Tennessee’s current budget
Governor Bill Lee released his
FY
2026 budget proposal and gave his
state
of state address in February 2025. The
FY
2026 budget was enacted in May 2025.
Tennessee enacted its
FY
2025 budget in May 2024. The budget reported $52.8 billion in total
fund spending, a decrease of 14 percent over the previously enacted
budget. Tennessee passed business tax cuts in calendar year
2024,
following a wider package of tax cuts in calendar year
2023.
Under the
American
Rescue Plan, Tennessee received $3.7 billion in direct state fiscal
aid and $1.8 billion in local government aid from the federal
government. As of
January
2025, Tennessee had allocated over 75 percent of its state ARP.
States must spend the funds by Dec. 31, 2026.
According to the
National
Association of State Budget Officers (NASBO), Tennessee’s total
expenditures in fiscal year FY 2025 were $48.3 billion, including
general funds, other state funds, bonds, and federal funds. NASBO
reported that total expenditures across all states in FY 2025 were $2.9
trillion, ranging from $5.4 billion in Wyoming to $413.8 billion in
California.
According to NASBO,
Tennessee’s recent expenditure totals (general fund spending/total
spending, including federal transfers) were:
- FY 2025: $24.2 billion/$58.7 billion
- FY 2024: $23.4 billion/$53.1 billion
- FY 2023: $19.6 billion/$48.3 billion
- FY 2022: $16.6 billion/$43.6 billion
- FY 2021: $14.7 billion/$40.1 billion
- FY 2020: $15.2 billion/$36.0 billion
- FY 2019: $14.7 billion/$33.8 billion
For more on Tennessee’s budget, see
Tennessee’s budget institutions, rules, and constraints
Tennessee uses an
annual
budget. The legislature is not required to pass a
balanced
budget, nor is the governor required to sign one, and deficits may
be carried over into the following year. However, the state has
budget
rules that require lawmakers to balance revenues and expenditures.
Tennessee also
limits
annual spending growth with a
budget
rule based on personal income growth. The limitation can be
overridden with a simple legislative majority vote, though. Tennessee
also limits total
authorized
debt and debt service incurred by the state.
(Note: Some states have
informal
budget institutions that constrain overall spending growth or a
specific expenditure’s growth.)
Overview of Tennessee’s state and local expenditure and revenue
sources
Each state allocates spending and taxes differently among different
levels of governments, and local governments often administer programs
with state funds, so combined state and local government data show a
more complete picture of individual benefits and contributions when
comparing states.
Per the
US
Census Bureau, Tennessee’s combined state and local
direct
general expenditures were $60.5 billion in FY 2022 (the most recent
year census data were available), or $8,579 per capita. (Census data
exclude “business-like” activities such as utilities and transfers
between state and local governments.) National per capita direct general
expenditures were $12,083.
Tennessee’s largest spending areas per capita were
public
welfare ($2,071) and
elementary
and secondary education ($1,761). The Census Bureau includes most
Medicaid spending in public welfare but also allocates some of it to
public
hospitals. Per capita spending is useful for state comparisons but
is an
incomplete
metric because it doesn’t provide any information about a state’s
demographics, policy decisions, administrative procedures, or residents’
choices.
Tennessee’s combined state and local
general
revenues were $67.1 billion in FY 2022, or $9,521 per
capita. National per capita general revenues were $13,619. Tennessee
does not levy an
individual
income tax on salaries and wages but does tax bond interest and
stock dividends. After
federal
transfers, Tennessee’s largest sources of per capita revenue were
general
sales taxes ($2,158) and
charges
($1,408), such as state university tuition and highway tolls.
Tennessee’s economic trends
Tennessee’s
per
capita income (per the Bureau of Economic Analysis) was $64,908 in
2024, ranking 32nd among the states. It was below the national average
of $72,425, but above the Southeast regional average of $61,546. The
state’s
median
household income (five-year estimate) was $69,595 in 2024, ranking
41st among the states and below the national average of $80,734.
Tennessee’s
poverty
rate was 13.8 percent in 2024 (five-year estimate), above the
national rate of 12.5 percent.
Although Tennessee’s averages tell a story about the entire state,
Tennessee is composed of diverse localities. For example, the city of
Morristown’s median household income was $47,917, and its poverty rate
was 26 percent; the city of Brentwood’s median household income was
$182,088, and its poverty rate was 3.6 percent.
Tennessee’s
unemployment
rate historically tracks the national average, though the state rate
is more volatile than the US rate.
Unemployment rates (like other economic indicators) often
vary
significantly by race and ethnicity. In Tennessee, the average
unemployment rate in 2024 was 2.7 percent for white residents, 6 percent
for Black residents, and 3.6 percent for Hispanic or Latino
residents.
The major industries that contributed the most to Tennessee’s
gross
domestic product (GDP) in 2024 were finance, manufacturing,
professional services, social services (i.e. health and education), and
government. Manufacturing and social services contributed more to
Tennessee’s GDP than they did to the nation’s and region’s GDP, while
finance, professional services, and government were less important to
Tennessee than they were to the nation and region in 2024.
Looking at more specific industries, among those that accounted for
at least 1 percent of Tennessee’s GDP in 2023, motor vehicle
manufacturing produced far more for the state than for the nation,
contributing 2.2 percent to Tennessee’s GDP and 0.6 percent to the
nation’s. Other industries that overperformed in Tennessee relative to
national averages in 2023 were retail, hospitals, performing arts, and
food and beverage manufacturing.
Tennessee’s politics
Governor Bill Lee, a Republican, was elected in 2022 with
74
percent of the vote. The next gubernatorial election is in 2026.
Republicans
control
both the House of Representatives (75 Republicans to 24 Democrats)
and Senate (27 Republicans to 6 Democrats), with
veto-proof
majorities in both houses. Control of the governor’s mansion and
each house of the legislature gives Republicans a
trifecta
in Tennessee. All Tennessee House seats are on the ballot in 2026
because representatives serve two-year terms. Senators serve four-year
terms; roughly half the senatorial seats are on the ballot in 2026, and
the other half will be up for election in 2028.
Tennessee’s demographics
As of July 2024, Tennessee’s population was 7,227,750. That was up
13.7 percent from 2010. The state’s population growth rate was faster
than than the nation’s 9.9 percent growth over the same period. The
Urban Institute
estimates
the state’s population will increase 17.2 percent between 2010 and 2030,
more than the nation’s estimated growth rate of 16 percent.
