Capitol Update: February 14, 2025

State of the State and Budget Address

This past Monday (February 10th), Governor Lee delivered his State of the State address (full text available here) and unveiled his proposed budget for FY-2025-2026. The full document is nearly 600 pages and allocates nearly $60 billion. An overview that was provided to House and Senate finance committees by Finance and Administration Commissioner Jim Bryson can be found here. 

Budget Overview and Available Revenues

According to the overview provided to legislative committees, the Governor’s recommended budget is $58.4. [NOTE: Because the budget document itself had to be sent off for printing prior to the resolution of the special session, there are some differences in the printed document.] This is less than the current year budget of $60.5 billion, with the reduction coming primarily from federal COVID funds that are running out.

Commissioner Bryson indicated that the state is expecting a 2% increase in state tax revenues (approximately $540 million). Bryson indicated that this budget continues a practice in recent years of using recurring revenues on non-recurring expenses as a hedge against slow growth. The proposed budget includes $411 million in recurring funds used to pay for non-recurring expenses, meaning these funds will be available for other purposes in next year’s budget. Bryson also reported that state departments and agencies turned in $1.5 billion in reversions (unspent revenues) in the prior fiscal year. The combination of revenue growth, the extraordinarily high amount of reversions, and the amount of recurring revenue used for nonrecurring expenses in the current year budget total up to $3.655 billion in additional revenue over the base budget available for spending in the FY 25-26 budget. Some reversions from FY-2024 were used to pay for the $495.4 million in disaster relief proposals appropriated during the recently concluded special session. 

Transportation

There were a couple of major recommendations aimed at shoring up the Department of Transportation’s budget as a way to help address a backlog of infrastructure needs and maintenance. Governor Lee is proposing using $1 billion in one-time reserves to expedite some projects and is introducing legislation to move $80 million of sales tax on tires from the state general fund to the transportation fund. Details of how these funds will be used are expected when TDOT presents its departmental budget to the Transportation Committees. The Commissioner did indicate that the $1 billion non-recurring would be used to expedite 10-year plan projects, adding crucial projects to the ten-year plan and leverage statewide partnership program projects. In response to a question about why the tax on tires is being moved rather than simply earmarking $80 million in revenue, Commissioner Bryson indicated that it was the Governor’s intent to move this source of revenue to the Transportation Fund to provide a growing source of revenue.  In addition to highway infrastructure, the Governor’s budget includes $159 million in improvements for airports, with $109 million going to commercial airports and $50 million for general aviation. 

Education Funding – TISA

The state’s portion of K-12 education funding under the TISA formula will reach nearly $7 billion this year. That represents a 2.8% increase or $164 million over the prior year. The amount in the formula will actually grow by about $244 million because the department of education over-estimated K-12 enrollment growth last year and was over-funded by $80 million. The basic overview provided to the Finance Committee didn’t get into any details about how this funding breaks down between base funding, weights, teacher compensation or other specifics other than to say the state was staying on track with the goal to reach the $50,000 minimum salary for teachers by the end of the Lee administration. The proposal does include $27 million for summer learning camps, $25 million in fast-growth funding, and $5 million in a facilities fund for charter schools. During the special session, the General Assembly already appropriated $198 million for one-time $2000 teacher bonuses to be paid out during this fiscal year. In response to questions, Commissioner Bryson noted that the administration is watching developments at the federal level and potential impacts on federal funding closely, but had no insights at this time.

Other Investments

The Governor’s budget also includes substantial investments in other areas. These include:

Nuclear investments 

• $50 million small modular reactor grant fund (only expected state investment in a major TVA project)
• $10 million nuclear industry initiative grant (raising to $60 million total)
• $10 million GIVE grants – higher ed
• $2.6 million nuclear fusion regulatory framework

Conservation Initiatives

• Farmland conservation – $25 million
• Ag Enterprise – $15 million
• Ag Enhancement – $5 million
• Local grants to outdoor recreation – $1.5 million
• State park operations – $9.9 million 
• State park capital funding – $48.5 million
• Duck River planning – $24.5 million
• Duck River Regionalization – $100 million (including seed money for water distribution plant)

Highlights of the Legislative Week

While some committees still had light calendars, the work of subcommittees in the House started to pick up. While they are waiting for bills to work through the subcommittee process, House committees often use these early weeks as a time to hear presentations and updates. There were several of those this week. The subcommittees did hear a number of bills impacting county government operations. 

• The House Agriculture Committee heard a presentation on the challenges and opportunities in dealing with solid waste in Tennessee. For several years now, we’ve been hearing rumblings from the industry about a need for more landfill space or new facilities to dispose of Tennesseans’ waste. The video of this committee meeting and the presentation can be found HERE.

• Similarly, the House Transportation Committee heard an update from the state Department of Transportation. That video can be accessed HERE.

• Both the Senate and House’s State and Local Government Committees heard Dr. Herb Byrd of the UT Institute of Public Service discuss the good work done through the various agencies and programs of IPS. This was a timely presentation for UT’s Day on the Hill on Wednesday. That presentation is available HERE. Dr. Byrd’s presentation begins around the 3:30 mark. 

Individual Bills

The House Civil Justice Sub heard a discussion on HB 0004 by Representative Bulso before rolling the bill for a couple of weeks. This proposal would raise governmental tort liability limits, meaning the maximum damages paid by a local government in a lawsuit would more than double. According to the fiscal note (an analysis made on each piece of legislation by the General Assembly’s joint fiscal review committee), the bill would result in a more than $7 million mandatory increase in costs on local governments each year. This would come not only from the higher damage awards, but the resulting increases in the costs of liability insurance. The state is not subject to the same limits as local government and would be unaffected by this bill. 

The House Agriculture Subcommittee was scheduled to hear HB 125 which reduces the local match on certain grants from 50% to 25% for distressed and at risk counties. This is part of Governor Lee’s administrative legislative package this year. Chairman Grills announced that the majority leader requested that the bill be rolled two weeks and be heard later this month.

The House Cities and Counties Subcommittee, chaired by former Blount County Commissioner Jerome Moon, had several bills of interest on the calendar this week. Quite a few were taken off notice, but some did advance. 

HB 56 by Representative Lamberth was advanced with an amendment. This bill, as amended, allows county commissions to remove individuals from appointed boards and commissions by a two-thirds vote. As amended, the bill would not apply to persons appointed to an individual office (like an appointed highway superintendent) or to fill a vacancy in such an office. If the board or commission is not appointed by the county commission itself, the appointing authority (in many cases the county mayor) must first ask the county commission to remove the appointed individual prior to the vote.

HB 618 by Representative Wright of Knox County is a return of a proposal that was before the General Assembly last year. The bill prohibits someone elected to a local government office from serving in another elected office. The bill grandfathers in individuals currently holding two positions, but only until the end of their term. It was advanced by the subcommittee to the full House State and Local Government Committee.

County Government Day Begins Monday, February 17th

We look forward to seeing many of you in Nashville next week for County Government Day on the Hill. We will spend Monday discussing and reviewing legislative proposals and informing members about what’s going on at the Capitol. On Tuesday morning, we will host our breakfast on the 8th floor of the Cordell Hull building, where legislators conduct their business.

Members are encouraged to then meet individually with their legislators and attend committee hearings. It’s a critical time to inform and remind state officials of the vital work county governments are doing for every citizen of Tennessee.