Senator Joey Hensley, MD: Tennessee 28th District Capitol Hill Week in Review

Tennessee lawmakers returned to Capitol Hill on June 1st amid a wide range of devastating effects caused by the Novel Coronavirus, COVID-19. The General Assembly is working to wind up the 2020 legislative session which recessed March 19, with the most important task being passage of a balanced budget. On June 4th, Finance and Administration Commissioner Butch Eley outlined Governor Lee’s new spending plan for state government, reflecting significant revenue reductions due to the economic impact of the virus.

Governor 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 to make up for the shortfalls anticipated in the 2020-2021 fiscal year. In March, the administration and the General Assembly agreed on $397 million in recurring reductions at the onset of COVID-19. Lee is proposing an additional $284 million in cuts for FY 20-21, bringing the total to $681 million in reductions.

Departments and agencies of state government have been asked to identify potential cuts of up to 12 percent in their budgets. Budget officials will be reviewing those target reductions with each governmental entity, looking at efficiencies that can be made within the next three months. Eley said this would allow the administration to do a thoughtful review of business practices for greater efficiencies and creative delivery of vital services. He said it would also help them to develop strategic plans to reduce the employee workforce over the next two years.

Although all departments have been asked to list reduction targets, Eley said cuts will not be across the board in order to protect the state’s most important priorities. For example, the plan calls for fully funding the Basic Education Program (BEP) for the state’s K-12 schools. The administration also confirmed their commitment to fully funding contributions for pensions and health insurance to keep promises to state employees.

The administration is calling for some reductions in new capital projects and capital maintenance. In addition, they are proposing to strengthen Tennessee’s cash position by using bonds for some existing capital projects previously funded with cash. Finally, Eley said 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. Governor Lee has proposed a voluntary employee buy-out initiative to reduce the state workforce over the next two years. The details of that plan are still under review. 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 rainy day fund will reach $1.2 billion after an additional deposit of $325 million at the end of the fiscal year on June 30.

Tennessee’s economy feels effects of COVID-19- In addition to the loss of life and strain inflicted on the state’s health care system due to COVID-19, the response effort to curtail the deadly pandemic has resulted in a tumultuous economic environment in Tennessee. This includes unemployment claims which have climbed to shocking heights and revenues that have plummeted at record speed in an unprecedentedly short period of time.

During the week of June 1st, the Tennessee Department of Labor announced 314,135 unemployment claims were paid to Tennesseans with payments totaling $285.7 million. The latest unemployment figures illustrate the tough challenges ahead for Tennessee. Unemployment stands at 14.7 percent, which surpasses the previous all-time high figure of 12.9 percent in 1983. This comes after more than a year of historic low levels of unemployment in Tennessee. In January, the rate was only 3.3 percent.

State revenues have suffered huge losses due to COVID-19 effects on Tennessee businesses. In April state revenues fell by -41.88 percent. Until COVID-19, revenues had exceeded budgeted estimates every month, with January’s growth rate reaching almost 11 percent. These factors are among the reasons that four leading economists have projected revenue shortfalls for Tennessee ranging from $231 million to $700 million for the current fiscal year that will end on June 30th. Predicted losses for the upcoming 2020-2021 fiscal year were even grimmer, ranging between $582 million to $1.5 billion.

New Tennessee Business Relief Program will assist small businesses impacted by the COVID-19 Crisis- Lt. Governor Randy McNally joined Governor Bill Lee and House Speaker Cameron Sexton to announce a new relief program for Tennessee businesses affected by the COVID-19 pandemic. The Tennessee Business Relief Program will direct approximately $200 million in federal Coronavirus Relief Funds through the Tennessee Department of Revenue directly to small businesses that qualify. Roughly 28,000 Tennessee businesses are expected to qualify, with more than 73 percent of those businesses earning annual gross sales of $500,000 or less. The Tennessee Business Relief Program amounts awarded will be based on the annual gross sales of the business. The types of small businesses and other details about the program will be posted on the Department of Revenue’s website in the coming days.