(NASHVILLE, TN), January 10, 2013 — The 108th General Assembly was gaveled to order this week in Nashville as the state’s 132 lawmakers took the oath of office, elected officers and organized to begin the business of the 2013-2014 legislative sessions.
Families and friends crowded the Senate chamber and watched proudly as 16 of the State Senate’s members took the oath of office, which was the first order of business during the organizational session. The eight new members of the Senate include Senators Frank Nicely (R-Strawberry Plains), Todd Gardenhire (R-Chattanooga), Janice Bowling (R-Tullahoma), Ferrell Haile (R-Gallatin), Steve Dickerson (R-Nashville), Mark Green (R-Clarksville), John Stevens (R-Huntingdon) and Joey Hensley (R-Hohenwald). This is the largest number of incoming freshmen Senators in Tennessee since 1969.
The second order of business was the election of Lt. Governor Ron Ramsey. Ramsey, who also serves as Speaker of the Senate, is serving his fourth term as Lt. Governor.
Ramsey reflected on the work of the State Senate since being elected Lt. Governor in 2007 saying, “Over that time, we have put conservative principles into action by balancing our budget, instituting landmark education reform and cutting taxes. We have not only brought efficiency and accountability back to government; we have shrunk its size and limited its scope. In lean times, we have cut and balanced our budget — and even returned money to the taxpayer in the process.”
“When we have borrowed money, we have paid it back – promptly and in full,” he continued. “That is the Tennessee way. As our federal government teeters on the edge of a fiscal cliff, Tennessee’s feet stand planted firmly on sound fiscal principles.”
General Assembly re-elects Secretary of State, Treasurer, and Comptroller
The opening week of the 108th General Assembly was also marked by re-election of the state’s constitutional officers, the secretary of state, treasurer and comptroller. The state’s constitution provides that the legislature selects the three offices in a joint session during the organizational session of each General Assembly, which occurred on Thursday.
Elected and sworn in were Tre Hargett as Secretary of State, David Lillard as State Treasurer, and Justin Wilson as Comptroller. Hargett will serve a four-year term, while Lillard and Wilson will serve two-year terms as provided by the Constitution.
“I am very proud of the work Treasurer Lillard, Comptroller Wilson and Secretary of State Hargett have done over the last four years,” said Senate Majority Leader Mark Norris (R-Collierville). “They have made many major improvements to make Tennessee state government work more efficiently and effectively which benefits all Tennesseans. All three of these public servants are well deserving of another term in office.”
The secretary of state has oversight over elections and businesses in the state. The comptroller audits state agencies and county governments to ensure they are run well. The treasurer keeps track of the state’s coffers, its investments and its pension funds. The three officers also serve on several key boards together, such as the State Building Commission, which maintains all state-owned public buildings; the Funding Board, which helps guide budgeting; and the Tennessee Housing Development Agency, which builds affordable housing.
Financial issues will again dominate legislative session
With organizational tasks out of the way, the General Assembly can now get to work on the important issues facing Tennessee. Topping this year’s agenda will be job creation, health care, court reform, worker’s compensation, education reform and consideration of a balanced budget that continues to phase in tax reduction measures passed during the last General Assembly.
Governor Bill Haslam is set to deliver his budget address on Monday, January 28 in a joint session of the General Assembly. Year-to-date collections for the first quarter of the current fiscal year were $68.6 million more than the budgeted estimate. Tennessee’s State Funding Board met in December and agreed to a revised tax revenue growth forecast for the current 2012-2013 fiscal year of 1.91% to 2.65% with growth of the general fund set at 1.98% to 2.85%. For the upcoming 2013-2014 fiscal year, the Funding Board projected tax revenue growth of 2.55% to 3.49%, with growth in the general fund set at 2.74% to 3.89%. If state revenues perform according to projections, Tennessee could have anywhere from $264 million to $375 million available for the next budget year. Fiscal years begin on July 1.
“The bad news on the budget is that in order to reduce the cost of Medicaid, the federal government has offset their reductions by increasing state costs without giving states the flexibility to deal with it,” said Senate Finance Committee Chairman Randy McNally (R-Oak Ridge). “The good news is that we have an exemplary leadership team in Governor Haslam, Lt. Governor Ramsey and Speaker Harwell who can successfully face the fiscal challenges the federal government has presented to us.”
The surplus will help as Tennessee braces for potential cuts from Washington. In addition, there are huge financial concerns regarding the costs of the Patient Protection and Affordable Care Act (Obamacare) to Tennessee as officials estimate the federal health reform law will cost the state up to $1.4 billion in its first 5½ years.
“Although our economic picture improved last year, I am disappointed that recently new revenues have not come in as robustly,” McNally added. “We must take a cautious approach to spending in the upcoming fiscal year.”
