2024 Budget Hearings Roundup
In early November, Governor Bill Lee called on heads of state departments and agencies to present to him their 2025-2026 budget requests and priorities. These hearings are held annually, and are influential in influencing the Governor’s budget proposal for the 2025 General Assembly Session. The Governor will likely introduce his budget proposal around the time of his State of the State Address, which is usually given in early January. The General Assembly will consider his proposals, appropriate funds for legislation they have passed during the year, and finalize the full state budget at the end of the 2025 session.
For the first time in 5 years, the state faced an annual budget shortfall for the 2024-2025 fiscal year (last year’s budget cycle). Previously, the state ran consecutive years of budget surpluses ranging from $2 billion to $5 billion annually. The deficit is likely a result of new recurring spending and cuts, such as reductions in business taxes and increased funding for schools, as well as one-time spending, like incentives paid out to Ford for their West Tennessee project and state funds appropriated for a new Titans stadium in Nashville. You can find a helpful primer on the Tennessee state budget process at this link.
Despite the decreased state revenue and projected budget shortfall, the General Assembly passed a budget at the end of the 2024 session in April that increased state spending by .3% in 2024, and 1.2% in 2025. Currently, through three months of reporting in the 2025 fiscal year, the state has collected $72 million in surplus revenue, or 1.4% more than budgeted for the year. It’s early yet, and thus difficult to project whether or not the state will continue to earn surplus funds, but this is a surprising, but good, fiscal development. You can find a month-by-month tax revenue tracker at this link.
A projectable budget surplus means that the General Assembly may have state revenue funds to spend. However, it is likely that the Governor and General Assembly will continue to take a cautious approach to spending, as they did in 2024. State revenue, however, is not the only pool of funds from which the state can draw for the budget. Notably, the current TennCare system allows for “shared savings”, which are generated from unspent Medicaid funds and split with the federal government. In 2024, the state gleaned an estimated $330 million through the shared savings mechanism. For fiscal year 2025, the state has already committed $100 million of those funds for hurricane relief directed toward counties impacted by Hurricane Helene.
TennCare
As is budget hearing tradition, TennCare representatives highlighted the Division’s long-term reduction in spending, noting that they have reigned in “runaway spending”, while lauding their “record investments” in TennCare services. Director Stephen Smith noted that he believes TennCare is “much bigger than just Medicaid”, and by reducing TennCare spending, the state is able to commit “record” spending to education and other state priorities.
Smith credits the approval and implementation of the state’s TennCare III waiver as the culmination of TennCare’s work to reduce its share of spending in the state budget. He highlights the concept of “shared savings” as the means by which TennCare can make “record investments”, describing the state’s adult dental benefit as an exemplar of this budget flexibility. Governor Lee also lauded TennCare’s “innovative idea” in offering $100 million in 2025 shared savings for recovery from Hurricane Helene.
The Governor also asked a prescient question: “how do you (TennCare) find savings?” To which, Director Smith attributed effective managed care, a focus on home- and community-based services and value-based care (in which payments are made by “outcome” of care rather than “volume” of care). The TennCare team also described their actuarial experiment, in which they closed CHOICES Group 3 enrollment to new members and determined that enrollment in Group 3 actually saved money, because it delayed entrance into CHOICES Groups 1 and 2. Thus the broad focus of the discussion around the TennCare budget context primarily focused on savings, with little to no discussion about quality or availability of services.
TennCare’s FY 2025 budget requests are as follows:
- $58.8 million (state funds): recurring funds to cover increased inflation and utilization
- $41.4 million (state funds): pharmacy spending increases
- TennCare noted that increased utilization of GLP-1 drugs for diabetes, obesity and heart disease
- $36 million (state funds): recurring funds for ECF CHOICES “crisis population” and to reduce the waiting list (2,500 new slots)
- TennCare noted that there are currently about 1,500 people on the ECF CHOICES waiting list, and add 70 new individuals to the waiting list per month
- $4.7 million (state funds): provider rate increases for enhanced respiratory care, durable medical equipment rate cap removal and patient-centered medical homes
TennCare also noted that TennCare has identified nearly $60 million recurring cuts to spending in the coming year’s budget, as well as $31 million in non-recurring cuts from the Strong Families Initiative.
Department of Disability and Aging
Director Brad Turner began his remarks commenting on the success of the Tennessee Strong Families and Homes initiative, which was funded by shared savings generated from the first year of the implementation of TennCare III. The Tennessee Strong initiative, in part, works to ensure that children with disabilities in state custody are placed in a foster care environment, rather than a hospital or institutional setting. Turner noted that they have a 90% success rate in placing children with disabilities in foster settings.
