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Tennessee Gov. Bill Lee answers questions after he spoke to a joint session of the legislature at the start of a special session on education, Tuesday, Jan. 19, 2021, in Nashville, Tenn. (AP Photo/Mark Humphrey)

NASHVILLE — Tennessee lawmakers approved a $42.6 billion state budget Thursday for the fiscal year that will start July 1, providing pay raises for public K-12 teachers as well as increases for state employees, local prosecutors and others amid massive revenue surpluses.

The General Assembly also included a proposal from Gov. Bill Lee, putting $250 million into a new mental health trust fund with interest earnings on the principal to be used to provide funding to boost programs addressing students' needs.

At the same time, lawmakers parted ways with Lee's original proposal in several areas, among other things inserting $250 million in one-time surplus cash into Tennessee's state pension system and injecting $100 million into the state's rainy-day reserve.

"That's a lot of money, but when we sat down and worked on this budget, we did it in the 'Tennessee Way,'" House Finance Committee Chair Patsy Hazlewoood, R-Signal Mountain, told the chamber.

Senate Finance Committee Chair Bo Watson, R-Hixson, likened Tennessee's approach to that of a financial adviser providing recommendations to a family on how best to manage.

"We pay ourselves first, we pay our obligations and we take on no new debt," Watson told Senate colleagues. "It is a perfect equation, and it is why we continue to be rated AAA by the bond rating agencies, it is why we continue to be recognized as one of the most financially stable states in the union."

Among other items slashed was Lee's proposed $100 million for a third state sales tax holiday. It was cut to $50 million and will cover sales taxes on restaurant food sales and groceries.

Dissatisfied minority Senate and House Democrats complained that Republicans were ignoring a number of needs, arguing the state should be plowing hundreds of millions of dollars more into K-12 education and yet more into health care.

"I think we're making some decisions that just aren't fair and aren't consistent with the way our system of government is supposed to work," said Senate Minority Leader Jeff Yarbro, D-Nashville. "There are some places where we are doing a lot more investing in physical spaces than in the people of the state."

Tennessee Budget Highlights

Total Budget: $42.6 billion

State portion: $21.1 billion

Federal portion: $15.5 billion

Other: $6 billion

Breakdowns:

* $100 million for local government improvements

* $250 million for mental health trust fund

* $750 million new education spending, including $71 million for the state’s share to boost K-12 employee salaries

* $215 million on health care

* $160 million on criminal justice/public safety initiatives

* $135 million transportation

* $39 million for Department of Dev

* $450 million economic/business development

* $79 million for Tennessee Colleges of Applied Technology (TCATs)

* $36 million to fully fund the higher education funding formula

* $24 million for Rural Opportunity Site Grants

* $30 million to eliminate deferred maintenance and improve accessibility at state parks

Legislative priorities:

* $250 million for state pension fund

* 4% employee raise

* $39 million to raise hourly pay for Department of Intellectual and Developmental Disabilities workers from $10 to $12.50.

* $25 million for a “Truth in Sentencing” bill that requires felons convicted of certain crimes to serve 90% of their sentences

* $100 million for broadband expansion

Federal pandemic, stimulus funds

* $8.7 billion to state and local governments

* $3.9 billion in education funding spending, 90% going to local education agencies

* $800 million in rental assistance program

* $100 million school lunch program

* $1.3 billion for higher education institutions

Source: House Finance Committee Chair Patsy Hazlewood; Gov. Bill Lee administration

Watson, Hazlewood and fellow Republicans, including House Speaker Cameron Sexton, R-Crossville, pushed back, saying their actions were reasonable on multiple fronts.

Hazlewood said a good part of the unanticipated revenue was attributable to Tennesseans purchasing long-term, big-ticket items such as vehicles, washing machines and the like. Such goods last for years, and the state is unlikely to see that type of growth again for some time, she said.

Rep. Yusuf Hakeem, D-Chattanooga, whose effort to push a floor amendment to the spending plan failed, later said, "I question if Chattanooga, Hamilton County is getting its share and particularly, communities of need and vulnerable communities. There were small amounts as far as appropriations that I asked for."

As an example, Hakeem said, he was unable to secure one-time money for the Bessie Smith Cultural Center.

Rep. Bo Mitchell, D-Nashville, took aim at $4.2 million that will be split between two groups — the Tim Tebow Foundation, a Florida-based nonprofit created by former University of Florida and NFL quarterback Tim Tebow that fights human trafficking, and Texas-based Human Coalition, a faith-based anti-abortion group.

Tennessee groups could have benefited from the money instead, argued Mitchell, adding that "when the nonprofits in your community ask, tell them you sent their money to Texas and you sent their money to Tim Tebow in Florida."

So far this fiscal year, Tennessee's revenues have soared more than $1 billion above the state's projections. Sales taxes are the budget's primary workhorse.

Lawmakers also slashed Lee's proposed one-time state grants for cities and counties from $200 million to $100 million, using the savings to bolster the state pension fund.

The thinking there, according to Watson and other Republicans, is that massive amounts of federal stimulus continues to come into Tennessee for local governments to use.

In a statement, Lee praised passage of the state's annual spending plan.

"I'm proud that this budget delivers on some of our top promises to Tennesseans and invests in external organizations meeting the needs of our local communities," Lee said, thanking lawmakers for what he called their "steadfast commitment to our shared goals and establishing Tennessee as a fiscal leader across the nation."

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

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