Legislature Plans to Pass the State Budget Next Week

Virtually all committees of the General Assembly, other than the Finance Committees, have now concluded their business or have only a handful of bills left to consider. There are multiple meetings of the Finance Committees and their subcommittees scheduled for both the House and Senate. The appropriations bills – large pieces of legislation that will accommodate the schedules and details of the state budget – are on notice in both chambers. Leadership will likely be meeting over the weekend to continue negotiations over the final details of the legislature’s version of the budget. The target is to pass the budget by Wednesday or Thursday of next week and adjourn for the long Easter weekend. Then the General Assembly would return the following week to take up bills placed behind the budget and clean up any remaining matters before adjourning sine die. House Majority Leader William Lamberth announced on the floor Thursday that members should expect to see the “flow motion” introduced on Monday. This is a procedural step taken at the end of most sessions to waive rules around notice and timing to allow bills to move immediately from one committee to another and to a floor vote within the same day.

Real Estate Transfer Tax

County associations have been in discussions over possible amendments to the real estate transfer tax proposal (SB1080/HB649) supported by TCSA and its affiliates in hopes of still passing it this year. The funding to send a portion of this revenue source back to the counties where it is collected was not included in the Governor’s budget. There was a possibility of some significant new revenue coming to the state from legislation (SB1413/HB1376) that taxes hemp-derived products, but as of this week, it appears both chambers are now focusing on a more limited version of that bill, which is not expected to produce significant revenue. 

An amendment filed by the sponsors of the real estate transfer tax proposal would still eventually shift 50% of the revenue generated by the tax to counties, but would phase it in over time. The amendment would enact the change this year, then the first allocation to counties would be 25% of the tax for Fiscal Year 26-27, with a jump to 50% in the following year. This would eliminate any impact on the upcoming budget. Legislative leaders also requested a so-called “circuit breaker” to protect the state in the event of declining revenues. Under this provision, the phase-in of the shift in funds to counties would be delayed if the state’s overall revenues failed to meet estimates for the first 8 months of the previous fiscal year. Once state revenues rebounded, the change would move forward the next year. Once implemented, the allocation would remain in place regardless of revenue collections.
 

While revenues from the transfer tax fluctuate from year to year, the fiscal note estimates that a 50% share would be around $141 million. The bill is on the calendar for the House Finance Subcommittee next Monday, and it has been referred to Senate Finance. However, with Finance Committee meetings occurring all week, it is unknown which day the bill might be heard.

Attorney General Investigation of Local Governments

The Senate State and Local Government Committee re-opened on Wednesday to reconsider SB 845/HB1097. The bill is sponsored 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, the state could withhold funding to the local government until the matter is corrected. In the Senate committee last week, the bill failed to pass. After questions were raised about separation of powers issues, the bill received 4 yes votes, 2 no votes and 2 members passed. An amendment was added this week to add an additional step in the process. Instead of the Attorney General directing the Department of Finance to withhold funding, he would have to bring an action for a declaratory judgment. If a three judge panel agreed with the findings, the court would then direct the state to withhold funds. With this additional step added into the process, the bill passed the committee with five votes.  The House is scheduled for a floor vote on the legislation on Monday.

Education Maintenance of Effort

This week, HB348/SB614 was heard by the House Finance Subcommittee and the Senate Finance Committee. As amended, the bill provides that if revenue collections for a county fail to meet the budgeted 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 Finance Committee despite a fiscal note showing an impact to local governments. The House Finance Subcommittee, however, put the bill “behind the budget,” delaying its consideration until after the state budget passes

Undocumented Students

A bill regarding the education of undocumented students has generated a great deal of opposition and protests this session. HB793/SB836 has taken different forms this year as it has been presented in committees, with some versions requiring local school districts to check the documents of all students and in some cases, charge undocumented students tuition. In the Senate, the bill narrowly passed on the floor Thursday with 19 votes. Both Democrats and Republicans rose to speak in opposition to the measure, at times becoming emotional. The proponents of the legislation argued that it was necessary to reduce the financial burden of undocumented students on the state budget. In the House, the bill is scheduled for consideration by the Finance Subcommittee next week. As moving in the House, LEAs have the option of whether or not to require students to produce documentation. It creates an appeal process through the state Department of Education for parents, students, or guardians to challenge decisions at the local level. Currently, under a U.S. Supreme Court decision from 1982, it is considered unconstitutional to deny public education to a student based on their immigration status. This legislation is apparently intended to either create an exception to that prohibition or challenge that decision by bringing the issue back before federal courts.      

Rebuttal Periods During Public Meetings

A proposal to add a requirement to allow rebuttals during public meetings failed this week in the House State and Local Government Committee. The bill, (HB845/SB1037), proposed to expand recently enacted legislation that required local governing bodies to allow a period for public comment. Current law only requires governing bodies to provide a public comment period on items on the agenda for the meeting. This bill, like another one that was defeated earlier this year, would have required a county commission to allow public comment on any topic germane to the county at any meeting. In addition, an amendment added to this caption bill recognized a “right” to rebuttal by the public. In its original form, the amendment stated that a citizen attending a public meeting had the right to rebut any statements made during a public meeting. Local government associations raised objections that this would lead to chaos and cause county commissions and city councils to lose control of their meetings. The bill passed narrowly out of the Senate State and Local Government Committee last week when the sponsor insisted (incorrectly) that the proposal was permissive. In the House committee, the bill only received seven votes of support out of a 23-member committee and failed. 

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 has now passed both the House and Senate and is headed to the Governor for his signature. The current cap is $0.15, so the bill effectively allows counties to double the maximum tax rate over time. 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 has already passed the House. The bill has been approved by the Senate Finance Committee and is headed for a floor vote. 

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 last week and is still 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. Time is running out for the proposal this year as it must pass the Senate, then still proceed through the House. With the flow motion expected to be adopted, this could happen over the next two weeks, but it will be challenging.

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 now passed both the Senate and the House and heads to the Governor.

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. The amended 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. It is scheduled to be heard next week along with a slate of other bills calling for TACIR studies.

A bill to raise Governmental Tort Liability Act (GTLA) limits finally died this week after being deferred for many weeks in the Judiciary Committees. SB418/HB4, as initially filed, would have more than doubled liability limits for local governments under the GTLA. The sponsors amended the bill down several times in an effort to reduce the financial burden the bill would cause. Still, fiscal notes recognized a significant cost in both judgments against local governments and increased insurance premiums. The bill failed to receive a majority in the Senate Judiciary committee this week, where it had been awaiting a vote since the end of March. In the House, no action was taken on the bill before the Judiciary committee closed for the year. It was initially scheduled for a vote in that committee on March 12th, but was never brought to a vote by the sponsor.

Adjournment Fast Approaching

Absent a major disagreement between the chambers on the budget, the legislature appears on track to pass the budget next week, then adjourn for the year the following week. The state budget is the only constitutionally mandated duty of the General Assembly. Once that is adopted, they could technically adjourn. Since this is the first year of a legislative session, proposals that do not find agreement between the chambers can always be reconsidered next year. Typically, the legislature meets for at least one week after the passage of the budget to wrap up a few remaining bills and resolve differences on legislation between the two chambers.