Economic Development

The Year of Living Dangerously

"There are some remedies worse than the disease," a playwright wrote more than two millennia ago. Publilius Syrus could have been referring to the current state of the 50 states.

"There are some remedies worse than the disease," a playwright wrote more than two millennia ago. Publilius Syrus could have been referring to the current state of the 50 states. In order to weather an economic bashing that was not of their own creation, many states have cut back on their analytic capacity; allowed their roads, bridges and buildings to decay at an accelerating clip; resorted to financial tactics that only defer fiscal pain; slowed down or rejected positive initiatives in human resources and--in a few extreme cases--have so undernourished government that they risk malnutrition or worse.

While leaders in a growing number of states appear to believe they're serving the public good by squeezing government dry, there's little question that minimizing management carries a host of dangers that directly affect the lives of citizens. Unsafe, poorly maintained roads cause deadly accidents; mismanaged workers' comp programs harm the health of corporations and workers.

There are also more mundane risks. As Christopher St. John, the executive director of the Maine Center for Economic Policy, points out, far more dollars are now flowing through state systems. At the same time, there are fewer staff to account for and follow the flow. "At a certain point," he says, "it's inevitable that mistakes get made." In Michigan over the past few years, for example, errors in allocating food stamps grew as oversight of that process declined. The federal government ended up fining the state.

Despite problems, positive initiatives abound. Virginians are proving once again that a commitment to excellent financial practices can survive the arrival of a new governor every four years. Georgia's experiments in managing human resources are paying off big time. Utah keeps getting better and better at overseeing its infrastructure. Undergirding much of the good news lies the fact that technology is no longer an adjunct to government services but the vital spine along which they are built and function most effectively.

These are some of the central conclusions of a massive effort by the Government Performance Project to evaluate all 50 states in four areas of management: Money, People, Infrastructure and Information. In order to accomplish this, the GPP, funded by The Pew Charitable Trusts, brought together a team of journalists from Governing magazine and academics from the University of Pennsylvania, George Washington University, Georgia State University, the University of Illinois and Lynchburg College. In addition to information gathered through surveys and interviews, the GPP team had access to virtual forests of important information about all the states, much of which can be found on state Web sites.

Under the leadership of Susan Tompkins, project director, and Don Kettl, of the University of Pennsylvania's Fels Institute of Government and research director for the project, many months went into evaluating the positives and negatives of previous GPPs. Out of that process came change. The criteria were updated to emphasize actual results of good management, not simply a dedication to processes that might be little more than paperwork. Entirely new disciplines were added, including skills in "intergovernmental coordination" in Infrastructure and fringe benefits in People.

Two of the grading topics--formerly dubbed "information technology" and "managing for results," were merged into one. The logic is simple: Technology in states is a way to gather, analyze and disseminate information. Managing for results is a way to use the information that is collected. At the same time, since the use of technology is critical to good performance in managing infrastructure, money and people, some of the emphasis on the physical tools of technology now underlies grades in all four areas.

Based on all this, it's obvious--but it cannot be overstated--that the grades for GPP 2005 are not comparable to those from prior efforts. It's inevitable that such comparisons will be made, but they will be misleading.

One major addition to the project that will help users get the most out of the GPP is the GPP Web site-- where users can dig into the details of all the criteria used to assemble the report cards.

We realize that much of the focus on the GPP will center on the grades. But, for the GPP team, the grades are really just a device to bring attention to a topic that's of vital importance: state government management. States are taking on an increasingly important role in framing and managing domestic policy. If the states do not perform, citizens suffer. Thus, even more important than the grades are the lessons to be learned from the states' successes and failures. We identify the coast-to-coast trends in the pages that follow.

As we've noted in previous GPP reports, despite our best efforts and intentions, some states haven't gotten the grades they deserve--in one direction or the other. The academic and journalistic resources devoted to this project were enormous but finite. We would never claim that the judgments are perfect.


