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Measuring PerformanceThe State Management Report Card for 2008

Measuring Performance

24 MARCH 2008 GOVERNING

NFORMATION IS KING.No single idea emerges more clearly

from year-long research done for the 2008Government Performance Project. As al-ways, this report focuses on four funda-

mental areas of government management: In-formation, People, Money and Infrastructure.But this year, the elements that make up the in-formation category—planning, goal-setting, meas-uring performance, disseminating data and eval-uating progress—overlap with the other threefields to a greater degree than ever before. Infor-mation elements, in short, are key to how a statetakes care of its infrastructure, plans for its finan-cial future and deals with the dramatic changes af-fecting the state workforce.

Governors understand this. A growing num-ber are now personally involved in improving theway information is used to manage their states.Ted Strickland, Ohio’s governor, began a “Turn-around Ohio” plan that includes flexible per-formance agreements with his agency heads.Similarly, Maryland’s Governor Martin O’Malleyis building StateStat, a comprehensive means formaking decisions based on data, similar to hisCitiStat effort in Baltimore. He describes it as asystem “that actually sets goals and has the guts

to measure progress towards achieving thosegoals. All of that with relentless follow-up.”

Of course, information alone doesn’t make awell-managed state. With personnel turnoverrates on the rise and retirements looming, stateshave to figure out ways to retain workers andtransfer accumulated knowledge to an ever-chang-ing workforce. On the money front, structural bal-ancing of budgets has been a real trick for statesthat found themselves flush with cash last year,only to see revenue streams wash away in the cur-rent declining economy. Infrastructure mainte-nance continues to be a bill that bedevils thestates. Even Minnesota, scene of last year’s deadlybridge disaster, hasn’t quite come to terms withwhat to do there. “We’re no different from otherstates in the amount of maintenance we need todo,” says one Minnesota state legislator. “But itfeels like nobody’s figured out how to find thehuge amounts of money necessary, without cut-ting back on more politically sensitive areas.”

All of this has led to a search for new solu-tions to old problems. The Massachusetts De-partment of Capital Asset Management, notunlike many homeowners, has seen utility billsgrow. As a response, the agency arranged withenergy providers to reduce power usage on short

’08GradingtheStatesTHE MANDATE TO MEASURE

BY KATHERINE BARRETT & RICHARD GREENE

A MANAGEMENT REPORT CARD

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notice during peak-demand periods, in ex-change for cash. “The more kilowatts youshed,” says Deputy Commissioner MarkNelson, “the more you get paid.” There’s adouble benefit here. Not only does it savedollars, it saves energy.

The following reports on the 50 states arefull of such innovations, as well as recom-mendations for ways in which states canlearn from each other. All of these weregathered over the course of the past year, asthe GPP engaged in its fourth effort to eval-uate all 50 states’ managerial capacity.

The approach this year was similar to theone we used in past efforts: Teams of jour-nalists and academics do the heavy lifting ofresearch and analysis. Once again, the printversion of the GPP that runs exclusively inGoverning is augmented by online infor-mation at pewcenteronthestates.org/gpp.That’s the place to go for more informationabout the states, an in-depth explanation ofthe grades, additional recommendationswe make and resources we suggest.

There have been some changes. Thisyear, for the first time, the GPP was created

under the auspices of the Pew Center onthe States, directed by Neal C. Johnson.One of his goals for the GPP, he says, is “tomake sure that the grades are the begin-ning of the conversation—not the end.” Assuch, a number of initiatives are currentlybeing planned to work with the states tohelp them learn from one another and im-prove their management practices in yearsto come.

We did something else a little bit differ-ently. One staffer worked full-time for monthsdoing in-depth interviews with corrections de-partments. The idea was to use their experi-ences to help inform the broader manage-ment conclusions reached in the process.“Corrections departments may not be en-tirely representative of a state’s managementexpertise,” Johnson points out, “but they con-tributed enormously to our sense of thestates, particularly in the areas of human re-sources and information.”

It’s only natural that many will look tothe GPP exclusively for the grades. But it’simportant to understand that the purpose ofthe grades is to focus attention on the sub-

stantive issues of state government man-agement. Additionally, one of the underly-ing maxims of the GPP has long been thatit’s as important to see where things workpoorly as where they work well.

A few years ago, Bill Gates noted thatsome schools had done away with gradesand were giving students as many chancesas they needed to get the right answer.Gates wasn’t buying that. “Your school mayhave done away with winners and losers,”he said, “but life has not.”

Even so, we feel obliged to repeat, as wehave in each iteration of the GPP, the fol-lowing critical caveat: Although the effortsof many men and women were involved intrying to get every grade—and every expla-nation of that grade—right, it’s inevitablethat there will be honest disagreement.While these instances can be painful, thework has continued with the sure knowl-edge that efforts that are totally risk-freetend to accomplish nothing.

InformationMoving Targets

Just a few years ago, stateswould boast about their lat-est, cutting-edge piece oftechnology.

Not anymore. Today, it’snot the tools. It’s results.

One of those is transparency. In an erawhen “trust in government” is at low ebb,states are working to open up communica-tions with their constituents. Last year inColorado, the offices of the governor, statetreasurer and controller published a trans-parent report on state revenues and expen-ditures. It gave everyone, and particularly in-dividual taxpayers, a better understanding ofthe budget. “That’s important, in the sameway it’s important for investors in a companyto know how the company is performing,”says Cary Kennedy, the state treasurer. “Weneed to understand how the state is per-forming without the spin.”

In Washington State, Governor Chris-tine Gregoire held a series of town hallmeetings on the budget to communicate re-sults to citizens and follow up on the budg-etary priorities she had previously estab-lished with much citizen input. “We wantto give concrete information about whethera difference has been made or hasn’t,” Gre-goire says. “We have struggled with this—

The Pew Center on the States (PCS)identifies and advances policy solutionsto critical issues facing the states, in partthrough the work of its GovernmentPerformance Project. For almost adecade, Pew, Governing magazine and agroup of academics have collaborated onthis project to assess the quality of man-agement in state government. PCS hasprovided the resources for both in-depthreporting and academic research tomeasure state performance in core areas.PCS is an operating division of the PewCharitable Trusts.

The mission of the Government Per-formance Project is to improve service tothe public by strengthening governmentpolicy and performance. The project sys-tematically evaluates how well statesmanage employees, budgets and fi-nance, and information—as well as en-suring that roads, bridges and statebuildings are well planned and in goodrepair. A focus on these critical areashelps ensure that states’ policy decisions

and practices actually deliver their in-tended outcomes. The information, inturn, helps state policy makers under-stand the steps they can take and the pol-icy changes they can make to strengthengovernment performance.

