TCSA Capitol Update: February 6 - 10, 2023

After a couple of weeks of organizing and bill filing, the legislative session kicked into a higher gear this week with several important developments. The week started with Governor Lee delivering his state of the state address on Monday night and presenting his budget priorities for FY 2024 (you can find the full text of the state of the state address HERE). On Tuesday, Finance and Administration Commissioner Bryson gave an overview of the administration’s proposed budget to both the House and Senate Finance Committees (the complete proposed budget can be found HERE). On Wednesday, the House Transportation Subcommittee heard and recommended HB 321 which, as amended, will carry the language of the Lee Administration’s Transportation Modernization Act of 2023 - the central component of the Governor’s Build With Us initiative. You can find much more information about the initiative on the Dept. of Transportation’s website HERE

Help on the Way for Highway Departments

The great news is that county highway departments would see both short term and long term funding benefits under the proposal. The county share of fuel tax revenues collected in the first six months of the current fiscal year is already $1 million less than this time a year ago. County highway departments are being squeezed between pressures from inflation and rising costs of fuel, materials and services on one side and flat or declining revenues due to greater fuel efficiencies with new vehicles and the growth in popularity of electric vehicles and plug-in hybrids on the other. Those factors are affecting gasoline and motor vehicle tax revenues, which are a primary funding source for many highway departments, and are eating into their purchasing power and the ability to adequately fund road maintenance at the county level.

The governor’s proposed budget includes a $300 million one-time investment in the State Aid Road program, which currently receives just $21 million each year. This amount equates to 15 times what is normally budgeted. The funding will be distributed just as it has in the past and would become available this July in the new fiscal year. Based on initial numbers from TDOT, the least amount any county would receive under the plan is $2 million.

The proposal also includes a recurring, long-term funding solution to address waning fuel-related revenue. The Administration accepted TCHOA’s proposal to share all future registration fees on fully or partially electric vehicles in the same manner as the current gasoline tax is distributed. The plan is to create parity in the revenues generated by electric vehicles (EVs), versus their traditional combustion engine counterparts. The proposal calls for a $274/year registration fee on EVs and a $100/year fee on plug-in hybrids that use a combination of electric battery and gasoline. Under the IMPROVE Act, EVs were charged a $100 additional registration fee, but funds from that source went entirely to TDOT. County associations were successful in arguing that, if these fees are intended to replace lost fuel tax revenue, they should be distributed in the same manner. 

Education Funding

While we have no details yet, we did learn a little about what the administration intends in the first year of the Tennessee Invests in Student Achievement funding formula. Last year, which was the last year of the BEP formula, the budget also included $750 million in one-time expenditures related to education. These included things like grants for expanding and updating CTE programs, some funding to assist with damage to schools from the Waverly flood and investments in the Governor’s vocational education programs. Since those expenditures were non-recurring, the intent was for those funds to all rollover into TISA. 

This year, in addition to the $750 million, Governor Lee is proposing another $350 million for a total new investment in K-12 education funding of $1.1 billion. While TISA is considered a “student-centered” formula and does not specifically provide funding for resources, one of its features is that the legislature may designate a portion of improvements in base funding for teacher salaries. Governor Lee is proposing that $125 million of the $350 million be designated for this category. He is now also expressing his desire for the state to raise the base salary of the minimum salary schedule to $50,000 by the end of his term. That salary schedule is decided by the state board of education, not in legislation. Despite a lot of discussion last year about the local match under TISA growing slower than the BEP, the biggest concern TCSA had about the new funding formula was whether it would fund the majority of the costs of higher mandated salaries. All school systems are having difficulty recruiting and retaining teachers. So, a major infusion of funds from the state will help school systems pay better salaries. But we need a clear indication of whether the new state funds actually keep pace with the required increases or if much of that burden will fall on local property taxes. 

Other than earmarking $125 million for teacher salaries, we do not yet have details on how the $350 million will be spent. It cannot all go into the base per pupil funding amount, because that will trigger increases in the weighted portions of the formula. There are also direct state funding categories in TISA which are separate from the base and weights. Some of the funds may be designated for those categories. The Department of Education has a budget hearing in the Senate Education committee next Wednesday and we hope to know more following that presentation.