State revenues predicted to grow at a slower pace over the next two years

By Carole Graves

TML Communications Director

The State Funding Board met last week to set revenue estimates for the remainder of fiscal year 2023, as well as set projections for the upcoming FY2024-25 budget.

Concerned that both state and national revenues are predicted to grow at a slower pace over the next two years, the State Funding Board set a growth rate for total revenue collections to fall between a negative 0.69% and a negative 0.19%  for the remaining FY2023; general fund projections were set between a negative 0.5% to 0%. For the FY2024-25 budget, the funding board adopted a modest growth range of total revenue collections of .13% to 1.3%; general fund projections were set at -0.5% to +0.5%.  

“Our economy is still strong,” said Tennessee Comptroller Jason Mumpower. “We’ve seen extraordinary population growth in the last year. We have record low unemployment. Tennessee out performed most states coming out of the pandemic and our collections are still 40% higher than pre-pandemic.”

In the past five years, Tennessee’s revenue has grown from $17.4 billion to $24.7 billion, but revenue is expected to dip as COVID relief funds expire, significant cuts to the business tax have slowed franchise and excise tax collections, and internet sales tax collections have leveled off.

“I think everybody recognizes that the last two or three years have been extraordinary, and this is part of a resetting that’s occurring,” said state Budget Director David Thurman.

In November, the funding board heard presentations from economists and finance experts from the University of Tennessee, East Tennessee State, the Department of Revenue, and the State Fiscal Review Committee, who detailed Tennessee’s economic outlook, and gave projections for future tax revenue over the next two years. 

The projected growth rates represent the lowest revenue estimates in several years, and a significant drop when compared to the most recent fiscal year that saw projections between 6.8% and 7.7%. 

Monthly revenue reports from the Department of Finance and Administration also reflect slightly lower tax collections due in most part by the three-month grocery tax holiday and lower business tax collections. Year-to-date revenues for three months were $108.9 million less than the budgeted estimate. August through October, general fund revenues were $114.7 million less than estimates; yet, the four other funds that share in state tax revenues exceeded estimates by $5.8 million.  

New business filings in Tennessee are also up with more than 19,300 companies registered during the third-quarter and reflecting the highest third-quarter number in the 25-year history of the state’s data collections. 

“We’ve had all-time filing records in each quarter of 2023,” said Secretary Tre Hargett. “Tennessee’s economy continues to be strong and resilient, aided significantly by a welcoming business environment of lower taxes, reasonable regulation, and responsible fiscal management.” 

The State Funding Board -- whose members are Finance and Administration Commissioner Jim Bryson, Secretary of State Tre Hargett, state treasure David Lillard and Tennessee Comptroller Jason Mumpower -- develop consensus ranges of state revenue estimates for the current fiscal year and the next succeeding fiscal year as part of the state’s budget process. Revenue estimates are presented to Gov. Bill Lee’s Administration to use as he develops his spending plan for the upcoming year.