The 114th Tennessee General Assembly Adjourns Sine Die: An Overview

FY 26-27 Budget: Notable General Welfare Items and Legislative Adjustments

Lawmakers emphasized that this year's budget reflected a return to pre-COVID norms as federal funds from that era are depleted or obligated, i.e., assigned for a specific use. That coupled with mild revenue growth and matching inflation levels did not leave the necessary flexibility for novel policy ideas and the funds needed to accomplish them. This year's budget totals just over $58 billion, with 52 percent from state-specific sources, 32 percent from federal sources, and the remaining 16 percent from fees, bonds, etc. General welfare highlights include:

• 50 new Tennessee Highway Patrol positions;
• 42 new positions for the Tennessee Bureau of Investigation;
• $50 million for Memphis downtown safety grants and crime prevention;
• $44.2 million into the Governor's Response and Recovery Fund for future natural disaster recovery;
• $400 million from the state's general fund to the Tennessee Department of Transportation for various road projects;
• $165 million to renovate and construct welcome centers across the state;
• Completing the goal to raise starting teacher salaries to $50,000; and
• $20 million into the "Rainy Day" Fund, allowing total reserves to reach more than $2.1 billion by June 30, 2026.

Budget: Legislative Adjustments, TennCare Buybacks Funding Braid 

Throughout most of a governor's tenure, allocations made in the proposed budget are marginally adjusted by the legislature, with the legislature using remaining funds to support various initiatives. During the last budget cycle as well as this one, the legislature made substantial changes to the items proposed. This year, reductions, eliminations, and redirections totaled $271 million.

The core of legislative adjustments braided funding to support TennCare buybacks, a mechanism used by the state to fund uncompensated care for Medicaid patients by leveraging federal funds. To maximize the federal fund draw down, the legislature wove $137 million by making the following changes:

• $55.8 million recovery dollars;
• $14 million from technology and artificial intelligence (AI) efforts;
• $10 million from the Rural Development Fund;
• $14 million (recurring) from a fee created by the money transmitter bill; and
• $43.2 million from redirected TennCare waiver shared savings by eliminating a diaper distribution program in July 2027.

Emphasizing the importance of every dollar this year, in the weeks leading to budget negotiations, members were curiously advancing bills that increased state revenue by relatively modest amounts.

Money Transmitter Fee

A bill being counted on to yield considerably more ($55 million) is SB2166/HB2502. The bill will levy a fee on money transfers originating in the state and transferred to a location outside of the United States or its territories by an entity licensed under the Money Transmission Modernization Act. The fee includes a $10 per transaction transfer on all transfers of $500 and under. For those over $500, a two percent fee is added and collected.

Generally, the legislature has been resistant to allocating collections for a specific use or uses, preferring that funds be deposited in the general fund with its use to be determined later. With expected revenue from this bill, that is not the case:

• 20 percent will be added to the general fund;
• 50 percent will be used to support TennCare buybacks (see above);
• 18 percent will support certain pilot programs and targeted childcare assistance initiatives;
• Five percent will be used for workforce house programs; and
• Five percent will provide paid internships for teachers in training at public school.

Health Care: Rural Health Transformation Funds and CON (Re)reform

Tennessee submitted its Rural Health Transformation program application on November 5, 2025. In it, the state identified five subject areas of rural health care needs:

• Right-sizing facilities to improve access;
• Maternal and child health;
• Chronic disease prevention and nutrition security;
• Technology infrastructure; and
• Workforce development.

Early in the session, the Joint Finance Ways and Means Committee voted to approve the acceptance of up to $207 million in federal grants for a series of rural health care initiatives. One of the most impactful legislative and regulatory actions in the application was eliminating the certificate of need (CON) process.

