Legislative Update: Governor Lee Unveils $55.6B Budget Proposal in Annual State of the State Address

Governor Bill Lee delivered his fifth State of the State address yesterday evening, outlining his budgetary and legislative priorities before a joint session of the 113^th General Assembly. The Governor’s $55.6 billion proposed budget for FY23-24 includes $7.38 billion in new state spending ($796 million from federal and other sources) and primarily centers on transforming transportation, providing support to families and children, enhanced educational funding, tax cuts, and workforce development initiatives. As federal pandemic relief funding has slowed, the state's budget decreased $600 million in comparison to the previous fiscal year. However, Tennessee's sales tax revenue has grown by 11%, allowing the state to increase direct spending by $3.1 billion.  Road infrastructure remains a top priority of the Lee Administration, which has pledged $3 billion in funding through passage of the “Transportation Modernization Act” to build roads in all three Grand Divisions in an effort to alleviate urban congestion and widen rural interstates across the state.

Notable highlights from Governor Lee’s FY23-24 agenda include:

Infrastructure and Economic Development:

• Addressing $26 billion backlog in road and bridge projects across the state 
• $3 billion to the Transportation Modernization Fund to alleviate urban congestion and fund rural road projects
• $750M allocated to each of Tennessee’s four TDOT regions 
• $300 million allocated to the local highway program 
• Proposed legislation centered on Alternative Delivery Models, Public-Private Partnerships, Electric/Hybrid Vehicle Fees 

K-12 Education

• $350M in additional funding to local education agencies through Tennessee Investment in Student Achievement (TISA), including $125M for teacher pay raises
• $60.8M to extend summer learning camps and expand eligibility age from 4th grade to Kindergarten through 9th grade
• $10M for Summer Bus Transportation
• $20M in School Safety Grants to enhance school security
• $29.7M for the TN School Safety Initiative, expanding staffing to place at least one Homeland Security Special Agent in each of the state’s 95 counties to provide threat assessments and collaborate with local law enforcement
• Proposed legislation that will increase the minimum teacher pay to $50,000 by 2026 

Workforce Development

• $1 billion investment in Tennessee's TCAT master plan 
• $370.8 million to update outdated facilities in seven TCAT campuses state-wide 
• $386.2 million to invest in new buildings, expansions and improvements to sixteen current TCAT campuses 
• $147.5 million to build six new TCATs across Tennessee 

Children and Families

• $190 million budgetary increase for the Department of Children’s Services, including funds to add 166 new beds and salary increases for case workers.
• $100 million grant program to partner with nonprofits that serve mothers, fathers, and families during a crisis pregnancy, administered through the Office of Faith-Based Initiatives
• $7.3 million to establish a state paid family leave tax credit against franchise and excise tax for a two-year pilot period that will mirror the federal tax credit 
• Utilizing $300 million of shared savings earned through the state’s TennCare Medicaid waiver agreement, the administration proposes to strengthen postpartum coverage, provide services to over 5,000 more mothers, close the coverage gap for parents, and reach an additional 10,000 children – in total, offering services to nearly 25,000 additional women, children, and parents.
• Coverage of the cost of diapers during the first two years of a baby’s life for mothers on TennCare

Tax

• Beginning a three-year transition to Single Sales Factor for franchise and excise taxes to improve TN’s ability to compete for jobs and investment 
• $288.3 million for a one-time three-month sales tax holiday on food from August 1 to October 31, 2023 
• $64 million to simplify tax administration and conform with the federal bonus depreciation provisions of 2017 Tax Cuts & Jobs Act, allowing businesses to more quickly recover costs and further incentivize investment in Tennessee production 
• $37.8 million for Small Business Excise Tax Relief, establishing a standard deduction from excise tax for up to $50,000 of reported net income, earning taxpayers a maximum of $3,250 in direct savings for Tennessee businesses 
• $20.3 million for Small Business Franchise Tax Relief that exempts up to $500,000 of property from the franchise tax, giving small- and medium-sized businesses that own property in Tennessee up to $1,250 in tax savings on their annual franchise tax liability 
• $7.9 million for Small Business Relief from the Business Gross Receipts Tax, increasing the filing threshold for business tax from $10,000 to $100,000 to ensure that only businesses with $100,000 of gross receipts or more will be subject to the business tax

Conservation

• Propose legislation to revitalize 175 brownfield sites 
• $50 million in a Nuclear Fast Track fund to recruit companies that will specifically establish a nuclear development and manufacturing ecosystem built for the future of Tennessee 
• Expansion of three additional state natural areas, construction of two new park lodges, addition of four outdoor trails, and creation of four new state parks 

Additional Budget Highlights

• $4.5M to continue funding 25 new forensic positions at the Tennessee Bureau of Investigations in an effort to reduce turnaround time for test kits
• $250 million addition to the state’s Rainy-Day Fund
• $50 million increase in Violent Crime Intervention Grant Fund
• Funding to support addition of 100 Tennessee Highway Patrol troopers

Department of Finance and Administration Commissioner Jim Bryson will present the official budget this morning before the Senate Finance Ways and Means Committee and this afternoon before the House Finance Ways and Means Committee, which may be streamed here.