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Gov. Bill Haslam delivers his second State of the State address.

Governor Bill Haslam spent his second State of the State address trying to sell his proposed structural changes to the government. He also outlined a budget that’s roughly the same size as last year’s. And the governor took a shot at inspiring residents not to settle for the current state of the state.

Haslam says Tennessee has low debt, low taxes and created “an impressive number of new jobs” last year, but that still isn’t good enough.

“Unemployment is still too high,” he said. “And we are consistently only in the mid-40s when states are ranked for educational achievement. I don’t think any of us should be satisfied. So I stand here tonight and ask you, ‘Is the current state of our state good enough?’ I think the answer’s ‘no.’”

The governor asked Tennesseans to “believe in better.”

And he quickly took aim at how the state hires, pays and fires employees. He singled out the system called “bumping.”

“Bumping”

When a position is eliminated, for instance, the employee in that job can dislodge another worker junior to him, creating a domino affect of workers forcing out people with less seniority. The governor calls the process “broken.”

“This is not an indictment of our work force. I visited with employees in all of our 22 departments over the past year. I’ve seen first-hand many dedicated, hardworking and impressive people,” he said. “This is about an antiquated system that limits who we can hire, and limits growth opportunities for outstanding current employees.”

Representing the best of the best, the governor introduced four state employees – three in uniform.

But the governor’s proposed pay raise of two and a half percent will be for all state workers. And he plans a separate salary survey to compare state paychecks to what they might be in the private sector. His budget sets aside $30 million to even out disparities.

Haslam says he’s also willing to invest in higher education. For the first time in three years, the state will put up money to build college facilities, including a science building at Middle Tennessee State University.

Preparing the Workforce

And Haslam called on public K-12 education to provide better training in science and math for students going on to college and for those entering the workforce.

“When a plant manager in Jackson hires workers from Kentucky, when a Chattanooga manufacturer imports workers from Georgia, because both say they can’t find Tennessee graduates with strong enough skills in math and science, that’s unacceptable,” he said. “Those are our jobs, for our graduates, and we have to get them back.”

But the governor spent less time on the controversial teacher evaluation, and avoided teacher pay and class size altogether.

At the end he promised two things: to be “relentless” in providing the best service to taxpayers at the lowest price, and that his administration will thresh out the “right answer” on issues and policies, “not just our own answer.”

Reaction to the speech from lawmakers depended on their party affiliation. They either liked most of what Haslam said, or all of it.

“I think he pretty much covered everything,” says Sen. Mae Beavers, a Republican from Mt. Juliet.

Senate Speaker Ron Ramsey called it “refreshing” to have a governor who shares his “fundamental views on government.”

Few Complaints from Democrats

Democrats were less glowing, but not complete Debbie-downers.

“I don’t want to sound totally negative on this,” Turner says.

Rep. Mike Turner, the caucus chairman, says on the whole, Democrats have just a handful of complaints with Haslam’s budget. One is the governor’s plan to cut the tax on million dollar estates.

“If you’re a millionaire, be thankful you’re a millionaire and let’s take this tax relief and spread it around to everybody,” he says.

Turner suggests reducing the sales tax on food even further. Haslam has already proposed dropping it from 5.5 to 5.3 percent.

Alzenia Walls is a computer teacher at Station Camp High School in Sumner County.

Democrats further diverge from the governor on several education points, like allowing school districts to increase class sizes. The issue drew Sumner County computer teacher Alzenia Walls to hear the governor’s speech in person, but he didn’t touch it.

Steering Clear of Controversy

“Nor did he touch on giving districts the power to make salary decisions,” she says.

Some teachers fear having to do more work for the same pay.

The state employees association isn’t overly thrilled with the 2.5 percent raise offered by the governor. And state workers still have lots of questions about proposed changes to civil service rules. But last night they also got a gift, says executive director Robert O’Connell.

“Back and forth we’ve been talking to the governor since the day he came into office about a classification study. He’s always told us, ‘yeah we may be able to do that.’ And here comes the day,” he says.

The state’s universities had cause for celebration as well. Beginning work on a growing list of campus building projects got a cheer out of Rich Rhoda, director of the Tennessee Higher Education Commission.

“Oh it’s great,” he says. “There’s been a backlog for sometime and this will start things in motion.”

But first the state legislature has to approve. Monday night’s speech sets in motion the General Assembly’s work on both the governor’s budget and his legislative agenda.

Blake Farmer contributed to this report.

Web Extra

The text of the governor’s Jan. 30 State of the State address is here

The governor’s staff prepared a 33-slide Power Point presentation of the $30.08 billion budget for briefing various audiences. That presentation is here: (in color, a little more that 16 MB)

Although in black-and-white the same PDF file is a little over 3 MB:

Revenues & costs

For weeks the governor’s staff has been saying that even though revenues are improving, they remain below 2007 levels.
When the actual figures are plotted out for the budget, it turns out that’s not quite true.