Through research and analysis, suchas this 2008 State Management ReportCard, PCS provides continuing manage-ment assessments and tools to solve prob-lems and improve performance. Thisyear, in addition to the information con-tained in these pages, the Project offers onits Web site detailed briefing reports oneach state. These reports feature key rec-ommendations to policy makers on howto manage better, as well as links to bestpractices in implementing those recom-mendations. The Project is exploring newpartnerships with policy makers and pri-vate-sector leaders to pursue innovativesolutions in support of these shared goals.

For more information visit pewcenteronthestates.org/gpp.

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how do you translate this in a way that reallyresonates with the taxpayer?”

States also are making it significantlyeasier for citizens to do business with agen-cies online. The ability to do transactions onstate Web sites is no longer new. The focusis now on preserving the sanity of the peo-ple who try to use them. The GPP evalua-tion found that the majority of states aredoing a measurably better job with Web sitetransactions than was the case three yearsago. No state actually lost ground.

Alabama, for example, has its Camelliasystem, which supports the state’s socialservices. It’s a one-stop shop where citizensgo and fill in the answers to 25 questions.The answers then are used to find which of29 state services they are eligible for.

In Michigan, business leaders have ben-efited from upgrades to, and a rethinking of,the online process for getting permits andforms. For an air-quality permit, for instance,it took up to six months—18 months in somecases. With the new system, that permitprocess is now down to a matter of days.

When all is said and done, a state’s skillwith information is found at the intersec-tion of three distinct operations: the will-ingness to share data, the capacity to gen-erate good information, and the ability toget those who should use the data to do so.

Sharing data is the easiest of the three.But, while the managerial spirit to share isstrong, the technological flesh can be weak.In Maryland’s Division of Corrections, for ex-ample, an “archaic and obsolete” data systemhampers the ability to pull together and pub-lish data for use in performance reporting.This is a crucial piece of the StateStat effort,since the corrections department is therepository for most law enforcement infor-mation. Right now, police, courts, paroleand other public-safety agencies don’t havethe ability to share data with each other.Shannon Avery, executive director for the de-partment’s planning and policy office, says alack of data and an inability to generate re-ports easily is a constant frustration for theStateStat team. Upgrading this system is atop priority of the governor, Avery says, not-ing that there had been some legal problemsbut that the project is now back on trackwith a slightly longer timeline.

Maryland is far from alone in paying aprice for the inability to share data digitally.Some state employees in Rhode Island arestill operating with typewriters—electric, of

course, but still a far cry from the ability toshare information in a database. NewHampshire has such weak data-sharing sys-tems that it doesn’t know how much itspends each month—kind of like an averageJoe who’s lost his checkbook. At the oppositeend of the spectrum, there’s Wyoming. Itstransportation department has linked geo-graphic information systems to financialsystems and now knows with exact speci-ficity how money is being spent, down to thecost of the salt used between each milemarker on the state’s snowy roads.

It’s not always a question of sharingdata. Often, it’s a matter of creating usefulinformation—particularly about perform-ance—from scratch. On that front, there’sbeen a lot of progress.

For starters, strategic planning has be-come a routine, accepted part of governing.It is the norm for states to have either strate-gic plans or collections of agency plans.This was true in only half of the states in1999. In 2008, just nine states were weakin both statewide and agency planning.

Performance auditing and evaluationalso are pervasive. A decade ago, it was rarefor a state to have an agency or depart-ment responsible for delving into the suc-

cess or failures of programs. Even Florida’smuch-praised Office of Program PolicyAnalysis and Government Accountabilityhad just gotten started. Now, departmentsthat take a close look at how well things areworking are present in four out of fivestates. The value of such efforts is clear. InMontana, to take one small example, audi-tors pinpointed security weaknesses bybuying back discarded state computers tosee what data remained on the hard drives.Twelve of 18 drives still had retrievable in-formation on them.

The push to produce results-oriented in-formation, rather than data on the amount ofwork done, has continued to evolve. Penn-sylvania, a state that once argued that out-come-based information was unnecessary, isnow among those moving to measure results.

One of the biggest obstacles to progressin managing for performance is the dis-connect between the production of per-formance information and its use in thebudgeting process, particularly by legisla-tors. Michigan and Georgia, for example,produce a great deal of excellent perform-ance information, but officials report thatthe data seem more a burden than a tool tomany legislators. In Alaska, says Jo Ellen

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Hanrahan, a management analyst with thestate’s Office of Management and Budget,“Our performance measures are on theWeb but not linked to one another nor to thebudget dollars.” And in Alabama, a statewhose agencies have advanced dramaticallyin their generation of results information,one corrections official reports bleakly, “I amafraid the legislators don’t care too muchabout that information.”

Nobody expects a legislative turnaroundto happen soon or without snags. But it willcome. Consider this: Thirty years ago, manystate government experts wonderedwhether the states would ever accept uni-form accounting for their books—the bodyof standards now known as Generally Ac-cepted Accounting Principles (GAAP).When New York began to experiment withthis newfangled bookkeeping, it uncovereda $2 billion deficit. “The books were soloose and kept in such an undisciplinedmanner,” said Ned Regan, who was NewYork’s comptroller at the time, “that gover-nors and legislators could not be held re-sponsible for their actions.”

Today, all states comply with GAAP.

PeopleBuilding a Base

Vendors who sell to Wiscon-sin could be forgiven for think-ing the state doesn’t haveenough money to pay its bills.But the delays they experience

in getting paid have nothing to do with thestate’s cash flow. Wisconsin simply doesn’thave enough staff to process the bills.

Personnel shortages are a problem, notjust in Wisconsin but in a majority of states.In the past few years, much attention hasbeen focused on the imminent retirement ofhuge waves of older state employees. Thathasn’t happened yet—so far, many of thoseeligible to retire have elected to stay on thejob. Nonetheless, in states such as Georgia,Indiana and Louisiana, total turnover lastyear ranged between 18 and 23 percent.

Some state officials argue that highturnover is now a fact of life that states shouldplan for. Anticipation of high turnover“should get rolled into agency workforceplans,” says James Honchar, deputy secre-tary for human resources in Pennsylvania’srevenue department. “But managers are re-luctant to believe turnover is the way it is.”

And yet, many men and women areheading for the doors. There are lots of rea-sons for the phenomenon. Low compen-sation, untrained supervisors and lack ofrecognition are among the issues.

