Tennessee Revenues Lag Behind Other States

KNOXVILLE, Tenn. — A national study shows that most states are sitting on huge budget surpluses, but not Tennessee, a University of Tennessee economist said Friday.

A study by the National Conference of State Legislatures says states are holding $33.4 billion in surplus dollars in 1998-99 fiscal budgets, the largest in 20 years. Twenty states cut taxes and 26 made major increases in capital construction projects or funding programs.

However, Dr. Matt Murray of UT-Knoxville’s Center for Business and Economic Research said slow growth in Tennessee sales tax collections — the state’s top revenue source — is causing Tennessee to buck the national trend.

“Most states have seen revenues from income taxes and other sources grow quite well, enabling them to build surpluses, expand programs, increase expenditures, or cut taxes,” Murray said.

“Tennessee is clearly an exception to the rule, with very weak revenue growth because of its reliance on sales taxes and limited liability laws that enable businesses to escape taxation.”

Tennessee needed special legislative sessions and one-time maneuvers, such as requiring businesses to pay taxes quarterly rather than annually, to balance its current $16.6 billion budget. Gov. Don Sundquist has warned that the state is likely to face a $250 million deficit next year.

The NCSL counted accruals such as Tennessee’s Rainy Day Fund, funds carried over from reduced spending, and other excess revenues. It recommended each state surplus at least 5 percent of its general fund expenditures.

Tennessee’s $188 million surplus was only 3 percent of its $6.4 billion general fund expenditures in fiscal 98-99, and seventh worst in the survey.

Alaska’s $2.8 billion surplus — 117 percent of its general fund — was the nation’s best.

Murray said revenue woes could worsen if state budget surpluses nationwide prompt the federal government to cut state funding or if the economy slows.

“State economic growth has been good, despite lack of state revenues, but what happens when that economic growth wanes?” Murray said.

“The fear is that when the economy shows signs of slowing, the state’s fiscal situation will become quite precarious and revenues will simply collapse.”