State Policy Research, Inc. has projected spending and revenues for state and local governments combined in each of the 50 states, allowing comparisons of structural deficits and surpluses in each. This is the first time such calculations have ever been made using a nationally uniform approach. The research will be published early next year by its sponsor, the National Education Association. The results summarized in this paper are preliminary and subject to change. Changes, described at the end of this paper, will affect the rankings of certain states other than Tennessee significantly and may affect the exact size of the structural deficits and surpluses shown for each state.

No changes contemplated will affect the basic conclusions for Tennessee:

• Tennessee has a structural deficit problem. Its revenues from existing taxes will grow more slowly than personal income, forcing a constant shrinkage of state and local government relative to the private economy unless tax rates are increased.
• Tennessee has a worse structural deficit problem than any of its eight neighboring states.
• Tennessee has a worse structural deficit problem than any major state (state with more than two million residents) in the nation.
• Tennessee’s tax system does a poorer job of capturing revenues from economic growth than the systems of any of its neighboring states.
• In capturing economic growth, Tennessee’s tax system ranks 46th among the 50 states. Only the tax systems of Florida, Nevada, Texas, and Washington do less well at capturing growth.