CONs are state-level regulatory programs that require health care providers to get approval before building new facilities. The process is intended to control health care costs and prevent overbuilding. Critics argue that CON laws can limit competition and slow access to care. As a result, the topic is the subject of frequently filed legislation. This year, SB1369/HB819 removed CON requirements for acute care hospitals effective July 1, 2030, and it removed CON requirements for cardiac catheterization services and freestanding emergency departments effective July 1, 2028, requiring that both be licensed as outpatient departments of a hospital. An amendment added additional requirements tied to the removal of CON for acute care hospitals, including requiring newly licensed hospitals to participate in TennCare and provide comparable levels of charity care, and it directs the state to develop licensing standards and report on payer mix.

Pharmacy Benefit Managers: The FAIR Rx Act

Perhaps the most high-profile measure this year was SB2040/HB1959, also known as the Freedom, Access, and Integrity in Registered Pharmacy (FAIR Rx) Act. It establishes that, beginning January 1, 2028, a person or entity shall not own, operate, or control any part of a pharmacy while simultaneously owning or controlling the whole or any part of a health insurance issuer and a pharmacy benefits manager (PBM). The bill provided for an ownership interest level threshold of five percent and carved out PBM definition exceptions relative to hospitals and health systems.

The legislation resulted in intense lobbying efforts and a multimillion-dollar media blitz. In an uncommon scene, there was open and intense discussion and disagreement between executive and legislative branches about the true cost of the measure. Ultimately, it passed the House (86 to 7) and the Senate (24 to 9).

Tennessee's Make America Healthy Again (MAHA)

The Make America Healthy Again movement is active at the federal and state levels, including Tennessee. In 2025, SB476/HB134 passed, requiring each local education agency (LEA) and public charter school to prohibit food or beverage items that contain the synthetic food dye known as Red 40 to be sold or provided to students through the school nutrition program. As an evolution, this year SB2423/HB1853 was filed, expanding the prohibition beyond Red 40 to, at first, include any artificial food dye. It was later amended to only prohibit a list of petroleum-based synthetic dyes.

As a push to investigate MAHA issues further, the legislature seemed poised to enact SB2122/HB2076, which would have provided a framework for an intense multi-month study by the Tennessee Advisory Commission on Intergovernmental Relations (TACIR) regarding the prevalence of ultra-processed foods, artificial dyes, chemical additives, and other substances in food and drinks served through school nutrition programs. The legislation also would have required TACIR to summarize research regarding links between consumption of such foods and substances and childhood obesity and metabolic dysfunction. The bill was taken off notice before reaching a final House committee vote.

Energy and Utilities: Winter Storm Fern

Winter Storm Fern caused widespread power outages across the state, and the restoration of power gave rise to an open discussion about the governance and decision-making structure of certain local power companies. SB2593/HB2418 was originally filed to make sweeping changes, but it was halted in committee on a close vote. Proponents pivoted, condensed the scope, and another legislative vehicle was identified and amended. In the end, SB2102/HB2592 authorized additional members to be appointed to the Nashville Electric Service (NES) Board as well as Memphis, Light, Gas and Water. The final version of the bill also placed a one-year moratorium on involuntary annexations of electric cooperative assets by municipally owned power companies beginning September 1, 2026. You can access the full conference committee report here.

Artificial Intelligence

Unsurprisingly, AI bills abound. Topics range from the substantive to the fiscal as well as power infrastructure issues surrounding data centers. Two bills are especially worth detailing. SB1493/HB1455 at one point would have:

• required any interaction with AI to be accompanied by a recurring disclaimer;
• required a person who operates an AI system to adopt a protocol for an AI system to respond to user prompts related to suicidal ideation;
• prohibited an operator from providing a user with points or similar rewards with the intent to encourage increased engagement with the AI system if the operator knows, or should reasonably know, that the account holder is a minor;
• established requirements for operators to institute reasonable measures to prevent an AI system from engaging in specific conduct and generating certain statements when interacting with a minor; and
• contemplated civil penalties of up $20 million.

Ultimately, the matters were sent to TACIR to study after adjournment, with a report to the General Assembly due no later than January 31, 2027.

