Director Jim White gave an overview of the economy and the state budget. Currently TN has the 18th highest unemployment rate in the nation. Housing starts remain at historic lows (lowest in 40 years). While risk has lessened somewhat, deflation is still a potential problem.
Historically, per capita sales tax revenues have grown, but if you adjust for inflation and rate increases, we are roughly where we were 20 years ago. We should not expect dramatic growth in sales tax collections. Sales tax collections peaked in 2008 at $6.8 billion with the state substantially below that level today. At the same time, we've seen a 20% reduction in franchise and excise tax collections. These two tax bases make up about 70% of the state's budget.
Over 2 years, total state tax collections have been reduced by 10%, far below peak collections in 2008. How long will it take to get back to pre-recession levels? With 4% growth it would be fiscal year 2013. While we are currently over budget projections, it will be difficult to maintain that level of growth over an extended period.
Many cuts in the state budget are not currently being experienced because of federal stimulus funds in the budget. But many cuts have been made. Several departments have seen cumulative cuts of 25%. To fully restore all the reductions that have been made over the last 3 years, it would take 30% revenue growth.
If we see a period of deflation, the state revenue forecast becomes substantially more negative. The consensus at the moment is that we will not enter deflation, but Director White wanted the committee to be aware of the possibility. He indicated that some aspects of the current US economy mirror the conditions in Japan shortly before that country entered an extended period of deflation.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment