commissioner Dave Goetz brought the official bad news to lawmakers today: more than 700 state workers will lose their jobs in the next fiscal year.

About 600 state jobs are already vacant. Goetz says another 717 employees will have their jobs terminated during the next twelve months. The hardest-hit areas will be the state’s mental health institutes and the system that serves people with mental retardation. Those will lose a combined three hundred employees.

Goetz says the layoffs are a financial necessity. In the two months since the administration completed its initial budget proposal, he says there’s been a 200 million dollar shortfall in revenue.

“We’ve kind of done everything else we know how to do. We wouldn’t be doing this if we had any other alternatives. So…It leaves us in a pretty tough spot.”

The state’s fiscal year begins July 1st. Layoffs will be complete by July 1st 2010. Goetz says some agencies and departments may be able to find ways of delaying layoffs for up to a year.

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Community mental health agencies will get an increase in resources to try to deal with the outfall of mental health patients. New revenues – primarily from businesses – are being used to save about 360 jobs in the Department of Children Services, Goetz says.

The official number of proposed layoffs is 717, Goetz says. They won’t all happen on July 1, when the new fiscal year starts. According to Goetz:

“It’ll be up to each agency to decide when they want to carry this out. It just simply …they have non-recurring funding that supports these positions, but that non-recurring funding disappears on July 1 of next year.”

The state “budget” for any fiscal year is made up of several legislative bills, most of which continue to be amended until the last minute. For instance, the spending plan for this fiscal year (2008 -09) continues to be updated – cut back – even as the fiscal year draws to a close.

The key bills to be worked on this week and during June are:
1) The appropriations bill. When administrators say “the budget,” this is the one they are most often talking about. This is the authorization for spending state resources. As legislators “cut” this bill, it is often a trimming back of the originally proposed 2009-10 spending, not necessarily a cut from what the program is spending in 2008-09. (Keep in mind that the amount each program spends this year isn’t necessarily set yet – some programs are still being cut to balance out this year’s budget.)
2) The “omnibus” bill. Typically this bill changes inconvenient laws which require the state to spend money automatically. This year the “omnibus” bill will un-do (for one year) the automatic pay increases that would otherwise go to district attorneys, highway patrol officers, and some other state law enforcement officers. When the several years ago took money away from the “highway fund” to go into the general fund, it was a change made in that year’s Omnibus bill.
3) The “technical corrections” bill. This is always a last-minute drop-in by the state Department of Revenue. Theoretically it fine-tunes existing taxes. This year “technical corrections” (SB 2318 Kyle/ HB 2275 Fitzhugh) brings in new revenues from four main places:
i) Business tax administration…………………………………. $21 million.
The state proposes to take over collecting a gross receipts tax on Tennessee businesses. Currently county clerks collect it. The department says the state will be more efficient – in effect, saying that clerks aren’t collecting as much as they should from their local businesses.
ii) Software maintenance & warranties…………………………..$9 million. These agreements are being sold today as though they were out-of-state and non-taxable. The Revenue Department believes it can collect the sales and use tax due on these agreements from Tennessee users.
iii) Cable boxes…………………………………………………….$2 million. Turns out the state doesn’t tax those boxes that provide cable service to your house. Just an oversight, according to Commissioner Goetz. Obviously they meant to tax them all along. Now they will.
iv) Telecommunications tax………………………………………..$6 million. Consumers pay a 9.25% tax on long distance bills. Business only pays a 7.25% tax. The technical corrections bill will increase the business tax on long distance to equal the rate paid by consumers.

Of those four changes, one, the sales tax on cable boxes, is most likely to affect consumers through their cable television rates.
Goetz says its still a business tax.

“It’s a tax on the cable business…. Unlike other businesses, cable companies now don’t pay sales tax on what is a necessary piece of equipment for them to deliver their service. …Media companies pay taxes when they buy a TV camera, for example. So, this simply …subjects those same things to taxation in the same way that other businesses are. So, you know, It’s two million dollars. This is largely on the replacement of and purchase of new cable boxes throughout the year.”

The technical corrections bill is usually a last minute fight between the state Revenue Department and business.

Last year, small business screamed “foul” when the technical corrections bill changed how Family-Owned Non-Corporate Entities (FONCEs) were taxed. The FONCE change was sidetracked for a year. This year small business spokespersons stayed neutral on the FONCE issue, saying it doesn’t affect very many of their members.