budget

House GOP picks an unusual bargaining chip in budget debate: Retaining the Hall income tax

Speaker Cameron Sexton (R-Crossville) presides over a House floor session on June 1, 2020. (Erik Schelzig, Tennessee Journal)

For years, the contest among legislative Republicans was over who could move to eliminate the state’s Hall Income Tax the quickest. Now it appears House Republicans want to hold on to the last vestige of the tax on earnings from stocks and bonds for another five years.

The Daily Memphian‘s Sam Stockard reports the House plan would keep the 1% tax on the books until 2025, pulling in about $49 million per year as the state scrambles to make up for revenues lost during the coronavirus pandemic.

The Senate wants to keep the levy on it’s current path toward expiration on Jan. 1.

Look no further than House Speaker Cameron Sexton (R-Crossville) to illustrate the political importance of doing away with the Hall tax. As Sexton told the told the Crossville-Cumberland County Chamber of Commerce in 2011. ”

We don’t want to be a state that penalizes people for investments or for saving … It’s also bad policy. We shouldn’t penalize people for saving for the future.

Will Sexton really want to have to explain to constituents — a large portion of whom are retirees — why his first session as House speaker included a resurrection of the hated Hall tax? Probably not. Many political observers see the Hall tax item as a bluff by the House to try to negotiate concessions out of the Senate.

The question is whether House Republicans are really just negotiating with themselves.

State sales tax collections drop $106M in first full month of coronavirus

Tennessee’s sales tax collections decreased by $106 million in the first full month of the coronavirus pandemic compared with the same month last year, a $13% drop.

General fund revenues missed projections by $144 million in May and have fallen short of expectations by $308 million through the first 10 months of the budget year.

Here’s the full release from the Department of Finance and Administration:

NASHVILLE – Tennessee Department of Finance and Administration Commissioner Butch Eley today announced that revenues for May were $981.9 million, which is $197.3 million less than the budgeted monthly revenue estimate. State tax revenues were $184.7 million less than May 2019 and the overall revenue for the month represented a negative growth rate of 15.83 percent.

“May sales tax collections represent consumer spending that occurred during April, when Tennesseans were staying at home and many businesses were closed in response to the COVID-19 pandemic,” Eley said. “While sales of autos, apparel, furniture and restaurants dropped extensively, building materials and food stores sales experienced considerable growth. The state also realized large drops in gasoline tax receipts, motor vehicle title and registration taxes and mixed drink revenues.

“We responded quickly to develop plans that would mitigate revenue shortfalls at the outset of the pandemic and now the work begins to bring spending in line with what economists predict we will experience. We are encouraged about the improving employment numbers in Tennessee and while we hope for solid recovery trends, we are preparing for a longer and slower growth period, managing our budget conservatively as we work to help all of Tennessee recover from this unprecedented economy.”

As previously noted last month, the Tennessee Department of Revenue extended the due date for certain taxes on April 6, 2020 and the extensions can be found on their website at https://www.tn.gov/revenue/news/2020/3/31/tennessee-extends-certain-tax-deadlines-due-to-covid-19.html.

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Lee outlines budget cuts due to economic impact of coronavirus

Gov. Bill Lee speaks at a press conference on Tennessee’s coronavirus response in Nashville on March 16, 2020. (Erik Schelzig, Tennessee Journal)

Gov. Bill Lee’s office says $500 million in cuts will be needed for the current budget year and $1 billion for the fiscal year beginning July 1. Finance Commissioner Butch Eley said the administration plans to balance the budget using reserves over three years.

The state plans to create a voluntary buyout program for state employees, reduce spending on building projects and maintenance, and dial back spending in all state agencies. But officials have abandoned previous considerations of suspending this year’s back-to-school sales tax holiday and delaying the end of the Hall tax on income from stocks.

“We will balance our budget each year while providing important services to our citizens,” Eley said in a release. “We’re adjusting to the immediate impact of the pandemic on state revenues of up to $1.5 billion through the end of the next fiscal year, planning for the worst and hoping for the best.

Here’s a release from the governor’s office.

NASHVILLE, Tenn. – Gov. Bill Lee’s administration today outlined new spending plans for state government that reflect significant revenue reductions due to the economic impact of COVID-19.

Department of Finance and Administration Commissioner Butch Eley presented state lawmakers with the revised budget plans for the current fiscal year, as well as FY 2020-21, which begins July 1, 2020, and a framework for the following fiscal year, 2021-22.

“We will balance our budget each year while providing important services to our citizens,” Eley said. “We’re adjusting to the immediate impact of the pandemic on state revenues of up to $1.5 billion through the end of the next fiscal year, planning for the worst and hoping for the best.

“Tennessee has a history of being one of the best managed states in the nation, and we intend to work with the Legislature to continue that tradition, maintaining low taxes and preserving reserves while achieving efficiencies in operations and continuing to serve our citizens.”

In March, the administration and the General Assembly agreed on $397 million in recurring reductions at the onset of COVID-19, and the administration is proposing an additional $284 million in reductions for FY 20-21, bringing the total to $681 million in reductions. Hiring and expenditure freezes have also been in place since March. The state will close the current fiscal year on June 30 with unbudgeted non-tax revenues, agency savings and reserves.

