Tennessee sales tax growth drops to 47-year low

PDF: Revised Projection

NASHVILLE — Tennessee sales tax collections suffered their worst drop in 47 years this month, officials said Tuesday.

The news came as Gov. Phil Bredesen works on plans to slash more than $389 million from his proposed 2008/09 state budget.

“The sales tax decline that we will have experienced during the month of April, by comparison with a year ago, is the lowest growth rate we’ve had since 1961,” said Dr. William Fox, director of economic forecasting at the University of Tennessee’s Center for Business and Economic Research.

April sales-tax revenues fell 5.5 percent compared to last year, Dr. Fox said. Since January, the state has experienced a 3 percent decline in sales-tax collections from a year ago, he said, calling the drop “very uncommon.”

On Tuesday, Dr. Fox and economists from the General Assembly’s Fiscal Review Committee and the Tennessee Department of Revenue cited worsening national economic conditions as they presented bleak revenue forecasts for the remainder of current fiscal year 2008 as well as for the 2009 fiscal year that begins July 1. The economists estimated the state faces between a $270 million and $370 million shortfall in the current fiscal year beyond the $180 million in cuts Gov. Bredesen outlined earlier this year.

Total revenue growth originally was estimated at 5.3 percent in the current fiscal year, but Dr. Fox now estimates growth will be only 0.6 percent — six-tenths of 1 percent — while the Fiscal Review Committee estimated growth at 1.5 percent and the Revenue Department forecast 1 percent growth.

For fiscal year 2009, the administration originally counted on 3.1 percent growth, but Dr. Fox now believes it will be just 1.4 percent. Fiscal Review’s projection is 1.8 percent, while Revenue officials think it will be 2 percent.

Using his numbers, Dr. Fox is projecting as much as a $600 million shortfall, which appears to take into account the $180 million in previously stated reductions.

Other finance officials offered less-bleak projections.

Speaking to the House Finance Committee, Finance Commissioner Dave Goetz said the administration originally anticipated about $339 million in new revenue for fiscal year 2009. He said the shortfall is “at least $389 million,” but he noted that Dr. Fox’s latest estimate was far gloomier.

Commissioner Goetz later said in an interview that the state likely will have to cut “substantially more” than the $389 million.

The commissioner said Gov. Bredesen and top aides are continuing to look at areas to cut, and he urged lawmakers not to seek simplistic solutions such as an across-the-board 5 percent cut. He also cautioned lawmakers not to use nonrecurring funds to plug holes in areas that require recurring funding.

The administration will outline its proposed cuts next week, he said.

Rep. Charles Sargent, R-Franklin, questioned whether the state might consider cashing out the remainder of hundreds of millions of dollars from a national settlement with tobacco companies.

“We don’t believe that it makes sense,” Commissioner Goetz said, noting that, under the terms of the settlement, the state would be looking at accepting a substantially discounted amount if it took a lump-sum payment.

Officials also heard revised estimates on Tennessee Education Lottery revenues.

The Fiscal Review Committee is projecting net lottery proceeds at $9.57 million less than what was forecast in December.