Monday night, Governor Bill Lee delivered his seventh State of the State address to a joint session of the House and Senate. The $59.5 billion FY2026 budget proposal is higher than last year’s proposed $53 billion budget and will now go to the legislature for final consideration. Last year’s legislature-approved budget came in at $60.5 billion.
Key highlights are noted below, and the full speech as prepared for delivery can be found here. A Fiscal Year 2025-26 budget overview can be found here.
BUDGET ALERTS:
- $1.2M Houses of Worship Security Grants: To provide non-recurring funding for security grants for houses of worship.
- $4.8M Arts Commission Grants: To provide funding for arts education, community enrichment, and other arts grants and program activities. Grant programs are intended to promote interest and participation in the performing, visual, and literary arts by developing cultural resources across the state. Other funding is from the license plate reserve and is non-recurring. Of the dedicated state funding, $900,000 is recurring and $1,100,000 is non-recurring.
- $27.3M Summer Learning Camps and Transportation: To provide recurring funding for the summer learning camp and summer learning transportation program.
- $10M Paid Parental Leave To provide recurring funding to reimburse LEAs for paid parental leave for eligible licensed employees due to growth in the program.
- $23.7M Health Starts Initiative: To provide non-recurring funding for the fourth year of the Health Starts Initiative, which integrates whole-person health approaches for TennCare members. The program includes provider partnerships to screen and refer members for identified social needs, continued implementation of a closed-loop referral system, and a program to help bring targeted groups of providers under the benefit umbrella. State matching funds for this item will be allotted from the TennCare Reserve.
- $31.4M Shared Savings – Diapers for Kids Program: To provide non-recurring funding for the Diapers for Kids pilot program, which provides access to diapers for children up to age two. Other funding is from TennCare Shared Savings.
- $7M Shared Savings – Community Mental Health Centers Quality Payments: To provide non-recurring funding to increase funding to community mental health centers and Tennessee Health Link providers through quality incentive payments. Other funding is from TennCare Shared Savings.
- $4M K-12 Mental Health Trust Fund Grants: To provide non-recurring funding for community grants to enhance behavioral treatment in schools. Other funding is from the K-12 Mental Health Trust Fund.
- $5.9M Expand Smart Steps: To provide recurring funding for the expansion of the Smart Steps Child Care Assistance Program to families between 85 percent and 100 percent of the state median income. This program supports working parents pursuing post-secondary education by offering financial assistance for childcare costs.
- $7.2M Expand WAGE$ Child Care Program: To provide recurring funding for the Child Care WAGE$ Program, which supplements the salaries of early childhood educators to improve retention rates at childcare facilities.
- $15M Child Care Improvement Fund Grants – Year Three of Three To provide non-recurring funding to disburse grants from the Child Care Improvement Fund to nonprofit organizations to establish new or improve existing childcare agencies.
- $10.9M Boys and Girls Club Grant: To provide non-recurring funding for a grant to the Boys and Girls Club to assist in child care programming.
- $7M Youth Employment Program: To provide funding to expand the summer youth employment program. The program connects youth and young adults with career exploration opportunities and paid work experiences. Of this total cost, $2,000,000 is recurring and $5,000,000 is non-recurring.
- $60M Starter Home Revolving Fund – General Fund Subsidy: To provide a non-recurring general fund subsidy for the Starter Home Revolving Fund. This fund will aim to increase availability of affordable starter homes across the state with a focus on rural areas.
You can view the full recording of Governor Lee’s State of the State here.