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Lee: ‘Metrics’ will be available for lawmakers to plan budget cuts

Gov. Bill Lee speaks at an event in Nashville on April 2, 2019. (Erik Schelzig, Tennessee Journal)

Gov. Bill Lee says lawmakers will have the revenue data available to plan for further budget cuts when they return into session on June 1.

While the full set of tax collection information usually isn’t released until the middle of the month, the General Assembly won’t have to wait that long to make adjustments to the state’s annual spending plan, the governor told the Daily Memphian over the weekend.

“It’s a challenge to project, but there are metrics which you use to make projections,” Lee said.

The governor said several state economists are assembling data and the State Funding Board will meet again to make recommendations before the legislative session resumes.

General fund revenues fell $651M short of projections in April

Tennessee general fund revenue collections in April fell $651 million short of the projections established before the the coronavirus pandemic wrought havoc on the state’s economy.

Corporate franchise and excise taxes fell $487 million short of estimates, though a large portion of that may be explained by the governor’s decision to delay the filing deadlinefrom April to July. Sales tax revenues were $61 million less than projected in the month.

April revenue collections reflect economic activity in March, meaning the full budget impact of the pandemic won’t likely reveal itself until next month’s figures are released.

Here is the release form the state Department of Finance & Administration:

NASHVILLE – Tennessee Department of Finance and Administration Commissioner Butch Eley today announced that revenues for April were less than the monthly revenues from the previous year. Overall state revenues for April were $1.3 billion, which is a negative growth rate of 39.75 percent compared to last year and $693.8 million less than the state budgeted.

“The signs of economic downturn due to the COVID-19 pandemic have begun to appear in Tennessee’s April tax receipts,” Eley said. “April sales tax revenues, reflecting March taxable sales activity, were weakened as the state began to withdraw from its usual patterns of consumer spending by mid-month.  Franchise and excise tax receipts, along with Hall income and business taxes are also notably reduced due to filing extensions that will allow individuals and businesses to report their taxable activity later in the year.

“It has been 10 years since an economic downturn has impacted state revenues. The state’s large monthly revenue surpluses built up throughout the beginning of the year will now be tested as the pandemic’s impact begins to erase those gains.  Yet, we remain committed to keeping the state’s budget in balance despite the current challenges.”

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House, Senate pass barebones budget

The state Capitol has been closed to visitors since March 16, 2020. (Erik Schelzig, Tennessee Journal)

Both chambers of the Tennessee General Assembly have passed a barebones budget for the upcoming fiscal year. The spending plan projects no economic growth and required the deep reductions from Republican Gov. Bill Lee’s original proposal.

Democratic efforts to eliminate about $40 million to start up the governor’s school voucher program failed.

Lee was on hand to watch the the budget debate in the House and Senate.

House GOP leaders: ‘Trust us’ on secret budget discussions

The state Capitol was closed to visitors on March 16, 2020. (Erik Schelzig, Tennessee Journal)

After the House Republican supermajority holed up behind closed doors for 75 minutes to discuss the massive overhaul of the state’s budget in response to the coronavirus crisis, Majority Leader William Lamberth (R-Portland) and Caucus Chairman Jeremy Faison (R-Cosby) spoke to reporters about their justifications for the secret meeting.

Here’s a partial transcript of what was said:

Lamberth: We’re doing everything we can to make sure it’s a transparent process. That includes, from time to time having a caucus meeting that is a closed caucus meeting so they can merely have the information, but no decisions were made.

Q: Just to clarify, a closed caucus meeting is transparent?

Lamberth: Absolutely. It will be prepare us to be able to discuss this later. And everything that was said in that room will be said again on the record. We emphasized that to the members. No decisions were made, no votes were taken whatsoever, and none will be taken in there. What was done was to lay out a schedule for what will happen for the rest of the day, and to lay out the information they have that will be provided to anyone else who wants it.

Q: How will the public know what that schedule is?

Lamberth: What we’re asking is for you to trust us right now. We will continue to get that information out there every single day.

[….]

Q: The Senate rules dictate that when the caucus meets, because they have a majority of the chamber, they must be open. Why have you guys not followed suit, and why should the House supermajority be able to talk behind closed doors?

Faison: Obviously, we don’t follow what the Senate does. We do what we believe is right for our people and our members.

Q: And it’s right to meet behind closed doors when you have a supermajority?

Faison: If we were making a decision, or taking a vote, or whipping a vote or anything like that, I would be vehemently against closing our doors.

[…]

Q: What about the funding for the Education Savings Account law. Was that discussed?

Faison: We discussed what is currently in the budget that deals with ESAs, and the lack of it dealing with ESAs. There’s appropriation in this budget that a lot of people erroneously thought had something to do with implementing ESAs or making ESAs happen. In fact, the money that’s appropriated in this current budget is money that will go to the public schools in Nashville and Memphis.

Q: But that’s for the implementation of the ESA program.

