BUDGET FORECAST AND POLICY FORUM

September 15 2010September 15, 2010Nashville Public Library

Stanley Chervin TACIR StaffStanley Chervin, TACIR Staff

$? $UNCERTAINTY

$$ $ $$ $

Hurricane Andrew approaching the Bahamas and Florida as a Category 5 hurricane in 1992

Economic Activity Rises or FallsEconomic Activity Rises or Falls Depending on Spending By Three

Major PlayersMajor Players

• Household spending (Consumption): dramatically dropped for p g ( p ) y ppseveral reasons and is recovering slowly.

• Business spending (Investment): increases await clearer signals on direction of economy.

• Government (state local & federal) spending (G): federal Stimulus• Government (state, local, & federal) spending (G): federal Stimulus (ARRA) spending increased overall government spending but repeat level of such aid not likely.

Change in Real Quarterly GDP (Compound Annual Rate of Change) ( p g )

10.01 6%

0.05.0

hang

e 1.6%

-10.0-5.0

2006q

3200

7q1

2007q

3200

8q1

2008q

3200

9q1

2009q

3201

0q1

% C

QuarterS our c e : BEA

Through 9/1/2010

Change in Housing Prices: 2009.Q1 to g g2010.Q1, for US, TN, and TN MSAs

Nashville

Nonmetro

Knoxville

Memphis

Morristown

Nashville

Cleveland

Jackson

Johnson City

Kingsport-Bristol

TN

Chattanooga

Clarksville

Cleveland

US

-10.0% -8.0% -6.0% -4.0% -2.0% 0.0%

Source: MTSU BERC; FHFA

R l ti I t f P t TRelative Importance of Property Taxes Versus Local Sales Taxes

80.0%66.7% 65.5% 70.5%

33 3% 34.5% 29 5%20 0%40.0%60.0%

33.3% 34.5% 29.5%

0.0%20.0%

1987 1997 20071987 1997 2007

Fiscal YearProperty Tax Sales Tax

C ( $ )July-June Fiscal Year Collections (in $millions) by Fiscal Year

7,500 2,050.0

6,500

7,000

Tax

1,650.0

1,850.0

les

Tax

5,500

6,000

tate

Sal

es T

1,250.0

1,450.0

Opt

ion

Sa

4,500

5,000

S

850.0

1,050.0 Loca

l

4,5001999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

850.0

State Sales Tax Local Option Sales Tax

State Collections adjusted for rate and base changes.

2010 Vespa LX 50 Base Price $3,299

Local Option Sales Tax=$36

Bugatti Veyron $1,700,000

N b f C ti ith P itiNumber of Counties with Positive or Negative Local Option Sales Tax

Growth By Fiscal Year

50

02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Positive 88 62 54 22 86 77 91 91 73 31 25

Negative 7 33 41 73 9 18 4 4 22 64 70

Source: TN Dept of Revenue

Local Option Sales Tax Rates for CountiesLocal Option Sales Tax Rates for Counties (effective August 2010)

Rate # Cumulative # Cumulative %

2.75% 49 49 51.6%

2.50% 11 60 63.2%

2.25% 29 89 93.7%

2.00% 4 93 97.9%

1.75% 1 94 98.9%

1.50% 1 95 100.0%

Note: Cheatham, Gibson, Humphreys, Morgan, and Giles are ff ti l t i t i t f t bl ti it ieffectively at maximum rate since most of taxable activity occurs in

cities that impose 2.75% rate.

Distribution of Total Assessments

60%

40%

50%60%

10%

20%30%

0%10%

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2

Comm & Industrial Residential Farm Utility

Property Tax ImpactsProperty Tax Impacts• Because of inherent delays in the property tax y p p y

system, changes in market values take some time to have effects on property taxes. D li i l i 2008 2009 d 2010• Declines in values in 2008, 2009, and 2010 could take up to four-six years to impact appraisals at which time local officials will beappraisals, at which time local officials will be faced with some difficult decisions.

• Good news; assessments are up in all counties going through reappraisals this year (24 counties).

Source: MIT Center for Real Estate

Concerns and Uncertainty RemainConcerns and Uncertainty Remain

• Federal Stimulus Funds (ARRA) impact winding down ( ) p gthrough next year.

• Additional weeks of extended unemployment compensation not as likely next year.compensation not as likely next year.

• The new $26 billion state aid package (signed on August 10) includes $10 billion for schools ($196 million for Tennessee) but is not likely to be renewedTennessee), but is not likely to be renewed.

• Bush tax cuts extended? Or not?• Federal Reserve can’t lower interest much more.• Consumer and business spending needed to keep the

recovery going. More confidence needed.