HB 218 - SB 270
FISCAL NOTE
Fiscal Review Committee
Tennessee General Assembly
March 15, 2025
Fiscal Analyst: Alan Hampton | Email: alan.hampton@capitol.tn.gov | Phone: 615-741-2564
HB 218 - SB 270
SUMMARY OF BILL: Creates the Universal Pre-K Funding Act. Requires each local
education agency (LEA) to provide a pre-kindergarten (pre-K) to serve all eligible children,
beginning in 2026-27 school year. Requires the state to fund 100 percent of the costs required for an
LEA to provide the required number of classrooms and to employ the number of licensed teachers
and educational assistants.
Effective January 1, 2026, creates a data transaction privilege tax that is imposed on a person's
annual gross revenues that are derived from data transactions from digital advertising services in this
state. Establishes the Universal Pre-K Fund (Fund) within the State Treasury to be administered by
the Department of Education (DOE). Requires all revenue from the data transaction privilege tax
collected, including penalties and interest, to be deposited into the Fund and to be used exclusively
to fund the universal pre-K program.
Establishes that if an LEA receives an allocation pursuant to this act that is less than the allocation
the LEA received for the prior school year, then the local government may appropriate and allocate
funds to the LEA to make up for the state cuts without being subject to a continuation of funding
effort requirement as to those funds for any year during which the state reinstates the funding or
restores the previous cuts, and during any subsequent year should the state fail to restore the
funding cuts.
Requires moneys in the Fund to be invested by the State Treasurer and any remaining balance, or
interest accruing on investments and deposits to be credited to the Fund and to be carried forward
into the subsequent fiscal year.
Creates a class E and class D felony for certain filing violations related to the data transaction
privilege tax
FISCAL IMPACT:
STATE GOVERNMENT
EXPENDITURES General Fund
FY25-26 $1,772,100
FY26-27 & Subsequent Years $382,180,500
Total Positions: 37
HB 218 - SB 270 2
OTHER FISCAL IMPACT
To the extent that the state collects revenue from the data transaction privilege tax, those funds will
be deposited into the Universal Pre-K Fund. However, the extent and timing of any such future
collections cannot be reasonably determined. Due to multiple unknown factors, it is uncertain what
costs the Department of Revenue will incur for administration of the tax.
It is unknown if LEAs will have sufficient space to accommodate additional pre-K classrooms. For
LEAs that do not have the capacity, a mandatory increase in local infrastructure expenditures will
occur. However, because the amount of available classroom space is unknown, a precise fiscal
impact cannot be estimated with certainty.
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:
Universal Pre-K:
• Tennessee Code Annotated § 49-6-104 prioritizes the enrollment of at-risk children into a
voluntary pre-K program and provides access to eligible three and four-year old students.
• The proposed legislation removes eligibility for three-year old students and eliminates
preference for “at risk” students; the revised language increases the number of possible 4-
year-olds served within an LEA pre-K from 20,000 to 82,765.
• Tennessee Code Annotated § 49-6-104(d)(1) sets the maximum classroom size for pre-K
students at 20; therefore, in order to serve the total population of eligible four-year old
students, the state will need a total of 4,138 (82,765 / 20) classrooms, or an estimated
addition of 3,138 classrooms [(82,765 – 20,000) / 20].
• The proposed legislation will require one teacher and one assistant teacher per classroom;
this results in 3,138 additional teachers and 3,138 additional assistant teachers.
• The average Tennessee teacher starting salary is estimated to be $50,000; the average
Tennessee assistant teacher (with a Certified Development Associate credential) salary is
approximately $33,390. The estimated increase in state expenditures is as follows:
Title Salary Benefits # Positions Total
Teacher $50,000 $16,500 3,138 $208,677,000
Assistant Teacher $33,390 $11,018 3,138 $139,352,304
Total: $348,029,304
• The total cost for personnel is $348,029,304 and it is assumed that hiring will occur in July
of 2026.
• It is estimated that classroom costs and supplies will total $10,000 per classroom. There will
be a recurring increase in state expenditures of $31,380,000 (3,138 classrooms x $10,000) in
FY25-26 and subsequent years.
