Home » Legislative Update from State Senator Joey Hensley: Budget Focuses on Economic Recovery

Legislative Update from State Senator Joey Hensley: Budget Focuses on Economic Recovery

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   Balanced budget focuses on economic recovery and essential state services, while keeping promises for tax relief to Tennessee seniors

    The Senate and House of Representatives worked together this session to find common ground on several key points before passage of the state budget. Although the bare bones spending plan focused on economic recovery and providing essential state government services, the measure also keeps promises to Tennessee seniors by keeping the Hall Income tax phase-out on track for elimination by January 1, 2022. 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.  

    The Senate and House also agreed to add $15 million to extend the state’s $10 million sales tax holiday to two weekends to help stimulate sales for struggling businesses and give consumers relief. The state has held annual sales tax holidays for the past 15 years during the midnight Friday to midnight Sunday weekend slated for the last Friday in July. Current law applies the holiday 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, 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. Restaurant and clothing industries have been especially hard hit by the COVID-19 response.

    Other key points of the House-Senate agreement include adding:

•$174,000 to restore funding to the state’s development district who are regional planning and economic organizations critical to the operations of cities and counties in Tennessee;

•$25,000 to the Tennessee Historical Society to celebrate the 100th anniversary of Women’s Suffrage and Tennessee’s pivotal role in it;

•$400,000 for the Attorney General for State Employee Health Plan Oversight;

•$10.5 million to help restore critical grant funding previously reduced for Nashville and Memphis; and

•Issuance of bonds for two new capital projects – $32.9 million for the University of Memphis STEM Building and $21.7 million for the Tennessee College of Applied Technology in Chattanooga’s Advanced Manufacturing Building.

   The 2020 session began with introduction of a budget by Governor Lee that laid out a bold vision for Tennessee. It focused on significant improvements in mental health, early childhood literacy and education, rural development, sentencing reform, and continuing the state’s robust job growth and prosperity which was unprecedented in state history. However, state lawmakers had to regroup in March due to the economic effects of the COVID-19 pandemic on state revenues. 

    The first case of the novel coronavirus 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 were continued.

   When lawmakers reconvened in June, state finance officials estimated a budget gap of $500 million to close the current fiscal year due to weak revenues. This is in addition to an estimated $1 billion shortfall for the 2020-2021 fiscal year which begins July 1. 

  The new spending plan closes the current 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, the budget makes strategic reductions. Among other measures, it allows budget officials to review target reductions identified by departments and agencies of state government as they develop a thoughtful plan to deliver greater efficiencies.

   The legislation fully funds the Basic Education Program (BEP) for K-12 schools and the pension plan for state employees and teachers. It also services Tennessee’s debt to ensure the state is financially sound.

    Under the plan, Tennessee will still remain as one of the least indebted states in the nation per capita. The state also ranks third for best-funded pension plans and is one of only five states without road debt, enhancing the Volunteer State’s AAA-rated bond status. Conservative fiscal management has placed Tennessee in better shape than the vast majority of other states in the nation to withstand the economic downturn.

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