Tennessee's lukewarm economic outlook suggests a subdued budget cycle
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A lineup of experts warned Tennessee officials that the state's economy is leveling off after several years of strong growth.
Why it matters: Their cautious message offers a subdued preview of the next state budget. Headline-making, big-ticket projects are likely to be on the back burner.
State of play: The group described Tennessee's economy as sturdy, with slow, steady growth. Their varying estimates suggested revenue would tick up 2-3%.
Yes, but: Stubbornly high inflation could wipe out those revenue gains, and might even reduce Tennessee's spending power in real terms.
Threat level: "We're not at risk of not being able to pay our bills, but we're certainly not in a position to start large-scale new investments," University of Tennessee economist Don Bruce said during a Monday meeting of the State Funding Board.
The big picture: Federal Reserve regional director Emily Mitchell told the board she sees "heightened risks" from tariffs and a cooling labor market.
- "Uncertainty is the word we hear from businesses repeatedly this year," Mitchell said.
- "Given the risks I've described, I would certainly advise some caution."
Between the lines: Tennessee is much more reliant on sales tax revenue following massive cuts to business taxes in 2024. Sales taxes now account for about two-thirds of the state's revenue.
- That could make the state more vulnerable to downturns in consumer spending. It also makes long-term revenue harder to predict.
The bottom line: As the meeting drew to a close, Comptroller Jason Mumpower looked down at his Grinch-themed Christmas tie.
- "I think it's going to be apropos for this year's estimates," he deadpanned.
What we're watching: Gov. Bill Lee is meeting with state agencies this month to consider their budget needs. The Tennessee Journal reports Lee's team is asking departments to trim spending by 1%.
What's next: The State Funding Board will finalize revenue projections later this month, setting a baseline for next year's budget.
- The governor will announce his budget proposal in early 2026.