Tennessee State Budget Primer

Tennessee’s budget is one of the most significant pieces of public policy our governor and General Assembly tackle each year. Yet understanding what’s in the budget, why it matters, and how it works can be a challenge.

The Sycamore Institute’s Tennessee State Budget Primer explains what you need to know to navigate/understand state government and advocate for public policies you support. It unpacks the process, breaks down the numbers, and explores historical trends using simple language and charts.

With this second edition, our Budget Primer is now more informative than ever. We have revisited every detail to make it even easier to find and digest the information you need.

Ultimately, we hope this information fosters thoughtful planning and informed stakeholder engagement around the budget in ways that advance Tennesseans’ health and prosperity.

You will find select graphics and highlights from the Tennessee Budget Primer below. To explore historical budget data and trends going back to 1995, use our Budget Data Explorer.


Tennessee Budget Primer 2nd Edition Infographic


Tennessee Budget Primer Highlights

The governor’s FY 2019 recommended Budget totaled $37.5 billion. Three-quarters (75%) went toward health and social services (46%) and education (29%). The money came primarily from the state’s own taxes and reserves (47%) and federal funding (37%).

Process

  • Fiscal Year: The state’s fiscal year (FY) begins July 1 and ends June 30.
  • Starting Point: Early each year, the governor sends the legislature a recommended Budget that builds off the prior year’s recurring base budget. The governor’s recommendation is the starting point for the legislature’s work.
  • Balanced Budget Requirement: Tennessee’s constitution requires the budget to balance. This means in any given fiscal year, spending cannot exceed revenue collections plus reserves.
  • Dynamic: To meet this requirement, the budget is often dynamic. As revenue collection estimates change throughout both the planning and spending phases, the budget also changes.
  • Budget Management: The executive branch has flexibility to manage the budget and reduce spending to keep it balanced during the fiscal year.

Tennessee's Budget Cycle


Expenditures

  • Overall Spending Levels: Tennessee’s per capita state spending was the 12th lowest in the country in FY 2017 when accounting for all revenue sources. Its per capita spending from state revenue sources was the 6th lowest.
  • State Revenue Spending: Funding for education, law, safety, and corrections programs and activities largely comes from state revenues. Education accounts for 40% of all state dollars in the budget, followed by health and social services at 27%.
  • Federal Revenue Spending: Federal dollars fund the lion’s share of health, social services, transportation, and economic development programs and activities. Health and social services account for 78% of all federal dollars in the state budget.

How Tennessee Spends State and Federal Revenues - FY 2019 Recommended Budget


Revenues

  • Overall Tax Load: Tennesseans have a relatively low state tax load. At about $2,400 per Tennessean, the state tax load was the 8th lowest in the country in FY 2016.
  • Sales Tax: The sales tax is Tennessee’s largest source (54%) of state tax revenue. The state and local rate in most counties is 9.75%, while the average rate is about 9.5%. Tennessee has the 2nd highest average state and local sales tax rate in the U.S.
  • Online Sales Tax: With online shopping on the rise, Tennessee collects sales tax on a smaller share of consumer spending than in the past. A 2018 U.S. Supreme Court ruling lets states change their tax laws to include more online sales.
  • Income Tax: Tennessee is one of 9 states with little or no individual income tax. The state’s only income tax — the Hall Income Tax on investment income — will phase out by 2021 under current law, and the state constitution prohibits any new state earned income taxes.
  • Federal Reliance: Tennessee’s budget relies more on federal dollars than all but four other states.
  • Strings Attached: Most of the money in the state budget has strings attached — such as programmatic and/or matching requirements for federal dollars, state revenues earmarked for specific purposes, or funding required by lawsuits against the state.
  • Discretionary Base: Only 19% of total FY 2018 General Fund spending was considered “discretionary.” The General Fund is about 90% of the total budget.

State Tax Collections by Revenue Stream - FY 2019 Recommended Budget


Rainy Day Savings & Long-Term Planning

  • Recession Readiness: Tennessee could fully fund current state government operations for around 26 days with rainy day and TennCare reserves alone. That’s about 40% less cushion than we had going into the Great Recession.
  • Next Recession: Tennessee’s 50th governor and the General Assembly are likely to face a recession at some point in the coming years.
  • Rainy Day Best Practices: Tennessee follows most of the 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.
  • Long-Term Planning: Tennessee does not publish long-term estimates of revenue collections and potential spending needs. These tools can help states plan for the future, invest and save adequately, and identify any structural problems.

Tennessee's Rainy Day Reserves 2006-2019


Notes About our Methods

The full Tennessee State Budget Primer includes explanations of general methods and data sources. These additional notes provide a more detailed explanation of specific categories and analyses used in the Primer – particularly where they may differ from the Budget document.