Haslam did not use the occasion to announce a decision on whether the state should expand eligibility to Medicaid to an estimated 145,500 uninsured Tennesseans.
Under the health care law, the federal government would pay 100 percent of cost increases for the expansion in the first three years and 90 percent thereafter. The Republican-dominated Legislature is skeptical of most facets of President Barack Obama's health care law, but the governor noted that several hospitals — especially those in rural areas — could close without the added funding.
"Most of us in this room don't like the Affordable Care Act, but the decision to expand Medicaid isn't as basic as saying, 'No Obamacare, no expansion,'" Haslam said.
Haslam said regardless of the decision on expansion, the state will begin to feel the pressure of increased Medicaid costs because several provisions of the new health care law go into effect in January 2014.
Haslam stressed that Tennessee's finances have remained strong despite the economic downturn.
He noted that Tennessee has been among only a small number of states that hasn't cut K-12 education spending in the past two years, even though it has cut a variety of taxes.
Haslam plans to spend $1.1 billion on construction and maintenance, led by $307 million in higher education, $146 million for state office buildings and $61 million for state prisons.
The governor also plans a large deposit into the state's cash reserves, or rainy-day fund. The fund was drawn down from about $750 million to a low of about $257 million. About $100 million has been restored over the past two years, and the governor wants to add back $100 million in the upcoming budget year.
"We've seen the realities of rainy days," Haslam said. "And it is our responsibility to make sure the state is prepared for them in the future."