The second bill, SB2171/HB1898, known as the Artificial Intelligence Public Safety and Child Protection Transparency Act, went through multiple iterations; however, the last Senate amendment that received a vote would have established a transparency and safety reporting framework focused on protecting minors who interact with large AI chatbot platforms operating in Tennessee. Covered entities would have been required to:

• Adopt, publish, and comply with documented child safety plans;
• Conduct and disclose child safety risk assessments before integrating new AI models;
• Report child safety incidents to the Attorney General within defined timeframes; and
• Refrain from false or misleading statements about child safety risks or compliance.

The amendment narrowed the original bill's scope significantly. All provisions addressing catastrophic public safety risks posed by powerful AI models – including the public safety plan requirement, critical safety incident reporting, frontier developer obligations, and the escalating penalty structure for frontier developers – were removed. As amended, the bill would have created a single regulatory track focused exclusively on child safety. While the House passed a version of the bill 94 to 0, the bill was put back in committee after reaching the Senate floor, effectively pausing the bill for the year.

Solid Waste: More Trash Talk

Landfills, particularly their placement, have been a multiyear issue. Several layers of local control create high barriers to the creation of new landfills and expansion of existing ones. The strain and apprehension have caused solid waste policy to splinter and scatter into subcategories such as statewide recycling measures and proposed regulations on producers and manufacturers, mostly lumped into a category called Extended Producer Responsibility (EPR). For example, SB269/HB600, also known as the Tennessee Waste to Jobs Act, would have created a statewide advisory board and would have required producers to join a producer responsibility organization, create needs assessments, consider dues, etc.

The Tennessee Waste to Jobs Act did not pass, but to better vet ideas of this type, SB1793/HB2518 was filed. The bill would create the Recycling Market Development and Diversion Advisory Council under the Tennessee Department of Environment and Conservation. Through June 2030, the multi-member council will advise the department, the governor, and the General Assembly on matters related to the development and enhancement of markets for recyclable materials in the state.

Property Tax Cap

Rapidly expanding localities must balance associated demand with the willingness and ability of residents to support the cost. A manifestation of the friction caused by the issue resulted in SB2064/HB1873, which would prohibit county, municipality, metropolitan government, or any special taxing district from increasing its property tax rate in a single year by the inflation rate plus two percent or, over three years, the inflation rate plus six percent, except through referendum. Behind-closed-doors discussion raged for weeks before the bill was removed from the Senate State and Local Committee's calendar.

The Regulatory Freedom Act of 2026

Associations and private business organizations could take advantage of a new level of state regulatory involvement required by SB2199/HB1913, also known as The Regulatory Freedom Act of 2026. For rules on which a notice has not been filed with the Secretary of State prior to January 1, 2027, state agencies making new rules pursuant to state law are required to make a good faith effort to notify each trade association or organization operating in this state that represents the regulated community and that may be impacted by the new or amended rule a minimum of 45 days prior to the public hearing.

It also requires that the notice invite the association or organization to provide comments during any such period of public comment, or provide such comments directly to the agency for the purpose of generating a fiscal impact statement. Fiscal impact statements are required to be issued if a new or amended rule that affects the regulated community is anticipated to have a negative fiscal impact on the regulated community. Also, each impact statement must contain satisfactory proof that the agency sought feedback from representatives of the regulated community likely to experience a negative fiscal impact.

Retirements and Campaign Season Timeline

Adjournment sine die signals the start of campaign season. In January 2027, the state will have a new governor as well as lieutenant governor and speaker of the Senate. Of the 33-member Senate, one retirement is expected. In the House, closer to 10 retirements from the 99-member body have been announced. Relevant primary elections are set for August 6, 2026, and the general elections will take place November 3, 2026.

Baker Donelson's State Public Policy Advocacy and Government Relations and Public Policy Teams look forward to working with clients to prepare for the summer's ongoing legislative and executive branch activities, advancing administrative matters, and crafting legislative efforts in anticipation of the 115th General Assembly's first session convening January 12, 2027. If you have questions about the concluded legislative session or need additional information, please contact Jacob D. Baggett.