The economists who help the state of Tennessee decide how much money it has to spend agree on two things: The times are unprecedented, but they probably won’t inflict as much pain on the state budget as the Great Recession did.
The job losses are like nothing ever seen. The gross domestic product may drop by more than a third in the second quarter. And some sectors, such as hospitality, essentially turned off like they were on a light switch.
But University of Tennessee economist Bill Fox tells the State Funding Board there are some encouraging signs. For one, it’s not that people stopped spending money and generating sales taxes. They’re just spending more on groceries and building supplies, less on entertainment and services.
“There has continued to be a lot of substitution, making the fiscal picture not as serious as I otherwise anticipated,” Fox says.
Fox was stunned to see that in 90 of the state’s 95 counties, local tax revenue actually increased in April — an effect of both shopping closer to home and shopping from the comfort of home online.
Revenue was down primarily in counties that depend heavily on visitor spending. Those include Davidson (-3.5%), Sevier (-34%), and Moore County (-30%), where the tourist draw is Jack Daniel’s distillery.
Tennessee economists say the most recent numbers indicate the state may be saved from situations like 2009 when revenues dropped by more than 8%. Fox is predicting a 2.7% slide in 2021. Economist Jon Smith from East Tennessee State University forecasts a 5.6% drop next year, which he describes as a conservative bet.
“There are just too many unknowns to really say to you, ‘Oh, this is exactly what I think is going to happen,'” Smith says.
“There is an enormous potential for the economy to take some real body blows because of changed behavioral patterns and as some of these small businesses — in particular — exit the market and never come back.”
