By Chas Sisk and Paul Barton / The Tennessean
Tennessee schools could feel the sharp end of the budget ax unless negotiators in Washington hammer out a compromise plan to reduce federal spending within the next few weeks.
Funding for special needs and poor students appears to be most in jeopardy if the nation plunges over the so-called "fiscal cliff" - a mix of draconian spending cuts and tax hikes that experts say could push the economy back into a recession.
Tennessee ranks fifth in the nation in its exposure to the painful budget cutting plan known as "sequestration," according to the Pew Center on the States. Special education funds and programming meant to bridge the gap between wealthy and poor students would be pounded if a deal is not struck.
Gov. Bill Haslam says his administration is preparing for cuts as it writes next year's budget. But the depth of the cuts - nearly $150 million, by one estimate - will make it nearly impossible for Tennessee to fill in the hole created if Washington does not step back from the brink.
"We shouldn't kid ourselves, if sequestration happens, there will be an impact," Haslam said this week. "In most of those cases, when the federal money is taken away, the program that it's funding will go away as well because we literally don't have the state dollars to replace those federal dollars."
Sequestration - a series of mandatory federal spending cuts affecting everything from education to defense - makes up part of the budget-balancing plan that takes effect automatically Jan. 1 unless Congress and the White House work out an alternative beforehand. The reverse side of the coin is the expiration of tax cuts passed a decade ago at the behest of then-President George W. Bush.
Together, the sequestration and the tax hikes will cut the nation's $1 trillion annual deficit in half, but they will do so at a serious cost. By cutting government spending and reducing how much individuals have in their pockets all at once, the plan will reduce the nation's economic growth by 0.5 percent and push unemployment past 9 percent by the end of 2013, according to the Congressional Budget Office.
Tennessee could feel the impact indirectly. Higher taxes could mean less consumer spending, reducing the state's sales tax revenue. Spending cuts could hurt large federal institutions, such as Fort Campbell and Oak Ridge National Laboratory, putting a damper on local economies.
The state will almost certainly take a hit directly. If the sequester plan goes forward, Tennessee will see a $148.9 million reduction in nondefense federal programs in 2013, according to Federal Funds Information for the States, a Washington research organization associated with the National Governors Association and the National Conference of State Legislatures.
Areas that would be hit include the Women, Infant and Children nutrition program, job training and clean water grants.
But the biggest cuts likely would come to the more than $500 million the state receives each year from the federal government for education. These grants pay for math tutors, reading coaches, after-school programs and other services meant to help poor and special education students learn as much as their peers.
"These are critically important to children across the state," said Kenya Bradshaw, executive director of Stand for Children Tennessee, an education nonprofit. "These funds need to be maintained."
Not all federal programs are vulnerable to cuts. Welfare payments, highway funds and Medicaid are off-limits. Those are three of the five biggest federal programs in Tennessee.
Still, state officials estimate that about one-fifth of the approximately $12 billion that Tennessee receives annually from the federal government is subject to sequestration. Not all of that would be taken away, but the Pew Center says the state's exposure to cuts ranks fifth in the nation, behind only South Dakota, Illinois, Georgia and Texas.
The cuts would go into effect immediately, but their impact would magnify as time goes on. Haslam said budgeters have been preparing for cuts in federal aid as part of a deficit reduction plan for more than a year, but they do not have many options for filling in the gaps once they occur.
"We think we're prepared as well as we can be, but depending on how much money's lost, to say we won't notice that, I don't think is fair," he said.
States also face the challenge of drawing up budgets for next year while negotiations are under way in Washington. Those talks have made it difficult for planners to figure out exactly how much they will lose if sequestration occurs - or how deep a cut to expect if negotiators come up with an alternative proposal.
"I think the biggest problem with sequestration for the states is the uncertainty in how it will be implemented and the fact that most states have to balance their budgets," said Anne Stauffer, a project director of Pew's Fiscal Federalism Initiative.
That uncertainty trickles down to the local level.
Metro Nashville Public Schools receives about $30 million in grants annually for low-income students, money that is spent at 124 of the district's 148 schools. The district also receives about $18 million for special education students.
Merrie Clark, grant management coordinator in the district's federal programs office, said she expects to lose more than $4 million in funding if sequestration goes forward. The district could weather such a hit for the rest of the school year, but it would likely mean shutting down programs when the next school year begins in the fall.
"I'm trying not to get into a panic, because this year, we're fine," she said. "But if there is this sequestration, we will feel a major impact."