Faison: It does not have anything to do with the implementation of the program. What it has to do with is if a student and their guardian chooses to come out of a public school, the money that follows them goes to the new school they’re going to and we have created a whole separate pot of money that holds that public school harmless. …. We’re in a place right now that we’re not going to get into the politics of what we did with the bills we passed last year.

[…]

Q:  Surely the money could be used to go toward the raises for teachers whose raises are going to be cut?

Faison: We do have a 2% raise for teachers. We’ve dialed back on a lot of stuff.

Q: Why not use the $37 million for the ESA program for teacher raises? If the program isn’t funded, it can’t go forward.

Lamberth: That is absolutely not true. And as my friend, you know that is not true. You are well aware what this money is for. Whatever talking point you got from the Democratic caucus is not accurate. This money in this budget goes to public schools. You know it and I would appreciate it you get that information out there.

Q: As a reminder, 20 Republicans voted against this legislation, so it’s not just Democrats.

Lamberth: That is a Democratic talking point, and you know it. This money goes to public schools. The ESA program can go forward without this money. It is our preference is to backfill any of that money to a public school.. That’s what this money goes to. Period.

Vouchers vs. teacher pay? Lawmakers gear up for budget battle

Finance Commissioner Stuart McWhorter presents budget cuts to the Senate Finance Committee on March 18, 2020. (Erik Schelzig, Tennessee Journal)

Tennessee lawmakers are gearing up for a long day Thursday in which they hope to come to an agreement over deep budget cuts before going into recess until the coronavirus crisis subsides.

One of the biggest sticking points is Gov. Bill Lee’s plan to keep funding in the budget to launch his school voucher program this fall while cutting a planned 4% teacher pay raise in half.

The word around the largely deserted hallways of the Cordell Hull Building is that the House will go first on trying to pass the budget, with the Senate to follow suit later.

Here is Gov. Lee’s revised budget plan amid coronavirus pandemic

Gov. Bill Lee speaks at a press conference on Tennessee’s coronavirus response in Nashville on March 16, 2020. (Erik Schelzig, Tennessee Journal)

The governor’s revised budget proposal assumes Tennessee’s economic growth will drop from a projected 3.1 to zero in the coming fiscal year.

A detailed breakdown can be viewed here: FY21 Amendment Overview Schedule.

Here are the assumptions of his plan for addressing the fallout from the corona virus in the current budget year and next, as released by the governor’s office:

Recognizing the sudden change to our economic circumstances by:

  • Lowering our Growth Rate for the current year from 3.75% to 2.5%.
  • Revising our FY21 growth rate from 3.1% to basically zero.
  • Adding to our reserves: Rainy day: $1.2 billion balance at 6/30/20 & $1.45 billion balance at 6/30/21.
  • Making an additional $57M in base reductions.

New spending items that include:

  • Fully Funding the BEP Formula.
  • Fully Funding Higher Education outcomes-based funding formula.
  • Fully funding our Pension contribution.
  • Fully funding our OPEB Liability contribution.
  • Fully funding the inflationary growth in TennCare.
  • Fully funding the growth in DCS children in state services.

Adding resources to critical services:

  • DL Services.
  • State Road Troopers (10 Troopers).
  • TBI Field Agents (25 agents).

Continuing to address, not defer, the long list of deferred Capital Maintenance items in both state government and higher education.

Expanding services for our most vulnerable population.

Providing salary funding for state employees, higher education and K12.

Responding to the Tornado Disaster and COVID-19 by:

  • Adding $30 million to our Disaster Relief Fund for TEMA.
  • Adding significantly to our fund for emergencies to repair state buildings.
  • Establishing a new $150M fund to help us be responsive to Health & Safety Issues resulting from COVID-19.
  • Doubling our Local Government Grants from $100M to $200M (no county will receive less than $500,000 & no municipality will receive less than $30,000).
  • Strengthening our Safety Net for Mental Health and Health.

UPDATE: For the  budget amendment in text form, click here.

 

Senate Education holds meeting in largely empty committee room

The Senate Education Committee meets on March 16, 2020, amid a ban on public attendance in the Cordell Hull Building. (Erik Schelzig, Tennessee Journal)

The Senate Education Committee was the first panel to hold a meeting Monday under emergency rules preventing the public from entering the Cordell Hull Building. The committee advanced the state Education Department’s budget and then adjourned.

“We indeed live in interesting times,” Sen. Dolores Gresham (R-Somerville), the chair of the committee, said. “It’s been the hallmark and tradition that each member who brings a bill to this committee can expect a fair hearing on their proposal…. We have approximately 110 bills yet to have been heard in this committee, but these interesting times make that somewhat challenging.

“Our state’s priorities are clear, however. We are required by our constitution to address a budget and appropriations plan. Therefore, today we will only consider briefly the budget for the Department of Education in order to refer it to Finance for their appropriate action. Education bills are our next priority, and hope to have an opportunity to consider those before we adjourn sine die, whatever that date that may be.”

One curiosity was the attendance of political activist Kevin Baigert, the husband of a writer for a conservative website. Baigert is the treasurer of a PAC that has targeted Republican House incumbents during campaign season. It’s unclear how he got into the building when members of the public, advocates, lobbyists, and other visitors have been barred.