Muddling Through Tough Times

50-state average grade: B-

Nose-diving revenues, coupled with escalating costs in health care, corrections and education were the test of a lifetime for the executive and legislative branches over the past few years. While most states were forced to take some unfortunate--but expedient--measures to balance their books, many tried their best to avoid fiscal gimmickry.

Rainy-day funds were tapped, but the funds proved their value as states were able to forestall extreme cuts to programs for some months. A number of states are now restocking that depleted resource, although money is hardly falling out of the sky to do so. Along with such states as New York and Maine, North Carolina has begun rebuilding its cash balances and, according to Jim Johnson, director of the Fiscal Research Division for the North Carolina General Assembly, this time around the state is pushing for an 8 percent rainy-day fund rather than the usual 5 percent. "Five percent," Johnson notes, "is too small a reserve."

A healthy trend among states is that most have made their revenue- estimating process more conservative on the theory that it's better to have a few dollars left over at the end of the year than to wind up short. And a reasonable number are making efforts to improve the estimating process altogether. In Utah, the economic downturn of the past few years was the impetus to reach for better consensus between the executive and legislative branches. Even New York--long the home to one of the most dysfunctional revenue-estimating processes in the country--has made some progress. Although the executive and legislative branches are still free to use different revenue figures when calculating their budgets, "we've become much more open about the information we use for our revenue forecast and how we put it together," reports Robert Megna, chief budget examiner for revenue. The result is that the executive branch figures have far more credibility in the legislature than they once did.

While such improvements in management will doubtless help in the future, they can't solve the problems of today, not least of which are issues of structural balance: States have been spending more than they're taking in, with no way out in the foreseeable future.

That problem is compounded in some states by term limits, which are just now making their impact felt. The issue, says Marge Kilkelly, who served 16 years in the Maine Legislature, is that "term limits create a trainee board of directors for a multibillion-dollar corporation. The amount of experience in both the House and Senate goes down with every election now." In other words, legislators don't serve on, say, the Appropriations Committee, long enough to become invested in long- term thinking.

Term limits aside, several states turned to stop-gap measures to close their books this past year. New Jersey borrowed $1.9 billion last summer to balance a $28 billion budget--not an unusual occurrence in the Garden State. This time around, however, the state Supreme Court raised constitutional questions about the borrowing. It let the state keep the loan, but New Jersey is going to have to seek other solutions in the future.

Several states found other ways to borrow. In Tennessee, the governor took 9 percent of the revenue earmarked for the state's highway fund and transferred it to general use, putting off to another day the replacement of that money.

There are other ways of minimizing the appearance of a structural deficit. Connecticut uses an accounting system that recognizes revenues as quickly as possible while slowing down the budgetary acknowledgement of expenditures. This doesn't just disguise bad times, it can actually create them. "Since we haven't corrected our fiscal idiosyncrasies when we have a seeming surplus of revenues, we have chosen to cut taxes or improve programs," says one high-ranking state official.

Other states simply have pretended that areas with overabundant growth, such as Medicaid and corrections, are going to moderate. Maine, for example, calculates potential Medicaid expenses based on trendline, cost per case, new eligibles and all the appropriate measures. But, says St. John, "if they're looking for money, they'll just say, 'Well, Medicaid's not going to cost so much,' without going through a rigorous process of why it's going to cost less than three months ago."

States vary dramatically in the value they place on long-term thinking. Some, such as Nebraska, Virginia and North Carolina, understand the benefits of considering the future impact of today's decisions. Virginia has long been a leader with six-year budgetary forecasts, deciding in 2002 that they were so important that they mandated them. North Carolina's sentencing commission initiates a modeling process each time a proposal is made to change a sentencing law. When bills are suggested for, say, an increase in prison time for a carjacking, the legislature has to weigh the hard data on increased costs against the desire to appear tough on crime.

