(The Center Square) – Tennessee’s $58 billion budget for fiscal year 2027 includes an increase in starting teacher pay to $50,000 and $112 million for 35,000 school choice scholarships.
The budget includes $30 billion in state general funds and dedicated state appropriations and $19 billion of federal funding, said Senate Majority Leader Jack Johnson, R-Franklin, who made the presentation in the Senate. The rest of the budget is from fees, tuitions and bonds.
The budget is 9% below the fiscal year 2026 budget, said Rep. Gary Hicks, chairman of the House Finance, Ways and Means Committee, who presented it to the House.
“This is primarily due to a decline in federal funds, specifically COVID-related dollars, but also slowing growth and state tax revenue from what it was in recent years,” Hicks said. “The budget recognizes an estimated growth of about 2.35% in state revenue, which equates to about $450 million in recurring revenue and funding, which is programmed and spent.”
The largest allocations include $400 million for new and existing transportation projects and $339 million in public education funding, including the increase in starting teacher pay.
An amendment approved by lawmakers includes the sunset of the state’s TennCare Diaper Benefit on Jun 30, 2027, which provided 100 free diapers a month to TennCare and CoverKids members ages 2 and under. Second-term Republican Gov. Bill Lee introduced the program with bipartisan support in 2023, and it began in August 2024.
The ending of the diaper programs is part of $137 million from the general fund for what is known as the hospital buyback program, which funds uncompensated care.
Money for the hospital buyback program was taken from the TennCare Shared Savings program last year. Lawmakers used $205 million from the Shared Savings fund for healthcare initiatives, including Rural Health Transformation Resiliency Grants, and $230 million to TennCare to cover medical inflation costs.
Tennessee is the only state that has a shared savings program.
According to an explanation on the state’s website, “Tennessee administers its Medicaid program (TennCare) under a specified spending cap (referred to as a budget neutrality cap), which considers historical state spending, inflation and future enrollment changes. If the state can operate successfully at a lower cost than the budget neutrality cap and maintain or improve quality, the state then shares in the savings that traditionally have gone to the federal government to enhance the TennCare program and improve the health of TennCare members and Tennessee communities.”
Sen. Bo Watson, R-Hixson, said the General Assembly remains committed to health care.
“This budget makes significant investments in healthcare and hospitals, ensuring providers have the resources to serve patients and strengthen care across our state,” Watson said. “We remain committed to improving healthcare in Tennessee and finding innovative ways to support it.”
House and Senate Democrats introduced an amendment to remove $887,000 in funding for a new subterranean transportation infrastructure coordination authority that will oversee an underground tunnel from the Nashville airport to downtown. The amendment failed.
Democrats voted against the bill, saying it did not do enough to address affordability issues affecting Tennesseans.
“I mean we are literally taking diapers away from babies by ending the diaper program we just approved like two years ago,” said Sen. Charlane Oliver, D-Nashville. “We were the first in the nation to proudly give free diapers to TennCare mothers and now we are about to take them and snatch them out of the mouths of babes.”
Republicans acknowledged that the budget is conservative. The budget includes $20 million for the state’s rainy day fund.
“By balancing responsible stewardship with targeted investments, we are continuing to build a strong foundation for economic growth and opportunity in every corner of our state,” Johnson said.
The budget bill goes to Lee for his approval.
