TCSA Capitol Update: March 20 - March 24, 2023

This week, committees and subcommittees attempted to clear as much of their calendars as possible. Some completed their work and were able to adjourn subject to the call of the chair. This means a number of proposals we are tracking should not be heard this year, but there is always the possibility that a committee could be reopened to hear a bill if its companion bill is progressing in the other chamber. This is a dangerous point in the session due to the volume of bills in committee, many of which are being amended to completely rewrite the legislation and take the bills in a different direction. We are hearing that the Governor’s supplemental budget amendment should be introduced sometime early in April. It usually takes two or three weeks after that for the General Assembly to finalize the budget and wrap up other pending legislation. This puts the legislature on track for a late April adjournment if no obstacles arise.

Transportation

The Governor’s Transportation Modernization Act of 2023 (HB321/SB273) passed the full Senate this past Monday. The full House Finance Committee also recommended the bill, setting it up for a vote on the House floor next Monday. The bill is carrying identical language in both chambers. So long as it passes the floor Monday night, it should be on its way to the Governor’s desk for his signature. This act will be a tremendous win for county highway departments, bringing them $300 million in one-time additional funds for the state-aid grant program and providing counties a share of the fees on electric and hybrid vehicles that are intended to replace lost gas tax revenue. Be sure to thank your Senators for supporting the bill and continue to let your House members know how important this bill is to county governments.

Sales Tax Administration Fee

A bill to reduce the administrative fee charged on local option sales tax by the Department of Revenue moved forward again in the House Local Government Committee. It is headed to the House Finance Sub, where it will be heard next Wednesday. We expect it will be placed “behind the budget,” as the proposal is not currently funded. The bill was on the calendar in the Senate State and Local Committee, but was far down the list and wasn’t heard this week. The committee has multiple meetings next week in order for it to wrap up its business, so we expect a vote there Tuesday or Wednesday. Currently, the Department of Revenue charges an administrative fee of 1.125% on collections of local option sales tax. For FY21-22, this fee produced more than $45 million in revenue for the department. Last December, in response to legislation, the department produced a report estimating that the actual additional cost for collecting local option sales tax was $14 million. While the department performs outstanding service for state and local governments, county associations are arguing that it is unfair for local governments to subsidize its operations by more than $30 million. (SB385/HB419), as amended, proposes to correct this inequity over time by reducing the fee to 1% for FY23-24, 0.75% in FY24-25 and 0.5% in FY25-26. Even at that level, the fee would still produce more than $16 million in revenue for the department, exceeding the estimated cost of administering the tax. If the bill passes and is funded, this legislation would return more than $28 million to local governments. Call your legislators and tell them you support the bill.

Property Tax Study

While a caption bill on property taxes isn’t currently scheduled to be heard in the Senate this year, we continue to watch it in the House. (HB1209/SB1192) was amended and recommended by the Property and Planning Subcommittee last week, but has not yet been heard in the Local Government Committee. The bill would create a study committee to examine property tax rates, methods of appraisal, and possible limits on property taxes that the state could impose on local governments. The proposed committee is made up of five members of the House and 5 members of the Senate with no local government representation. The amendment directs the committee to study what other states have done to enact limits on property tax increases, including levying a statewide rate, capping increases at a certain percent or locking in a property’s value at its last purchase price. The language specifically directs the committee to consider California’s Proposition 13 which imposed strict restrictions on property taxes in that state in 1978. One of the House sponsors of the bill, Rep. Ryan Williams, chairs the House Appropriations Subcommittee. That subcommittee has a meeting schedule for noon next Monday with the only item on the agenda being “Local Property Tax Discussion.” We will be in attendance to monitor those discussions.

Development Taxes

The bill to allow some counties the ability to levy development taxes or impact fees failed in committee this week. The Property and Planning subcommittee heard testimony on the bill, including comments from TCCA Director Charles Curtiss. While he was still a state representative, Curtiss carried the original compromise legislation back in 2006 that set the current limits in place. He made an impassioned argument for the General Assembly to update the bill and give counties more authority to raise funds to address the cost of growth. When it came time to vote on (HB1206/SB820), an amendment was introduced to limit the proposal to two counties. In a surprise development, that amendment failed. The sponsor attempted to move forward on the bill and there was a close voice vote. The subcommittee chair called for a roll call and the bill fell short of the necessary votes to progress. Chairman Dale Carr stated that he intends to continue to call stakeholders together to continue discussions in an effort to find solutions to the challenges many counties face keeping up with the demands of growth.

Education

Legislation to codify Governor Lee’s stated goal of raising the minimum step of the salary schedule for teachers to $50,000 moved out of the Senate Finance Committee and the House Education Admin Committee. (SB281/HB329) would raise the bottom rung of the schedule to $42,000 for the upcoming year, then to $44,500 in the following year, then $47,000, then $50,000 by the FY26-27 school year. A fiscal analysis on the amendment indicates that this would require $125 million in additional funds put into the base amount of TISA each year by the General Assembly and reserved for teacher salaries (that amount is included in the governor’s proposed budget this year). The analysis estimates that the additional funds would cover the cost of the mandated raises for all school districts in the first two years. Five school districts would have to provide a combined total of $106,142 in additional local funds in FY 25-26 and eight districts would have to provide $1.6 million in FY26-27. The bill also includes a controversial section that would ban dues collection for teacher professional organizations. Attempts to remove that section have dominated the discussions on the bill. We hope to have a more in-depth discussion of the raises themselves and how they are funded when the bill moves to the House Finance Subcommittee next week. The bill was scheduled to be heard on the Senate floor Thursday morning, but was deferred until next Monday.

Another bill that would require school districts to make any excess space in a school building available to non-resident students was delayed again this week. (HB959/SB973) was scheduled to be heard in the Senate Education Committee and in the House Education Admin Committee this week, but it was deferred in both committees. The bill raises concerns, especially for counties experiencing significant enrollment growth. Meanwhile, a second similar bill (SB1419/HB1130) received an amendment and passed out of Senate Education on Wednesday, despite concerns expressed by several members of the committee. This bill would prohibit school districts from refusing a student admission to a public school based on that student’s residential address. The bill would allow students to attend school in other counties or other districts so long as they were a Tennessee resident. Senators raised concerns about special needs students crossing into other districts, students flowing into fast-growing or high performing schools and the general complications that could be caused by allowing students to enroll in schools regardless of where they live. The bill is scheduled for consideration in the House K-12 subcommittee next week, on its final calendar. As the bill only results in a transfer of funds and costs from one district to another, the bill was not scheduled to go through the finance committees, so it is headed to the Senate floor for consideration in that chamber.

The following bills and resolutions raised concerns for counties either as originally filed or as amended. These initiatives appear to have failed or have been taken off notice in one or both chambers this year. Unless action is taken to reconsider a vote or suspend rules to put them on notice, they shouldn’t pass this year.

SB707/HB1010 (as amended) would have allowed developers to hire their own building inspectors and require local governments to accept their inspections
SB548/HB286 would have flipped the presumption on fireworks, permitting their sale in any jurisdiction that had not affirmatively banned them
SB783/HB847 would have mandated pay increases for administrators of elections
SB580/HB118 would have called for referendums to put term limits on local officials
HJR 45 would have amended the constitution to create term limits on elected officials
HB1082 would have expanded the educational savings account voucher program to any student anywhere in Tennessee
SB171/HB565 would have required a referendum to approve certain property tax increases
SB490/HB560 would have required local government to reimburse property owners if land use decisions impact the value of property
SB1310/HB157 would have eliminated the business tax

We are following many more issues during these hectic weeks at the legislature. Check back each week for more updates.