But turnover is a significant expense forstates. It results in more use of costly over-time, less efficient delivery of services and anabsolute loss of the dollars spent on hiringand training. “It costs money every time youhave to go out and hire, do psych evaluationsand background evaluations,” says NancySwecker, director of administration for WestVirginia’s corrections department. The de-partment calculates the price tag at $20,000for each new corrections officer.

The pain of turnover is exacerbated by arelatively new trend that is cutting acrossmany states: losing new employees whilethey’re in their probationary period—gener-ally between the six- and 18-month mark. In2004, 11.6 percent of new hires quit duringthis period. In 2007, that number zipped upto 13.2 percent. During the same time period,the percentage of new hires that were firedstayed flat at a little over 8 percent.

The numbers in the worst-hit states arealarming. Mississippi leads the list withnearly one out of every two new employees

not making it past the first year or so. Ari-zona loses 42 percent of new employeesduring the probationary period; Virginiaand South Carolina, 32 percent.

So, what are states doing to hang on tonew, young hires, many of whom marchout the door and into the private sector?Some solutions are emerging. Georgiaused to line up its compensation and ben-efit package with other states. Now, it’s fo-cusing on the private sector instead andshifting its compensation and benefit pack-age accordingly. “We’re working againstthe mentality of, ‘You work for us for 30years and then you get this great pensionand retiree medical,’” says Steve Stevenson,commissioner of the merit system of thepersonnel administration. “That’s not reallywhat the emerging workforce is looking for.They’re looking for bigger base pay andpay for performance.”

Academics who have studied youngworkers pinpoint another issue: a desire formore responsibility and the ability to makea real difference in a job. With appropriateemployee training, state agencies could fillmiddle-management positions withyounger workers eager for challenges.That’s the idea behind New York’s Tech-

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nology Academy, which was established todeal with shortages of higher-level IT pro-fessionals. It tries to attract rising stars andthen fast-tracks them for management.

Leadership training can take many sim-pler forms as well, such as job shadowing,which allows people to work closely withsomeone one level up. It also may includementoring or having trainees attend out-side conferences, receive educationstipends and even design and implement areal-world project.

Technological tools can be useful fortraining in departments where staff isplaced in rural areas or spread throughouta large state. A number of states are usinge-training and videoconferencing to maketraining available, effective and efficient—despite geography.

Georgia is using these technologies forat least 10,000 of its customer-service em-ployees, teaching them how to be friendlyand helpful, as well as how to identify waysto speed up processes. The curriculum in-cludes cameos by an unexpected duo: co-median Jeff Foxworthy and GovernorSonny Perdue. The 20-hour module ofvideo-workbook sessions doesn’t costagencies very much, and the state is nowmeasuring the results by establishing andmonitoring customer-service-level indexesfor all agencies.

With many states facing budget cuts nextyear, there are concerns that training will beone of the first areas slashed. It’s particularlyvulnerable since most states do little to doc-ument the benefits of training, even if offi-cials know intuitively how much it helps.

Of course, even if states were able to hangon to new hires, they’d still have to make surethat a hunk of institutional knowledgedoesn’t walk out the door when older em-ployees retire. Tapping into the informationthat these long-term employees have isknown as “knowledge transfer,” and it’s keyto efficiency and effectiveness in government.

But it’s not easy to do. Right now, a greatdeal of the dialogue about knowledge trans-fer is little more than that—a lot of peopletalking. Some states rely on rehiring re-tired employees, with somewhat question-able results since rehired employees oftensimply return to their traditional tasks andare not encouraged to “transfer” theirknowledge to younger co-workers.

Still, the need to keep valuable informa-tion alive and well is significant. And some

a drawing from these stubs for gift basketsor other non-monetary rewards.

States’ HR offices are reaching out toother partners to recruit and attract person-nel. Some special recruitment programs aretargeting young people and the special needsof the state. Hawaii’s Department ofHuman Resources Development, for exam-ple, has teamed with the Department of Eco-nomic Development to develop incentives tokeep Hawaiian residents from leaving for themainland and to lure those who have left intoreturning to work there. Alabama and Geor-gia have targeted returning military person-nel for jobs as corrections officers.

MoneyBudgeting for Realities

Oh, for the joy of the pastfour years. Revenues floodedstate coffers. Tax cuts werepossible. Only a handful ofstates faced fiscal problems.

Not anymore. An overall recessionary cli-mate, coupled with the subprime loan mess,has hit a number of states hard. A few

states are figuring out ways to accomplishthat. Virginia, for example, spent $250,000to put together a knowledge transfer systemthat 35 partner agencies could share. Eachhas software that allows it to map the specificskills and knowledge that are needed for var-ious jobs and then tailor training programsto those specifications. When Virginia’sworkers’ compensation manager, Sue-Sheila Strong Keener, was diagnosed with afatal illness, Virginia officials were given apoignant view of how knowledge transferoperates. “We had her mentor her high-performing employees because you can’tpre-select in the public sector,” says SaraWilson, the director of Virginia’s Depart-ment of Human Resource Management.“They would job rotate so that everyone gotexposure to the various jobs she did.”

When it comes to holding on to person-nel, non-cash incentive programs are in-creasingly popular. Utah has a “Walk theTalk” program that gives employees thechance to give a manager a 3x5 card thatpraises another employee who has accom-plished a task that notably advances thegoals of the agency. Every so often, there is

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months ago, Nevada had a sizable hole in itscurrent biennial budget. By January, thehole had grown to more than $500 millionand was getting bigger. To make up for theshortfall, the budget has been cut 4.5 percentacross the board, and the state has put a hir-ing freeze into effect.

This wasn’t supposed to happen. In thedays following the dot-com bust and 9/11,most states trimmed back. They didn’t addongoing expenditures that were based onnon-recurring surpluses. They made prom-ises reminiscent of Scarlett O’Hara’s boastthat she’d “never go hungry again.”

Some of the worst-hit states are thosethat forgot these lessons and treated tem-porary surges in income as though theywould go on forever. In Arizona, for exam-ple, a year of 16 percent revenue growthwas followed by 18 percent. “That created anattitude that the sky’s the limit,” says stateSenator Bob Burns. The legislature built upspending to match revenues and cut in-come taxes. Now, with a weakened econ-omy and revenue falloffs, it confronts a$870 million shortfall for fiscal year 2008—nearly 10 percent of its general fundbudget. As a result, the fiscal 2009 budgetproposal uses a series of accounting gim-micks—such as shifting $55 million in July2009 sales tax revenues to June 2009.

