November 15, 2003

State Revenue Surplus Update

The Tennessean covers the state revenue surplus.

The budget is based on projected revenue growth of 3.32%. The growth rate for the most recent three-month period is 8.34%. If the trend for all tax collections continues, the state will end the fiscal year June 30 with about $110 million more than anticipated.

At its current rate of revenue growth, Tennessee could accumulate a $110 million surplus this fiscal year. Sadly, as I reported here Nov. 4, the governor and his administration are already planning to spend the surplus instead of save it in a "rainy day" reserve fund or rebate it to taxpayers. If Tennessee had a Colorado-style Taxpayers Bill of Rights, that kind of big-government fiscal irresponsibility couldn't happen.

Update: The Knoxville News Sentinel's Tom Humphrey reports on the surplus. Humphrey's piece raises an important point: comparing first-quarter revenues to first-quarter revenues in the prior fiscal year is not quite an apples-to-apples comparison because the state sales tax rate was increased two weeks into last fiscal year. The higher rate has been in effect for the entire 13 weeks of the first quarter of this fiscal year.

For a true apples-to-apples comparison, consider just the second and third months of this fiscal year with the second and third months of the last fiscal year. Sales tax collections in September were up a strong 4.31 percent over September 2002, and, as we noted yesterday, sales tax revenue was up 6.58 percent in October compared to October 2002. Bottom line: We have $27.6 million in extra revenue - surplus - after three months of the fiscal year and strong sales tax revenue growth has generated well over half of it, $21.1 million.