Tennessee General Assembly Kicks off 2024 Session

The 113th Tennessee General Assembly kicked off the 2024 legislative session earlier this month in Nashville, beginning the final year of a two-year legislative session. With the drama of the final weeks of the 2023 session and the 2023 Special Session on the minds of many, the House’s rules of conduct – typically ignored by most legislative observers — are squarely in the spotlight as session begins. Then there is the state’s budget outlook, as Tennessee finds itself in the unfamiliar position of having budget revenues that are actually falling short of projections – a far cry from recent years. And since 2024 is an election year where half of the Senate and all of the House seats will be on the ballot in the August primaries and November general, the speculation of which incumbents will/won’t run for reelection is already taking place, as is the inevitable jockeying that always follows. With the prospect of many incumbents having a primary opponent to grapple with this summer, look for the legislature to complete its business in a workmanlike manner so members can return to their districts and begin the process of fundraising and campaigning.

House Rule Package Features a Handful of Changes

In the wake of the August Special Session, where new rules were enacted that banned members of the public from carrying signs into House committee meetings and galleries, the House Rules Committee meeting attracted an unusual level of attention. While there were only a handful of changes – including a lifting of the rule prohibiting the public from carrying signs -one of the most notable concerned punishments for lawmakers who disrupted another member. The new rule provides that if a lawmaker is found to be out of order, the initial penalization is that they cannot speak on that topic for the rest of the day. If they are ruled out of order for a second time, they will only be permitted 2 minutes to speak instead of the original 5 minutes. If the member is out of order for a third time, this will result in the member losing the privilege to speak on the floor for two legislative days.

Finance & Administration Commissioner Updates Legislators on Budget Outlook

After years of surplus revenues, the state is likely due for some belt-tightening amid a string of underperforming months. Revenues for the first four months of the fiscal year have all fallen under budgeted estimates. However, revenues remain higher than pre-pandemic levels, and the state is in a strong position. Tennessee Department of Finance and Administration Commissioner Jim Bryson recently spoke before the Senate Finance Committee and urged lawmakers to remain calm. “We are prepared to weather the speed bumps ahead,” he said. Lawmakers may rein in some one-time expenditures, but the state reserves remain significant. Governor Bill Lee will unveil his proposed budget during his State of the State Address, which is scheduled for next Monday, February 5.

Return of Gun Safety Proposals

Once again, gun safety proposals are expected to be a hot topic of debate this session, as Nashville is still coping with the tragedy that took place at the Covenant School in late March. Protesters converged on the Capitol in the weeks following the shooting, demanding stronger gun control laws. Protestors again came to the Capitol in droves during the August special session, which saw little action on gun safety. With many of the gun law proposals having been deferred to the current session, tensions are once again expected to be high. Governor Lee floated an extreme risk proposal in the closing weeks of the 2023 session, but it was met with tepid support. He has announced that he does not intend to resurrect that proposal for this session.

School Choice Expansion Will Once Again Be a High-Profile Issue

Look for education to once again be a front-burner issue this session, as Governor Lee has announced his intention to expand his Education Savings Accounts (“ESA”) program. While a formal piece of legislation has not yet been released, as proposed, the Education Freedom Scholarship Act would offer 20,000 students an estimated $7,075 to attend a private school or pay for other approved educational expenses. The current ESA program, which officially got up and running in the 2022-23 school year, accepts students from low income households that are zoned to attend schools in Metro-Nashville Public Schools, Memphis-Shelby County Schools, Hamilton County Schools and the state’s Achievement School District. Roughly 2,400 students are currently enrolled in the ESA program. Supporters of the Governor’s expansion proposal say that the ESA program provides students with more quality education options, while critics argue that funding education savings accounts takes money away from public schools, resulting in depleted resources and continued underfunding and neglect.

Tennessee Franchise Tax Could Be at Legal Risk

Earlier this month, Department of Revenue Commission David Gerregano presented to the House Finance Committee and detailed the Governor’s plan to overhaul the state’s franchise tax. The Lee administration is recommending the state make $1.2 billion in refunds to companies over a period of four years and then cut $400 million annually thereafter in the franchise tax. Legislation is being proposed that would authorize the Department of Revenue to issue refunds to companies that have paid franchise taxes based on their property value. Getting straight to the point, Gerregano testified that “the reason for bringing the franchise tax bill is precipitated in response to the significant legal risk from a potential litigation challenge…Our department and tax experts at the Attorney General’s Office have identified a significant legal risk in the way the franchise tax is currently structured, which could be extremely costly to Tennessee taxpayers. To allay those risks, we’ve advised the administration to consider changes to the franchise tax.”

The legal risk that has precipitated the change stems from a United States Supreme Court opinion concerning the state of Maryland, and the dormant Commerce Clause, which prevents states from passing legislation that places excessive burdens on interstate commerce. The Supreme Court opinion led several Tennessee businesses to make the same argument about Tennessee’s franchise tax, thus forcing Tennessee to address the issue. When asked about a legal basis for a change in the state’s franchise tax, Governor Bill Lee told reporters, “we know that there is a risk because what the law has been [is] deemed by the tax experts as needing a change. There’s no lawsuit at this point. Going forward….I can’t speak to whether or not there would be or if there is a legal risk.”

Commissioner Gerregano also outlined plans to provide refunds to companies that are deemed to have overpaid, upon application by the companies.  While the concept met resistance from at least one lawmaker that preferred taxpayers be given a tax credit looking forward, it appears that the state will proceed with the rebate plan.

The bill filing deadline in the House is January 31 and February 1 for the Senate. As of today, there have been over 500 bills filed for the legislative session. As a reminder, Governor Lee’s State of the State Address will be next Monday, February 5 at 6 p.m. CST.