Years of consistent, conservative budgeting will aid lawmakers facing declining revenue

Because of large amounts of ice and snow across the state last week, the legislature postponed our meetings, so we will be going full force on Capitol Hill this week.

During the first week of session, the Senate Finance, Ways and Means Committee, on which I sit, heard testimony from experts on the state’s budget and economy. Department of Finance and Administration Commissioner Jim Bryson laid out new budgeting challenges but reassured the committee that Tennessee is well-prepared to address those challenges. Bryson said that while the fundamentals of Tennessee’s economy are still good, revenue collections – which generate 54 percent of the state budget funds – are growing at a much slower pace for the first time in the last decade. While the slower growth is no surprise after years of record-high revenue, Bryson cautioned lawmakers that it means they will have to be more disciplined when crafting this year’s budget.

For almost a decade Tennessee’s record economic growth led to years of higher-than-expected revenue collections for the state. However, revenue collections for the current Fiscal Year 2023-2024 continue to come in below budgeted estimates. As a result, the Fiscal Year 2024-2025 budget could potentially have to make up for an estimated $718 million budget shortfall resulting from the disparity in actual versus expected revenue collections in Fiscal Year 22-23 and Fiscal Year 22-24.

Simplifying the franchise tax is on the 2024 agenda

Lawmakers this year are also preparing to simplify the state’s franchise tax, which is a business tax on net worth. This adjustment will offer tax relief to businesses, modernize the way the tax is calculated and manage newly discovered legal risks. Deputy Commissioner of the Tennessee Department of Revenue David Gerregano told our Senate Finance Committee that the Tennessee Attorney General has identified significant legal risks with the way the property measure aspect of the state’s franchise tax is calculated.

The current property measure of the franchise tax is an alternative minimum tax on property used in Tennessee. Gerregano said the property measure disincentivizes investment in the state and has recently created additional legal challenges. In response, Governor Lee is proposing legislation to change Tennessee’s franchise tax to remove the property measure and authorize the Department of Revenue to issue refunds to taxpayers who have paid the franchise tax based on property located in the state.

Tennessee’s economy remains strong

Despite lower than expected revenue collections and record-high inflation, Tennessee’s economy continues to outperform the national average. In 2022 Tennessee was the 2nd fastest growing state in terms of real GDP, with a real GDP growth rate of 4.3% compared with a national average of 2.1%.

Overall, the state remains in a strong financial position. Tennessee has a proud tradition of being a well-managed, fiscally conservative state with the lowest possible tax burden to residents, and that will certainly continue. The AAA-ranked Volunteer State is among the least indebted states in the nation and leads the nation for fiscal stability and low taxes.

To ensure the state’s financial stability is maintained in an economic downturn, lawmakers have continued to build Tennessee’s Rainy Day Fund, which serves as the state’s savings account. In 2023 the legislature invested $250 million into the Rainy Day Fund, bringing it to over $2 billion, the highest level in state history.

It is a privilege and an honor to serve as your state senator. If I can ever be of assistance to you please reach out to me at 615-741-3100 or [email protected].

Contact Senator Hensley at

425 5th Avenue North, Suite 746

Nashville TN 37243

615-741-3100

Toll Free 1-800-449-8366

ext. 13100

Fax 615-253-0231

855 Summertown Highway

Hohenwald TN 38462

Phone 931-796-2018

Cell Phone 931-212-8823

E-mail:

[email protected] of large amounts of ice and snow across the state last week, the legislature postponed our meetings, so we will be going full force on Capitol Hill this week.

During the first week of session, the Senate Finance, Ways and Means Committee, on which I sit, heard testimony from experts on the state’s budget and economy. Department of Finance and Administration Commissioner Jim Bryson laid out new budgeting challenges but reassured the committee that Tennessee is well-prepared to address those challenges. Bryson said that while the fundamentals of Tennessee’s economy are still good, revenue collections – which generate 54 percent of the state budget funds – are growing at a much slower pace for the first time in the last decade. While the slower growth is no surprise after years of record-high revenue, Bryson cautioned lawmakers that it means they will have to be more disciplined when crafting this year’s budget.

For almost a decade Tennessee’s record economic growth led to years of higher-than-expected revenue collections for the state. However, revenue collections for the current Fiscal Year 2023-2024 continue to come in below budgeted estimates. As a result, the Fiscal Year 2024-2025 budget could potentially have to make up for an estimated $718 million budget shortfall resulting from the disparity in actual versus expected revenue collections in Fiscal Year 22-23 and Fiscal Year 22-24.

Simplifying the franchise tax is on the 2024 agenda

Lawmakers this year are also preparing to simplify the state’s franchise tax, which is a business tax on net worth. This adjustment will offer tax relief to businesses, modernize the way the tax is calculated and manage newly discovered legal risks. Deputy Commissioner of the Tennessee Department of Revenue David Gerregano told our Senate Finance Committee that the Tennessee Attorney General has identified significant legal risks with the way the property measure aspect of the state’s franchise tax is calculated.

The current property measure of the franchise tax is an alternative minimum tax on property used in Tennessee. Gerregano said the property measure disincentivizes investment in the state and has recently created additional legal challenges. In response, Governor Lee is proposing legislation to change Tennessee’s franchise tax to remove the property measure and authorize the Department of Revenue to issue refunds to taxpayers who have paid the franchise tax based on property located in the state.

Tennessee’s economy remains strong

Despite lower than expected revenue collections and record-high inflation, Tennessee’s economy continues to outperform the national average. In 2022 Tennessee was the 2nd fastest growing state in terms of real GDP, with a real GDP growth rate of 4.3% compared with a national average of 2.1%.

Overall, the state remains in a strong financial position. Tennessee has a proud tradition of being a well-managed, fiscally conservative state with the lowest possible tax burden to residents, and that will certainly continue. The AAA-ranked Volunteer State is among the least indebted states in the nation and leads the nation for fiscal stability and low taxes.

To ensure the state’s financial stability is maintained in an economic downturn, lawmakers have continued to build Tennessee’s Rainy Day Fund, which serves as the state’s savings account. In 2023 the legislature invested $250 million into the Rainy Day Fund, bringing it to over $2 billion, the highest level in state history.

It is a privilege and an honor to serve as your state senator. If I can ever be of assistance to you please reach out to me at 615-741-3100 or [email protected].

Contact Senator Hensley at

425 5th Avenue North, Suite 746

Nashville TN 37243

615-741-3100

Toll Free 1-800-449-8366

ext. 13100

Fax 615-253-0231

855 Summertown Highway

Hohenwald TN 38462

Phone 931-796-2018

Cell Phone 931-212-8823

E-mail:

[email protected]