In Louisiana, some state leaders are con-cerned that their state not misuse the influxof post-Katrina money from the federalgovernment, plus revenues that flow fromrebuilding. “It’s fool’s gold,” warns JohnNeely Kennedy, the state treasurer. “Historydemonstrates that at some point, revenueswill come back to earth.”

It’s not as though all states are unpre-pared for a downturn. Many rainy day fundshave been built up, a number of them abovethe traditional 5 percent of general fundlevels. Most states have been cautious in re-cent years about increasing long-term ben-efits for employees. At the same time, im-provements in Medicaid management havehelped to cut back on health-cost growth.

But as each challenge is faced, anothergrows. Many states confront new Medicaidpressures not because of a surge in costs butbecause the federal government has re-duced its contribution and tightened its reg-ulations. Then there are retiree health carecosts. New accounting standards requirethat governments calculate their long-termretiree health obligations, and that has put

pressure on current budgets as states strug-gle to deal with substantial obligations thatwill mount relentlessly if they aren’t faced.Connecticut, where finances are in goodshape right now, has a $21 billion liability forretiree health care over the next 30 years andhas put aside only $10 million toward it. Al-though it was only a nominal payment, itwas, says Michael Cicchetti, deputy secretaryof the Office of Policy and Management, away “to get people used to the notion thatthey have to put money aside.”

A fair number of states, including Mon-tana, Utah and Washington, have beencareful about keeping budgets in line withchanging tides. Washington State’s long-term perspective and sophisticated projec-tions, for example, have helped it avoid un-pleasant surprises. The state generateslong-term budget outlooks—at least sixyears out—that are not just insider planningdocuments but, says Candace Espeseth, as-sistant director of the state’s budget divi-sion, something the legislature looks at, aswell. “We have quarterly updates for manyof our forecasts and our caseloads,” shesays. “We’re constantly realigning.”

One very good sign for the future: Thetiming of the pending budget problems

and the maturation of technology are com-ing together in such a way that govern-ments are positioned to communicate withcitizens about the state’s fiscal health inways they never have before. Budget of-fices report getting more citizen input as aresult of online mechanisms and the post-ing of public hearings online. That mightnot make the hard budget decisions anyeasier, but governments should be able tolet people know—on their own terms, notjust through local media—what’s going on,and in turn, get more feedback from citi-zens on budget moves.

This openness isn’t just a by-product oftechnology. New Jersey now has a process inplace to publish any changes that are madeafter the governor’s budget proposal—in-cluding the name of the lawmaker whomade the change. The system worked welllast year. The state got its budget done aheadof time, and there were fewer unexpectedprograms crammed in at the last minute.

Of course, challenges for the states’money managers stretch way beyond budgetissues. This year, as in years past, contractingand procurement are weak points. Statesare benefiting from new technologies thatallow them to do more purchasing online.

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But some are having trouble keeping up andmany still grapple with issues of flexibilityversus control. New Hampshire is at the ex-treme of the control spectrum. Purchasesabove $5,000 can’t be made without ap-proval from an elected board.

Many states, though, have set aboutfinding innovative approaches for procure-ment and contracting. California developedits Award Schedule, which allows agenciesto spend up to $250,000 on transactionswithout using the traditional bid process, aslong as the companies and products in-volved are on product schedules put out bythe U.S. General Services Administration.Before Minnesota procurement employ-ees are awarded the authority to make pur-chases, they must attend rigorous trainingprograms on procurement. And Georgiahas established a series of indicators to in-form agencies about dollar savings and pro-curement cycles for their purchases.

InfrastructureThe Rough Road

Last spring, there was a prisonriot in Indiana. The casual ob-server, informed by Holly-wood movies, might guess thatthe roots of unrest were vi-

cious gangs, escape efforts or hostile guards.In fact, the real genesis of the problem at

the New Castle medium-security facility wasmore mundane: bad planning for infra-structure. Back in 2001, the prison was builtto avoid overcrowding at other prisons. Butthe state provided only enough money to op-erate at 25 percent of capacity. Inmates stillhad to be sent out of state. In 2005, inmatesstarted to return, and in the following year, aprivate company began running the prison.To take advantage of still-unused capacity,the prison imported prisoners from Ari-zona. The contractor, however, was unable tohire sufficiently experienced staff. And whenthe Arizona inmates who were accustomedto a less-restrictive environment rebelled,the prison was unable to respond adequately.Two staff members were injured.

The state has fixed many of the planningproblems that led to this event. But the impactof prior practices here and elsewhere serve asa cautionary tale. It’s critical that states look athow they will use the facilities and the full costof maintaining them.

Perhaps the most serious disconnect

comes when states underestimate the costsof maintaining new roads, bridges andbuildings. Even though a growing numberare aware that maintenance is an area ofconcern—and states such as Georgia,Idaho, Indiana, Tennessee and Vermonthave made real improvements—an alarm-ing half of the states are decidedly weak ininfrastructure maintenance.

In part, that’s because the dollaramounts are huge when it comes to trans-portation. South Carolina legislators areconsidering a proposal to phase in $200million annually over five years to help re-habilitate roads. Unfortunately, the stateauditor suggests that funding would have togrow by $1 billion a year for 10 years to bringthose roads up to speed. Deferred mainte-nance in New Jersey’s transportation sys-tem is now $13 billion, with the state’sbridges falling into steadily worse repair.

Massachusetts estimates that over thenext 20 years it will need up to $19 billionmore than it expects to bring in just to main-tain its transportation system. Right now, ithas about $2.2 billion in non-transportationdeferred maintenance. Although the statestill isn’t doing complete infrastructure as-sessments, it has made progress over the

years. The fact that it has a system in place tomake estimates of this kind puts it in bettershape than a number of other states.

Such systems are becoming more com-mon, replacing the old way, where, says Mis-souri’s facilities management director, DavidMosby, “every couple of years, departmentsmade a call about the condition of their as-sets.” Today, the Show-Me State uses a so-phisticated capital-planning system createdat the Massachusetts Institute of Technologythat helped assess 27 million square feet ofstate buildings in a period of 18 months.

There has been some marked improve-ment in capital planning over the past fewyears. It generally is more transparent, morefocused on the long term and more objective.

Take Alabama. It had fallen way behindin keeping up with maintenance. In its pris-ons, for instance, the normal locking mech-anisms on cells had fallen into such disre-pair that the state is using padlocks instead.“It’s a terrible system,” says Vernon Barnett,chief deputy commissioner of corrections.“If there was a fire, people wouldn’t be ableto get out because officers would be runningaround opening all those padlocks.”

