TNSDC outlines use of population estimates for state-shared sales tax

By KATE COIL

TT&C Assistant Editor

A new state law has tasked the UT Boyd Center with preparing annual population estimates for municipalities to calculate the way revenues are shared between counties and municipalities.  

The new state law requires the Boyd Center to revise the population estimates for each municipality and county every year between the U.S. Census with the first round of population estimates to be released July 1, 2026. These population estimates will be used for state-shared sales tax revenue calculations. In the past, cities who wanted to officially change their population for revenue purposes had the option to conduct four special censuses per decade.  

Tim Kuhn, director of the Tennessee State Data Center (TNSDC) with the UT Boyd Center for Business and Economic Research, and Cassie Stinson, research director with the Tennessee Department of Economic and Community Development (TNECD), explained what the law change means for municipalities conducting special censuses as well as how the annual population estimates will be calculated during the TML Annual Conference in Chattanoga.  

HOW WE GOT HERE 

Last year, 13 municipalities were undergoing special censuses with 11 doing the census in-house and two others partnering with the U.S. Census Bureau. Kuhn said there was a concern because the validation of those results would come due around the same time, putting considerable strain on the agencies, particularly the Greater Nashville Regional Council, charged with confirming the results.  

Additionally, many municipalities have expressed concern about the special census process in a society increasingly conscious about who they give data to. 

“Survey responses are going down,” Kuhn said. “People are holding their information very privately. You don’t want to share those types of things; that is the instinct. There has been a real sea change in the way people respond to requests for information, even if it’s just their name.” 

A lot of states have already adopted a population estimate model, including New York, Texas, Florida, and California. Tennessee is one only three states – including Washington and North Carolina – that conduct special censuses independent of the U.S. Census Bureau. 

“No other state that I know of has a program that is as large as what Tennessee does and puts it on the municipalities to do this,” Kuhn said. “It’s a great program in some respects, because we did more special censuses in Tennessee in the last decade than the Census Bureau did, so we’re kind of experts in this regard. We also know [conducting a special census is] getting harder. That’s where the state-run estimate comes in.” 

SPECIAL CENSUS VS. POPULATION ESTIMATES 

There are a few differences between a special census and the population estimates to be generated by the Boyd Center. Population estimates will be based on a statistical evaluation using available data – beginning with the federal census – as a base. A special census requires the collection of data, often door-to-door, and validation of results, often in-person as well.  

“A population estimate is a statistical calculation; it is not a head count,” Kuhn said. “There is no field work involved. We are not going to visit houses or count individual people. It is a statistical calculation for a population at a specific point in time that is based on administrative records, surveys, and statistical models based on the decennial census.” 

Special census data results will also be integrated into statewide data under the new law. In the past, a special census undertaken by a city would adjust the population for that city, but not the county to which that city belonged. 

“It’s important to note on this that the new population estimates do not mean you cannot do a special census,” she said. “It just means that your population estimates can be updated annually without the cost and time of a special census.” 

Special census estimates will be used for those who have chosen to conduct them and once they are evaluated and incorporated into state-certified data. Otherwise, population estimates will be used. At the ten-year mark, those federal Census  numbers become new basis for certified population report. 

“Allocation of state shared revenues is going to be based on the population estimates, or in the case of special census those numbers can also stand,” Stinson said. “There are several state-shared funding sources that are going to be impacted, like the sales and use tax allocations, liquor-by-the-drink, state privilege tax, municipal street aid fund, and others. For those who have done special censuses, those same revenue streams that are impacted by special censuses are also impacted by population estimates.” 

While cities will still be able to conduct a special census, the process to determine population estimates might prove more time and cost effective.  

DATA SOURCES 

Kuhn noted that the data that will be released on July 1, 2026, will reflect the population numbers as they are estimated for July 1, 2025. This way, the annual state numbers will align with the release from the federal Census when it is released in 2030.  

TNSDC already releases updated data projections annually, with state numbers in December, county-level data in March, and and municipal and unincorporated jurisdiction data released in May. This data is based originally on the U.S. Census data with some adjustments.  

Kuhn said the population is calculated by adding births, subtracting deaths, and calculating migration to and from the community. However, it isn’t best practice to only use one model for calculating population.  

“We want to implement some sort of averaging where we use multiple sources,” Kuhn said. “We don't want to have the population estimates tied to any one model directly so that it is not heavily influenced by biases or certain types of data. We want it to be a fairly stable number that is as accurate as it can be.” 

Other states may use data like tax returns, housing stock, elementary school enrollment, vehicle registrations, and voter registrations to provide more data for their calculations.  

Housing may be used as a calculation by adding the number of building permits and mobile homes constructed and subtracting the number of demolitions reported. This number is then divided into the population of an area - excluding areas like nursing homes, prisons, and dormitories – to calculate how many people there are per housing unit in a community.  One area where this can be a challenge are those where there are a lot of rental or vacation homes.  

“Versions of the unit housing method we described – people per housing units times number of housing units - is a very common model,” Kuhn said. “Where you do see differences is the implicit time for construction. The Census Bureau’s housing unit method is that all housing units for which a permit is pulled are built within six months. A lot of states make adjustments to build time that the Census Bureau doesn’t make. They may say a single-family house is six months, a smaller multi-family is a year, and larger multi-family is a year and a half.” 

Kuhn said work has already begun on the methodology TNSDC will use to create population estimate models, including review of population estimate models used in other states, an evaluation of available symptomatic population change indicators that are available through Tennessee state agencies and finally selection of appropriate estimates methodology for Tennessee. More information on those efforts will be communicated next year. 

STEPS FOR IMPLEMENTATION  

Khun said there are steps cities can take to prepare for the implementation of the new law: 

• Know your population.
• Think about what change means for your town.
• Check if your municipality is on the priority communities list.
• Participate in housing unit reviews if on the priority communities list.
• Talk with your building permit chief to make sure they are submitting data to the state building permit survey. The Tennessee State Data Center provides current population estimates for municipalities across the state, as well as county estimates. 

“Think about change in terms of population proportion because that is really what matters in terms of how much money you receive on an annual basis. The two things you need to know are your population and the aggregate population. You can kind of roughly calculate what your revenues might do based on these calculations. MTAS publishes an annual projection of state-shared sales tax per capita. Another way to look at it is to look at the change in state revenues. The Boyd Center puts out a state taxable forecast in the economic report to the governor that comes out in December.”

Kuhn said the one major mechanism communities have to adjust their population estimates outside of a special census is through the building permits they submit to the state. The priority communities list contains the top communities that could benefit from housing unit reviews.

“The housing unit review is the method by which you can change reported building units if it isn’t correct or under-reported. There are three types of communities that can benefit from this. The first is if the Census has imputed information about the amount of building activity in your community. That happens when you don’t report all 12 months, don’t report at all, or there is some other issue that happens. If the building permit survey data is not complete for your community, they will impute the data because it’s an economic indicator for the nation, and they need to have that data every month.”

Municipalities in multi-county jurisdictions are also on the priority list because the building survey indicates how many buildings are in the municipality but not which county jurisdiction the buildings are in. There are 35 incorporated areas in Tennessee that fall into more than one county. 

Additionally, adjustments must be made for multi-jurisdiction permits, such as a county that issues permits for small cities or a city that issues permits for multiple municipal jurisdictions. 

Kuhn said any cities on the priority list or those that have questions about fine-tuning their building permit estimates and assumptions can contact TNSD for help with correcting errors and and to submit revisions.