The projections were dire. As businesses shut their doors to stop the spread of COVID-19, government officials braced for a collapse in sales tax revenue.
To everyone’s surprise, it never came.
Knox County, in fact, increased sales tax revenue 3% in the government fiscal year that ended June 30. That’s an increase of $5 million over last year, for a total of $179.4 million.
Knoxville’s revenue increased, as well, up $1.1 million to $46.3 million, an increase of 2.4%.
Now officials who prepared for the worst — including Knox County, which put hundreds of employees on furlough — are left marveling at their good fortune.
Still, as officials look ahead, they are wary of what’s to come.
The miscalculation was not just local. The state brought in about $480 million more than budget experts had anticipated, surpassing last year’s revenues by 2.4% despite historic unemployment rates.
The county got its figures by taking the state projections and adding their own (with help from the city). The results continue to boggle finance director Chris Caldwell’s mind. Everyone was wrong, he said.
“The only month we were down post-COVID was April … June was up 9.9% over last year,” Caldwell told Knox News.
“We talked to peers across the state and we were all expecting X to happen, but instead Y happened.”
Sales tax revenues (post-COVID-19) adjusted budgeted vs. actual
- March: 85% – 97.8%
- April: 65% – 89.9%
- May: 65% – 102.9%
- June: 67.5% – 109.9%
Caldwell attributes the upswing in sales tax revenue to people getting and then spending their federal CARES Act stimulus checks, plus the state’s COVID-19 unemployment checks.
Another likely bump, he said, was the new law (which began June 1, 2019) that allows the state to gather sales tax from online retailers.
Similarly, sales tax revenues for the city of Knoxville are down from pre-COVID-19 midyear estimates but are better than expected. New Knoxville Finance Director Susan Gennoe said the city would continue planning ahead with caution.
Officials not breathing easy yet
As strong as the numbers have been to this point, the county still has a nearly 8% unemployment rate – up from 2.7% in March – and the future of federal stimulus payments is uncertain.
More: ‘We shouldn’t have to beg’: Americans struggle without unemployment aid as Congress stalls on extending benefits
Bill Fox, director of the University of Tennessee’s Boyd Center for Business and Economic Research, frequently advises the state on revenue forecasts. He told the Tennessean this spring and summer have proven to be unlike other recessions due to the unprecedented amount of federal aid quickly distributed across the nation.
“My advice to the state would be to err on the conservative side here,” Fox told Knox News. “Because the capacity to keep spending is not likely to be sustained to the same extent by the federal government.”
The terrain is still unknown, Caldwell said, including what will happen this fall when football crowds at University of Tennessee games are reduced to 25% of Neyland Stadium’s capacity and the number of games reduced to five from the typical seven.
A May 2016 report conducted by Tripp Umbach, a national leader in economic impact research and analysis, found Vols football has a $355.7 million annual economic impact on Knox County.
Yes, Caldwell said, fans who would typically go to football games will likely find other things to spend their money on, but it’s unclear what.
“I do think people will spend it on other stuff (if there’s fewer fans in the stand), no doubt about that, but I don’t think we truly know to what extent and since it’s never happened I’m not sure how we’ll get a gauge,” he said.
County: Furloughs were the right move
Caldwell said the mayor’s office stands by its decision to furlough hundreds of employees and would do it again if the circumstances were repeated because the decision was made in the best interest of taxpayers.
The county saved money by relying on the federal government to pay its furloughed employees through their eight weeks of furlough. The final savings have not been calculated because the state hasn’t yet determined the county’s June and July unemployment reimbursements.
Caldwell said those employees would have been paid by the county for not working if they hadn’t been furloughed because libraries and senior centers were closed, and other services were scaled back.
Some 70% of furloughed county employees saw no reduction in pay because of combined unemployment and CARES Act funding, he said.
“One of the things on our financial checklist during bad times is layoffs or furloughs. So, you when you get to that point … basically it was one way to recoup money,” Caldwell said. “I get the optics are that Knox County — the third largest county in the state — are furloughing people are they going under? It never was about going under for us. …
“We just looked at services that we couldn’t do during that time,” he continued. “And it’s a tough decision. It’s tough on the employee, I get that. We didn’t do it lightly.”
County spokesperson Mike Donila reiterated Caldwell’s comments and said the virus’ impact on future revenues remains a concern for the county.
“Hindsight is always 2020 but moving forward you never know necessarily how much money you’ll have. So, the county stands by the decision to furlough and hopefully there won’t be any more in the future. The impact of the COVID-19 pandemic.”
The city of Knoxville did not furlough or lay off any employees, and even gave nearly $420,000 in COVID-19 response bonuses to police and firefighters. City workers were awarded a 2.5% raise in the 2020-21 budget, which scaled back overall spending by $1.8 million and did not increase taxes.
Email Tyler Whetstone at [email protected] and follow him on Twitter @tyler_whetstone. If you enjoy Tyler’s coverage, support strong local journalism by subscribing.