FILE - Tennessee state Rep. William Lamberth

Tennessee state Rep. William Lamberth, R-Portland

(The Center Square) – The Tennessee House and Senate passed a $39.5 billion fiscal year 2021 budget early Friday morning that does not include a pay raise or a bonus for teachers or other state employees.

Leaders from both chambers worked late Thursday night into early Friday morning to reach compromises on a few budget items that were holding up an agreement. The Senate and House spending plans did not agree on teacher bonuses, local government funding, the Hall income tax and a sales tax holiday.

Both chambers had removed a salary increase for teachers and other state employees because of revenue losses caused by the response to COVID-19, but the House-passed bill allocated funding for a nonrecurring bonus. During a joint conference committee, House Majority Leader William Lamberth, R-Portland, said his chamber agreed to remove the provision because of a lack of funds.

Some Democrats in the House raised concerns about the budget, particularly over teachers not receiving a bonus.

The budget also removes a raise for members of the General Assembly.

Tennessee’s Hall income tax will be eliminated by 2021 as part of the new budget bill, which is in accordance with the General Assembly’s commitment to phase out the tax. The House’s version had sought to postpone this phase-out until 2025, but the chamber’s leadership also conceded on this issue. The tax, which is the state’s only income tax, is a 1 percent tax on interest and dividend income from investments.

The General Assembly also came to an agreement on a sales tax holiday. The holiday will be more encompassing than usual, but not as elaborate as the $100 million holiday proposed by Rep. Patsy Hazlewood, R-Signal Mountain. The compromise holiday, which will cost the state about $25 million, will be in effect during the last weekend of July and the first weekend of August. The sales tax holiday would be expanded to purchases at restaurants to help them recover from the economic losses caused by COVID-19, and it would raise the cap for school supplies.

The budget also includes $200 million in funding for local governments to combat COVID-19 and recoup economic losses, but it removes the strings Gov. Bill Lee initially attached to the funding. The two chambers hashed out an agreement on funding for Memphis and Nashville. Both will have a cap of about $10 million from this fund.

Several projects the state already has approved will be paid for via bonds because the state cannot afford to pay up front. Tennessee still will remain one of the least indebted states in the country.

The compromise budget also removes funding for the Education Savings Account program because it’s held up in the court system and cannot be implemented in time for the next school year.

The budget also includes deep cuts to state agencies to offset the revenue losses from COVID-19. It requires the governor to find $20 million in recurring cuts in vacant positions in two years.

The legislation now heads to the governor’s desk. Lawmakers had passed a $39.8 billion fiscal 2021 budget in March at the onset of the COVID-19 pandemic.

Staff Reporter

Tyler Arnold reports on Virginia and West Virginia for The Center Square. He previously worked for the Cause of Action Institute and has been published in Business Insider, USA TODAY College, National Review Online and the Washington Free Beacon.