Gov. Bill Lee calls for new $150M coronavirus fund, massive deposit into Tennessee's rainy day fund

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In a massive overhaul of the state's budget, Gov. Bill Lee says he will establish a $150 million fund to cover public health issues related to the coronavirus pandemic, while also making an unprecedented $350 million contribution to Tennessee's rainy day fund.

The rainy day fund deposit adds hundreds of millions of dollars more to the reserve than Lee had proposed in his initial budget in February, a spending plan that had been drafted when Tennessee's economic forecast was far from bleak and before the COVID-19 outbreak was a serious factor in the financial markets.

"We are now likely embarking on a recession caused by this rare health pandemic," said Finance and Administration Commissioner Stuart McWhorter, addressing the Senate finance committee on Wednesday. "Clearly, we are in a time of recovery, a time of preparedness and a time of many unknowns."

The General Assembly, which plans to recess by the weekend and not return until June 1, is scrambling to pass a quickly revised budget and roughly 30 bills it deems critical before leaving town.

McWhorter stopped short of offering reassurance to members of the Senate committee, noting that daily developments could lead to even further financial changes, including the possibility of reaching into the rainy day fund. The state currently does not project having to do so in the next year.

“We’re running numbers on a daily basis,” he said. “It’s just hard. I’m not an economist.”

Major legislative initiatives being cut to provide COVID-19, tornado relief

Lee's updated proposal contains as much as $401 million in reductions from his budget announced in February, removing funding for major legislation he previously announced as priorities.

That includes cutting in half a $117 million teacher pay raise, as well as entirely cutting a $40 million professional privilege tax cut, a $250 million mental health trust fund for schools, $11 million for a literacy program, $10 million for a rural opportunity fund and $10 million in legislative initiatives. 

But the new proposal keeps intact $37 millionset aside for the implementation of Lee's signature Education Savings Account, or school voucher, program that he has intended to implement later this year. 

Lee's $150 million coronavirus fund is designed to "help be responsive to health and safety issues resulting from COVID-19," according to budget documents provided by his office Wednesday morning.

According to information provided by Lee's office, initiatives paid for by the new COVID-19 fund will be determined by commissioners of the Departments of Finance and Administration and Health, as well as the Tennessee Emergency Management Agency director.

They are to be used for increasing lab capacity, containment efforts, disease tracking, mitigation efforts at schools and colleges, and other prevention and education programs.

After the release of Lee's updated budget, Lt. Gov. Randy McNally said the legislature would review it in the coming days with "deliberate speed."

"The steps all Tennesseans are taking together to prevent the spread of this virus will have economic ramifications, possibly severe ones," said McNally, R-Oak Ridge, who has long called for strict fiscal responsibility in the budget process. "This proposed budget ensures Tennessee will be in a posture to respond to the fallout and provide the essential services all Tennesseans count on."

The governor on Tuesday said the state would be reducing spending on "nonessential items" while praising Tennessee's conservative budget strategy that has allowed the state to amass reserves.

Budget memos released Wednesday show that the state is not only decreasing its revenue growth projections for next year from 3.1% to "basically zero," but also decreasing projected revenue growth for the remainder of the current fiscal year, which ends June 30.

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McWhorter said that while revenue could actually decrease next year rather than remain stagnant, the decision was made after conversations with "economists with varying degrees of opinions."

In his February budget, Lee proposed putting $50 million into the state's rainy day fund, which is already at an all-time high due to a $225 million deposit last year, a then-unprecedented amount to place in the fund at once.

Now that another massive deposit will be made in fiscal year 2021 — 600% higher than the governor had planned to make earlier this year — Tennessee's rainy day fund will reach $1.45 billion.

"These are uncharted waters," said Sen. Bo Watson, R-Hixson, and chair of the Senate finance committee, whose Wednesday meeting he described as "somber." 

Funding set aside for response to tornado, COVID-19

While Lee announced in February that the state would dole out $100 million in funding for grants for local governments, he is now doubling that amount to $200 million. Counties and municipalities across the state will be able to use them for capital improvements, utility upgrades and other projects.

In addition to the newly created $150 million fund for coronavirus health and safety issues, the state will set aside $30 million for the Tennessee Emergency Management Agency's ongoing response to tornado damage in Middle Tennessee.

Tornadoes that swept through a portion of the state resulted in at least 25 deaths and substantial damage to property in Davidson, Putnam, Wilson and Benton counties.

Lee has also proposed an additional $12.5 million be added to the state's health care safety net program for uninsured adults.

Mental health trust fund slashed for schools; salary funding preserved for state workers

As schools remain closed across the state, and while the annual standardized testing requirement is being removed for students, the governor's previously announced $250 million K-12 mental health trust fund has now been slashed from the budget.

Lee had proudly announced the initiative during his State of the State speech in February, explaining the need schools had for additional resources for students experiencing mental health crises.

But salaries for teachers, including higher education employees, as well as state workers, remain in the budget.

A promised teacher pay raise of 4% is now being cut in half to 2%.

The state's Basic Education Program is being fully funded, as is the higher education outcomes-based funding formula, TennCare inflationary growth, pension contributions, other post-employment benefits liabilities and growth in state services for the Department of Children's Services.

The budget as proposed in early February was a record $40.8 billion, though budget officials aren't sure yet what the final figure will be, other than that it will likely decrease by $500 million.

Reach Natalie Allison at nallison@tennessean.com. Follow her on Twitter at @natalie_allison.

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