Slow Recovery Predicted for Tennessee (web only)

The official state economist predicts a long, slow recovery for the fiscal year that begins July 1.

Dr. Bill Fox, professor of economics at the University of Tennessee Center for Business and Economic Research, told the state Funding Board Friday he expects a growth in state revenues of about 2.4%.

That’s compared to the current year, when the state showed an actual decline from the previous year.

“So am I expecting a robust year? No,” Fox said. “But am I expecting, for the first time in three years, to see positive revenue growth? Yes.”

The state Funding Board must each year decide on how much state revenues will grow or fall. That rate – usually a range of growth rates – sets a ceiling on the amount of money the state budget may appropriate for the following year.

Fox is the economist retained by the state to zero in on that number, although the board will hear from other state economists this month before setting a ceiling for the budget.

“What I’m expecting through the remainder of this fiscal year is tax revenues to approximately flatten out by comparison with a year ago,” Fox said. “And I’ll remind you that a year ago, tax revenues were atrocious. So we’re flattening out at that very low level.

“As we go into the next year, what I expect is economic growth to lead consumers and businesses, to spend more. And so we’ll begin to see some positive sale tax revenue growth, and the corporate income tax will continue to perform reasonably well.”

But the dollar figures are still flat.
• The state is expected to bring in $9.97 Billion in state revenue this year, ending June 30.
• The projected revenue for next year, (beginning July 1, is only $10.2 Billion, an increase of about 2.4%.
• That’s better than this year, when revenue declined by 1.8%.

“The years 2009 and 10, not only did we have declines both years, but extraordinary declines in 2009, and pretty good sized declines here in 2010,” Fox said. “So the base for comparison that we’re using for 2011 is really low, after these couple of years of revenue declines. And so tax revenues in 2011 will still remain well below what they were in 2008, despite the fact that we’re beginning to see a little growth.”

The Funding Board is made up of the three constitutional officer elected by the legislature – the comptroller, treasurer, and the secretary of state – and the governor or his representative, who is ordinarily the commissioner of Finance and Administration.

For the last several years, the spring briefing sessions have been used to try to get the revenue projections as close to accurate as possible.

In a growth economy such as the 1990s, that goal was accomplished fairly easily. But for the last two years, the state has consistently, month after month, failed to collect the amount of revenue projected in the state budget.

The board is expected to reconvene Wednesday and Thursday [March 24 and 25] to hear from more economists and begin deliberations on their official outlook, the growth rate they expect for state revenues and thus the top limit for the budget.

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