‘Conservative’ budget passes Assembly

Written by Byron Hensley | 14 July 2010

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“A balanced budget that did not raise taxes while focusing on education as a priority” was described by the Speaker’s office of the Tennessee House of Representatives as the primary accomplishment of the 106th General Assembly, which concluded after both passing “one of the most fiscally conservative budgets in recent memory and significant education reforms that will benefit Tennessee students.” In what many legislative observers believe to be a first, the State House unanimously passed a balanced budget with no new taxes and no tax increases.
In addition, lawmakers left a healthy amount in the state’s reserves accounts, including $429,207,100 in the Rainy Day Fund and TennCare Reserve Fund. The combined total of all reserve accounts will be $615.4 million. The 2010 budget is $29.7 billion after the legislature made approximately $650 million in cuts.
Lawmakers also reached a consensus on several contentious items such as the Career Ladder program, Agriculture Enhancement Grants, and state employee bonuses.
The state’s Career Ladder Program, approved in 1983 as a form of incentive pay for educators, remained in the final budget and totals $34.5 million. Lawmakers also reached an agreement on state employee bonuses. An original proposal would have given all state employees a bonus of 3 percent, but some members felt that was a bit excessive given other layoffs and economic conditions.
The legislature ultimately settled on a more conservative plan that will pay employees an additional $50 per year of service, with a minimum of $150 for employees with at least one year of service (as of October 1, 2010) and a maximum pay out of $1,250 (representing 25 years of service). Teachers will be included in the bonus program.
The budget “cautiously” allocates federal funding that has not yet been approved by the U.S. Congress, but funds only “contingency items” that are essentially ‘extras’ with these dollars. The state was expecting Congress to have already approved the nearly $340 million in one-time funding, but Congress left on Memorial Day break without acting on the extension. The funds will provide for upgraded radios for state troopers, an unnamed economic development project, the demolition of several dilapidated buildings at the University of Tennessee’s Health Sciences Center, and the Civil Rights Museum. A portion would also be used on a post-flood tourism campaign to demonstrate that “Tennessee is open for business.”
In light of the devastating floods at the beginning of May, lawmakers included flood relief in the budget to the tune of $19.9 million. Flood relief plans were discussed at length during budget negotiations as lawmakers recognize the need for aid. Proposed methods for funding flood relief proposals included using cash from the state's Rainy Day Fund, using a portion of stimulus money, and through various tax relief measures. Ultimately, the legislature settled on a plan that eliminates the state and local sales tax on major appliances, residential building supplies, and residential furniture. To receive a refund from the Department of Revenue, flood victims must have purchased the equipment between May 1, 2010, and September 30, 2010. The total amount that can be received is $2,500 and the claimant must file a single application with the Department of Revenue by November 30, 2010, along with satisfactory proof from FEMA showing damage. The refunds are allocated out of the state’s General Fund.
The legislature reformed K-12 education this year, with an overhaul that included better utilizing existing data, rewarding teachers, and accountability if certain benchmarks are not met. The United States Department of Education recognized the efforts, and Tennessee was rewarded millions of dollars in funds from the federal government’s “Race to the Top” program. Only two of 16 finalists – Tennessee and Delaware  – were ultimately selected. The Tennessee General Assembly met for two weeks in early January for an Extraordinary Session to pass the bi-partisan, comprehensive education reform plan.
Race to the Top, a portion of the American Recovery and Reinvestment Act, provides $4.35 billion in competitive grants designed to encourage and reward states that are moving forward with bold initiatives in four education reform areas:
• Adopting standards and assessments that prepare students to succeed in college and the workplace and to compete in the global economy.
• Building data systems that measure student growth and success, and inform teachers and principals about how they can improve instruction.
• Recruiting, developing, rewarding, and retaining effective teachers and principals, especially where they are needed most.
• Turning around the lowest-achieving schools.
In addition to the K-12 reform legislation, the state plans to enhance its Science, Technology, Engineering, and Math (STEM) program, which will be included in the Race to the Top application. The state is partnering with Battelle, which manages the Oak Ridge National Laboratory, to provide an extensive network of STEM programs across the state. This includes building new science labs, adding new technology, and creating new curricula to inspire and create new interest in science and math. Tennessee students must be proficient in these subject areas to compete in a changing global economy, and having graduates trained science and math is an important factor in helping recruit more business to locate in Tennessee
