Tennessee State Budget Primer

It is our pleasure to present to you The Sycamore Institute’s first Tennessee State Budget Primer. We hope this report – the information, the graphics, and the discussion – will demonstrate our commitment to putting reliable data and research in the hands of our state leaders, policymakers, and the general public. Below you will find a link to read and download the full report, a summary of the analysis, downloads of all the images and graphs, and an online-only glossary of terms.

SUMMARY

Tennessee State Budget Primer - Summary Infographic

Tennessee’s Budget is a financial representation of the common goals we want to achieve for our state, the public goods and services that we all need to help us meet those goals, and how we raise the money to pay for them. The purpose of the Budget Primer is to shed light on the dynamic processes that are used to create and guide Tennessee’s Budget, to provide a picture of where we are and where we’ve been, and to illuminate the difficult trade-offs policymakers face in making budget decisions. The ultimate goal is for the state’s budget decisions to support the health and well-being of Tennesseans through thoughtful planning and informed stakeholder engagement.

HIGHLIGHTS

Of the Governor’s $34.8 billion FY 2016-2017 recommended Budget, over three-quarters (76%) is spent on health and social services and education (46% and 30%, respectively). The money to fund the Budget’s activities comes primarily from the state’s own taxes (44%) and federal funding (38%).

PROCESS

    • The state’s fiscal year (FY) spans July 1 to June 30.
    • The state constitution requires that the Budget be balanced (i.e. spending can’t exceed revenue collections and reserves in any given fiscal year). In order to meet this requirement, the Budget is often dynamic – changing throughout both the planning and actual spending phases as estimates of revenue collections change.
    • The starting point for the Governor’s Budget recommendation to the Legislature each year is the prior year’s recurring base budget. The Governor’s recommendation is the starting point for the Legislature’s work.
    • In order to respond to unexpected needs throughout the year, the Legislature gives the Executive Branch flexibility to manage the Budget and to spend less to keep the Budget balanced. Because of this, the “actual” numbers shown in the Budget for the prior year do not always lend themselves to direct comparisons with the other two years.

EXPENDITURES

    • While the overall Budget is dominated by health and social services, only 27% of the state’s own dollars are spent on this purpose. The biggest chunk of state dollars (40%) is spent on education.
    • Federal dollars are overwhelmingly spent on health and social services (77% of all federal dollars in the state Budget).
    • Health, social services, transportation, and economic development programs and activities are predominantly funded by federal dollars, while education, law, safety, and corrections programs and activities are largely funded by the state’s own dollars.

REVENUES

    • The sales tax is Tennessee’s largest source of state tax dollars (55%). The state and local rate in most counties is 9.75%, while the average state and local rate is about 9.5%. This is the highest average rate in the nation.
    • Tennessee is one of nine states with little or no individual income tax. The state’s only income tax – the Hall Income Tax, a tax on investment income – was put on a path to elimination by 2022 in the 2016 legislative session, and the state constitution bars any new state earned income taxes.
    • Although the state Budget’s reliance on federal funds is less today than it was during the most recent recession – the most severe since the Great Depression – Tennessee relies more on federal dollars than all but three states.
    • Much of the state Budget has strings attached – including programmatic and/or state matching fund requirements that come with federal dollars, earmarked purposes for many state taxes, or funding requirements that result from lawsuits against the state.

RAINY DAY SAVINGS & SURPLUSES

    • Tennessee could fully cover state government operations at current Budget funding levels for around 23 days solely with rainy day and TennCare reserves. This amount is less than what was on hand going into the Great Recession, and some believe another recession could be around the corner.
    • At the end of FY 2014-2015, rainy day savings and TennCare reserves totaled $759 million, while unspent appropriations and overcollection of taxes totaled $873 million, which included $479 million reserved for FY 2015-2016 and $394 million in surplus.

NOTABLE STRENGTHS

  • Responsible Saving: Tennessee follows most best practices when it comes to saving for a rainy day – including having a defined purpose in law, setting a target balance, and having rules for replenishment.
  • Tennesseans’ Tax LOAD: Tennesseans enjoy a low state tax load. At about $2,200 per Tennessean, the state tax load is the 3rd lowest in the country.

POTENTIAL AREAS FOR IMPROVEMENT

  • Tools for Long-Term Planning: Tennessee does not publish long-term estimates of revenue collections and potential spending needs, tools that can help states plan for the future, invest and save adequately, and identify any structural problems.
  • Sales Tax Modernization: Over the last two decades, people have changed how and on what they spend their money – shifting from physical stores to online merchants and from goods to services. Like many states, Tennessee’s sales tax hasn’t always evolved with these changes and, as a result, is expected to capture fewer and fewer purchases over the coming years.
  • Timely Funding Information: While one fiscal year ends in June and the Budget for the next year is usually passed by the Legislature in April, reliable estimates of actual expenditures and mid-year estimated Budgets for programs usually aren’t publicly available until the next January when the Governor’s recommended Budget is released.
READ AND DOWNLOAD THE FULL REPORT
ONLINE APPENDICES

Click below for a glossary of key budget terms and concepts used throughout the Budget Primer and notes about our methodology.