From TCSA

Adjournment Expected in Three Weeks

Although the General Assembly had initially hoped to adjourn prior to Easter, it looks like this session will have three more weeks. House and Senate leaders expect to use next week to work through certain thorny legislative issues before hopefully passing the appropriations act sometime around the 16th or 17th of April. Then the General Assembly would return the week following Easter to take up bills placed behind the budget and clean up any remaining matters. That week also marks the start of the trial of former House Speaker Glen Casada. Many legislators and staffers have been subpoenaed as potential witnesses in that trial, which begins April 22nd. However, it is likely to take at least a couple of days to select a jury and hear opening statements before either the prosecution or defense begin calling witnesses.

Real Estate Transfer Tax

One item not included in the Governor’s budget, which county associations hope will be considered by the legislature, is the proposal to return a portion of the real estate transfer tax to counties. SB1080/HB649 proposes to shift 50% of the revenue generated by the tax from the state budget to counties. While collections fluctuate from year to year, the fiscal note estimates that this would be a reduction of around $141 million in recurring state revenue that is not currently accounted for in the Governor’s budget. To make it easier for the state to absorb this impact, there have been discussions around phasing in the change, adding provisions to the legislation to ensure that the change is not implemented if the state fails to hit revenue projections, funding a portion of the shift on a non-recurring basis or even postponing implementation for a year. The bill was approved unanimously by the Senate State and Local Government Committee this week and sent to the Finance Committee for further consideration. In the House, this bill was initially referred directly to the Finance Committee. It is on the calendar for the House Finance Subcommittee meeting next Wednesday. 

The Governor’s supplemental budget amendment proposed expenditures for virtually every available state dollar, and state revenue collections have been running at or below budget estimates. So unless the legislature wants to cut or eliminate items from the Governor’s budget, there isn’t currently enough available revenue to fund any significant shift of real estate transfer taxes to counties. However, there are some legislative proposals still to be decided that could generate substantial new revenue for the state. These include a bill (SB1413/HB1376) to regulate the manufacturing, supplying, wholesale distribution, and retail sale of hemp-derived cannabinoid products by the state. This proposal includes new taxes on such products. There are significant differences between the House and Senate versions of the bill. Under some amendments, the House version could generate in excess of $100 million in new revenue for Tennessee. County associations hold out hope that if some proposal passes to generate additional revenue for the state, it is still possible that a portion of those funds could be used to pay for sending a part of the transfer tax to county governments.

Committees Working Through Final Calendars

The House State and Local Committee had nearly 100 bills to consider on its calendar this week as it works through all the proposals sent to it from its four subcommittees. On Wednesday, it disposed of a significant number of the bills and sent many private acts and non-controversial items to a consent calendar. By doing so, it cut its remaining workload in half. In the Senate, the State and Local Committee was on its “Final Calendar” this week. 

That list included 72 bills. It worked through all but one of those bills (see below) and then closed, subject to the call of the chair. Bills resolved this week in the Senate State and Local Government Committee include the following:

• SB1080 to share a portion of the real estate transfer tax with counties, which passed 8-0.
• SB731—which would have prohibited local governments from requiring developers to make any concessions on a proposed development unless they were “essential” to the project—failed in committee.
• SB782, which provided relief to additional property owners in East Tennessee affected by Hurricane Helene, passed through the Committee.
• SB212, which, as initially filed, required local governments to post agendas in advance of the meetings of any and all “governing bodies.” This term is broadly defined in Tennessee law and would have included every committee and advisory board meeting, as well as meetings of non-profits that receive government funding. As amended, the bill adds school boards, planning commissions, boards of zoning appeals, election commissions, budget committees, industrial development boards, housing authorities, and public utility boards to the requirement and leaves out the rest. This bill passed as amended.
• SB624, which prohibited holding two offices, was taken off notice for the year.
• SB629 related to hotel/motel taxes. The bill proposed some changes to uses of the funds, added additional reporting requirements on local governments and would set a maximum cap of 8% on local occupancy taxes. Local government associations were able to negotiate improvements to the definitions, a limit on what were extensive reporting requirements and preserve the rate and uses of any taxes adopted prior to May 1, 2025. The 8% combined cap remained in the bill, but only applies to new taxes enacted after May 1st. The bill was approved by the committee with this amendment.
• SB771 which changed rules on property tax appeals was postponed to 2026. 
• SB136 which authorized local governments to allow limited electronic participation in meetings by their members due circumstances like illness, family emergencies or military service. This bill was approved. 

