No revenue growth could mean no sales tax holiday on groceries next year.
Image Credit: John Partipilo
By Adam Friedman [Tennessee Lookout -CC BY-NC-ND 4.0] –
The days of skyrocketing tax revenues are likely over, multiple budget experts told Tennessee’s panel in charge of predicting revenue growth.
The financial experts predict the state and national economy will grow but at a slower pace over the next two years. This, combined with the state’s business tax cuts enacted earlier this year, will slow the state’s revenue, making them harder to predict.
For the past five years, Tennessee’s revenue has grown from $17.4 billion to $24.7 billion. This has allowed the state to spend more money on projects and keep up with the growing wages for employees.
The revenue projections made by the state funding board are crucial as programs boosted by federal coronavirus relief funds expire, leaving the state with the option of whether to cut them or fund them from its own revenue. The projections will also factor into whether the state can afford to fund any new programs or whether it can cut taxes.
If the panel goes with a negative growth rate, the state would have to cut its current spending, dip into its reserve funds or increase revenue with new taxes.
The funding panel heard presentations from economic experts at East Tennessee State University, the state Department of Revenue, the Federal Reserve, the Tennessee General Assembly’s Fiscal Review Committee and the University of Tennessee.
The various officials detailed Tennessee’s economic outlook, giving out projections for future tax revenue over the next two years. The funding board will use these predictions as it sets the revenue projections for state officials to use when developing next year’s budget.
Tennessee’s budget hearings start Tuesday, and the governor will submit his proposed budget to state lawmakers before his State of the State address in late January or early February of 2024.
Several of the experts pointed out that part of the reason Tennessee’s revenue isn’t growing as fast is because of a significant business tax cut already leading to a slowdown in franchise and excise tax collections. From July 1 to Sept. 30, 2023, these taxes missed projections by around $61.4 million.
Most of the state’s revenue gain over the past five years has been driven by the ability to collect taxes on internet sales and an enormous growth in franchise and excise tax collections. Budget data shows that nearly two-thirds of the increase in state revenues came from these two areas.
Don Bruce, the director of the Boyd Center for Business and Economic Research at the University of Tennessee, said the days of large-scale revenue growth are “virtually over.”
He predicted tax revenue would grow by less than 1% in each of the next two years. Officials from the revenue department made a similar prediction, estimating virtually no revenue growth over the next two years.
Representatives with the Tennessee General Assembly’s Fiscal Review Committee and those from East Tennessee State University were more optimistic, predicting positive growth. Fiscal review officials projected 1.1% revenue growth next year and 3.4% the year after, while ETSU economists went with 4.8% and 4.2%.
Over the past few years, the state’s funding panel has used expert predictions to set revenue growth below their estimates, creating a surplus in revenue.
During this period, state officials used the surplus to increase its funding for schools by $1 billion, give $884 million in incentives to Ford and contribute $850 million towards professional sports stadiums in Nashville and Memphis.
The state funding board — whose members are Finance and Administration Commissioner Jim Bryson, Secretary of State Tre Hargett, state treasure David Lillard and Tennessee Comptroller Jason Mumpower — will meet again on Nov. 29 to finalize the projected growth rate.