Tennessee General Assembly passes legislation to mitigate effects of COVID-19 in one of the toughest budget years in state history

The second session of the 111th Tennessee General Assembly adjourned on June 19, 2020 to become a part of Tennessee history. The session began with the introduction of a spending plan by Governor Lee who laid out a bold vision for Tennessee. It focused on significant improvements in mental health, early childhood literacy, teacher pay raises, criminal justice reform, rural development, and continuing the state’s robust job growth which was unprecedented in state history. However, the governor and state lawmakers had to regroup in March, putting aside most of the proposed improvements due to the pandemic.

The first case of COVID-19 occurred on March 5, only two days after the state was ravaged by tornadoes. Passage of an emergency budget followed on March 19 to help tornado victims, aid in the fight against the virus, and ensure critical state services continued.

When lawmakers reconvened in June, the state’s revenue picture was grim and more difficult budget decisions had to be made. State finance officials estimated a budget gap of $500 million to close the current fiscal year, and an additional $1 billion shortfall for the 2020-2021 fiscal year which extends from July 1, 2020 to June 30, 2021.

Tennessee has a long history of fiscal responsibility with a AAA-rated bond status. It is among the five least indebted states in the nation per capita, ranks third for best-funded pension plans and is one of only five states without road debt. This conservative fiscal management has placed Tennessee in better shape than the vast majority of other states in the nation to withstand the economic downturn.

The new $39.45 billion budget continues the tradition which has made Tennessee among the best managed states in the nation - maintaining low taxes and preserving savings, while achieving efficiencies in operations and continuing essential services to Tennesseans. Education remains a key priority in the new budget. The legislation fully funds the Basic Education Program (BEP) for K-12 schools with a $50.3 million investment to cover growth and inflation. It fully funds the pension plan for state employees and teachers. It also services Tennessee’s debt to ensure the state is financially sound.

The budget seeks to avoid harsh cuts that could cause interruptions in critical state services. It closes the 2019-2020 fiscal year deficit utilizing agency savings, unbudgeted non-tax revenues, certain reserve funds and continuing the freeze on hiring. For the 2020-2021 fiscal year, budget officials are making a thoughtful review of business practices to identify efficiencies and creative cost-saving delivery of services. A strategic reduction in the employee workforce is also part of this effort. The budget provides $50 million for a voluntary employee buyout initiative based on years of service with extended health insurance benefits and college tuition assistance. A similar buyout implemented in 2008 netted savings of about $65 million. The legislation also calls for a reduction of $20 million in authorized and funded positions that were vacant across departments and agencies of state government in Fiscal Year (FY) 21.

Greater legislative accountability was written into the bill under a Senate amendment which ensures the General Assembly’s finance committees will be fully informed on the transfer of funds and reductions by the administration. The goal is to work transparently and collaboratively to bring the state through the effects of the pandemic in a strong position.

Although the budget makes reductions in new capital projects and capital maintenance, it bonds certain priority projects to keep Tennessee moving forward. These include bonding for the STEM Building at the University of Memphis, an Advanced Manufacturing Building at Tennessee College of Applied Technology in Chattanooga, the School of Concrete and Construction Management at Middle Tennessee State University, and the West Tennessee Veterans Nursing Home. This strengthens Tennessee’s cash position which is especially important given recession uncertainties. Economic uncertainty is also a key factor for maintaining adequate savings in the state’s Rainy Day Fund, which stands at $1.2 billion after a deposit of $325 million on June 30.

The measure upholds promises to Tennessee seniors by keeping the Hall Income tax phase-out on track for elimination next year. The majority of Tennesseans paying the Hall tax are retirees who depend on investment savings as their primary source of income. In 2016, the General Assembly passed tax relief legislation to cut the tax by a minimum of one percent each year until Tennessee is income tax free.

Tax relief will also be continued and enhanced through the state’s annual Sales Tax Holiday under the new budget. In place since 2005, Tennessee’s Sales Tax Holiday is slated to begin on the last Friday in July. It currently applies the sales tax exemption to clothing and school supplies for purchases of up to $100, while personal computers and tablets are capped at $1,500.

The new budget provides that beginning Friday, July 31, 2020 through Sunday, August 2, 2020, the sales tax holiday exemption limits will double to $200 for clothing and $3,000 for computers, tablets, smart phones, televisions, and certain other electronics. The measure also provides a sales tax holiday for the retail sale of food and drink by restaurants and limited service restaurants for the weekend of Friday, August 7, 2020 through Sunday, August 9, 2020. Restaurants were especially hard hit by the effects of the pandemic.

In addition, the budget provides $210.5 million in grants to Tennessee’s counties and cities. Grants were authorized in the March budget but could only be used for specified purposes like infrastructure and COVID-19-related expenditures through an application process.  The new budget removed the application process and gave the local governments greater authority on how funds could be spent, including allowing them to be used to offset loss of local revenue.  Local governments have sustained substantial revenue losses as a result of COVID-19.

As always, I am truly humbled and honored to be your voice on Capitol Hill. If there is ever any issue I can assist with, please reach out to my office by calling 615-741-2190 or emailing me at [email protected].