Legislators return to wrap up session, balance budget amid revenue deficit

Tennessee lawmakers returned to Capitol Hill earlier this month, amid a wide range of devastating effects caused by the Coronavirus. The General Assembly is working to wind up the 2020 legislative session this week (June 15 - 19).
Among the most important task is passage of a revised balanced budget that reflects significant revenue reductions due to the economic impact of the virus.
Lawmakers must plug a $500 million deficit for the current budget year and cut $1 billion for the fiscal year beginning July 1.
On June 4, Finance and Administration Commissioner Butch Eley presented to lawmakers a revised budget, which paints a bleak picture of the upcoming fiscal year.
The Administration proposed an additional $284 million in recurring expenditure reductions on top of the nearly $400 million reductions the legislature approved in mid-March.
With more than $4 billion in reserves, the Administration stated they anticipated cash on hand to lessen the impact of immediate spending reductions.
To make up for some of the shortfalls anticipated in the 2020-2021 fiscal year, Gov. Lee is asking the legislature for a three-year approach in cutting the budget to avoid harsh cuts that could cause interruptions in current state services.
They hope to achieve budget reductions through department efficiencies and reduction of the employee workforce over the next two years through a voluntary employee buy-out initiative. The Administration is also proposing to reduce any new capital projects and funding for capital maintenance, as well as authorizing bonds for existing capital projects previously funded with cash.
In addition, the Administration is asking each department to reduce expenditures by 12% and conduct a thoughtful review of business practices.
The state will press forward with many enacted but delayed commitments. The annual BEP growth, the full pension funding, the June $325 million rainy day fund deposit, the August sales tax holiday, and the January full repeal of the Hall Income tax will proceed as scheduled this upcoming fiscal year.
The new spending plan pulls back proposed pay raises for state employees and teachers that were approved in the preliminary budget passed in March. However, employee pay and 401 K contributions will remain at current levels under the proposal,
Eley said tapping into the state’s Rainy Day Fund would be a last resort to fill any budget gaps. Lawmakers want to ensure, given the uncertainty of the length and depth of the recession and any future effects of COVID-19, that adequate emergency funds are maintained. The fund will reach $1.2 billion after an additional deposit of $325 million at the end of the fiscal year on June 30.
On Thursday, June 11, the Senate approved the state budget with very little changes to Gov. Lee’s revised spending plan.
Among the most significant changes that affects local governments is that the Senate voted to loosen restrictions related to a $200 million grant program allocated to cities and counties. Gov Lee’s proposal stipulates how the funds can be used; whereas, the Senate-approved version allows local governments to determine how to best use these funds.
At press time, the House had not taken up any budget documents but is scheduled to vote on the budget this week prior to adjournment.