Tennessee Budget Policy Has State Well-Prepared For Future Inflation Impacts, Report Says

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The Center Square [By Jon Styf] –

Inflation impacts everything from governments to consumers, but a new report from Sycamore Institute shows that the Tennessee government is well prepared for continued inflation due to its primary source of funds, sales tax and its rising rainy-day fund.

Tennessee’s rainy-day fund is set to reach $2.6 billion by the end of this fiscal year and $3.1 billion by the end of fiscal 2023.

“Recent budget decisions have helped to brace the state for these uncertainties by bolstering the rainy day and pension funds and putting off some recurring spending,” the report said. “Under a balanced budget, each of these choices come with trade-offs. Being prepared for the consequences of historically high inflation, however, could potentially head off more difficult policy choices like tax hikes or service cuts.”

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As opposed to the state’s local governments, which receive 67% of their funding from property tax, the state of Tennessee gets 62% of its funding from general sales tax, with 20% from franchise and excise taxes and 14% from other types of sales taxes such as gas, alcohol and tobacco).

That’s important because sales taxes rise with inflation and higher prices and “generally keep pace with prices and consumer spending.” Inflation reached 8.5% in July, a number that wasn’t reached since 1980, but Tennessee also just completed a fiscal year where it collected $4.8 billion more in taxes and fees than it had budgeted.

That included $2.5 billion more than budgeted in sales tax and $1.7 billion more than estimated in franchise and excise taxes. But costs have also risen as the state and local governments employ 377,000 people in Tennessee, approximately 12% of the workforce.

“They must also contend with a tight labor market and a demand for higher wages,” The report said. “Higher public worker wages also come with increased long-term retiree costs, which are tied to salary levels.”

About the Author: Jon Styf, The Center Square Staff Reporter – Jon Styf is an award-winning editor and reporter who has worked in Illinois, Texas, Wisconsin, Florida and Michigan in local newsrooms over the past 20 years, working for Shaw Media, Hearst and several other companies. Follow Jon on Twitter @JonStyf.

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