But Alabama now is taking steps to im-prove. Beginning with the 2009 budget,

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BGeorgia BSouth Dakota BTennessee BTexas BWyoming B

B-Arizona B-California B-Idaho B-Nevada B-New York B-North Carolina B-North Dakota B-Ohio B-Pennsylvania B-Wisconsin B-

CHawaii CIllinois CNew Mexico C

C-Alaska C-Oklahoma C-South Carolina C-West Virginia C-

D+Massachusetts D+New Hampshire D+

acts

Policy

A

A-

B+

B

B-

C+

C

C-

D+

D

A A- B+ B B- C+ C C- D+

D

Infrastructure



If you were to step inside 1025 F Street inWashington, D.C., and ride the elevator upto the 9th floor, you would find yourself inthe home of the Government PerformanceProject. Here, in a maze of well-lit offices,the GPP’s journalists and researchers an-alyze information and interview state offi-cials. In the conference rooms, we holdmarathon sessions on what grades to giveeach state in each category.

What are these sessions like? This pastJanuary, several of us sat around a con-ference table to talk about the strategic-planning process in Arizona. The jour-nalist, who reported on the state, didn’tsee evidence of statewide planning. Theacademic, who had spent time reviewingagency plans, thought the state deservedcredit for its coordination of strategicplanning among the agencies. The jour-nalist countered that, in the absence of awritten statewide plan, there was little in-dication that actual budgetary actionswere influenced by these efforts. After aspirited debate, we reached a consensus:The agency plans would have had to be ex-ceptional to overcome the lack of a stateplan, and in Arizona, that simply wasn’tthe case. That point—along with dozensof other factors—made its way into thefinal grade of B- for information.

These in-depth conversations areamong the last stages of a year-long processthat forms the basis for the GPP’s grades infour management areas—Information,People, Money and Infrastructure. A fulldescription of the criteria used to assessthose management areas can be found on-line at pewcenteronthestates.org/gpp.

A state’s strong points and weak pointsin each criterion correlate closely to its finalgrades. Closely is the operative word. TheGPP’s methodology favors common senseover a formula. New Jersey, for example,does an acceptable job in a couple of the in-frastructure-related criteria and a very goodjob in two more. Yet its grade was a C+.Why? With deferred maintenance of $13billion on transportation and bridges fallinginto ever worse condition, the fine job the

state does in planning and coordination re-cedes in importance. “If you let your assetsdecay, that trumps other factors in consid-ering the overall management of infra-structure,” says Michael Pagano, a professorat the University of Illinois at Chicago, wholed one of our academic teams.

It turns out that a weak economydoesn’t necessarily lead to bad overallgrades. Michigan’s finances are deeplytroubled, but its management skills haveweathered the storm well.

As with prior GPPs, the information weutilize comes from a number of sources.

First up, a survey asking for basic data. Thesurvey is filled out by the states and care-fully analyzed by GPP’s academic teams.All but a handful of states completed thisonline instrument. For those that didn’t,the GPP team set about uncovering thesame body of information through publicdocuments and interviews.

At the same time, our teams of aca-demics scour the country for documentsthat could contribute to better under-standing of the states, including budgets,capital plans, workforce plans, auditor’sreports and state Web sites. These notonly are used as sources of informationbut, as in the case of workforce plans,

are reviewed and evaluated as manage-ment tools.

Meanwhile, we conduct hundreds ofinterviews—upwards of 1,400 this year—to add information to the pool of data and,importantly, to provide context in which allthe information can best be understood.We interviewed legislators, their staffersand fiscal analysts; controllers, treasurers,budget officers and auditors; human re-source and transportation officials; chiefinformation officers; managers in chargeof non-transportation infrastructure andrepresentatives of agencies and depart-ments. We also talked to leaders of civic or-ganizations.

Everybody involved in the GPP looksclosely at the ability of states to produce ac-tual results. Even the best strategic plan isirrelevant if nobody in the state follows it.

One important note about the gradesthat emerge from this process: Althoughthe criteria are essentially the same as theywere in the 2005 GPP, the state of the artin these areas has advanced. As a result, astate can conceivably have improved with-out its grade going up. Take the informa-tion category. According to Philip Joyce, aprofessor at The George Washington Uni-versity who heads one of our academicteams, here’s what a state would have hadto accomplish in 1999—the first GPP—toget an A: Good statewide or agency plan-ning, performance audits with some out-come measures plus the use of perform-ance information by the executive branch,even if there was little or none by the leg-islature. The state’s performance had to becommunicated to citizens through writtenperformance reports.

In 2008, an A state has to have excel-lent statewide and agency planning, be aleader in performance auditing (moststates now do performance audits), haveoutcome data for almost all governmentfunctions, show substantial use of per-formance information by the executivebranch and some use by the legislature.The state’s performance has to be com-municated to citizens electronically,preferably through interactive Web sites.

That’s a dramatic difference. Whilethe advances in this field are greater thanin the others, the basic principle holdstrue in grading each state in each category.

HOW WE GRADEWelcome to an inside look at the way we work.

Everybody involved in the GPP looks

closely at the ability of states to produce

actual results.


agencies must provide the finance depart-ment, which sets the governor’s budget,with detailed and prioritized project re-quests, including justification for the proj-ects, forecasts of operating and mainte-nance costs, and possible alternative fund-ing sources.

The most abused terms in infrastructurecontracts are probably “on time and onbudget.” But advances are being made by sev-eral states on this front. The Arizona De-partment of Transportation, for instance,has established a “partnering” system underwhich each contractor and the state agree toa “mission statement” for a project, as well asa ladder of escalation for resolving disputes.This partnering has kept claims down.

California has experienced some suc-cess in the on-time department. After afiery truck crash melted a key freeway ex-change in the Bay Area, it took only 16days—not the normal 150—for Caltrans(the state’s transportation department) andits contractors to clear the span, build anew bridge and reopen the exchange. Howwas this accomplished? Caltrans offered abonus of $200,000 for each day the workwas completed ahead of the deadline, witha maximum of $5 million. Given the im-portance of this road to commuters, thestate got real value for its money.

“Government can work,” GovernorArnold Schwarzenegger said of this effort.“It can be efficient, it can lead.”

