KNOXVILLE, Tenn. — Although the rapid economic growth Tennessee enjoyed from 1990 through 1995 has ended, the state’s economy remains good, a University of Tennessee economist said Tuesday.
Dr. Bill Fox of the UT Center for Business and Economic Research offered the assessment as he explained the state’s projected shortfall in revenue collections at a meeting of a UT-Knoxville advisory group.
“Revenue growth in Tennessee does not really keep pace with the economy,” Fox said. “It is our particular choice of tax structures that has led to this result.”
Fox said Tennessee’s economy now has entered a mature phase when state revenues will grow less quickly than in the previous period of rapid expansion.
“Because we have a tax base that relies heavily on taxation of sales and consumption, revenues are going to grow at only about 85 to 90 percent of the economy at this point in the business cycle,” Fox told the Chancellor’s Associates.
He said the slowdown in the state’s revenue collections comes at a time when expenditure demands are growing rapidly. Those demands include one more year of a state program to improve K-12 public education.
“The state has to fund its increased cost of TennCare, some things in mental health, some things in prisons, and so forth,” said Fox. “What we have is a relatively serious, significant demand for new expenditures.”
Estimates of the state’s revenue shortfalls range from $80 million during the current budget year, which ends June 30, to $300 million next fiscal year.
As an example of the slowdown in Tennessee’s economy, Fox cited the decline in employment growth rates.
“We were having employment growth rates of 4 percent in early 1995,” Fox said. “Today those growth rates are down to about 2 percent — still pretty good, but nothing like what we were experiencing.”
Fox predicted “a little slower growth” over the next two years, but was optimistic about the long-term economic outlook for the state.
“People go where there are jobs. We had more population growth in the first half of the 1990s than we had the entire decade of the ’80s. If we just give it a little time, people will come and the economy will be able to continue expanding at a better pace than right now.
“If you take a long-term look at Tennessee — the last four or five decades — we have out performed the nation in every single decade.”
Contact: Dr. Bill Fox (423-974-1697)