(The Center Square) – After several years of rapidly increasing spending and tax collections, Tennessee Gov. Bill Lee has proposed a budget that would spend nearly $10 billion less next year.
That includes $52.6 billion in spending with $25.4 billion from the state and $19.8 billion from federal funds.
A new analysis from non-profit policy analyst Sycamore Institute shows the largest recurring budgetary increases come from state personnel-related costs, school funding formula growth, subsidies for private school students and inflationary increases.
The balanced budget proposal benefits from $2.6 billion that was spent on one-time expenses last year that will now be spent on recurring expenses along with $1.5 billion in surplus from last fiscal year, Sycamore wrote.
“In addition to $507 million in FY 2023 unbudgeted earnings from the Treasurers’ investment of state funds, state agencies reverted about $1.5 billion in unspent money to the General Fund — or $1.2 billion more than expected,” Sycamore said. “Over half of the savings came from TennCare, where the availability of more federal dollars under a COVID-19-related enhanced match rate freed up $633 million in state funds.”
Tennessee is currently $378 million short of its budgeted estimates for tax collections through six months of this fiscal year and has adjusted its estimates down $718.8 million from original estimates to flat year-over-year while estimatin next year’s collections to be a 0.5% increase from this year.
During a special session on public safety last fall, Senate Finance Chair Bo Watson said he was OK with approving funding for several bills because he expected another large return of budgeted funds from TennCare this fiscal year.
But Watson has also made it clear, like Lee’s proposed budget shows, spending will be lowered next fiscal year and moving forward based on revenue estimates slowing.
A significant part of the budget is a $1.2 billion one-time fund to pay for refunds due to changes in the state’s corporate tax structure. Lee’s Administration has said the refunds are to help avoid lawsuits related to corporate taxes, which Sycamore said have led some companies operating in multiple states to pay a higher effective tax rate than a company that only operates in Tennessee, which could discourage companies from expanding into the state.
“Without the context of an actual lawsuit, how a court would rule and the exact details of any potential Constitutional violation remain uncertain,” Sycamore wrote. “As a result, it is hard to determine the extent to which Gov. Lee’s proposal rectifies a real and significant liability or simply provides a straightforward tax cut.”
The state has declined to name the 80 companies that would receive refunds, The Tennessean reported.
