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Increases for health care and education will dominate next year's budget, Gov. Bill Haslam predicted on the first day of hearings on Tennessee's spending plan.

Haslam told reporters Tuesday that higher TennCare costs, commitments to help fund local schools and signs that state tax dollars are on the decline will combine to make next year "our hardest budget" since he took office in 2011. The governor indicated he would consider cuts to other programs to close any budget gaps.

"It'll just make our decisions all that much harder," he said. "We'll hear a lot of requests, either for increases or for things put out to be cut that they hope are not, (and) we won't be able to meet all of those requests."

The Haslam administration opened discussions of the 2014-2015 budget, which goes into effect July 1, with hearings on four state agencies, including the Department of Education.

Commissioner Kevin Huffman presented a plan that called for increasing state spending on K-12 education by $57 million. Most of that money would go to local school districts through the Basic Education Program, a cost-sharing arrangement based on factors such as student enrollment, demographics and staffing.

The department also would absorb the end of federal funding through the Race to the Top program, Huffman said. Tennessee received a $500 million grant in 2010 to fund reforms to its education system, changes that included the creation of a special statewide school district aimed at turning around failing schools and the implementation of a new teacher evaluation system.

The department's budget proposal did not include money to expand state-funded pre-kindergarten or increase pay for teachers. Increasing teacher pay was a goal Haslam set last month as part of a pledge to raise salaries more than any other state over the next five years. Huffman said those details will come out early next year.

"He (the governor) has to see how the whole budget comes together to figure out what's doable," Huffman said.

Tennessee officials also expect major increases to the $9.9 billion TennCare program, the largest in the state budget. An estimated 80,000 Tennesseans who are eligible under current law for the state's Medicaid program are expected to sign up as a mandate to carry health insurance goes into effect Jan. 1.

That will increase costs regardless of whether Haslam works out deals with Republicans in the state legislature and the U.S. Department of Health and Human Services to open TennCare to more of the poor. State officials also must budget for inflation in health care costs.

TennCare officials do not present their budget plan until next week, but Haslam estimated 60 to 70 percent of any spending increases would go to the program.

"It has and will continue to crowd out the opportunity to do so many other things," he said.

In a separate hearing, Dr. John Dreyzehner, commissioner of the state Department of Health, told the governor that state efforts aimed at stopping prescription drug abuse have been moving forward with the use of a newly installed computer monitoring program.

He said the mandatory reporting system has produced an estimated 50 per cent drop in doctor shopping by would-be drug abusers.

He said the reporting system "has taken the curtain off of what's been going on. We're still in the midst of a drug abuse epidemic," he said, but added the epidemic may be nearing a plateau.

Dreyzehner said that while there was still uncertainty about how the Affordable Care Act will play out, the state potentially could save $1.9 million, or 16 per cent of its costs on so-called safety net services it now provides to some state residents who could get coverage under the federal law.

If those savings are not realized, he said the department will draw on a $3.9 million state reserve fund to provide those services.

Later, Douglas Varney, commissioner of the Department of Mental Health and Substance Abuse, said those gains in controlling prescription drugs will not translate into fewer addicts for at least another two years. He called for spending $525,000 to continue a pilot program meant to reduce the stigma around joining 12-step programs or seeking treatment for addictions.

Finally, Commissioner Raquel Hatter said the Department of Human Services is trying to reduce errors in the Supplemental Nutritional Assistance Program. Hatter admitted the department's performance in handling SNAP payments has been "up and down," but she said it had been recognized recently by the federal government for improvements.

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