Economists optimistic about state tax revenue
NASHVILLE (AP) — Tennessee’s financial outlook for the remainder of the year is rosy and next year looks good — just not quite as strong, economists said Thursday.
Even if growth slows significantly, the state can expect to collect about $37 million more than budgeted before the current fiscal year ends June 30, according to Bill Fox of the University of Tennessee’s Center for Business and Economic Research.
And he predicted that tax collections will be about $86 million more than Gov. Phil Bredesen included in the budget for the next year.
“I think the news from an economic perspective remains strong,” Fox said.
Fox was among a panel of experts who spent about three hours providing forecasts and historical data to help the Tennessee State Funding Board project a range of economic growth for next year, or to revise its estimates for the current year.
Most of the economists’ predictions were remarkably similar, which likely will make it easier for the board to issue its decision on Monday.
The Legislature will use that projected range of tax revenue growth to determine whether the state can budget to spend more money than Bredesen proposed in February.
Bredesen’s proposal relying upon 6.1 percent growth in the state general fund was based upon December Funding Board estimates ranging from 5.5 percent to 6.25 percent.
Bredesen said this week he was concerned that the Funding Board might increase the range or that lawmakers would use a figure at the highest end of the range so they could finance extra projects.
Funding Board members said they need to take a close look at the data but that it’s unlikely they’ll alter the range.
There’s still a huge question mark about how much the state will collect in corporate taxes, the state’s second largest source of income. Those franchise and excise taxes also are far more volatile than the largest source of revenue — sales tax.
The Funding Board usually meets in May so members know how April collections — the largest month for corporate taxes — turned out. But lawmakers hoping to finish by the end of this month wanted to begin the budget process early.
Corporate tax numbers look good so far but estimates could require some revision “if we see something alarming,” said Comptroller John Morgan, the Funding Board chairman.
Board members said they’re pleased the economic recovery predicted in December is holding true and that the state can expect it continue — albeit with slower growth — in 2005.
“It looks like we’re taking in more money than we had anticipated, rather than what’s been happening in the recent past where we had to deal with reduced money coming in each time we met with the economists,” said Secretary of State Riley Darnell, one of four Funding Board members. “It’s moving in the right direction.”
The economists did offer some concerns about international events, inflation and rising interest rates, the potential for flatter sales tax collections and a lack of job growth.
“This is really a critical period. We’ve got to create jobs and economic opportunities,” said John Gnushke of the University of Memphis. He said the state continues to see layoffs offset new job creation.
“It’s the Tennessee two-step. We take two steps forward and one step back,” he said.