Legislative Update from State Senator Joey Hensley: Preparation for the Upcoming Session


   Preparations are already underway for the most important task we will undertake next year – our state budget. From funding such priorities as education, health care services, public safety and our roads, the appropriations bill is the most far reaching bill passed each legislative session. The importance of this legislation is highlighted by the fact that passage of the budget is the only duty prescribed for the General Assembly by Tennessee’s constitution.

   During the week of November 16th, work on the 2021-2022 budget began in earnest after Governor Bill Lee concluded a series of hearings with all departments of state government regarding their appropriation needs, as well as a list of potential cuts. The hearings also included an overview from Dr. William Fox of the University of Tennessee and Department of Revenue Commissioner David Gerregano regarding the state’s economic outlook. Their presentations, which were both encouraging and concerning at the same time, will be carefully considered as the budget is crafted. 

   The good news is that Tennessee’s employment has rebounded faster than the rest of the nation on average, but on the down side it is still 4.2 percent below the previous peak. There are 158,000 fewer people working in the state today than at the beginning of the pandemic and we need to put them back to work. Dr. Fox said that although the recovery looks better than expected, there is a slowing of employment gains and that some of the jobs which have been lost due to the pandemic may not be regained. We must work to help ensure that these businesses have the supports they need to fully recover.

Almost every sector in Tennessee has fewer jobs than last year. The pandemic’s effects, however, have obviously hit some professions harder than others. The hardest-hit jobs are in the leisure and hospitality sector. Statistics show that “brick and mortar” businesses have lost sales to online companies as consumers have shifted buying patterns during the pandemic, with small businesses particularly affected. Dr. Fox said it remains to be seen whether these patterns will continue and how well these businesses will recover. Only financial activities and banking, boosted by a surprising upswing in housing sales, came through unscathed. Similarly, retail sales growth differed radically by industry sectors. Food services and drinking establishments were affected most negatively, followed by gasoline stations and clothing stores.  The federal stimulus money and unemployment supplement helped to boost spending and was a factor in helping to increase big ticket sales such as automobiles and large appliances. 

   While we had a dramatic reduction in jobs, the state’s GDP, which measures output, hasn’t fallen nearly as much as expected at this point. It is down 3.5 percent in Tennessee from the start of the pandemic.  While that news is encouraging, Dr. Fox advised state officials to proceed with caution when considering the state’s forthcoming revenue collections due to a number of uncertainties. These uncertainties include vaccine availability and a future federal stimulus package. 

   In addition, in previous recessions economic effects were delayed and the economic forecasters believe it is possible that we may have not seen the full impact of the recession yet on state revenues. An example of this is a possible delayed impact on the state’s Franchise and Excise (F&E) taxes. Current business losses could lag into the next year of F&E tax reporting which could significantly reduce state revenue collections. Almost eighty percent of Tennessee’s revenues are derived from sales taxes and F&E taxes, making them a big mover in how Tennessee estimates collections. 

   In May, Tennessee was paying $340 million per week in unemployment insurance as a result of the stimulus, while the most recently reported payment was $30 million. There is a question as to what happens to consumption and sales taxes as payments are reduced. Tennessee ended last fiscal year with an annual tax revenue growth rate of 2.4 percent, down from approximately 7.5 percent growth through March due to COVID-19. The state’s growth rate for the current fiscal year stands at 2.2 percent thus far.  Comparatively, revenues at pre-COVID levels for the past six years have averaged between four and eight percent growth. 

   Tennessee’s Funding Board also heard economic forecasts this week from Fox, Gerregano and 11 other experts. The action to review the Tennessee’s economic outlook to more accurately estimate how the state’s revenues will perform is a very important part of the state’s budgeting process. Their projections will be used by Governor Lee and the General Assembly as the budget comes before us. I look forward to working with our Senate Finance Committee on which I serve on the upcoming budget that will keep our state financially fit and serve our citizens well as we move through our state’s economic recovery.