GOVERNMENT PERFORMANCEPROJECTA Project of the PewCenter on the States

Susan K. Urahn, Managing Director, Pew Center on the StatesKatherine Barrett, Senior ConsultantRichard Greene, Senior Consultant

Neal C. Johnson, Director, Government Performance ProjectAmy Edwards, Senior Associate, Government Performance ProjectMichele Mariani Vaughn, Senior AssociateMichael Blanding, Consulting ReporterBrian Rogal, Consulting ReporterAnne Ruffner Edwards, Consulting EditorEdward J. Finkel, Consulting EditorJulia Eddy, Administrative AssistantRichard Silver, Administrative AssistantKil Huh, Manager, Pew Center on the StatesAnn Cloke, Administrative Assistant

Melissa Maynard, Governingmagazine Project ReporterWill Wilson, Governingmagazine Project Reporter

Researchers: Jennifer Calantone, HeatherKleba, Mark Wellborn, Laura Young

Research Partners

MONEYKatherine Willoughby, Ph.D.Georgia State UniversityGraduate Assistants: Sarah Arnett, David Guo,Tanya Smilley, Andrea Klug, Seong Soo Oh,David Trice

PEOPLESally Selden, Ph.D., Lynchburg CollegeGraduate Assistants: Marni Fogelson-Teel, Joe Orenstein, Colin Turcotte, Robert Wooters

INFRASTRUCTUREMichael A. Pagano, Ph.D.University of Illinois at Chicago Graduate Assistants: Wan-Ling Huang, Benedict Jimenez, Kamna Lal, Kristina Wallig

INFORMATIONPhilip Joyce, Ph. D.The George Washington UniversityGraduate Assistants: Victoria Bruce, MacKenzie Hawkey, Saurabh Lall, Alice Levy,Katie Logisz, Robin McLaughry

THE CRITERIA WE USEInformation • The state actively focuses on making future policy and collecting information to support

that policy direction. • Elected officials, the state budget office and agency personnel have appropriate data

on the relationship between costs and performance and use these data when making resource-allocation decisions.

• Agency managers have the appropriate information required to make program management decisions.

• The governor and agency managers have appropriate data that enable them to assess the actual performance of policies and programs.

• The public has appropriate access to information about the state, the performance of state programs and state services and is able to provide input to state policy makers.

People• The state regularly conducts and updates a thorough analysis of its human-capital needs. • The state acquires the employees it needs. • The state retains a skilled workforce.• The state develops its workforce. • The state manages its workforce-performance programs effectively.

Money• The state uses a long-term perspective to make budget decisions. • The state’s budget process is transparent, easy to follow and inclusive. • The state’s financial management activities support structural balance

between ongoing revenues and expenditures. • The state’s procurement activities are conducted efficiently and supported

with effective internal controls. • The state systematically assesses the effectiveness of its financial operations

and management.

Infrastructure • The state regularly conducts a thorough analysis of its infrastructure needs and has

a transparent process for selecting infrastructure projects. • The state has an effective process for monitoring infrastructure projects

throughout their design and construction. • The state maintains its infrastructure according to generally recognized

engineering practices. • The state comprehensively manages its infrastructure. • The state creates effective intergovernmental and interstate infrastructure

coordination networks.

More details on the criteria are online at pewcenteronthestates.org/gpp

AlabamaThree decades ago, Alabama was far aheadof most states in its plans to use perform-ance measures to improve the functions ofgovernment. Its Budget Management Act,passed in 1974, required all state agencies towrite strategic plans and program objec-tives, and to report on them quarterly. In theyears that followed, the state had more pilotsthan a small airline, and churned out a greatdeal of paper. But it was all a lot of soundand fury, signifying very little. In the words

of Anne Elizabeth McGowin, the state’s as-sistant finance director, “in some cases, thereports were as worthless as paper clips.Nobody cared what they were counting “

In 2008, Alabama is geared up to finallyfulfill its long-lost promise. Four years intoGovernor Bob Riley’s SMART Governingprogram (Specific, Measurable, Account-able, Responsive, Transparent), agenciesare producing usable strategic plans andquarterly reports. SMART has given Fi-nance Director James Allen Main more in-formation than ever with which to prioritizebudget requests. That’s true, too, on the cap-ital side, where agencies’ requests nowmust include project justification and esti-mated operating and maintenance costs,and are compiled for decision makers in astatewide capital plan.

Is Alabama a national leader now? Not bya long shot. For one thing, the use of theseperformance measures is somewhat lim-ited to the budget season. Although quarterlyreports are generated, measures aren’t oftenrelied upon as a management tool for the restof the year. The legislature generally hasn’tbought in yet. So the state is still at a very earlystage in many of these enterprises. But theprogress over the past few years is significant.

Of course, even if SMART continues onan upward trajectory, it isn’t a panacea forthe state’s more fundamental problems.

Alabama is still plagued by an overly ear-marked fiscal process, which has allowedthe education budget, fueled by swiftly grow-ing income tax revenues, to rise 60 percentin the past four years, while the generalfund budget—responsible for almost every-thing else in the state—has trailed. There’sa $400 million hole in the 2008 educationbudget, and another gap looms for 2009.

Roads, bridges and buildings also aredesperately underfunded. The state’s De-partment of Corrections resorted to sellingoff $20 million worth of land last year topay for keeping its prisons from deteriorat-ing further. On the transportation side, thestate has racked up $3 billion in deferredmaintenance, and a package of bills de-signed to reform funding and manage-ment of the Department of Transporta-tion died last year in the gridlocked Senateafter passing through the House.

The Department of Transportation doeshave some reasons to be optimistic. It isnow out from under a 13-year federal courtdecree over the department’s hiring prac-tices that cost more than $250 million andled to a statewide revision of testing and hir-ing standards. Morale is on the way up:Once again, employees are being hired andpromoted, and the millions that were beingspent in court should go instead to repavingroads and shoring up bridges.

While individual agencies’ procurementmay be improving, it can be very difficult toknow what’s happening on a statewide level.That’s because the central office has no con-trol over service contracts. State PurchasingDirector Isaac Kervin can’t say how muchthe state spends on services altogether, be-cause none of those contracts cross his desk.

When it comes to purchasing goods, asopposed to services, Alabama has the op-posite problem: The agencies have too littlecontrol, and the state’s antique procure-ment laws can significantly slow down pur-chases. One straightforward solution: Givethe agencies more authority to make nec-essary purchases—and then use theSMART system to hold them accountable.

