Tennessee is using the last of its investment income from federal COVID stimulus money to balance its budget this year, leading some lawmakers to issue warnings about the governor’s spending strategy.
Gov. Bill Lee’s supplemental budget plan for next year depends on $200 million the state set aside to spend during the COVID-19 pandemic but never did. Those funds accompany an additional $500 million that’s already part of the governor’s $59.6 billion budget proposal, which lawmakers must approve before adjourning this spring.
This budget maneuver has allowed Lee for several years to spend hundreds of millions of dollars more than would normally be available. Investment earnings usually come in around $5 million. But the federal stimulus funds are nearly depleted.
“We tried to make the point … don’t get too comfortable with this money because it’s way above what we would customarily get,” said Republican Sen. Bo Watson of North Chattanooga, chairman of the finance committee.
The governor’s extra spending is shrinking year after year, as Lee’s $345 million supplemental budget plan for fiscal 2025-26 marks a sharp reduction from a year ago when it hit $656 million.
Tennessee budget officials predicted that the state’s budget would not grow this year, and according to the Finance and Administration commissioner, state revenue is on track to come in as projected. Officials estimated 2% growth for next year.
The state budget took a hit last year when the legislature approved a franchise and excise tax cut and refund for businesses that’s expected to cost some $1.4 billion up front and an additional $400 million per year.
“I think the state’s got long-term problems down the road because we cut revenue sources and we’re not dealing with outstanding big-ticket needs like road funding and education funding,” Democratic Sen. Jeff Yarbro of Nashville said Tuesday after hearing the governor’s budget update.
During Lee’s tenure, Tennessee’s budget has soared from a combination of the state’s growing economy, access to online sales tax revenue and federal pandemic funds.
Next year, the governor wants to take the unusual step of borrowing heavily to build roads before costs increase, according to Finance and Administration Commissioner Jim Bryson.
What is Lee proposing in his supplemental budget?
In addition to Treasury investment earnings, the supplemental budget moves $23.6 million of the money set aside for Lee’s private-school voucher program to provide money to a variety of nonprofit groups and favored projects.
Nearly $14.5 million in the budget plan released Tuesday is earmarked to offset school district losses related to the private-school voucher program, and $20 million goes toward charter school facilities.
Another $5.5 million will be used to pay for the Department of Safety and Homeland Security’s immigration enforcement bureau, which was enacted during this year’s special session to complement federal crackdowns on immigrants without permanent legal status.
More than $20.6 million from TennCare’s shared savings account with the federal government will be used to reimburse hospitals for treatment of indigent patients.
Another $28 million from shared savings is set to go to nursing homes that provide care for needy people. The state has accumulated nearly $1 billion in that TennCare account designed to serve low-income residents.
The governor’s plan continues to provide money to the Men of Valor, a prison ministry that Lee participated in, and a host of nonprofit groups the governor favors.
For instance, $1 million is targeted for the Church of Christ of God in Memphis, but Bryson couldn’t explain why the church is to receive the money.
Yarbro said lawmakers need a “clearer statement” on the benefit of funding the litany of organizations statewide.
“There are more nonprofits that are being supported by this governor just because of what seem to be relationships,” Yarbro said.
Watson called it “a lot of nickel and dime stuff” and said the administration will explain it “on the back end.”
Other spending items
In addition, Lee is backing $10 million for the state’s artificial intelligence initiative and $3 million for an audit of Memphis-Shelby County Schools.
Some of the AI money will go toward the state’s initial investments in artificial intelligence to improve services, Watson said, but he added that some of the funds will go toward technology.
Another $12 million targets an Economic and Community Development FastTrack Project in Sumner County, which involves a water line from Portland to Westmoreland.
The city of Chattanooga would receive $15 million for a waterfront project. The Andrew Jackson Foundation would land a $6.2 million grant, and $5 million would go toward the Tennessee Sports Hall of Fame.
Youth Villages Memphis Allies would receive $10 million. The state’s court system indigent representation program would receive $17 million.
Lee’s plan deposits $25 million into a response and recovery fund, and $10 million would go toward relocating the Unicoi County Hospital that was severely damaged by Hurricane Helene last fall.
The governor’s plan puts $3 million toward a summer food program for children, even though the state opted against renewing federal funds to feed kids. Yarbro called that idea “bad budgeting and bad morality.”
