Tennessee tax collections take 15.83% hit during May

Photo by Andy Sher/Times Free Press / State Finance Commissioner Butch Eley, third from left, sits as Gov. Bill Lee holds forth in this 2019 file photo.

Tennessee tax revenue collections in May fell nearly $200 million, or more than 15.8% below a year ago, as the coronavirus pandemic continues to wreak havoc on the economy and its government's finances.

State Finance Commissioner Butch Eley said tax collections in May, which reflect sales made in April, totaled $981.9 million, which was $197.3 million below the budgeted estimate in the "no growth" spending plan hastily approved in March by state legislators at Gov. Bill Lee's urging.

The latest development comes with lawmakers back at the state Capitol and Lee recommending they slash spending further, including the remainder of proposed employee, teacher and higher education pay raises in the fiscal year that starts July 1.

Ely said the drop in sales came "when Tennesseans were staying at home and many businesses were closed in response to the COVID-19 pandemic." Although much of the economy has since reopened, sales continue to lag year-ago levels as many consumers are still cautious about shopping at retail stores, visiting restaurants or making major purchases as the economy has now officially entered a recession with negative economic growth.

Eley said that while auto, apparel, furniture and restaurant sales dropped "extensively," there were a few bright spots in building materials and food stores sales which "experienced considerable growth," Eley said. But the state experienced large drops in gasoline, motor vehicle title and registration taxes and mixed drink revenues.

Sales taxes, the state's No. 1 revenue source, fell below projections by $112.53 million to $687.1 million, or 14.4% below year ago levels. Still, for 10 months, sales tax collections are $70.1 million higher than estimated, apparently thanks to the state kicking it's earlier projections to the curb. The year-to-date growth rate is 2.97 percent over the previous year.

Gas taxes plummeted 39.88% or $29.8 million, coming in at $45.2 million.

Closure of many restaurants and bars under Lee's executive order in March cracked the glass on mixed drink tax collections which fell 86.93% or $10.72 million less than anticipated. Just $1.61 million was collected as some restaurants began selling drinks to go. That order has since been rescinded but businesses continue to suffer with lower patrons and social distancing practices that curb normal seating capacity.

Eley said he is "encouraged about the improving employment numbers in Tennessee," but he added that although we hope for solid recovery trends, we are preparing for a longer and slower growth period, managing our budget conservatively as we work to help all of Tennessee recover from this unprecedented economy."

City and county governments will share some of the pain: State-shared taxes, such as the sales tax, dropped 26.6% in May, or $25.1 million below the $93.2 million estimate.

Still, local governments, which rely heavily on residential, business and utility property taxes, appear to be in better shape than the state which is depends on sales taxes for over half of what it gets.

Lee, a Republican, is recommending a three-year plan to to cover what his administration projects will be a $2 billion budget gap over three budget years. Lee's spending plan raids a number of the state's reserves while creating a $50 million fund to offer incentives to thousands of state workers nearing retirement to step down even earlier.

Contact Andy Sher at asher@timesfreepress.com or 615-255-0550. Follow on Twitter @AndySher.