By contrast, several states seem to prefer operating in the dark, and the problems that emanate from a short-term view can haunt a state for years. In Massachusetts, there was a failure during the boom years of the 1990s to do long-term planning. Without this outlook, says Noah Berger, executive director of the Massachusetts Budget and Policy Center, the state responded to a temporary spike in revenue--mostly in capital gains taxes--with $3 billion in permanent tax cuts, which eventually led to a structural gap of about that size. Berger points out that there was no formal mechanism for the type of long-term planning that would force the state to recognize when revenues are at unsustainable levels and develop revenue and expenditure projections that go out more than one year.

In West Virginia, leaders continue to live under the shadow of a decision many years ago to underfund pension plans. The state now spends 11 percent of its general fund revenues to deal with that debt. But at least West Virginia has recognized the problem and is taking steady steps to fix it. When state Budget Director Roger Smith speaks about this, he provides sound advice: "When you're in a hole--stop digging."


Planning for the Future

50-state average grade: B-

There is a personnel tornado on the horizon: In more than half the states, one in five employees will be retiring over the next five years. In Tennessee, the number is a boggling 40 percent; Maine and Nebraska are close to that. "We call it the brain drain," says Michael Willden, director of Nevada's social services department. "I have nine major divisions, and the head of all but one of the divisions could leave tomorrow."

Clearly, there needs to be planning for the future or else the future will be bleak for anyone who relies on state services. New York has done a good job of engaging its agencies in this process. The training office of the Department of Environmental Conservation, for example, worked with each division to help identify who might retire in the next 10 years and to set up formalized exit interviews to gain insight into key aspects of a retiree's job, documenting critical processes and procedures.

A reasonable number of states are doing a solid job at this kind of future-oriented thinking. In Georgia--which may well have the best- managed HR operation in the country--agencies' personnel plans are included as a module of their strategic and budget plans, which are submitted annually and look out three to five years. Agencies look at their trends and gaps, conduct assessments and highlight the strategic plan areas where they have the greatest need or concern. The cumulative data from those agencies are reported to state leaders so they can consider budgeting to fill those needs.

But many others have not come very far, either because of the recent budget crunch or simple lack of interest. "It's really a hit-or-miss process right now," says Wyoming HR director Brian Foster.

Personnel departments also are wracked by problems stemming from low employee morale, particularly in states where budget problems have kept salaries stagnant. In Missouri, for example, pay raises have been sporadic. Employee morale has suffered and so has employee commitment to job performance. In California, good employees often move to local governments, many of which pay better than the state.

Retention issues are further complicated by an anti-government ethos that has spread through some portions of the country. "There's a lot of comment in the legislature that tries to paint state employees as a bunch of deadbeats," says Miller Hudson, executive director of the Colorado Association of Public Employees. "That creates a retention issue right there."

One potent device that serves both to retain employees and build a staff for the future is employee training. Unfortunately, in hard budget times training is often the first thing cut. In Maryland, for example, Andrea Fulton, executive director of the Office of Personnel Services and Benefits, had a $350,000 fund designated for employee training. That fund has been wiped out.

Other states, such as Arizona, put a premium on training. In addition to in-house training and tuition reimbursement, the state spent $6.5 million in 2003 on outside training, conferences and seminars for employees.

Equally critical as adequate training is assessing how well individual employees are performing. While almost all states have some kind of annual performance review, their utility varies widely. Indiana has trouble getting its managers to complete the appraisal forms. And Wyoming's managers are disinclined to create adequate employee evaluations because--as with so many other states--there's no money to be awarded even for super-performers. "We struggle with that," says HR director Foster. "We're trying to get managers to understand that appraisals are about more than just pay adjustments."

While it's certainly difficult for many states to come up with cash to reward people for superior performance, some still do. Georgia, for example, has a true pay-for-performance system.

When money isn't available, there are other ways of signaling appreciation of employees. In Michigan, Governor Jennifer Granholm communicates directly with state employees via mass phone messages when there's something she feels it is important for them to know. Selected groups of workers who deserve recognition are periodically invited to cabinet meetings, where the cabinet stands in their honor. A new position--organizational development officer--was created for each department in the state to advise on the impact of decisions on the workforce.