For additional data and analysis, go to

pewcenteronthestates.org/gpp

Money C-

Long-Term Outlook l

Budget Process l

Structural Balance l

Contracting/Purchasing l

Financial Controls/Reporting l

People B-

Strategic Workforce Planning l

Hiring l

Retaining Employees l

Training and Development l

Managing Employee Performance l

Infrastructure C+

Capital Planning l

Project Monitoring l

Maintenance l

Internal Coordination l

Intergovernmental Coordination l

Information C

Strategic Direction l

Budgeting for Performance l

Managing for Performance l

Performance Auditing & Evaluation l

Online Services & Information l

Population (rank): 4,599,030 (23)Average per capita income (rank):$21,270 (40)Total state spending (rank):$22,260,824,000 (24)Spending per capita (rank):$4,840 (31)Governor: Bob Riley (R)First elected: 11/2002Senate: 35 members: 23 D, 12 RTerm Limits: NoneHouse: 105 members: 62 D, 43 RTerm Limits: None

C+

Alabama still facesserious managementproblems, but there’sbeen real progress inthe past few years.

G R A D I N G T H E S T A T E S

l Strength l Mid-level l Weakness


Alaska“We aren’t poor,” says Jeff Ottesen, a di-rector in Alaska’s Department of Trans-portation and Public Facilities. “But we actpoor.” His particular worry is underfundedmaintenance for the state’s roads and build-ings, but he might as well speak for nearlyevery agency in Alaska.

Recently, for example, Governor SarahPalin announced a plan to salt away a two-year $7.1 billion surplus produced by high-priced oil. Yet, not long ago, the Division ofFinance had to cancel a plan to procure amuch needed new payroll system becauseit was short a few million dollars. The pres-ent payroll system has a backlog of morethan 20 man-years of requested fixes, andthe time isn’t far away when the system willsimply be unredeemable.

There’s a justification for these fiscal con-tradictions. Since most of Alaska’s currentlargess comes from oil revenue, there’s no

guarantee that it will continue flowing in thefuture. “If we were a person, we’d be wealthy;but in terms of income, we’re shaky,” ex-plains Legislative Fiscal Analyst David Teal.Some observers of Alaska’s fiscal picturemay wonder why the state has any concernsat all, given the enormous pot of money it hasset aside—$40 billion or so—in the AlaskaPermanent Fund. But the reality is that thestate can’t touch most of this money, as div-idends from the fund flow to citizens andhave become a politically sacred promise.

In Alaska, information works about thesame way as money—agencies have a lot,but they often lack the capacity to use it. Thestate has gone from using old-fashionedoutput measures, such as the number ofpeople trained, to using robust outcomemeasures detailing more-important factors,such as how many trainees were hired. Butthe next step—linking the performancenumbers to the budget—hasn’t been takenyet. “Our performance measures are on the

Web but not linked to one another nor to thebudget dollars,” says Jo Ellen Hanrahan, ofthe Office of Management and Budget. Ifthe state can improve that link the way it hasit has improved the measures themselves,the results could be impressive.

Workforce planning is another fallowfield. There is a strong template for agencyworkforce plans, but only one agency cur-rently takes advantage of it. As for the oth-ers, “they are so busy trying to get their dailywork done, they don’t realize how impor-tant it is,” explains Nicki Neal, director ofthe state personnel division. The executivebranch is well aware of the need to developthis expertise in the future. The governor re-cently formed a working group that will ex-amine recruitment and retention tactics inorder to address the declining number andquality of applicants—almost 40 percent of2006 state employee recruitments foundfewer than five strong applicants—as well asa rising tide of retirements.

The esprit de corps of state workers plum-meted after it was discovered that a 2006change in the oil tax was pushed by severalstate legislators who were receiving cash froman oil company that stood to benefit from it.Three legislators have been convicted, andlawmakers went back and increased the tax inNovember 2007. Still, the damage will takeconsiderable time to overcome. Even with thecorruption unearthed and the reform effortsbeing undertaken by the present administra-tion, Alaska continues to face a grave problemin the mentality that guides its spending de-cisions. “The fake sound bite of cutting thebudget drives policy here,” groans state Rep-resentative Les Gara, “but the money is stillbeing spent unwisely.”

That seems especially true when itcomes to infrastructure. In 2007, the legis-lature added $200 million in supplementalprojects to the $734 million capital budget.Very little went to a deferred-maintenancebacklog that exceeds $1 billion for statebuildings alone. A Department of Trans-portation and Public Facilities official says,“I don’t have a clue how they prioritize.”



Money C-

Long-Term Outlook l

Budget Process l




People C-


Hiring l




Infrastructure C-

Capital Planning l


Maintenance l



Information B-






Population (rank): 670,053 (47)Average per capita income (rank):$26,919 (13)Total state spending (rank):$8,599,090,000 (39)Spending per capita (rank): $12,833 (1)Governor: Sarah Palin (R)First elected: 11/2006Senate: 20 members: 9 D, 11 RTerm Limits: NoneHouse: 40 members: 17 D, 23 RTerm Limits: None

C




Alaska has the moneyto solve its problems—if only it could spend more wisely.

ArizonaThere’s no question that the past few yearswere good ones for Arizona’s economy.Thanks in part to the real estate boom, rev-enue grew by more than 16 percent in both2005 and 2006. The problem is that stateleaders seemed convinced the good timeswould roll on forever, and they beganspending that way. General fund expendi-tures grew faster than revenue and fasterthan any formula based on population andinflation would justify.

Last year, when revenue growth returnedto its historic average of around 8 percent,some of the more mature citizens of Ari-zona might have recalled song lyrics from“The Party’s Over”: “It’s time to wind up themasquerade… The piper must be paid.”

The debt to the piper in this case came inthe form of a $1 billion shortfall in the state’s$10.6 billion budget for 2007. To some ex-tent, this was the side effect of an income taxcut passed by ebullient lawmakers in 2006.The tax structure is now dangerously de-pendent on sales taxes.

Although the Arizona agencies facingsteep cuts have strategic plans and per-formance measures to guide their reduc-tions, this information doesn’t always drivemanagerial decisions. Part of the problemis old technology that sometimes inhibitsmanagers from using cost and perform-ance data to best advantage. The state’saging financial information system is all butobsolete, making good reports hard to ac-cess and putting decision makers at a dis-advantage.

Arizona is working to rectify that situa-tion. The Government Information Tech-nology Agency provides good IT planningand wields strong authority in coordinatingIT funding at the agency level—especially inan ongoing overhaul of the state’s telecom-munications systems. And the currentbudget problems may actually help themodernization process along. For instance,the Department of Administration arguesthat a new statewide purchasing systemwould reap big savings—possibly as muchas $60 million a year—and improve a pro-curement process that one manager de-scribes as “challenging.” Should such newprojects get approval, GITA’s new Project

Management Certification courses ought tohone system implementation.

