2023 Legislative Preview: Tennessee’s Strong Financial Position

By State Senator Page Walley

Our state legislature will convene on Tuesday, January 10, 2023 to begin the 113th General Assembly. The state budget, tax relief, and improving care for children in state custody will be among the top issues addressed by lawmakers. Over the next few weeks, I’ll be previewing varying issues that will be upcoming in the 2023 Legislative Session. I will also hold listening meetings across the district Wednesday through Friday, January 4 – 6, 2023, and another listening meeting by telephone later in January where many of these upcoming issues before the General Assembly will be discussed. I hope you can attend.

Click here for information on when and where listening meetings will be held.

This week, I’ll review the state’s strong financial position regarding our budget and economic outlook. In the General Assembly, we will continue to prioritize conservative fiscal management, which has led Tennessee to earn top ranks for fiscal stability.

Passing a balanced budget is our most important Constitutional duty in the Tennessee General Assembly. The budget is usually presented to us in February, but departments are already announcing requests, economic statistics are being published regularly and experts are providing valuable testimony at recent meetings.

Our state is in great financial condition despite challenges including inflation, which is impacting not only Tennessee, but the entire country and world. The state has already collected $585.8 million more in taxes and fees than budgeted in the first three months of the 2022-2023 fiscal year, which began in July. And last fiscal year, the state collected $4.6 billion more than budgeted in taxes and fees.

Revenues in October, the third month of the fiscal year, overall were $1.5 billion, which is $125.4 million more than October of last year and $178.1 million more than the budgeted estimate. The growth rate for October revenues was 8.3 percent.

October revenues surpassed budgeted estimates due to strong sales tax remittances. Tennessee Department of Finance and Administration Commissioner Jim Bryson said in a press release that the largest retail sales gains for the month came from the categories of building materials and eating and drinking places.

For fiscal year 2022-2023, the state’s Funding Board is projecting a growth rate of 7.2 percent to 7.7 percent while estimates drop to between 1.25 percent and 2.25 percent for fiscal year 2023-2024. Governor Lee will build his budget for the upcoming fiscal year utilizing these estimates.

Sales tax collections are up dramatically in part because business activity is at an all-time high and because of the state’s ability to collect taxes on online sales, economists said at a November Tennessee State Funding Board meeting.

The tremendous increase in collections is of course also due to the state’s unprecedented population growth. Large amounts of in-migration are supporting labor force growth, and the growing economy is quickly absorbing those new workers, who tend to be high skilled workers with greater savings, according to economists.

Nationally, gross domestic product has declined in the first two quarters of 2022, and forecasters expect a similar decline through the middle of 2023. In 2021, Tennessee GDP growth was 8.6 percent compared to 5.7 percent nationally.

Tennessee has a proud tradition of being a fiscally conservative state that is well managed with the lowest possible tax burden to residents. The AAA-ranked Volunteer State is the least indebted state in the nation per capita and is the number one state in the nation for fiscal stability.

Tennessee also is one of only five states without road debt and ranks in the top three of states for best-funded pension plans. Tennessee’s outstanding other postemployment benefits (OPEB) obligation is estimated to be less than $250 million, down from $1 billion six years ago. This has been a legislative priority for several years.

One way to ensure the state’s financial stability in an economic downturn is maintaining adequate savings through Tennessee’s Rainy Day Fund. The legislature has invested $250 million into the Rainy Day Fund, bringing it to $1.8 billion, which is the highest level in state history.

This year, the General Assembly continued its commitment to low taxes for Tennesseans, approving over $280 million in tax cuts for fiscal year 2022-2023. That includes $121.6 million to waive the state’s license plate registration fee for one year — a financial relief that benefits only Tennesseans and not out-of-state residents who shop and do business in the state — $80 million for a grocery sales tax holiday in August 2022, and $68 million to reduce sales tax on broadband supplies to incentivize companies to accelerate the deployment of needed broadband services to rural communities, among other cuts.

As for federal American Rescue Plan Act funding, Tennessee received a total of $3.725 billion, which has been spent on COVID-19 response, water infrastructure projects, and initiatives that support a strong economic recovery and strengthen the state’s fiscal stability. As of November 28, Tennessee’s unallocated ARPA funds balance is $148.9 million.

As always, thank you for allowing me to serve you. Please contact me at sen.page.walley@capitol.tn.gov or (615) 741-2368 with any questions or concerns you might have and if our office could serve you better.

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