News Tax and Budget

Slow Economy Predicted to Slowly Improve in 2010

UT economist expects three percent tax-funded state revenue growth next year as economy picks up. Dreary employment market will also take time to brighten, even though evidence suggests Tennessee businesses are starting to expanding production some.

Tennessee’s economy is showing signs of recovery, but the government’s tax take isn’t going to start rising again for a while, a University of Tennessee economist is forecasting.

William F. Fox, director of UT’s Center for Business and Economic Research in Knoxvillle, says November’s tax collection numbers for the state, although still down from last year, are an improvement over previous months in 2009 — at least in terms of showing a smaller falloff from 2008.

“I expect that to continue,” Fox told He also spoke earlier this week before the State Funding Board and will talk again about the Volunteer State’s economic picture with members of the Legislture’s Joint Business Tax Committee on Thursday.

Still, negative revenue growth is probably in store for the state for the next six to eight months, he predicted.

November tax collections for Tennessee lagged $13.5 million below budgeted estimates, the Department of Finance reported Monday. Sales tax collections were down $21.2 million.

“The recovery in tax revenues is slow everywhere,” said Fox. “And the fact that you are experiencing economic growth does not necessarily equate to better tax collections.”

But Fox said he expects three percent revenue growth next year. “Tax revenues will begin to recover slowly after the economy begins to grow,” he said.

The state’s dreary employment market will also take some time to brighten, even though Fox said there’s evidence Tennessee businesses are on the whole expanding production. Unemployed workers are probably not going to see a glut of “Help Wanted” signs cluttering up store and company windows, at least in the short term.

Estimates released last month showed Tennessee’s unemployment at 10.5 percent — and much higher in many rural communities. State Labor Commissioner James Neely said the numbers, which overall were unchanged from October, indicated “a pattern of stabilization in most sectors of Tennessee’s economy.” New numbers are due out soon.

Fox doesn’t anticipate employment will begin growing in earnest for the next three or four months. “That’s part of why tax revenues won’t begin to improve for a while either,” he added.

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