TCSA 2024 Capitol Updates Archive

TCSA Capitol Update

Week of February 5 - 9, 2024

State of the State Address

This week began with the annual tradition of the Governor delivering his state of the state address to a joint session of the House and Senate on Monday night. In his speech, he outlined his legislative priorities for the year. Some of these, like his universal school voucher proposal, called Freedom Scholarships, were already known. Others were announced for the first time. He began by highlighting the strong financial position of the state. Over the past five years, Tennessee has been ranked as the fastest-growing economy of all 50 states, the number one state for fiscal stability, a top state for business, the second lowest-taxed state per capita, and the lowest debt state in America. He expressed pride that the state has been able to reduce the number of distressed counties from 15 to 8 during his tenure.

The Governor quickly pivoted to a discussion about the need to change the state’s Franchise and Excise Tax on corporations. His administration is proposing a change that would reduce revenue from the tax by over $400 million recurring. He is also proposing to refund several years worth of back taxes to companies that have raised objections to an aspect of the tax. While no lawsuit has been filed, the Attorney General’s Office and the Department of Revenue have both recommended this change to reduce the risk of litigation. The refunds would cost the state well over $1 billion, wiping out much of the current surplus. 

Governor Lee covered a wide array of topics in discussing his proposals. They range from legislation to protect music copyright from AI infringement, empowering parents with more control over their children’s social media accounts, streamlining or reducing executive branch rules and regulations, improving mental health funding, and hiring more state troopers. More directly related to counties, his proposals also included a plan to invest $200 million over five years in rural healthcare, legislation to streamline the permitting process for construction, and new initiatives to protect farmland and our farming industry. We will continue to review these proposals for their impact on county government over the weeks ahead as more details become available.

Proposed State Budget

The State of the State address is always followed by the presentation of the Governor’s initial proposed budget to the Finance Committees of the House and Senate. Finance and Administration Commissioner Jim Bryson once again presented the budget and fielded questions, along with help from his staff. 

The good news in the budget has been that Tennessee has experienced a truly extraordinary past 3 years. The budget has grown 46% since 2020. Education funding has grown by $2 billion over the last few years. The state was able to dedicate $7.5 billion into capital investment, plus transfer an additional $3.3 billion into roads with the Transportation Modernization Act last year. The rainy day fund and other reserves have all grown, with the rainy day fund alone now exceeding $2 billion, which is 9.4% of the state’s budget and in excess of the statutory goal of 8%.

Byson also talked about how the state has used a critical strategy in managing through these years of surplus. Tennessee has repeatedly used recurring revenue for non-recurring expenses. While doing the opposite will quickly put any operation at risk, this strategy has provided the state with a cushion each of the last few years as it began its next budget cycle. In FY22, $234 million was used this way. In FY23, that ballooned to $1.3 billion, then maxed out in FY24 at $2.6 billion. Those funds that were used for one-time expenses in the current budget, now become available for the upcoming budget. This is essential for helping the state manage current challenges.

After years of exploding revenue growth, the state is now experiencing low or no projected growth in revenues. FY 24 and FY 25 estimates are flat with FY 23. In addition, the massive amount of additional federal funds received during the pandemic are going away. However, in large part due to the growth over the last three years and the use of large amounts of funding for non-recurring expenses, the state does not anticipate the need to make reductions to the base budget or raid reserves. 

In the November funding board meeting, FY 24 growth projections were revised from 2.25% growth to 0.0% growth, creating a $718 million hole in the current budget which will be plugged with a part of the $2.6 billion allocated to non-recurring uses. The proposal to alter F&E taxes to eliminate the property measure currently in that law will reduce state revenue by $410 million recurring. The administration’s proposed bill also includes refunds for companies that paid based on the property measure over the last 4 years. This will use an additional $1.2 billion from the $2.6. 

Anticipated cost increases in programs are estimated at nearly $800 million. In addition, the Governor is proposing $157.8 million for state employee raises. Along with other expenses, the administration expects $1.8 billion of the $2.6 billion to be dedicated to recurring expenses, leaving a little less than $800 million to be used once again for non-recurring expenditures to help safeguard against any further revenue reductions going into the following year.


K-12 education

For the new TISA funding formula, the growth is proposed to be $261,254,000. This includes a portion earmarked for the planned teacher pay increase. Few details about what the figure included were provided in Senate Finance this week. More discussion is expected when the Department of Education presents its budget to the Education Committees. Also proposed for K-12 funding are:

  • Summer learning camp funding at $30,797,200;
  • Charter Schools Facility funds at $15,000,000; and
  • For the Education Freedom Scholarships - $141,500,000 

School Choice

As proposed in the initial year, the school choice proposal would provide $7,000 scholarships to 20,000 students, with half of the scholarships reserved for students below 300% of poverty level. According to Bryson, future funding would be strictly subject to appropriations. Members of the committee questioned how the number of scholarships could be limited to 20,000 when roughly 100,000 students currently attend private schools in Tennessee, with many thousands more being homeschooled. Byson simply answered that future funding for scholarships would be subject to appropriation. 

Other Highlights

Health care related highlights of the proposed budget include:

  • $81.1 million for rural health initiatives
  • $50 million for rural health resiliency programs$273 million improvement for TennCare
  •  Behavioral health supports - year 1 of a five-year $100 million program
  • $8 million for behavioral health liaisons to work with schools
  • $15 million for behavioral health hospitals - available to public and private hospitals
  •  $10 million for children’s hospital grants

The main proposal related to public safety was a proposal to add 60 more Tennessee Highway Patrol positions (on top of 200 added recently).

In the area of natural conservation, the Governor is proposing spending $71 million on a heritage conservation trust fund and $25 million on a farmland conservation fund (for farm owners who voluntarily place their land into a conservation easement).

Also proposed were the following:

  •  Blueways Trail Development $20 million
  •  Bill Dance signature lakes fishing trail $10 million joint project to create superior fishing venues
  •  Highway beautification - $5 million
  •  Access 2030 - $3 million for park accessibility projects; and
  •  Capital Projects - $59 million

Legislation Moving In Committees this week

 

Several noteworthy bills moved this week in various legislative committees.

  •  The Comptroller’s proposal to reduce the maximum amount of time for reappraisals from six to four years was approved by the Property and Planning Subcommittee. The bill (HB2057) moves to the full Local Government Committee next week.
  •  A bill to raise the limit on greenbelt from 1500 to 5000 acres was sent by the Senate State and Local Government Committee to the Finance Committee. SB 1659 is projected to cost counties in excess of $3 million if enacted as is. The bill is expected to be held in Finance to determine if there is a way to lessen that impact. 
  •  SB 1968 which prohibits an individual from holding two elected offices at the same time was also recommended by the State and Local Committee
  •  A number of bills related to school safety and SROs were referred to a special calendar of a House committee related to that topic.
  •  In the Cities and Counties subcommittee, two bills related to the office of county mayor moved forward. The first, HB 1921, would clarify that the county mayor is not subject to open meetings requirements when he or she speaks with a single county commissioner. The second creates a five-year average requirement for funding specific to the mayor’s office. HB 2019 would require the county to continue to fund the mayor’s office at the average of the previous five years’ funding.

The committee calendars are filling up with more proposals each week. It should be a busy and crucial time when county officials come to Nashville February 19 and 20th for County Government Day on the Hill. We hope to see you then!