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Gov. Bill Haslam delivers his annual State of the State address to the Tennessee Legislature on Monday, Feb. 9, 2015, in Nashville.

NASHVILLE -- Gov. Bill Haslam on Monday unveiled a $33.3 billion spending plan for fiscal year 2016 that calls for pay increases for both K-12 teachers and higher education employees as well as $165.8 million worth of infrastructure commitments for Volkswagen's planned expansion at its Chattanooga plant.

At the same time, the Republican is recommending spending cuts of $200 million in other areas as he seeks to make room for must-do items and his own priorities while staying within the some $300 million in revenue growth he's anticipating in the new budget taking effect this July 1.

"You will see in the budget that we are continuing to invest in the things that we believe in and that Tennesseans care about: education, jobs and a customer-focused, efficient and effective state government," Haslam said in his State of the State address to a joint convention of the General Assembly Monday night.

Other local allocations

Locally, Haslam is also proposing:

* The University of Tennessee at Chattanooga would receive $4.9 million for improvements at the university's Guerry Center. Bond proceeds would fund $3.5 million of the amount.

* UTC would also see current funding rise from an estimated $151.81 million in the current 2015 budget to $155.96 million in the FY 2015/2016 budget taking effect this July 1.

* Chattanooga State is slated for $850,000 in parking lots. The budget document did not provide operating budget breakdowns for individual community colleges.

His proposed budget sets aside $44 million to fully fund the state's Basic Education Program funding formula for K-12 education. And it provides another $97.6 million for a salary boost for K-12 teachers. The pay increases drew a standing ovation from lawmakers.

The salary increases are technically a 4 percent increase. But administration officials emphasize that what individual teachers actually see depends on how local school boards choose to appropriate the money. For example, systems like Hamilton County's employ any number of teachers and other workers beyond the BEP formula. Systems often try to take that into account when using state increases.

Haslam also intends to fully fund the state's Complete College Act, which would cost $25.7 million. The CCA formula moves away from simply paying colleges and universities for each enrolled student. Instead, institutions are rewarded for moving students toward graduation.

Haslam's budget provides another $19.5 million for higher education salary increases. It amounts to about a 1.5 percent pay increase per employee, but again depends on how the University of Tennessee and Tennessee Board of Regents systems choose to divvy it up.

Last year, Haslam's budget called for similar pay increases in K-12 and higher education as well the funding rewards for the Complete College Act. But he was forced to renege on his promises after state revenues dropped dramatically, forcing substantial cuts in last year's budget as well as the use of some emergency reserve funds.

There are also funds for "some" capital construction projects in higher education, he said.

The governor's budget cuts call for eliminating 559 employee positions -- 501 of which are currently filled. The bulk -- 305 people -- work at the Charles B. Bass Correctional Complex in Nashville, which the state plans to close.

Also on the chopping block are 131 positions at Nashville's Woodland Hills juvenile detention facility, the site of three major incidents last fall including the escape of dozens of teens and a riot in the yard. The state is moving toward putting teens in privately run settings.

"... If you take the things that we're required to do and then our new proposals, that totals about $500 million," Haslam said of the overall budget during a media preview of his state address.

"Quick math tells you that requires about $200 million in cost cuts," said Haslam. "The cost reductions that we make always involve hard choices, but we have to do them to balance the budget."

Haslam later told lawmakers his administration has previously "redirected" more than $450 million "so that we can keep funding our state's needs while we are balancing our budget."

Haslam's proposed budget relies on 3 percent revenue growth, which would generate $300 million. And it takes into account the final phase-out of the state's inheritance tax.

The governor has several recommendations to get more revenue. One is an increase from 5.5 percent to 6 percent in the state's Health Maintenance Organization tax. That would bring in another $33.5 million for the state's TennCare health insurance program for low-income Tennesseans.

He also announced proposed changes to business taxes, which fell sharply last year. Aside from "natural" volatility in the taxes along with other issues, the governor said part of the problem is out-of-state firms "aren't always required to pay the same taxes that our in-state and homegrown companies do." He intends to address that.

All in all, the governor is counting on $330.5 million in new recurring revenues either through natural growth of existing taxes or closing off corporate tax "loopholes."

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In developing a budget, Haslam said, the state has to work within a framework that takes into account what new revenues it has and what it must do while accounting for his own priorities.

He is proposing a $47.7 million salary "increase" for state employees. However, the major pot of money the governor intends to get the funds from is expected to trigger a fight with the Tennessee State Employees Association.

That's because the governor is eliminating $34.1 million in employee "longevity" pay. That's the $100 per year of service each worker gets after their first three years of work. About half the longevity pay would go to bolster employee base pay. But whether they get back the remaining money depends on new and tougher annual employee evaluations.

The $165.8 million for Volkswagen would pay for infrastructure and related expenditures for the plant's expected new line of SUV production.

The VW funds are part of $201 million in incentives. A yet-to-be-named economic development project somewhere in the state is slated for $35.2 million.

Haslam also intends to carry through with previously disclosed plans to contract with Trousdale County government to operate a new state prison. Trousdale, in turn, has contracted with Corrections Corporation of America to run the facility.

Haslam's total proposed budget relies on $15.1 billion from state sources and $12.8 billion from the federal government. Another $5.4 billion comes from other sources.

It would bring the state's "Rainy Day" emergency reserve fund up from $492 million to $528 million. That represents a little over 4 percent of the state's general fund.

Contact staff writer Andy Sher at asher@timesfreepress.com or 615-255-0550.

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