Taking Care of Assets

50-state average grade: B-

All hail the Governmental Accounting Standards Board. With its GASB 34 rule, issued just a few years ago, all state and local governments have to estimate the value of their inventory. GASB 34 has, in effect, forced many states to acknowledge how much they defer in maintenance costs. Unfortunately, when it comes to the practicalities of infrastructure management--notably maintenance--better data haven't ushered in a new golden age.

Capital planning for buildings and other state facilities, for example, is a mixed bag. One of the best is Nebraska, which creates a comprehensive six-year plan for all construction and major maintenance projects and has agency requests evaluated by a committee. "These systems minimize the political pressures of whatever administration we're in," says Steve Hotovy, architect for the state's building renewal task force.

At the other end of the spectrum is New Mexico. In that state, funding for non-transportation capital projects is divided into three pots: one for the governor, one for the House and one for the Senate. Each spends its cash on whatever project it wants to--without any discernable coordination or statewide planning. Not surprisingly, projects are frequently underfunded and delayed.

State processes are dramatically better when it comes to roads and bridges. A great deal of money for state transportation projects comes from the federal government, which requires infrastructure planning in order to qualify for funding.

But no matter how carefully planned a project is, it will deteriorate if states shortchange maintenance. This happens with some frequency: It's easy to put off a year or two of maintenance--especially when legislators are dealing with tight budgets. But if neglect becomes the status quo, the deteriorating quality becomes apparent and the costs of remediation climb. "It's a shame," says Alice Morehouse, former director of policy and budget for Wisconsin's DOT. "Philosophically our agency believes in maintaining first and then building new. But that's not shared in the capitol."

This issue of unfunded maintenance is unquestionably the biggest problem for states in their management of infrastructure. Oklahoma, for example, budgeted no money for facilities maintenance last year. California, where the DOT has an impressive maintenance-management system, has shifted funds from maintenance to the state's general operating budget for the past two years. Colorado has an estimated $8 billion in deferred maintenance for roads and bridges. Pennsylvania's transportation maintenance needs are even higher, clocking in at an estimated $10 billion.

Other states do a lot better. Ohio has persuaded the legislature to provide adequate resources for major road and bridge maintenance as well as new construction. "We do a little exercise with the legislature," says Gordon Proctor, director of the Ohio DOT. His office puts up an electronic map of Ohio marked with every route and state bridge. DOT staffers can run a cursor to any asset, click on it and pull up the maintenance cycle, current level of funding and prognosis for the next 10 years. The map is an effective tool of persuasion. "We have driven our deficiencies to a low percentage," Proctor says.

Construction planning is another important piece of infrastructure management. The key here is vigilance. Utah stands out in this area of expertise. In order to stress accountability, project managers with the DOT stay with their project through its construction phase and for the year that follows. In addition, the agency itself monitors all projects every two weeks. The close oversight pays off. Carlos Braceras, UDOT's deputy director, reports that of 128 projects that were underway last year, 123 were within budget--despite rises in steel, concrete and oil prices.

There are other management disciplines that play an important role in overseeing the construction and maintenance of public facilities. The first deals with internal coordination between various state agencies to make sure their needs don't conflict. Since transportation often clashes with environment, Tennessee tries to get around obstacles in inter-agency coordination of projects by making sure that the DOT has all permitting completed before it awards a contract for a project. This has gone a long way in making the relationship between the DOT and the environmental agency more pleasant and efficient.

Intergovernmental coordination also can be critical. Roads don't end at state borders, and localities often are partners with the state in a number of projects. Georgia, for example, has developed very strong relations with its neighboring states and its own localities. Following a series of hurricanes that hit Florida last year, the two states worked together seamlessly to deal with the extra traffic generated in Georgia as people headed north after evacuating their homes.

Pennsylvania, meanwhile, speaks with great pride about its roadway weather systems. It maintains 75 mini-weather stations across the state to collect information and predict, within 15 minutes, when it's time to start salting the roads in the snow. "We have reciprocity with the states to the south and west of us," says one DOT official there, "so we can go to them and share real-time information."