The lack of a permanent solution regarding cuts in Washington leaves states with little clue about how much their share of federal revenue will shrink this year. However, it was estimated that Tennessee’s share could be as high as $85 million under the previously adopted sequestration plan. Since prospects are high for another federal showdown in March, this means Tennessee must be very conservative in state spending plans.
The Governor has already asked state departments and agencies to identify five percent in potential cuts in case they are needed. He also wants to prioritize spending for the most critical areas of state government.
Continued phase in of tax reductions — The legislature will take up the second phase of legislation to roll back taxes in the 2013 legislative session. Several tax cut measures were approved last session, including elimination of the gift tax, phasing out the inheritance tax and lowering of the state’s portion of sales tax on food. The next phase of inheritance tax relief and lowering the state’s portion on food tax will likely be considered in the upcoming session.
“During tough economic times, it is even more important to provide citizens with relief, as well as stimulate economic growth in our state,” said Senate Republican Caucus Chairman Bill Ketron (R-Murfreesboro). “We must continue the forward progress we made in the 2011 and 2012 legislative sessions.”
Lt. Governor Ron Ramsey has also called for the next phase in providing Hall Tax relief. The General Assembly passed legislation in 2011 to provide Hall Tax relief to senior citizens age 65 and older by raising the exemption levels. Enacted in 1929, the Hall Tax is levied on interest and dividend income from investments. Over the years, it has become more common that senior citizens have used such investments for their retirement income. Of the individuals who pay the tax, 48 percent are age 65 and older.
The current exemption level for citizens 65 and older is $26,200 for a single filer or $37,000 for joint filers. Expect efforts to raise that exemption level to further provide Hall Tax relief to senior citizens. Legislation has been filed every General Assembly to abolish the tax completely.
Health Care – Expect health care to also be high on the list of issues the legislature will tackle this session. Last year, 77 Tennessee lawmakers joined the State of Florida, 25 other states, and the National Federation of Independent Business in filing as amicus parties (friends of the court) challenging the constitutionality of the individual mandate in the Patient Protection and Affordable Care Act (PPACA). Although the Court upheld the “individual mandate” requiring citizens to purchase health insurance, it struck down the portion that would have punished states for not expanding eligibility for their Medicaid rolls. As a result of that decision, Congress can deny expansion funds to the states, but cannot cut Medicaid for states which do not increase their rolls.
“We have worked hard in Tennessee to balance our budget by cutting spending while still lowering taxes and growing our rainy day fund,” said Senate Health and Welfare Committee Chairman Rusty Crowe (R-Johnson City). “We are finally moving forward in a very positive direction. Implementation of the Affordable Care Act could seriously affect this positive progress our state has made. As we work through these health and insurance issues, the 2013 legislative session could prove to be one of the most difficult in many years.”
Each year, Tennessee spends about a third of the state’s budget, $9 billion, on Medicaid. In addition, doctors and hospitals across the state provide several billion in free care to uninsured patients. They are compensated in part for providing this care by Medicaid and Medicare “disproportionate share funds.”
Tennessee hospitals are concerned that under the Affordable Care Act their disproportionate share funds will be reduced by 25 to 50 percent beginning in 2014 unless Tennessee expands its Medicaid eligible population as required under the new federal healthcare law. The expansion would affect those with incomes below 138 percent of the poverty level, which is the required threshold to receive the allocated federal funds. The Centers for Medicare and Medicaid Services (CMS) recently ruled that the federal law does not provide flexibility to states for a phased-in or partial expansion.
A report issued by the Kaiser Family Foundation’s Commission on Medicaid said that Tennessee will see an increase of 331,000 by 2019, or 29.9 percent, with 246,000 of those being previously uninsured under this level of expansion. The report projects new spending for the state would be $716 million on the low side and $1.5 billion on the high side.
Besides the immediate financial impact, Tennessee must weigh whether or not the federal government will continue to fund an expanded Medicaid-eligible population after the initial three-year commitment in the face of a federal deficit crisis. The federal government had pledged to cover the cost of TennCare expansion for the first three years and a large portion of the costs thereafter. However, many federal lawmakers are calling for entitlement reform, leaving more questions regarding how long federal funds for the expansion will last.
Another concern is the large number of new rules coming out of Washington for the federal healthcare program.
“The Affordable Care Act is a misnomer,” added Finance Committee Chairman Randy McNally (R-Oak Ridge). “There are 27 additional taxes and fees that were a part of it. We are finding out how expensive free care can be.”
States across the nation are considering all of these factors as they conduct their fiscal analysis and weigh their options regarding a potential Medicaid expansion. Legislation (Senate Bill 1) has already been filed in the State Senate to prevent expansion of Tennessee’s Medicaid program under the federal healthcare plan.
The General Assembly has adjourned until January 28, 2013 to assign offices and await budget details.