Tennessee State Capitol. (Photo: John Partipilo)
Tennessee’s State Funding Board approved conservative growth rates Thursday as revenue flags in the wake of a major business tax reduction.
The board, which is made up of the state’s three constitutional officers and finance commissioner, set a growth rate in general fund revenue of 1% to 2% and total tax growth at 1.25% to 2.15% for fiscal 2025-26.
With this year’s overall budget at $52.8 billion, the board maintained the total growth rate projection for fiscal 2024-25 at negative-1.68% to negative-1.34%. The board was forced to roll back projections at mid-year because of weak revenue.
Economic experts told the board earlier this month that the economy is in good shape but that growth is slowing after double-digit revenue two years ago. The state also is facing a $1.9 billion business tax reduction over several years after lawmakers approved a request by Gov. Bill Lee to eliminate the property portion of the state’s franchise and excise taxes. That came on the heels of a business tax break the previous year.
Tennessee lawmakers still at odds over business tax cut as session enters final days
The Department of Revenue has processed nearly $900 million in rebates this year, and more are expected.
Tennessee’s growth rate usually lies between 3.5% to 5%, but staff expected revenue to slow down and built in a cushion over the past two years, Budget Director David Thurman said.
In recent budget hearings, state departments and agencies requested more than $4.2 billion in funding increases for fiscal 2025-26 to deal with inflation and improvements in state services. But the revenue forecast isn’t expected to come close to matching that figure, even with federal funds covering some of the costs.
The weak budget outlook could affect lawmakers’ decisions on providing funds to flood-ravage counties in East Tennessee and the governor’s proposed private-school voucher program, which was not approved this year but has $144 million in unused funds in the budget.