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Staff photo by Ricky Young / Tennessee state capitol

NASHVILLE — As Tennessee revenues crater, Gov. Bill Lee says the state faces a $1 billion shortfall in the $39.8 billion budget set to take effect July 1 and plans among other things to to eliminate nearly $150 million in proposed pay raises for educators and state government employees.

With the COVID-19-induced plummet in state tax collections, the Republican governor is also asking lawmakers to cut $38 million in previously planned "outcomes based" funding formula for public colleges and universities, designed to reward institutions for moving students toward graduation.

Lee's originally proposed government worker pay raises had already been cut in half as a result of the emergency budget approved by the General Assembly on March 19 as the breadth of the pandemic's impact on state finances became increasingly clear.

The elimination of those and other state plans were announced by state Finance Commissioner Butch Eley to Senate Finance Committee members Thursday morning as he described the governor's plans to close out the current Fiscal Year 2020 budget year ending June 30. It faces a $500 million shortfall with the other $1 billion projected for Fiscal Year 2020-2021.

Eley also laid out the administration's plan to keep the budget under control and basic government functions operating through Fiscal Years 2022 and 2023 as revenues presumably recover.

The commissioner said the administration plans to use $600 million in state reserves — Tennessee has about $4 billion in various funds — to help cover the current year shortfall.

Another $150 million from reserves would be used to offset shortfalls in the new budget that starts July 1. Eley said both year's budgets will be "structurally" balanced but do use one-time revenues, typically a budgetary no-no but often resorted to in times of crisis.

Lee also is hoping to entice an unknown number of state employees to retire with creation of a $50 million fund of one-time money to provide incentives in the new budget. It's all a far cry from Lee's original budget presented to Tennessee lawmakers in February.

Another Lee area already generating pushback from minority Democratic lawmakers is the governor's plan to go ahead with the previously statutorially approved final elimination of the Hall Income Tax in interest and dividend income n the new budget. That will cost the state $38 million in revenue.

And despite slashing funding in areas including about $11 million for the Employment and Community First CHOICES program offering services for intellectual and developmental disabilities, Lee is sticking by his private school voucher program for Davidson and Shelby counties.

The program, declared unconstitutional by a Davidson County chancellor but under appeal by the state, is scheduled to begin this fall. Lee had planned to spend some $40 million on the "education savings accounts" that allow parents to use tax dollars to send their children to private schools.

But because only 2,000 of the 5,000 originally estimated lower income students have applied, his budget slashes in half the funding. But the program will take effect, Eley said in response to questions posed by Senate Minority Leader Jeff Yarbro of Nashville.

Yarbro questioned the administration continuing with spending $20 million or so on the new Education Savings Account program with the other $38 million in lost revenue to end the Hall Income Tax in the new budget.

"Most people most are prepared to make sacrificies," Yarbro said. "But it is also the reality that the ESA program and the tax cuts we're leaving those off the table," Yarbro said.

Replied Eley: "I would just say that all of those things that you mentioned were things that this legislature has already considered and passed and acted on. We're just trying to respect that."

The state is also canceling a number of building projects across state government and higher education. Tennessee typically pays for buildings, renovations and major maintenance with cash. Lee is recommending use of bonds for a number of projects.

One of those projects the administration now plans to use bonds for is a $50 million infrastructure grant for Chattanooga-based Volkswagen.

Contact Andy Sher at asher@timesfreepress.com or 615-255-0550. Follow on Twitter @AndySher1.

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