When the Tennessee legislature goes back into session in June, they will be faced with a new challenge — a dramatic drop in tax revenue collections. This is due to the closure of businesses during the coronavirus pandemic.
A recent letter sent on Monday to members of the Fiscal Review Committee by the group’s chief economist paints a grim picture: Tax revenue collections for the current fiscal year are estimated to fall short of the budgeted projections by about $516 million dollars.
“The COVID-19 pandemic and public health responses have resulted in unprecedented economic disruptions in the United States and the world,” Joe Wegenka, the committee’s chief economist, wrote.
This makes adjustments to the emergency budget, which the Tennessee General Assembly passed in March, imminent. That spending plan was about $900 million less than what was initially proposed, but Senate Majority Leader Jack Johnson, R-Franklin, said the impact of the coronavirus pandemic is worse than expected.
“Unfortunately, that’s probably not going to be good enough,” Johnson said Tuesday in a videocall with Williamson County mayors. “In other words, we are going to need to go in and reevaluate our budget and probably make further cuts for the coming fiscal year.”
Wegenka warned lawmakers that the financial projections could turn even worse if there is “a prolonged hesitancy of consumers, businesses, and investors to engage in activity to their full potential in the months ahead; a significant surge in COVID-19 cases after re-opening of businesses, leading to subsequent government and private sector actions that would restrict economic activity; and additional tax deadline extensions that would transfer payments from the current fiscal year into FY20-21.”
Meanwhile, the bleak projections could improve if the state sees “additional fiscal and monetary stimulus and stronger than anticipated pent-up demand, leading to a quicker than anticipated return to a sustained economic expansion.”
Senate Speaker Randy McNally tells WPLN News in a statement that further trimming next year’s budget will be the only solution to make up for the revenue lost this year.
“While there will be federal dollars available for the state to combat the virus, those dollars can only be used on COVID-19 related expenditures, not revenue shortfalls,” McNally said. “Tennessee’s state budget will have to be adjusted to adapt to the inevitable revenue shortfalls. This will require sizable budget cuts.”