By one very important measure, Tennessee’s economic growth this past year exceeds that of any other state. And by just about any measure, Tennessee’s growth is well above the national average.

What’s more, the state’s foremost economic forecaster is predicting that strong growth will continue through 2016 and 2017 with Tennessee continuing to outpace the nation as a whole.

The measure that most stands out is the one on which the state depends for a majority of its revenues: namely, sales taxes. For the first half of the fiscal year that ends June 30, Tennessee sales tax revenues grew by 7.1 percent over the prior year compared to a national average of 2.6 percent as compiled by the Rockefeller Institute of Government. (Only three other states—Idaho, Kansas, and Virginia—exceeded 6 percent.) And Tennessee’s growth rate since then has kept on going up—to 7.8 percent for the first 10 months of the fiscal year whereas the Rockefeller Institute is forecasting that the national average increase for the year will slip to 2.5 percent.

Underlying the big state revenue boost is what the director of UT’s Boyd Center for Business and Economic Research, Bill Fox, calls “an extraordinarily good year for employment and personal income growth” in Tennessee. The center reports that non-farm employment in the state grew by 2.5 percent in 2015, representing the largest growth since the 1990s and well above the national rate of 2.1 percent. And the center is forecasting a growth rate of 2.6 percent in 2016 compared to 1.9 percent nationally. It also looks for personal income in the state to continue to grow at a 5 percent annual rate, compared to a projected 3.8 percent rate nationally in 2016 and 4 percent in 2017.

On the flip side, Tennessee’s unemployment rate has fallen to 4.1 percent from 5.8 percent a year ago, which takes it from well above the national average to well below it.

So what accounts for Tennessee’s remarkably robust economy? Fox is less clear about the “whys” of all of this, but ventures, “There’s not a simple explanation…. It’s a very diverse set of things.” Heading his list:

“The Haslam administration deserves a lot of credit for being really successful in recruiting new employers to Tennessee,” Fox says. “And we’ve done a really good job of convincing the country that we care a lot about education and improving the quality of our work force. Also, we have a very good location right in the middle of things. So those are some of the factors that play into this.”

In the center’s most recent report, the leisure and hospitality sector and the professional and business services sector are singled out as particular sources of strength. It’s also worth noting that the economic surge has coincided with the repeal of Tennessee’s inheritance tax, which many have contended was a deterrent to attracting and retaining wealthy residents, especially retirees. No other Southern state has such a tax.

The nearly $500 million generated by the 7.81 percent year-over-year growth in sales tax revenue accounts for the biggest part of an aggregate $800 million surplus over budgeted state revenues for the fiscal year to date.

The big boost equates to a 6 percent increase in overall state revenues. That is almost double the average rate of growth for all states during the first half of the fiscal year, which is as far as the widely followed Rockefeller Institute’s tabulations go at present. That’s especially noteworthy because revenue growth in states that rely so heavily on sales tax, as Tennessee does, typically lag behind growth rates in states with more reliance on income taxes during economic upturns, especially ones that have lasted as long as the seven years since the trough of the 2008-2009 recession.

Indeed, Fox himself has long classified sales taxes as an “inelastic” source of revenue that doesn’t keep pace with economic growth or even inflation-driven increases in the cost of government in the long run. Income taxes have historically been more “elastic” along with being more progressive.

While Fox insists that dependence on an inelastic sales tax will continue to constrain Tennessee in the long run, he doesn’t foresee any braking effect in the near term. “Based on our stable pattern of economic growth, I don’t see anything in the data that suggests a slowdown relative to the rest of the nation,” he advises.

Just how much of a further boost to state spending the $800 million and counting budget surplus will provide isn’t clear to me. In April, the state Legislature “recognized” $376 million of the overage in an appropriations bill. The balance remains uncommitted.

Fox also credits the Haslam administration for “recognizing that the revenue growth is beyond the norm and being very conservative about spending on the basis of what is surely short-term growth.”

One budget component that is clear is a $100 million increase in the state’s “rainy day fund” to a total of $668 million. But that is still less than it was prior to the great recession in 2008-2009 when it was rapidly depleted. And akin to the law of gravity, the law of business cycles hasn’t been repealed.

Joe Sullivan

Joe Sullivan is the former owner and publisher of Metro Pulse (1992-2003) as well as a longtime columnist covering local politics, education, development, business, and tennis. His new column, Perspectives, covers much of the same terrain.