Tennessee Budget Basics

Casey, Rep. Behn's social work intern, digs into the 2025 state budget and its timeline for passage (infographic below).

Budget Overview

Let’s be honest, analyzing a state budget is not exactly thrilling. It’s dense, confusing, and a little infuriating. But here’s the thing: if you want to know what your government truly values, follow the money.

In February, Governor Lee unveiled his $59.5 billion budget proposal for the 2026 fiscal year. This budget includes new investments in roads, education, and public safety. But it also includes massive giveaways to corporations, one-time funding patches for long-term problems, and barely-there gestures toward housing and childcare—two of the biggest crises facing Tennesseans. I once heard that a budget is a moral document. If that’s true, I have some serious questions about our collective soul.

Let’s talk about where the money comes from—because it matters.

• About half of our state’s budget comes from state-generated dollars, about 35% from federal funding, and the rest from things like tuition and bonds.

• When it comes to state-generated dollars, more than 60% is from sales tax. That means when you buy groceries, school supplies, or gas, you’re helping fund Tennessee’s operations.

• It also means our budget depends heavily on a tax that hits low- and middle-income folks hardest—and that’s especially risky in uncertain times. With inflation, possible job losses, and economic slowdowns on the horizon, sales tax revenue is anything but stable. To make matters more precarious, a lot of the cushion we’ve had in recent years came from federal pandemic relief dollars that are now gone.

Now that we’ve discussed where the money comes from, let’s discuss where it goes. I will use healthcare (TennCare, our state Medicaid program that insures low-income Tennesseans) and education as examples.

• About 72% of state spending is directed toward Health and Social Services (46%) and Education (26%). On paper, that sounds pretty good. The budget recommends $281 million to cover inflation-related costs in TennCare and $207 million to support our public schools. But here's the catch: TennCare, our state’s Medicaid program, has a long-standing habit of not spending what it's given. In government-speak, this is called a “reversion”—basically, when an agency quietly returns money it didn’t use. In the 2025 fiscal year alone, TennCare reverted $256 million. That’s not savings—that’s services that weren’t delivered to people who likely needed them.

• And then there’s education. The budget includes a 3.1% bump in per-pupil spending through the TISA school funding formula, raising the base amount from $7,075 to $7,295. But let’s not break out the confetti just yet—that’s still only about half of what the average state spends on its students. As for teacher pay—there’s a raise, sure, and even a one-time $2,000 bonus. But let’s be honest: it barely scratches the surface and does nothing to make up for the fact that, adjusted for inflation, teacher salaries in Tennessee are 20% lower than they were in 2010.

• Meanwhile, the state plans to spend $146 million in recurring dollars to bankroll private school vouchers through the so-called “Education Freedom Scholarship Act.” So public school teachers get a one-time thank-you check, while private schools get a long-term funding stream. If that doesn’t tell you everything you need to know about this administration’s priorities, I’m not sure what will.

Unfortunately, healthcare and education are not the only things getting shortchanged in the budget proposal. The budget also fumbles hard on two of the most urgent issues facing working families: housing and childcare. The proposed $60 million for a Starter Home Revolving Fund and $30 million in tax credits might sound promising—until you realize they’re more likely to increase developer profits than put keys in the hands of everyday Tennesseans. And there’s nothing to help renters. No rent caps, no eviction protections, and no investment in public housing.

What about childcare? The modest funding boosts for access and workforce retention are nowhere near what’s needed to support working parents or fairly compensate care providers. Meanwhile, the Republican supermajority quietly killed a bill that would have created Universal Pre-K—before it could even get a fair hearing.

Sensing a pattern? Our government is tossing spare change at problems that demand real, sustained investment while ignoring apparent solutions. Roads are no exception. The 2026 budget proposes a $1 billion transfer from the General Fund to the Highway Fund to patch up Tennessee’s rickety infrastructure—a classic case of robbing Peter to pay Paul.

Sure, a billion dollars sounds like a lot—until you remember the state’s estimated road repair needs total $38 billion. Rep. Behn’s Pot for Potholes bill could’ve created a long-term funding stream by taxing marijuana sales—bringing in hundreds of millions annually. But like so many other common-sense proposals, it died quietly in committee.

So, who benefits from this budget proposal? Spoiler: it’s not working-class families. It’s the ultra-wealthy and billion-dollar corporations. Tennessee has the country's third most regressive tax system, where low-income families pay an effective tax rate that’s triple what the richest Tennesseans pay and more than double what the average corporation pays. And in the midst of all this, the state set aside $1.6 billion for franchise tax refunds—yes, that’s a billion with a B. At the same time, 12% of billion-dollar corporations paid just $100 in franchise taxes, and nearly a quarter paid nothing in excise tax. It raises fundamental questions about priorities—especially when proposals like ending the grocery tax are dismissed as “pipe dreams.”

Let’s be honest—when our tax system is flipped upside down to favor corporate interests and the ultra-wealthy, it’s folks like Black women, single moms, disabled Tennesseans, and other communities who’ve been pushed to the margins who end up carrying the heaviest load. This isn’t new. For as long as our country has existed, America has built its wealth off the backs of the working poor while rigging the rules to keep power and profits in the hands of a few.

And Tennessee’s tax system is no exception—it’s the same old story. We’re asking the people who can least afford it to foot the bill while corporations and billionaires get off easy. Instead of helping people build financial security or create absolute paths to generational wealth, our state keeps doubling down on policies that widen the gap. This isn’t an accident. It’s a choice. And until we change the rules, the cycle will keep repeating itself.

I don’t know about you, but I’d rather see my government invest in our communities than pad the pockets of people who already have more than enough. With a recession looming and the economic impact of Trump’s tariffs and proposed cuts on the horizon, Tennesseans can’t afford a government asleep at the wheel. We need a budget that reflects real priorities—housing, childcare, public schools, health care, and good jobs—not one that keeps handing out favors to the wealthy few. Budgets do seem like moral documents. Let’s start demanding one that has a conscience.

Budget Overview