Actual state revenue that came in for General Fund purposes in Fiscal Year ’07 (2006-07) was $9.3 billion. That’s the record, the peak.

The projected general fund revenues for FY 2012-13 are $9.4 billion. That’s based on an estimated growth in revenues of just over 4 percent for the coming year.

But the overall budget is still less – because of a decrease in federal funding.

Haslam noted earlier on Monday that three years ago, the budget was 43 percent federal dollars. The upcoming budget is only 39.6 percent federal money.

To put it another way:
• State revenues are expected to come in at $14 billion next fiscal year, an increase of 2.7 percent over the current year.
• Federal revenues, however, will drop to $12.3 billion, a decrease of 6.3 percent.

The other villain is the increase of costs of doing business since 2007. Administrators say next year’s $9.4 billion won’t buy as much as the $9.3 billion did, back in 2006-07.

Program growth and inflation will cost $270 million in the coming year.

Programs like TennCare, CoverKids, the Basic Education Program, and Correction cost more because the program grows – more students, more inmates, etc.

Inflation hits health insurance, retirement costs, contract services and Pre-K.

Accuracy, accuracy, accuracy.

How pinned-down are all these figures?

Well, the budget approved for the state last spring showed spending at $30.2 billion.

But the current budget proposal shows the “estimated” spending for the same year at $31.9 billion.

That’s “budget creep” of $1.7 BILLION.

The extra money came in mostly as better-than-anticipated state revenues (sales tax collections, mostly) and was spent on programs that otherwise would have been badly mauled.

The lesson is that government budget figures are a target, often a best guess. Government operates as a network of many thousands of contracts with thousands of contractors and providers. Any one of them may have an unusual price increase during the year (gasoline, say) and bill the state for more than the original estimate.

Indeed, uncertainty is built into the budget. “Tuition and fees” are shown as $1.49 billion (incoming) this fiscal year, and the same figure estimated for next fiscal year – even though both the administration and higher education expect an increase in tuition this summer.

Income from that source will add at least tens of millions of dollars to the budget.

The governor staked out higher education as a priority, saying that even if “college isn’t for everyone,” more Tennesseans will need degrees for jobs in the near future.

“When 21 percent of our population has a degree, compared to a national average of 30 percent, and over half of the new jobs being created over the next decade will require a degree, encouraging more Tennesseans to aspire to an education is one of our key roles as leaders of the state.”

Bucks for buildings

For the last four fiscal years the state has spent $200 million or less for capital projects, building things. The year the budget proposes more than a half billion dollars, about even with the amount spent in Fiscal Year 2007-08.

More than half of the planned capital outlay spending is for higher education projects, including:
1. Middle Tennessee State University Science Building $126.7 million
2. University of Tennessee-Knoxville Strong Hall Science Lab $94 million
3. Univ. Tennessee (Memphis) Health Sciences Center Simulation Center $24.1 million

The last time any such higher education projects made it on the “go” list was 2008.

Reserves & Mad Money

State law requires that 10 percent of all new revenues go into the “Rainy Day Fund,” the account that the state falls back upon in years when revenues wilt.

The Rainy Day Fund was at about $800 million in 2008, just before the most recent recession decimated revenues.

The Rainy Day Fund was used in 2009, 2010 and 2011 to cushion against falling revenues. Former Governor Phil Bredesen set out to build it up again in the last year of his administration, and Haslam says he’ll continue that.

Under the 10 percent rule, the state would put $36.5 million in the fund next year. Haslam has boosted that to $50 million, which would bring the fund up to $356 million in June 2013. That’s less than half of the fund’s balance four years ago.

TennCare reserves, say administrators, are at about $200 million plus. This budget leaves that reserve figure at about that point.

Major Unknowns

Under the federal Budget Control Act of 2011, automatic spending reductions were to occur if Congress didn’t act by Jan. 15 of this year. Congress didn’t act.

So the proposed federal cuts (“sequestration”) are due Jan. 2, 2013 – six months into the fiscal new year.
But state officials don’t know exactly what and how various programs will be cut. Social Security, Pell grants, Medicaid, Federal Highway Obligations and Highway Traffic Safety are safe.

But Medicare, Title I Education, Special Education, Head Start, Community Development Block Grants, and even the National Guard could be cut.

Haslam’s administrators point out that federal health reform is scheduled to take full effect on Jan. 1, 2014. That requires everyone to have health insurance. It would add about 250,000 people to TennCare, at an eventual cost of $200 million a year.

That footnote to the governor’s budget plan is expected to fuel discussions in his party, the Republicans, attacking “Obamacare” as a drain on the Tennessee state budget.

That may not be what the governor envisioned, in this final, almost plaintive plea.

“The American dream is at stake. When people are asked who they attribute the blame to, the answer is not big business, it’s not unions, it’s not educators. The answer is government. The truth is, Americans haven’t lost faith in America, they’ve lost faith in those who lead it. We don’t have to be like Washington. We can Believe in Better for Tennessee.”