The Process Behind the Policy: Fiscal Notes Explained

The Tennessee General Assembly has several responsibilities outlined in the state constitution. One is lawmaking—proposing, debating, and passing both general bills (statewide) and local bills (affecting specific counties or towns).
Another key responsibility is fiscal oversight. The General Assembly alone can:

• Appropriate money from the state treasury
• Levy and collect taxes, and authorize local governments to do the same
• Pass a balanced state budget for government operations

Unlike the federal government, Tennessee’s constitution requires a “balanced budget”. This does not allow deficit spending.

Legislation and fiscal oversight are closely connected. Many bills create policies or programs that cost money, and a bill can only pass if its cost is covered in the state budget. The financing of a bill can determine whether it succeeds or fails, which is why fiscal notes are important.

Fiscal notes are prepared by staff for the joint House and Senate Fiscal Review Committee. This is established by law (TCA 3-7-101).

What is a fiscal note?

According to law (TCA 3-2-107): “Fiscal notes shall be provided for all general bills or resolutions increasing or decreasing state or local revenues, making sum-sufficient appropriations, or increasing or decreasing existing appropriations or the fiscal liability of the state or of the local governments of the state.”

A fiscal note estimates how much a bill will cost and how much revenue it may generate. It considers implementation costs and other financial impacts on state and local governments. In recent years, fiscal notes have also estimated impacts on private businesses.

When a bill is introduced, it is assigned to relevant departments or agencies. They submit data to Fiscal Review staff, who analyze the information and draft the fiscal note. After internal review, the note is issued and attached to the bill.

What does it mean for a bill?

If a fiscal note estimates costs above a certain amount, the bill must go to the Finance Committee before reaching the full House or Senate for a vote. Policy committees (such as Education or Health) may approve a bill, but it cannot move forward unless its cost is funded in the state budget.

Some bills may have a positive fiscal impact. They may create revenue for the state. This was the case with the accessible parking bill HB 1457/SB 1684 this session. That bill is estimated to generate revenue for the state because of the projected increase in the number of individuals (high-risk pregnant women) paying the permit fee. According to Senate rules, if a bill has a positive impact on revenue, it does not have to go to their Finance committee.

When the Governor releases a proposed state budget early in the year, the legislative appropriations process begins, led by the House and Senate Finance Committees. Every dollar spent—including federal funds—must be approved by the legislature. These decisions are written into the appropriations bill.

Behind the Budget

Finance committees often hold bills with fiscal impact until the appropriations bill moves forward.

For example, HB 0789/SB 1151 concerns STEP UP scholarships for students with intellectual and developmental disabilities enrolled in postsecondary programs. The bill removes the requirement that students enroll within 16 months of graduating high school to qualify for the scholarship. Because this change would allow more students to qualify, the fiscal note estimates costs exceeding $99,000 in the first year and beyond.

The Senate Education Committee passed the bill easily. However, due to the fiscal note, it was sent to the Senate Finance Committee, which placed it “behind the budget.” This means the committee will only consider the bill if funding for it appears in the appropriations bill. If it is not funded in the proposed budget, no further action will be taken.

The Money Matters

When advocating for legislation it is important to pay attention to both the policy and the funding. Many great ideas, programs, and policies have been tripped up by the funding issues.