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Municipal Technical Advisory Service (MTAS)


Reference Number: MTAS-63
Reviewed Date: 12/20/2021

Financial Provisions in the Tennessee Constitution 
Major financial provisions in the state constitution that affect cities are, in summary:

  • "No public money shall be expended except pursuant to appropriations made by law" (Article II, Section 24). This all-encompassing language means that even the profit from a snack machine in the city hall’s basement must be appropriated by the city council before it can be spent;
  • Article II, Section 28, contains provisions for exempting public, religious, charitable, scientific, literary, and educational property from property taxes and establishing assessment ratios for classifications of real property;
  • "The credit of no county, city, or town shall be given or loaned ... nor shall any county, city, or town become a stockholder with others in any company, association, or corporation..." unless the arrangement is approved by a three-fourths majority of the vote in a referendum (Article II, Section 29). Because of this restriction, some public/private partnership arrangements that other states are trying would require referendum approval in Tennessee. This provision has been strictly interpreted to prohibit municipalities from waiving property taxes or providing similar economic incentives to attract new industries. However, industrial development corporations formed by municipalities may own buildings and property. As governmental entities, they are exempted from taxation and may pass this along to the lessees of such properties;
  • Article XI, Section 8, prohibits private acts that "... suspend any general law for the benefit of any particular individual ... [or] grant to any individual or individuals rights, privileges, immunities, or exemptions other than such as may be by the same law extended to any member of the community";
  • Local officials frequently are frustrated when the state mandates an action or service for which their municipalities do not have funds. Theoretically, the Tennessee Constitution gives local governments some protection against mandates. It says, "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" (Article II, Section 24). It has been held that "The legislature is empowered to elect what the share shall be in the subject expenses" (See Morie v. Snodgrass, 886 S.W.2d 761 (Tenn. Ct. App. 1994)).