Opinion: Slowed revenue growth means Tennessee may have to live within its means, like most of us

AP File photo/Adria Sainz / Construction continues on March 24, 2023, on part of a $5.6 billion joint project by Ford Motor Co. and battery maker SK in Stanton, Tennessee
AP File photo/Adria Sainz / Construction continues on March 24, 2023, on part of a $5.6 billion joint project by Ford Motor Co. and battery maker SK in Stanton, Tennessee

It's interesting to read about experts attempting to lay blame for why Tennessee state revenue growth is expected to slow in the coming years.

The first phrase from a Tennessee Lookout article this newspaper printed Sunday even took the predictions into "the sky is falling" territory by saying "the days of skyrocketing tax revenues are likely over."

What we know about the economy is it is never wise to describe it with absolute terms.

For instance, no one predicted the growth and continued expansion of the state's economy over the past five years, through COVID and beyond even as supply-chain problems dogged the movement of goods in the state and across the country.

Along the way, Tennessee and every other state were graced — if you will — with individual billions of pandemic relief dollars for individuals, businesses and governments. For some of those, it was a matter of survival. For others, it was a matter of the rich getting richer — of states, counties and cities getting to spend money on long-awaited projects rather than save until the day they could afford them.

Now, with no more pandemic money on the way, governments, businesses and individuals have to return to making realistic budgetary decisions. Of course money is going to tighten up. And anything on which money was spent that requires a long-term commitment will need a fresh revenue source.

Added to that, of course, is the fact this is not the February 2020 Trump economy, with low inflation, low gas prices, energy independence, less business regulation and fewer people pouring into the country. This is the November 2023 Biden economy, with high inflation, high gas prices, energy dependence, more business regulations and more people pouring into the country.

The state funding board heard revenue presentations last week 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.

Some experts laid slower growth at the feet of a franchise and excise tax cut this spring. As a result of the legislation, more than 23,000 businesses in the state were to have their excise tax liability reduced to zero, as the bill exempted a company's first $50,000 in net earnings from the excise tax. The legislation also exempted up to $500,000 of business property from franchise tax liability.

However, because of the cut, collection of the taxes was off $61.4 million from what had been projected for the third quarter of 2023 alone.

Over the past five years, two-thirds of the state's revenue increase had come from the growth in franchise and excise taxes, and from sales taxes on internet sales.

With the surplus in growth, the state had increased school funding by $1 billion, had given Ford $884 million in incentives for building a new plant in West Tennessee and had forked over $850 million in assistance for professional sports stadiums in Nashville and Memphis.

Going forward, growth estimates by the experts for the state ranged from 1% in each of the next two years to 4.8% next year and 4.2% in 2025.

The funding board will meet again later this month to finalize the projected growth rate, which will be a key component in the development of Gov. Bill Lee's budget, which he will present in late January or early February of 2024.

Along with potential state revenue growth, we note that numerous areas that benefited from the pandemic-era largess are wondering how they're going to get by. The answer, of course, is that they'll get by the same way they got by before — by saving for what they need, lowering spending, increasing receipts, living by their means.

People who intentionally took out students loans will have to start paying them, child care centers will no longer be able to subsidize their workplaces, Medicaid will no longer give free rides to those who don't qualify, tenants will have to pay their rent, and additional tax credits no longer will be given for children and businesses.

After all, while those pandemic dollars were being distributed, the country's short- and long-term debts ballooned, creating massive budgetary headaches for the future while in the present we lived partially on government money.

So, yes, in the future, Tennessee government could be living with less revenue. It might mean a University of Tennessee at Chattanooga building gets funded in 2029 instead of 2025. It might mean public K-12 teachers get a 2% raise instead of a 5% raise. It might mean the state puts less money in its rainy-day fund than it has in the past few years.

And you know what else? If lawmakers saw they were really taking a long-term hit from the lower franchise and excise taxes, they could always increase them again. Good government states figure out a way. And we all should be grateful the Volunteer State has been one of those which has for many years.

Upcoming Events