Making Good Use of Data

50-state average grade: B-

States are on the cusp of a third generation in their use of technology. First there were mainframes and technocrats who dictated the function of their black boxes to the rest of government. Then came desktop computing and chief information officers who had to understand how technology fit into broader government goals.

States are continuing to move forward. Technology now is part of a far larger process--gathering, analyzing and disseminating information, whether it's through e-government, strategic planning or managing for results. Michigan is further along than other states in this evolutionary process. Teri Takai, for example, has the title of Michigan's CIO, but her job goes far beyond worrying about desktops and routers. She's spearheading the state's entire strategic planning process. Recently, she took a lead role in assisting the governor's office in developing the governor's strategic cabinet action plan, giving Takai an opportunity to align IT initiatives with government and business initiatives.

Meanwhile, states have taken e-government to a higher level. Transactions can be done online in every state. The range of transactions varies from state to state, but can include such online services as renewing driver's licenses, filing personal income taxes, applying for benefits and registering to vote.

Some Web sites provide unusual tidbits of information that ease the way for their citizens. In the state of Washington, for example, a user can find out the relative time drivers will spend in line in many of the state's DMV offices. In Florida, a few clicks let a resident know whether complaints have been filed against any licensed individual.

Some states have had to slow down the acquisition of enterprise-wide technology, simply because it's been difficult to afford the investment. Even without sufficient cash on hand, however, planning for technology has improved in a number of states. Pennsylvania updated its IT plan and requires three-year plans from all its agencies. In years past, there was "no linkage between the budget and what had become an agency wish list," says the state's CIO, Art Stephens.

More and more states are now engaged in gathering and utilizing data to create useful performance information. Where New Mexico officials once argued that managing for results was a fad worth ignoring, the state's current governor is so proud of his state's efforts to continually track agencies' progress in meeting their goals that he's stuck his name on the project--Governor Richardson's Executive Agency Tracking system, which has GREAT for an acronym.

Unfortunately, legislators who pay attention to performance information are more the exception than the rule. One problem is that legislators are operating on chronic information overload. Craig Ruff, president of Public Sector Consultants in Michigan, tells of visiting a state representative a few months ago who showed Ruff two large crates sitting at his front door. It was the lawmaker's mail, legislative analyses and bill drafts for the day. It made Ruff wonder how any lawmaker can digest it all.

The answer is that legislators in many states don't. In Pennsylvania, performance measures are officially part of the budget and are used by the agencies and executive branch. But they don't get much attention in the legislature, says Philip Durgin, executive director of the Legislative Budget and Finance Committee. "They're there because they're required to be there. But I don't think they have any influence."

Regardless of legislative interest in performance-based data, a number of the agencies utilize it to improve their own work. The Department of Environmental Conservation in New York can now capture data about air quality with technology that didn't exist in previous years. "We can see the impacts of our programs, whether it is requiring cleaner cars or ratcheting down on pollutants from power plants," says Denise Sheehan, executive deputy commissioner.

One last bit of good news: Performance auditing seems to be improving as well. Missouri has beefed up the state auditor's capacity to do performance audits, taking advantage of the federal government's closing of its Government Accountability Office in Kansas City by hiring four of its top performance auditors. A wide range of topics has been tackled, including a look at the state's charter schools, tax credits and water quality in state parks.

Perhaps no effort in the country is better than that in Florida, where the Office of Program Policy Analysis and Government Accountability continues to churn out an impressive stream of reports about topics ranging from contracting to risk management to child abuse to the use of steroids in the state's student bodies. It provides program oversight that is focused on performance and concerned with performance measures, results, cost-benefit analysis and doing the right thing. "Every city, county and state needs an OPPAGA," says Howard Rasmussen, of the Florida Center for Public Management at Florida State University. "Everyone needs that kind of information to know if what they've done has worked."


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