(The Center Square) – Tennessee’s budget may look tight, but it’s actually a return to “normal” after an influx of federal dollars related to the pandemic ends, according to an analysis.
Lawmakers raised concerns before Gov. Bill Lee’s $57.9 billion budget announcement earlier this month. The State Funding Board predicted a modest growth of just over 2.3%.
“If you take away the federal dollars, it is tight but it is relatively flat,” said Mandy Spears, executive vice president of the Sycamore Institute. “So it’s not going down quite as much as theat headline number suggests that it is going down.”
Lee’s final budget of his tenure includes a $425 million infusion into the Department of Transportation.
Transportation projects are besieged by rising costs and flat user-fee revenues used to fund them, according to state transportation officials. Inflation is another challenge. Since 2019, inflation has led to a 100% increase in lead pipe costs and an 80% increase in guardrail costs, Natalie Krzysztof, deputy commissioner for the Tennessee Department of Transportation, told a House Finance, Ways and Means Committee recently.
The situation is not unique to Tennessee, according to Spears.
“Basically all highway funds across the country are finding themselves with a structural deficit, meaning the revenues they have always relied on to fund those activities, road construction and maintenance just aren’t keeping up with expenses,” Spears said. “And that’s because traditionally, we really thought of those things as user fees, that they were a pretty good metric of how much people used roads and therefore contributed to road construction. But for a variety of reasons that linkage has really broken down.”
Lee is adding $170 million for public schools, but separately, Lee is proposing to double the number of Education Freedom Scholarships from 20,000 to 40,000.
“That is a big chunk of change, about $155 million in a budget where you only have about $450 million in new and recurring revenue so dedicating a lot of the new tax growth to this new initiative it’s really just about tradeoffs,” Spears said. “It’s just a question of do they want to find the money and do they want to forgo other priorities in order to continue expanding this program.”
Lottery proceeds used for college scholarships are presenting challenges as funding has flattened. Also, some scholarships increased, and more dual enrollment grants were added.
“I guess you would call this a structural deficit of the revenues just being out of line with expenses,” Spears said.
Lawmakers backed using taxes from sports betting to supplement the lottery until last year, when Lee proposed moving the dollars to fund K-12 construction costs. The proposal was amended to retain the excess funds for lottery scholarships and to use any other excess funding for school construction.
The budget allows for continued use of sports betting taxes to close gaps in lottery proceeds but “assumes other actions are taken to manage scholarship costs in future years,” according to the analysis. Some action will be taken but it won’t happen in this budget but legislative or administrative action will be needed in the future, Spears said.
The General Assembly is hearing from departments about their budget during committee meetings this week.
