HB 365 - SB 1404
FISCAL NOTE
Fiscal Review Committee
Tennessee General Assembly
March 8, 2025
Fiscal Analyst: Justin Billingsley | Email: justin.billingsley@capitol.tn.gov | Phone: 615-741-2564
HB 365 - SB 1404
SUMMARY OF BILL: Prohibits a municipality, or an instrumentality of a municipality,
from taking any action that affects or has the potential to affect the tax obligations, fees, or other
costs for real property owners whose property is located outside a municipality’s corporate
boundary, unless the action is approved by the county legislative body (CLB) in which such property
is located.
Requires at least 90 percent of a county’s population, which includes the population of each
municipality within such county, represented by a joint economic and community development
board to be proportionally represented on a per capita basis by the members of the board no later
than July 1, 2029.
Provides that as existing board members’ terms expire, newly appointed or elected members only
qualify if their election or appointment revises the board’s representation of a county’s population in
a manner that incrementally brings the board into compliance on or before the deadline.
Requires the Department of Economic and Community Development (ECD) to create a
mechanism by which each board must incrementally transition into compliance.
FISCAL IMPACT:
OTHER FISCAL IMPACT
A precise increase in foregone local revenue and increase in mandatory expenditures cannot be
estimated.
Article II, Section 24 of the Tennessee Constitution provides that: no law of general application shall impose increased expenditure
requirements on cities or counties unless the General Assembly shall provide that the state share in the cost.
Assumptions:
Municipal Actions
• Any vote by a CLB to approve a municipal action will take place at a regularly scheduled
meeting, resulting in no increase in local expenditures.
• Requiring municipalities to obtain CLB approval prior to taking actions that may affect the
tax obligations, fees, or other costs of residents outside the city’s limits will have a
significant impact on municipal operations and revenues.
HB 365 - SB 1404 2
• The proposed legislation does not define what constitutes “other costs.” It is assumed that
actions regarding utilities, economic development, land use, or transportation could be
impacted.
• If a CLB delays its approval, then the municipality, or an instrumentality of such
municipality, may incur mandatory expenditures for current projects while waiting for
approval. Should a CLB deny approval, the municipality or instrumentality thereof may
experience an increase in foregone revenues or incur additional mandatory expenditures.
• A utility’s debt and bonds are backed by its ability to raise rates to customers; if rates cannot
be increased, there may be a significant mandatory increase in local expenditures to obtain
debt financing in the future.
• A municipal utility that serves customers outside its city limits would not be permitted to
raise rates for unincorporated customers without county approval; if that approval is not
granted, fees and rates would be increased for customers inside the city limits.
• The Tennessee Valley Authority (TVA) regulates all of its local electric distributors, as well
as local power rates, and prohibits discrimination of rates within the same rate class.
• Should the provisions of the proposed legislation result in rate payers within the same rate
class paying a different rate, it is assumed the TVA’s requirement would preempt the
legislation.
• The impact of the proposed legislation is dependent on future actions by municipalities and
CLBs, which cannot be predicted; therefore, a precise increase in foregone local revenue
and mandatory expenditures cannot be estimated.
Joint Economic and Community Development Boards
• ECD will be able to create the required mechanism utilizing existing staff and resources,
without an increase in state expenditures.
• The proposed legislation allows a sitting board member to finish their current term.
• Requiring proportional representation will have no significant impact on the total number of
board members; any fiscal impact to state or local government is not significant.
CERTIFICATION:
The information contained herein is true and correct to the best of my knowledge.
Bojan Savic, Executive Director