• The total cost for personnel and materials is $379,409,304 ($348,029,304 + $31,380,000) in
FY26-27 and subsequent years.
HB 218 - SB 270 3
• The current funding allocation for the Voluntary Pre-K program is $86,029,000. As the
proposed legislation applies to the 2026-27 school year and each year thereafter, it is
assumed that funding for Voluntary Pre-K will not change in FY25-26. It is further
assumed that such funding will be available to continue funding the existing cohort size of
students in future years.
• The DOE will require additional capacity in the Early Learning Division to oversee the
significant increase in pre-K classrooms. Beginning January of 2026, the following positions
will be required:
o One Pre-K Operations Manager to support the oversight of the pre-K program and
operations impacting early learning staff, and to support the management of funds;
o Thirty additional field staff to conduct quality monitoring and coaching, and to
ensure compliance with state and federal laws and State Board of Education rules;
o Five regional directors to supervise the field staff across the state and to provide
continued job-embedded professional development; and
o One data analyst to collect, monitor, and analyze data from the early learning field
staff, program monitors, and regional directors.
Title Salary Benefits # Positions Total
Pre-K Operations Manager $70,000 $19,641 1 $89,641
Program Evaluator $50,000 $16,323 30 $1,989,690
Regional Director $70,000 $19,641 5 $448,205
Data Analyst $70,000 $19,641 1 $89,641
Total: $2,617,177
• Positions for the DOE will increase state expenditures $1,308,589 ($2,617,177 x 50%) in
FY25-26 and $2,617,177 in FY26-27 and subsequent years.
• The DOE will also require the following costs related to the increase in pre-K classrooms:
o $24,000 in recurring costs for peer review;
o $309,504 in one-time costs to maintain a teacher-student connection platform and
licensing; and
o $130,000 in recurring costs for hosting and maintenance and to implement an
alternative growth measure.
• The total increase in state expenditures to the DOE is estimated to be:
o $1,772,093 ($1,308,589 + $24,000 + $309,504 + $130,000) in FY25-26; and
o $382,180,481 ($379,409,304 + $2,617,177 + $24,000 + $130,000) in FY26-27 and
subsequent years.
• It is unknown if LEAs will have sufficient space to accommodate additional pre-K
classrooms. For LEAs that do not have the capacity, a mandatory increase in local
infrastructure expenditures will occur. However, because the amount of available classroom
space is unknown, a precise fiscal impact cannot be estimated with certainty.
• There is a required local contribution to the VPK grant; therefore, that portion of local
funding would be directed towards the higher local contribution to TISA.
• The local contribution to VPK is estimated to range from 6.04 percent to 57.89 percent
across LEAs in FY25-26.
HB 218 - SB 270 4
Data Transaction Privilege Tax
• The proposed legislation imposes a new privilege tax on the annual gross revenues derived
from data transactions from digital advertising services in this state (assessable base).
• The Department of Revenue (DOR) must determine the state from which revenues from
data transactions from digital advertising services are derived.
• The data transaction privilege tax is levied at the rate of 9.5 percent of the assessable base
and applies only to persons with an assessable base of $50,000,000 or more.
• All revenue collected from the data transaction privilege tax, including penalties and
interest, must be deposited into the Fund.
• One half percent (0.5%) of the revenue from the data transaction privilege tax collected
must be allocated to the DOR for administration.
• The DOR does not currently know to whom the data transaction privilege tax will apply;
therefore, the amount of potential revenue to be collected cannot be determined.
• Due to such unknowns, it is uncertain what costs the DOR will incur for the administration
of the tax.
• The proposed legislation creates penalties for a violation of the act. It is a Class E or Class
D felony if a person subject to the digital transaction privilege tax knowingly:
o Fails to file a return or an estimated return;
o Fails to submit the required payment;
o Files a fraudulent return; or
o Violates a rule promulgated by the DOR for the administration and enforcement of
the act.
• If the total amount of the digital transaction privilege tax due for the year is less than $300,
then it is a Class E felony; if it is more than $300 then it is a Class D felony.
• It is assumed that taxpayers will remain in compliance with law and any increase in state and
local incarceration costs will be not significant.
CERTIFICATION:
The information contained herein is true and correct to the best of my knowledge.
Bojan Savic, Executive Director