Grading the States introduction THE GOVERNMENT PERFORMANCE PROJECT Report Card: Tennessee GOVERNOR Don Sundquist (Republican, elected 1994) LEGISLATURE House — 57 Democrats, 42 Republicans FINANCIAL MANAGEMENT: C Tennessee’s budget, seemingly well under control just a couple of years ago, is in serious structural imbalance. Part of the reason is the widely praised but expensive TennCare health insurance program. But an even bigger reason is the tax system. Lacking a personal-income tax, Tennessee is dangerously dependent on sales-tax revenue, which is just not sufficient to meet the costs of government. The last three budgets have had to rely heavily on one-time revenues to keep the budget in balance. As this single-shot revenue drops away, and sales taxes continue to be soft, the state could find itself with a $225 million hole to fill by fiscal 2002. The governor has sought to remedy this situation with an income-tax proposal, but has had no success with the legislature. Not everything is bleak. Financial reporting and basic financial controls are top-drawer. Tennessee is one of nine states receiving the Government Finance Officers Budget Award, as well as its financial reporting certificate. Meanwhile, even in hard times, the rainy day fund has been growing, due to a strong statutory requirement that it be funded. CAPITAL MANAGEMENT: C Generally, capital planning in Tennessee is adequate. The Department of Finance and Administration coordinates the process, and prioritizes projects based on need and available funding. Managers had hoped to have a little more to spend for fiscal 2001, but last year turned out to be a difficult budget year, and there were last-minute cuts and changes in capital funding when the legislature didn’t approve an income tax. Tennessee mandates monthly status reports on its projects, and when a project goes 10 percent over the initial cost, a meeting open to the press and public is required. These meetings occur more often than they should. Part of the problem is the method of contracting; 99 percent of the projects are awarded automatically to the lowest bidder, and any licensed contractor can bid on any project. This often means the best contractor can’t be chosen. There is substantial deferred maintenance on the state’s major facilities. “We know it’s there,” says Larry Kirk, assistant commissioner of the Department of Finance and Administration. “And we know it’s massive. We just don’t know how big it is.” HUMAN RESOURCES: B- Tennessee belies the common assumption that a rigorous civil service system means slow hiring. Civil service is highly rigorous here, but the average hiring period is less than 30 days. Some reasons: The testing process is fully automated, with 99 percent of the tests available on a daily walk-in basis at offices throughout the state. Job seekers who qualify are added to applicant registers immediately, and agencies have online access to these lists. When it comes to promotion, unfortunately, state agencies are still forced to choose from the three highest-scoring test-takers. “We would very much like to have greater flexibility in that,” says Nat Johnson, of the Department of Personnel. The state has little ability to reward employees who are superior performers, and partly as a result, it has a history of high turnover. But it has been sensitive to the need for salary adjustments in hard-to-fill jobs. To its credit, the legislature has provided a pot of money specifically for this purpose, relieving the pressure on agencies to squeeze these adjustments from their own budgets. MANAGING FOR RESULTS: B- The state’s first executive-branch strategic plan was published in 1997, and since then, all 22 cabinet-level agencies have developed strategic plans of their own that align with it. At first, many agencies ridiculed this as the “initiative du jour,” in the words of one official. But last year, when agencies came before the finance department to discuss their budget requests, they found that proposed increases had to fit in with the strategic plans, or the funding was refused. Last year, it appeared that the state was ready to take a major step forward with a bill that would have added a position to each agency to submit performance reports to the legislature. But it was going to cost $4 million, and in a tight budget year, it was turned down. “We’re working toward performance budgeting, legislation or not,” insists Lou Kompare, director of the Center for Effective Government, an executive-branch agency dedicated to strategic planning. INFORMATION TECHNOLOGY: B+ Tennessee prides itself on a business-like approach to IT, with improved strategic planning and standards in place for all significant IT purchases. Most projects are paid for with loans from the central IT office, money that must be paid back out of actual savings from the project. Of course, some IT efforts are paid for out of general fund dollars, but they’re forced to compete with education, corrections and other needs. Tennessee has outsourced management of its statewide IT network in collaboration with the state’s universities. Public- and private-sector entities will be part of the network, thus bringing down total costs. While training for end-users could use improvement, the state’s Information Systems College was designed to provide 10 days of training for each IT professional. The cost of the training is included in agencies’ overhead charge for access to the services of the Office of Information Resources. This removes the need for individual departments to justify expenditures for training in their budgets. Procurements take too long in Tennessee because there is an overly generous protest policy for vendors. The state hasn’t lost on one of these in years, but they continue to come in on virtually every major project, thus delaying efforts by many months. AVERAGE GRADE: B- Copyright © 2001, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are trademarks of Congressional Quarterly, Inc.