State Tax Revenue Growth Declines

KNOXVILLE — A University of Tennessee economist says the state has experienced an unprecedented drop in tax revenues this year.

In his annual economic forecast to the state’s funding board, Dr. Bill Fox says Tennessee will finish fiscal 2002 with a $475 million budget shortfall and about 3 percent less tax revenue growth than last year.

Fox said this is the first time the state has reported a decline in

Dr. Bill Fox

year-to-year tax revenues.

“Tennessee’s tax structure looks like revenues will fall by 3 percent in the current fiscal year 2002, compared to last year,” Fox said. “It’s the first year in the last 30-plus we’ve experienced an actual revenue decline on a year to year basis.”

Fox said the biggest drop is from taxes paid by businesses and corporations, and in the hall income tax on investment income.

“Most of the problem is coming from corporate excise and franchise taxes. Combined, they are declining almost 20 percent, and we’ve never had a decline of more than 3 percent, so it’s a huge reduction in those revenues.”

Fox said recession, tax breaks for businesses, and other factors contributed to the record drop in corporate tax revenues.

“There’s a variety of reasons why corporate taxes are performing so poorly,” Fox said, “including recession, better tax planning by corporations, federal and state tax breaks, and perhaps even some tax evasion.

“All these factors have worked together to cause corporate tax revenues to decline at a precipitous pace.”

Fox forecasts about 3 percent growth for next year in Tennessee, but he says the state funding board, which uses his projections forecasts to help set next year’s budget spending, should plan on slower growth.

“The feeling of next fiscal year is that we might get 3 percent growth although the risks are high that we might get less than that.

“I expect the state to budget with an expectation of less than 3 percent growth, probably about 1.5 percent growth in revenues, which is very weak.”