Attorney General Investigation of Local Governments

The one bill that the Senate State and Local Government Committee will re-open to consider on Wednesday is SB 845/HB1097. The bill is carried by Senator Lowe and House Speaker Cameron Sexton. It creates a process whereby legislators could ask the Attorney General to investigate allegations that local governments have acted illegally or in violation of the constitution. If, after an investigation, the Attorney General determines that the local government has violated the law, he informs the commissioner of Finance to withhold state funding to the local government until the matter is corrected. There is a process to appeal the determination to a three judge panel. In the House this week, the bill was approved 15-4 by the Judiciary Committee and referred to State and Local, which will hear it on Wednesday of next week. In the Senate, the bill had less luck. After questions were raised about separation of powers issues, the bill did not pass out of committee. It received 4 yes votes, 2 no votes and 2 members passed. The 9th member of the committee was out of the room at the time. Since the bill did not receive 5 votes to pass or fail the bill, it remained in the committee when it closed this week. On Thursday, it was announced that the committee would re-open next week to consider this one bill again.

Education Issues

This week, HB348/SB614 was recommended by the full House Education Committee and sent to the Finance Committee. As amended, the bill provides that if revenue collections for a county fail to meet the maintenance of effort for the school system, the county cannot increase funding for other offices with a maintenance of effort requirement (mayor, highway, sheriff and election commission) until it restores the shortfall in the education budget. The bill was approved by the Senate Education Committee last week and sent to Finance. It will be heard next week by the House Finance Subcommittee and the Senate Finance Committee next week. It has a significant fiscal note and county associations hope this will cause the bill to be put “behind the budget.”
 

The School District Capital Improvements Capital Trust Act (HB224/SB593) was expected to be taken off notice in the House this week after the Senate sponsor had previously done so. The committee took no action on the bill, but with the Senate Education Committee closed, the bill is not expected to progress this year. The bill would allow a school system to create a trust for capital improvements and transfer reserve funds to the trust, locking down the use of the funds to capital improvements outlined in the school system’s capital improvement plan. Counties have raised objections to allowing the school board to transfer these reserve funds without them being appropriated by the county commission.

Revenue Proposals 

HB 695/SB889 by Rep. Baum and Senator Reeves is a proposal to raise the cap on mineral severance tax by $0.15 over a ten-year period. The bill passed on the House floor in March. In the Senate, the bill was approved by the Senate Finance Committee and is headed for a floor vote. The current cap is $0.15, so the bill effectively allows counties to double the maximum tax rate. It would take a vote of the county commission to increase their current mineral severance tax to the new cap limits. This bill is a negotiated proposal supported by TCHOA, road builders, and members of the aggregate industry.

HB1329/SB1315 is a bill brought by Governor Lee’s administration to reduce the fee charged by the Department of Revenue for collecting and remitting various taxes to local governments. This concept has been supported for several years by TCSA, specifically regarding the administrative fee on the local option sales tax. Since the cost of this reduction is included in the Governor’s proposed budget, the bill was able to proceed to a floor vote. It passed the House last week. The bill has been approved by the Senate State and Local Government Committee and is scheduled for a hearing in the Senate Finance Committee next week.  SJR48, which ratifies a recommended rate increase in 911 fees from $1.50 to $1.86, was approved by the Senate Finance Committee on a narrow vote and is awaiting a floor vote. This increase would bring Tennessee’s rate in line with some other surrounding states, and it helps provide sustainable funding for emergency communications operations. Local governments generally supplement the cost of operations for these call centers with local tax revenue, so it is essential for 911 fees to keep pace with costs to keep pressure off local budgets.

Miscellaneous Items

SB532/HB437 allows counties that have adopted the Sheriff’s Civil Service Act to repeal it by a ⅔ vote of the county legislative body. The bill has passed the Senate and was recommended by the House Finance Committee. It is on a consent calendar for next week.

HB125/SB1276 reduces the required local match on grants for local parks acquisition for distressed and at-risk counties. Currently, the law requires a 50% match. This bill reduces that to 25% of the cost. The bill has passed the full House and is awaiting a hearing in the Senate Finance Committee. SB160/HB83 has been amended to call for TACIR to study the issue of ambulance reimbursement and costs. As originally introduced, the bill required municipalities that did not provide EMS to share in the cost of services with the county. As amended, the bill passed on the Senate floor. In the House, the bill was approved by the State and Local Committee and awaits consideration of the Finance Subcommittee.