For the second half of the Extraordinary Session, the General Assembly overhauled higher education, passing the “Complete College Act of 2010” by a vote of 93 - 2. Lawmakers say the plan will increase the number of college graduates, offer easily transferrable credits, and make the community colleges, four-year institutions, and technology centers work as a tightly knit network. In addition, the University of Tennessee at Knoxville will partner with Oak Ridge National Laboratory (ORNL); a move that lawmakers believe will make the state’s university a premier research institution.
Tennessee currently ranks 40th in the nation in completion of bachelor’s degrees, and 45th in completion of associate’s degrees. Lawmakers were told that in order to reach the national average, Tennessee would need to graduate another 20,000 graduates annually. Economists predict that Tennesseans could earn $6 billion in additional salaries if the goal is reached, as the pool of workers for “middle management” jobs would be larger  – especially for companies that recently relocated here such as Hemlock, Wacker, and Volkswagen.
The reforms passed by the legislature will make it easier for transfers of credit among institutions. In addition, the law provides for further development of a common course numbering system for community colleges that will aide students in transferring the credits, and requires course catalogs at community colleges to clearly define what classes are not transferrable.
One aspect of the overhaul eliminated remedial classes at the state’s four-year institutions, but allows students to dual enroll in a four-year university and a community college to complete the classes if needed. Students can declare they are on a path toward a bachelor’s degree, and still be considered a full-time student at the university if they are enrolled in 12 hours between the two institutions.
In keeping with the legislature’s goal of directing students to the post-secondary institution that best suits them—a four-year institution, community college, or technical school—the plan created a more cohesive system to be in place by 2011 to give students an easier, more affordable way to finish the degree of their choice. The Tennessee Higher Education Commission is directed to develop coordinated programs and services, so that students can move freely about the system in order to pursue their degree and fulfill their requirements.
Formerly, the funding for state institutions was based on student enrollment. The reform measure directed the Tennessee Higher Education Commission (THEC) to develop a new funding formula based on outcomes instead. While graduation rates are sure to be a large portion, THEC is also directed to take into account student retention, timely progress toward degree completion, and end of term enrollment when determining the new funding plan.
Legislators also approved $6.2 million as part of a plan to establish the University of Tennessee at Knoxville as a premier research institution by partnering with Oak Ridge National Lab. The partnership is expected to create nearly 200 new faculty positions among the existing researchers at Oak Ridge. Similarly, the University of Memphis will implement the Memphis Research Consortium, with lead partners the University of Tennessee Health Sciences Center and St. Jude’s Research Hospital. Any four-year institution is now allowed to engage in similar collaborations. Lawmakers believe this will create transformative new research opportunities.

The legislature worked out a new plan for workers’ compensation insurance, which includes fairness in construction industry bidding, protects general contractors from workers’ compensation claims filed by subcontractors and addresses employee misclassification. Earlier in the year, the General Assembly approved legislation calling for the immediate suspension of a law passed in 2008, due to unintended effects of the act to require sole proprietors and partners engaged in the construction industry to carry workers’ compensation coverage on themselves. Since January, the legislature has been discussing alternative ways to address gaps in coverage for workers in construction companies without harming small business owners.

The new law requires everyone in the construction industry to be covered by workers’ compensation insurance or be specifically exempted. Sole proprietors and partners in the construction industry will have to carry insurance on themselves, but they can obtain an exemption from the requirement. The exemption is limited to certain members of the construction industry including, but not limited to, officers of a corporation, a sole proprietor, members of a limited liability company, or a partner in a limited partnership. In addition, those who request an exemption must be current in paying all taxes. No more than three people on any one commercial job are eligible to claim an exemption.

The measure also substantially increases penalties for employers who fail to comply with the law. The bill set different effective dates for various provisions, phasing in the new law slowly. The final product came after months of discussions between lawmakers, the Department of Commerce and Insurance and various representatives of the construction industry. The bill passed 87-7.