Tennessee budget plan offers no tax breaks

by Sam Stockard, Tennessee Lookout
February 10, 2025

A year after giving businesses a $1.5 billion tax break, Tennessee Gov. Bill Lee’s budget plan for the next fiscal year includes no such tax cuts — and none for grocery shoppers as lawmakers push two proposals to lower costs at the checkout counter.

Instead, the $59.4 billion spending proposal reflects a $1 billion increase in road spending, $148.6 million for the governor’s private-school voucher plan and $244,000 more for K-12 schools.

The plan marks a $1.1 billion dip compared with this year’s budget as federal funding decreases. More than one-third of the budget revenue comes from the federal government, $20.1 billion, and $3.6 billion will be taken from state budget balances the last two years.

Tennessee lawmakers agree to a second billion-dollar tax break for businesses in as many years

Funding for K-12 public schools is slated to jump to $6.9 billion next year, including $198 million for teacher pay increases. A total of $450 million is to go toward the governor’s private-school voucher plan, which could take up to 20,000 students, after lawmakers approved one-time bonuses for teachers and funds for vouchers. 

Another $17 million will go toward high-performing school districts, along with $7 million for a tourism destination district in Sevier County, part of a package designed to entice votes in a recent special session called to take up the voucher plan.

The governor’s budget plan eliminates 324 unfilled state positions and uses 1% savings from each department.

The state needs $30 billion worth of road work and is proposing $1 billion in funding for construction projects after putting $3 billion toward roads in 2023-24. Some $80 million from the state sales tax on tires is to go into the transportation fund from the general fund to pay for part of the road investment, an “unusual move,” according to Finance and Administration Commissioner Jim Bryson.

Bryson said no business tax breaks or sales tax cuts are included in this budget after the state gave businesses $1.1 billion in rebates on the franchise and excise tax, and $400,000 in future cuts. A reduction in the grocery tax will depend on the legislature, he said.

Tennessee legislature puts hundreds of millions toward private-school vouchers

Democrats and Republicans are proposing different versions of grocery tax cuts for next fiscal year. Democratic Rep. Aftyn Behn and Democratic Sen. Charlane Oliver, both of Nashville, are sponsoring one measure that would be paid for by closing corporate tax loopholes. Republican Rep. Elaine Davis of Knoxville and Sen. Bo Watson of Hixson are backing a separate grocery tax break, but it contains no method for replacing lost revenue.

The governor plans to add $35 million to the state’s rainy day fund, pushing it to a total of $2.18 billion. Lee came under criticism for declining to use the fund to help eight counties rebound from Hurricane Helene damage last fall.

Instead, he used $100 million from the TennCare budget to offer loans to the damaged counties. Another $420 million is to be spent on flood-ravaged areas, including a $100 million fund that is under the governor’s discretion.

No higher education construction projects are proposed for Tennessee State University as the governor proposes $650 million for capital spending at universities statewide. Extra funding for the financially strapped university could be contained in a budget amendment, according to Bryson.

The governor is set to spend $25 million on farmland conservation that would enable the state to buy temporary easements on farmland to stave off development. A bill to deal with that plan failed to pass last year.

The spending plan also calls for adding 100 state troopers and 22 agents in the Tennessee Bureau of Investigation.

In addition, Lee’s budget proposal includes $24.5 million for Duck River planning and $100 million to bring water from other sources to residents who live south of the river.

Tennessee Lookout is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Tennessee Lookout maintains editorial independence. Contact Editor Holly McCall for questions: info@tennesseelookout.com.