April 27, 2005

Tennessee's Revenue Surplus To Grow Even Larger

Joe White of the subscriber-only Nashville Bureau forwarded me a copy of his newsletter for today, with the happy news that "University of Tennessee economist Dr. Bill Fox Tuesday told members of the state Funding Board he is raising his estimate of incoming state revenues (for the end of this fiscal year) by $96 million." On the other hand, Fox is less bullish about revenue growth next year.

But, then, Fox has a track record of spectacular inaccuracy. Three times in the 1990s in his annual Economic Report to the Governor, Fox predicted economic slowdowns, only to see the economy - and state revenues - boom.

I'll have more details later from Joe White's report on the latest meeting of the State Funding Board - information you wont' get from the mainstream press. Neither The Tennessean nor Nashville City Paper have a report today on the State Funding Board meeting.

UPDATE: Fox predicts overall state tax revenue will grow 4.1 percent this year over last year, to $9.469 billion, putting $7.916 billion into the state's general fund. He predicts additional revenue growth of 3.7 percent in 2006, bringing the state $9.821 billion to spend.

Overall, the state will collect $727 million more in tax revenue in 2006 than it did in 2004, if Fox's forecast is correct.

Continued healthy growth in revenue from the state's much-maligned sales tax will generate a big part of that $727 million in additional dollars for the legislature to allocate and the bureaucracy to spend. Fox expects sales tax growth of 4.2 percent this year, and 4.5 percent in 2006. This year, sales tax revenue will top $6 billion for the first time in state history, and rise to more than $6.3 billion in 2006, Fox predicts. That growth is within the state's historical norms and the additional revenue - Tennessee's budget makers ought to be able to live within.

Of course, you have to take Bill Fox's predictions with a grain silo full of salt. He's usually wrong. As I wrote in a Nashville City Paper column back in 2001, Tennessee's descent into fiscal policy madness in the form of a proposed income tax was in large part driven by Fox's continual "sky is falling" predictions of economic doom that failed to materialize.

Bill Fox is a University of Tennessee economist who advises the Sundquist administration on the state’s economy. Last week, Fox said he’s "puzzled" unemployment fell last month in Tennessee when he predicted it would rise.

He should be used to Tennessee’s economy outperforming his pessimistic forecasts. It happens quite often.

In 1998, Fox predicted the statewide unemployment rate would rise almost a full point in 1999, with dire consequences for everything from state tax revenue to the health of the unemployment compensation trust fund.

A year later, unemployment had fallen a full point, to the lowest rate in modern Tennessee history. Revenues soared – piling up $300 million more revenue than the budgeted forecast in fiscal year 1999-2000. The unemployment trust fund swelled as employers paid unemployment taxes on more workers while the fund issued fewer checks. Also that year, Fox was fired as the state’s economic seer.

Well, the last part didn’t happen, but it should have.