The Department swiftly moved into FY 2025 budget requests, which are as follows:
- $8.2 million (state funds): recurring funds for an expansion of the state’s Strong Families Initiative
- Funding is to open 2 new “Strong Families Homes”, which serve medically fragile children in state custody transitioning out of institutional or hospital settings
- Funding is also for care coordination positions to connect children with IDD in the Strong Families program to IDD-specific supports and services
- $20.1 million (state funds): recurring funds for provider rate increases for TEIS providers and 1,500 additional spots for TEIS enrollment
- $8.35 million (state funds): elimination of the Senior Nutrition program waitlist and rate increases for providers in the home-delivered meals program
- $8.2 million (state funds): recurring funds to enroll 2,250 aging adults from the OPTIONS waitlist into the program
- Includes funds for Area Aging and Disability agencies (AAADs) to conduct eligibility assessments
- $7.5 million (state funds): funding for various initiatives targeting the aging population: transportation programs in rural areas, senior center grants and provider rate increases
- $1.5 million (state funds): non-recurring grants for housing down-payments for the aging and IDD community
- DDA representatives note that the Department has been “resistant” to the use of ongoing subsidies for addressing disability housing needs
- $1 million (state funds): recurring funds for Dementia Navigator Specialist Program in partnership with the state Department of Health
- $6.18 million (state funds): recurring funds for 2% increase in DSP wages
- $255k (state funds): recurring funds for 5% increase in Independent Support Coordinator wages
Director Turner also noted, in discussing wage increases for DSPs and ISCs that as the state ages and more Tennesseans are diagnosed with disabilities, the DSP market will become “incredibly challenging for us”.
Governor Lee also asked about the status of the Katie Beckett program, to which Director Turner noted an enrollment of almost 4,000 children at the time of the hearing. Turner also noted that they have not been “reckless” with spending, ensuring that funds go to intended purposes.
DDA Budget Hearing Video
DDA Budget Hearing Presentation
Department of Mental Health and Substance Abuse Services (DMHSAS)
Representatives of the department, in their presentation slides, note the impact of previous investments into the state’s mental health and substance abuse treatment systems. $27.4 million in investments for provider rate increases and behavioral health scholarship programs have helped to reduce vacancy rates among mental health providers by 14%, and by 7.2% among addiction treatment providers. An ongoing investment of $23 million over the past 4 years has funded the addition of 387 school-based behavioral health liaisons, and resulted in a 255% increase in “connection(s) with behavioral health resources”.
DMHSAS FY 2025 budget requests are as follows:
- $5.95 million (state funds): recurring funds for further expansion of the school-based behavioral health liaison program
- $4.4 million (state funds): non-recurring funds for Tennessee Pathways Behavioral Health Scholarship program expansion
- $11.55 million (state funds): rate increases for substance use treatment residential providers
- $4 million (state funds): behavioral health safety net rate increase sustainability
DMHSAS Budget Hearing Video
DMHSAS Budget Hearing Presentation
Department of Health
The Department of Health (DOH), in their presentation slides, note a number of “success stories” stemming from past funding of state initiatives. First, an increase to $31.1 million in recurring funds for the health care safety net, meant to offer access to some services for Tennesseans without health care, has established 103 primary and dental care providers in the network. Further, funds have permitted access to some level of care in all 95 Tennessee counties, as of 2024. The presentation also notes the success of investments in rural health care infrastructure, as recommended by the Rural Health Task Force. Those funds have been used to incentivize provider participation, build infrastructure and to develop a Center for Excellence to provide technical support.
DOH FY 2025 budget requests are as follows:
- $24.2 million (state funds): recurring funds for the dental pilot program (Healthy Smiles)
- $6 million (state funds): non-recurring funds for “Social Drivers of Health Planning and Implementation Funds:
- $7 million (state funds): recurring funds for an Alzheimer’s initiative, including improving access to early diagnosis and treatment, improved training programs for health care providers and expansion of the Dementia Navigator program
- $2.2 million (state funds): recurring funds for expansion of cancer screening programs
DOH Budget Hearing Video
DOH Budget Hearing Presentation
Next up:
During the Governor’s State of the State address, likely in February, Bill Lee will propose a budget for fiscal years 2025 and 2026. He will likely take into account requests from state departments and agencies in his proposal, and ask the General Assembly to pass legislation appropriating necessary funds. The General Assembly has final authority, however, in passing a final state budget for FY 2025.
In recent years, the General Assembly has, for the most part, accommodated much of the Governor’s requests and appropriated funds accordingly. Notably, the General Assembly failed to pass Universal School Voucher legislation last year, which was a priority in the Governor’s initial proposed budget. Those funds ultimately remained in the final budget, and will be carried over to this budget cycle.
The General Assembly’s final budget will also include appropriations for bills passed during the legislative session. It is unclear how much funding this will account for in the final state budget, but is likely small in comparison to the departmental budget requests and Governor’s proposed budget.
All Departments FY 2025-2026 Budget Hearings Videos and Presentations