The Tennessean has an
opinion article out about how our state bond rating went up. Yes, it is good news and the lower interest rate will help but many factors went into that rating that may or may not be good for the state taxpayer in the long term.
Here is my outlook on the economy such that it is and what it means. Not just to the money lenders but to the people of Tennessee.
Tennessee's state spending has grown from $18 billion to $27 billion in about 5 years. Some has been due to the national economy, some has been due to tax increases. When the govt grows faster then the avg Tennesseans personal income, it is due to tax increases and or losses in economic growth of the people.
A large part of our growth as of late has been due to the national economy that has boomed for the last few years under the Bush tax cuts. Those cuts have now been killed by the new US house and US senate. Interest rates are starting to go up and I expect to see inflation follow.
More people will rent then buy when the cost of money to buy a house climbs.
The sub prime market is also in the tank so foreclosures are skyrocketing. The building market (a leading economic indicator) will take a bigger hit as more people buy foreclosed on homes instead of building new. I have been seeing this in Knoxville as several of my friends in the building business have said a lot of new houses are just sitting dead on the market.
If you have the money, or can get it at a cheap rate, now (or in the next few years)will be the time to buy used homes. But expect the state economy from new building projects to slump in the near future.
Services such as fixing old products will grow but it is a bad sign for our future economy as we move away from new production. This is a well known indicator of an economy in decline. The money that the increase in services bring in will not make up for the loss in new production.
Out sourcing I think will continue to grow. Trade agreements such as NAFTA and increased costs to do business in Tennessee (and America) will keep the ball rolling in the wrong direction. Issues such as as powerful unions, increases in the minimum wage and high insurance costs will continue to force businesses to look for cheaper production markets in other states and overseas. This will be a slow bleed on Tennessee for production jobs.
An educated workforce is one of the areas where we could hold onto some more high tech production and manufacturing jobs. We still hold an upper hand over some third world economies and some neighboring states but that hold is slipping. Higher ed and technology areas such as Oak Ridge help us hold strong but our feeder programs from lower level education (K-12) is in rough shape especially 8-12. Graduation rates stink and those who do graduate don't go on to higher ed as much as we need. Education and many other state programs have been put on a path of spending growth. Will the increased spending improve our education product? History says not a large noticeable or long term change should be expected. I have not seen any desire to make the hard decisions that it will take to change the failing system overall. Expect slight to minimal increases.
Health care costs have continued to grow. We spend more on health care now then we did under Sunquist. The growing economy has hidden the growing spending in this area. Expect many seniors and baby boomers to come in as they leave high tax states to retire to where their limited dollars will go farther. An income tax will not help as the majority of seniors no longer have income. Sales tax hits them equally but health care costs will also go up. Health care will probably play an even greater role in the future than it has in the past few years.
Oil prices are up, roads are made with oil products so expect Tennessee's infrastructure costs will go up as well. Sorry, solar panels and wind farms won't build roads. Until a cheap source of new oil is found or oil costs go down expect infrastructure costs to continue to rise. A new pledge by the governor not to increase the gas tax will hurt in road building but could help in other areas.
Tourism is one of Tennessee's biggest money makers. If people cut back on travel (also partly due to oil costs) as the economy gets worse it could hurt Tennessee. If it is a slow descent and people still travel but to closer destinations then Tennessee could benefit as our state parks have a strong local attraction. Over all it could be a loss, a wash or a win. It's too soon to tell.
Part of our bond rating increase was due to the fact that the governor has shown a willingness to increase taxes on his constituents. This is good news for a lender who wants his money back any way they can get it but not as good for the tax payer who has to come up with the money in a slumping economy. The long term effects could be harmful to the state if taxes continue to grow.
If state spending continues to grow faster then Tennesseans personal budget then Tax increases are the easy out. This short term fix will be used as politicians continue to shy away from hard choices that need to be made to move our state forward. A great bond rating in a failing economy will not help Tennessee long term.
My Current Rating of the state economy: B- to a C+
My Prediction: Short term stable but hard choices in the near future.
