In early morning adjournment, the Tennessee legislature passes budget, completes business for the year

Natalie Allison
Nashville Tennessean

In a Capitol simultaneously serving as a staging area for National Guard members and state troopers deployed for protesters, the 111th Tennessee General Assembly adjourned early Friday morning, striking a budget deal that involved restricting abortion access and eliminating the state's tax on investment interest.

Lawmakers completed their business just after 3 a.m., the type of marathon, through-the-night session the legislature had not experienced in many years.

The sine die adjournment was the end of a two-year session that was particularly tumultuous in the House of Representatives, which voted in Speaker Cameron Sexton, R-Crossville, last summer amid scandal that led to the ouster of former Speaker Glen Casada, R-Franklin.

The final three weeks of session were marked with tense discussions, emotional eruptions, tears and attempts to find common ground on issues of race as round-the-clock protesters eventually set up outside the Capitol, at times bringing the demonstrations into the building until being removed by troopers.

The Tennessee House of Representatives in session in Nashville on June 2, 2020. The House and Senate completed their budget for the year and adjourned the General Assembly session in the early hours of Friday morning.

On Thursday night, a small group of abortion rights protesters who sneaked into the Senate gallery — which is closed to the public, unlike the House gallery — were taken out by the Tennessee Highway Patrol.

Speaking at the early-morning close of session, Sexton said there had been bumps along the way, both during the last few months and overall since the 111th General Assembly began in January 2019.

"At the end of the day, we as a body grew together as individuals to take what was going on in the world and outside these chambers, and at the end of the day we were able to move through it," Sexton said.

The legislature passed a $39.5 billion budget that cut $1 billion from plans Gov. Bill Lee had put forth in early February, when the state was expecting a sizable revenue surplus and before officials could have imagined the extent of the coronavirus pandemic's effect on the economy.

It was also the second budget passed by the General Assembly this year, the first in mid-March when the legislature hurriedly moved to recess for two months due to the threat of coronavirus.

State officials project a $500 million revenue shortfall in the current fiscal year and a loss of $1 billion in fiscal 2020-21.

Instead of large sales tax holiday, state will end tax on investment interest

Generally, the bare-bones budget does not fund new programs and other initiatives, including previously planned pay raises for teachers, most state employees and legislators.

But it does complete the elimination of the Hall income tax, a tax on interest on investments and dividends over $1,250 that the state has gradually phased out since 2016. The measure will cost roughly $50 million.

It was set to be eliminated in 2021, a commitment the Senate had honored in its proposed budget, despite the House removing it from their spending plan and proposing to delay the elimination until 2025.

The House also had to concede a significant portion of its budgeted $100 million for multiple sales tax holiday weekends, which was to expand on Tennessee's current $10 million allocated on a single tax-free weekend and also waive sales tax on cars over Labor Day.

Instead, the legislature approved adding $15 million for the two tax-free weekends — the final weekend of July and first weekend of August — bringing the total set aside for the event up to $25 million. The weekends will also now provide a sales tax break on restaurant food and drink.

The Senate had scoffed at the House's tax holiday proposal. Sen. Bo Watson, R-Hixson and chair of the finance committee, argued sales tax holidays are poor public policy and do not result in meaningful savings for consumers.

Some funding cut for Nashville, Memphis, though not as deep as House hoped

House budget officials had also wanted to drastically cut grants originally set to go to cities and counties across the state.

Of the $200 million the Lee administration had budgeted for cities and counties, the House wanted to reduce previously allotted funding — approved in the emergency budget passed in mid-March — for Nashville and Memphis.

The House proposed state funding for Metro Nashville be reduced from $14.8 million to $5 million; Memphis from $14.4 million to $5 million; and Shelby County from $7.8 million to $5 million.

House GOP leadership argued for it because those cities are now receiving federal coronavirus relief funding directly; however, that funding is restricted and cannot currently be used to offset lost revenues. The state funding does not have strings attached.

The Senate pushed back, in the end securing $10 million each for Metro Nashville and Memphis, as well as $5 million for Shelby County.

Sen. Brian Kelsey, R-Memphis, said city officials had told him Thursday morning that they would have a "hole" in their budget if they didn't receive the money previously promised to the city.

"We did not get all that we would like for these two," said Sen. Ferrell Haile, R-Gallatin, but noted it was still better than remaining at the House's cap of $5 million.

Most school voucher funding removed; coronavirus liability protection fails

While the Senate wanted to keep funding for the governor's education savings account program in the budget for next year, a cost of more than $25 million, the House had called for all of it to be removed while the initiative, which has been ruled unconstitutional, works its way through the court system.

Now just $250,000 in funding for school vouchers remains in the budget for next year, money that can be used to begin implementation of the program, if the courts allow it to move ahead.

The House also had to forfeit its plans to add eight new Tennessee Bureau of Investigation employees, as well as to eliminate $400,000 from the Human Rights Commission's budget in future years. The HRC funding will remain in place.

In budget negotiations, the Senate agreed to take up a wide-ranging abortion restriction bill Lee had first introduced in January, but one he later said would no longer be a priority this year as he focused on the COVID-19 response.

After a significant debate past 2 a.m., legislation seeking to put in sweeping liability protections against coronavirus lawsuits failed in the House when the two chambers couldn't agree on its terms. The Senate had adopted a version of the bill that would make the protection retroactive, something some members in the House argued was unconstitutional.

Among the other components of the new budget:

  • $50 million state employee buyout program, expected to eventually result in $65 million in savings.
  • $3.6 million in bonds for a $32.9 million STEM building at the University of Memphis.
  • $2.4 million in bonds for a $21.7 million TCAT Chattanooga building.
  • $400,000 to hire an outside firm to investigate billing on state employees' health insurance plans.
  • $174,000 to restore funding to the state's nine Development Districts, which promote economic development.
  • $25,000 to the Tennessee Historical Society for a women's suffrage project.
  • No pay raises for teachers, state employees and legislators.
  • Eliminates vacant state positions, saving $20 million.

The budget bill also gives Lee authority to access certain reserve funds as needed.

Reach Natalie Allison at nallison@tennessean.com. Follow her on Twitter at @natalie_allison.

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