Tennessee budget surplus could exceed $500 million this year

Associated Press • May 7, 2007 at 11:18 AM

NASHVILLE - Tennessee could have more than a half-billion dollars worth of higher-than-expected revenue collections by the time the budget year ends in June, according to projections presented to the State Funding Board on Monday.

The Funding Board is scheduled to settle Wednesday on revenue projections for the remainder of the current budget year and for the one beginning in July.

The panel heard from University of Tennessee economist Bill Fox, the General Assembly's Fiscal Review Committee and the state Department of Revenue.

The three analysts projected between $253 million and $348 million in higher-than-expected revenue collections in the current year. The projection that the panel settles on will be in addition to $318 million already anticipated by Gov. Phil Bredesen's budget proposal in February.

The new revenue is largely based on booming corporate taxes that analysts say is notoriously difficult to predict.

Bredesen's budget was based on predictions made in December. The new predictions reflect the economy's performance since then and predictions for the last two months of the budget year.

Senate Republicans have suggested that the state should use part of the surplus money to pay for a monthlong sales tax holiday on groceries. Senate Speaker Ron Ramsey, R-Blountville, has said that taking the sales tax off food in December would cost $76 million.

The analysts said they don't expect next year's economy to be as robust, and projected annual revenue growth in the 4 percent range following two years of more than 6 percent growth.

"We're seeing a leveling off of the business cycle, which to me indicates we're beginning to head into a slowdown," said Robert Curry, chief economist for the Fiscal Review Committee.

Jobs grew in every sector except for manufacturing over the last year, Fox said. Despite a nationwide slowdown in the housing sector, Tennessee's construction jobs were the fastest growing sector in the state at more than 6 percent. Next were leisure and hospitality jobs and information services jobs, both at around 3 percent.

"Despite the weakness in housing construction around the country, we're not as affected," Fox said.

Still, growth in sales tax collections on building materials dropped from the top category to the bottom over the last year.

"When you see that volatile category down to the bottom, you get a little nervous," Fox said.

The Chattanooga area led the state in jobs growth over the last year on the strength of business, professional and information services, Fox said.

Fox, a professor at the University of Tennessee, told the panel that it's "not common" for Chattanooga to lead the state in jobs creation.

The Chattanooga metropolitan statistical area's jobs growth rate was more than 2.5 percent, followed by Jackson and Clarksville at about 2 percent. Nashville, which usually ranks near the top of the state's urban areas, grew employment figures by 1.5 percent.

Eight of the state's 10 metropolitan statistical areas experienced jobs growth higher than the statewide average of about 1 percent. Only Morristown and the Tri-Cities came in below 1 percent.

Fox said that "suggests that the rural areas are not doing so well."

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