‘Best-case scenario’: NE Tennessee counties, state see strong tax revenues July-November

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Northeast Tennessee has seen a 15.7% year-to-year increase in local sales tax revenues since July, and is outperforming the state — with rural counties faring best.

Rural counties faring best, all see double digit gains

JOHNSON CITY, Tenn. (WJHL) – Local and state leaders in Tennessee got an early Christmas present — five months’ worth of strong sales tax revenues — but deciding what to do with it remains tricky amidst economic uncertainty.

Local option sales tax revenues are 15.7% higher across seven Northeast Tennessee counties through the first five months of fiscal 2021.

That’s better than the state average of 8.9%. Rural counties including Johnson, Hawkins, Carter and Unicoi have fared even better than Sullivan and Washington counties.

Northeast Tennessee has seen a 15.7% year-to-year increase in local sales tax revenues since July, and is outperforming the state — with rural counties faring best.

“We’ve been pleasantly surprised,” State Representative David Hawk (R-Greeneville) told WJHL Friday. “Revenues … have been much higher than anticipated.”

Despite passing a budget that projected slightly lower revenues than the fiscal year that ended June 30, the state as a whole has seen total revenues 13% higher so far this year than through November of last year.

Tennessee State Representative David Hawk

“This is best-case scenario,” Hawk said. “I couldn’t have imagined anything better than this in terms of the percent of the increase in revenues coming in.”

That 13% bump represents more than $500 million in increased revenue. It includes a 5% increase in state sales tax that has put $201 million more into state coffers than at this time last year and an 8.9% increase in local option sales taxes – a $109 million increase.

Cautious optimism

But neither state nor local governments — where the sales tax revenue picture looks even better — are making any rash decisions.

From July through November, Northeast Tennessee’s seven counties collected $10.3 million more than the same five months of 2019. That amount was $1.5 million in Greene County, and some of that 18.9% increase flowed to the Town of Greeneville.

“We budgeted about 1.5% below our previous year’s budget,” Greeneville Town Manager Todd Smith said Friday. “Our local option taxes so far are 9.3% above budget.”

Greene County, including the Town of Greeneville, has collected $1.5 million more in local sales taxes the first five months of fiscal than the previous year — an 18.9% increase.

That’s put $663,000 more into town coffers than budgeted five months into the fiscal year. Smith said the town elected recently to spend about $450,000 on capital projects — one-time expenses that mean the city doesn’t have to count on that tax revenue to be maintained.

Johnson City approved one-time payments for employees, who didn’t see raises in the fiscal 2021 budget. Leaders there are waiting to see whether the higher-than-budgeted revenue trend holds before making longer-term commitments.

With the state in the grips of the pandemic’s worst surge yet and the economic future still cloudy, Hawk said such caution is the order of the day when it comes to revenues that exceed budget by the tens of millions so far at the state level.

Hawk said the key lies in whether the revenue picture the state has seen so far this year can be expected to continue.

If not, the best course of action is a combination of socking away excess revenues in the state’s rainy day fund combined with some possible one-time spending on things like building projects.

“We’re going to talk to the financial experts,” he said.

“When we go back into legislative session next month and we have these budget discussions, top of mind will be ‘is this something we can convert to recurring dollars as opposed to just seeing the half a billion dollar increase in tax revenues so far as a one-time anomaly.'”

If the revenue picture looks secure, Hawk said legislators may take a second look at some priorities that were being discussed early in the 2020 legislative session but got shelved.

“Maybe add them to the existing budget, if not, look to add them into the 2021-22 budget,” Hawk said.

Rural counties looking the best – internet sales likely a factor

The region’s more rural counties have enjoyed the most significant percentage revenue bumps, albeit from much smaller baselines. Hawk said some of that is likely due to pandemic buying habits and some to the state tweaking the online sales tax allocations.

If a Johnson County resident orders an item online from a big box store in Johnson City, the local option sales tax from that purchase will now flow back to the residence of purchase.

That could make a big difference in places like Carter County, where residents often travel to Washington County to shop in Johnson City.

Through five months, Carter County’s local option revenues are up 26.7% — a total of $1.4 million — from last year. Washington County’s increase is 13.5%.

If those trends hold, rural local governments could see a shift in fortune significant enough to present them with enviable decisions to make about how to spend ongoing revenue increases.

“I would encourage local governments to be cautiously optimistic as well,” Hawk said. “I think that they’re needing to learn how the online sales tax collection is learning, they’re needing to learn how folks buying patterns are going to be in the next few months if not few years.”

Hawk said more urban constituencies are likely to push back on some of the changes, making the standard argument that it takes significant tax dollars to provide services those retailers demand when they set up shop in a Kingsport, a Knoxville or a Nashville.

But big data and the needs and interests of rural Tennesseans make long-term change possible.

“I think the way we have begun collecting sales tax, and future sales taxes are actually going to benefit the more rural areas,” Hawk said. “I think this is going to equalize spending on education, which is where the rural communities have typically fallen behind in terms of funding.”

In Greeneville, Smith has a sense some of the positive changes may be long-term. Building permits have been stronger than expected into the winter.

“My gut tells me Greeneville is doing well because of the traditional Greeneville resident that packed their family up and went to Johnson City is staying closer to home and making purchases,” Smith said.

The gains are even stronger in unincorporated Greene County, and in places like Unicoi County, with an interstate that’s often funneled people and their money north into Johnson City.

“Unicoi County views Johnson City as their shopping hub, but these destination hubs in bigger cities are not as popular as they have historically been,” Hawk said. “So you could potentially expect to see the city losing money to Unicoi County.”

For now, though, Hawk doesn’t expect local governments to make too many big decisions.

“There’s nothing I can relate this budget year to,” he said. “It’s just been so bizarre. Questions about the longer-term aren’t easy to answer. When you look at November, and in six weeks when we start getting data from the Christmas sales we’ll have a better idea. I think buying patterns are good right now, but we may be surprised.”

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