There’s good news to report from theDepartment of Transportation. It has suc-ceeded in using performance measures topersuade the legislature to provide sufficientfunding for highway repairs. This is espe-cially important since Arizona’s rapid popu-lation growth has strained road capacity. AStatewide Transportation AccelerationNeeds Account was created in 2006, as well,in order to address the fastest-growing areas.

What doesn’t look so good is buildingmaintenance. Between the fiscal years of2005 and 2007, despite a flush treasury,only 20 percent of the needed money wasappropriated to take care of the 2,650 statebuildings that depend on general revenues.Deferred maintenance for those buildingsnow totals nearly $250 million—almost$100,000 per building.

Although lots of people want to live andwork in Arizona, fewer of them seem towant to work for Arizona state government:It receives insufficient applications per joband its 16 percent voluntary turnover rate—including more than one-third of employ-ees with less than one year of service—is oneof the highest in the country. Facing thosescary figures, Arizona wisely develops theemployees it does have. More than half ofArizona Government University’s qualitytraining programs are available online. Andin November 2007, the state opened its Ca-reer Center’s occupation-planning and job-hunting services to all state employees, in ad-dition to displaced workers, in an attempt toretain employees by providing them a careerpath within state government.

Overall, money management remainsArizona’s foremost challenge. In October2007, for the first time, the state treasuryhired an internal auditor to keep an eye onthe $56 billion worth of financial transac-tions that occur between annual financialreviews. Good thing, too. In each of the pastthree years, Arizona’s financial reviewshave been late—nearly a year after fiscalclose for FY 2006.



Money C+

Long-Term Outlook l

Budget Process l




People B-


Hiring l




Infrastructure B-

Capital Planning l


Maintenance l



Information B-






Population (rank): 6,166,318 (16) Average per capita income (rank):$24,110 (24) Total state spending (rank):$25,731,467,000 (19) Spending per capita (rank): $4,173 (45) Governor: Janet Napolitano (D)First elected: 11/2002Senate: 30 members: 13 D, 17 RTerm limits: 8 years (consecutive)House: 60 members: 27 D, 33 RTerm limits: 8 years (consecutive)

B-




ArkansasIn his first year after taking office in 2007,Governor Mike Beebe showed commend-able focus on the effort to bring better day-to-day administration to a state that sorely needsit. He began by tackling one of the worstlong-standing problems: a depressingly highturnover rate among state employees. Thegovernor brings some expertise to this en-deavor: He once chaired the Senate Person-nel Committee.

The big problem has been a failure toprovide regular pay increases. For years,state workers have received one-time bonuspayments for high achievement as a way toavoid building permanent additional ex-penses into the budget. From a fiscal econ-omy perspective, that may be sensible.From a human resources vantage point, it’snot. Fast food restaurants pay higher wagesthan many state jobs in Arkansas.

To counteract that phenomenon, theadministration has begun a comprehensivepay plan study, backed by the legislature, toidentify where low salaries have had an es-pecially pernicious effect on employee re-tention. The findings are expected to be in-corporated into next fall’s budget hearings.Meanwhile, the governor sponsored legis-lation that changed the bonus payments topermanent merit increases and, in addi-tion, got every state employee a 2 percentcost-of-living increase. Personnel staff areabout to update job classifications, some-thing that has not been done in nearly twodecades. But despite these incremental im-provements, meaningful reform of thestate’s compensation system will not be ac-complished quickly. “It’s a pretty massiveundertaking,” admits Kay Barnhill-Terry,director of the Office of Personnel Man-agement.

Human resources present a challenge tomanagement in another way, as well. Verylittle in the way of strategic or centralizedworkforce planning has ever been done inArkansas. State agencies once were re-quired to produce performance informa-tion on their activities, but the legislaturedumped this effort several years ago.

Sweeping changes to human resources,as with any aspect of state government,will require money. And Arkansas is short

on that commodity at the moment, for a va-riety of reasons. One stems from the reso-lution of a long-standing class-action law-suit, which requires the state to use about 50percent of general revenues for education.So while Arkansas generated about $1.1billion in surplus revenue over the past fewyears, much of the money had to fundschool maintenance.

Recently, the state has increased fund-ing for prison renovation and for more cor-rections staff, including parole and proba-tion officers. These initiatives have beencredited with helping to cut what had beena growing prison population. The currentadministration has continued to supportthese funding increases, which beganunder former Governor Mike Huckabee.

Arkansas has traditionally handleddebt issues well. But its budget process isweak, and in the event of an economicdownturn, the state won’t have muchroom to maneuver. In 2007, the governorsucceeded in reducing the sales tax onfood to ease the burden on low-incomeresidents, and during the next legislativesession, he hopes to eliminate the tax onfood altogether. Desirable as this may bein many ways, it could put the budget outof structural balance in the event of severeeconomic stagnation.

The state also has a $160 million back-log in highway maintenance needs. Thegood news is that this amount hasn’t goneup in recent years. “We’re pretty much ableto maintain the status quo,” says Scott Ben-nett, of the Highway and TransportationDepartment. Unfortunately, due to risingconstruction costs, Bennett believes that’sabout to change for the worse.

Unlike most states, Arkansas does nothave a systematic way to prioritize its capi-tal expenditures for infrastructure. The statedoes have a maintenance division thattracks routine needs, but officials mostly de-pend on staff looking at the crisis of themonth, and then setting short-term priori-ties. Bennett calls this approach “the old-fashioned way.” He’s right about that.



Money B-

Long-Term Outlook l

Budget Process l




People C-


Hiring l




Infrastructure C+

Capital Planning l


Maintenance l



Information C-






Population (rank): 2,810,872 (32)Average per capita income (rank):$19,758 (48)Total state spending (rank):$14,370,337,000 (32)Spending per capita (rank): $5,112 (29)Governor: Mike Beebe (D)First elected: 11/2006Senate: 35 members: 27 D, 8 RTerm limits: 8 years (lifetime)House: 100 members: 75 D, 25 RTerm limits: 6 years (lifetime)

C




CaliforniaCalifornia faces fiscal problems that budgetwriters in most states would find difficult tograsp, let alone solve: a $14 billion shortfallfor the coming fiscal year, and chronicstructural deficits that threaten to persistlong after that. Just last month, the state is-sued the remaining $3.3 billion in deficitbonds authorized by voters in 2004 to coverthe last big budget gap. Governor ArnoldSchwarzenegger addressed the situationin his January State of the State address. “Itused to be that Sacramento plugged itsdeficits by just grabbing money anywhereit could: pension funds, local government,bonds, gas taxes that were meant for trans-portation,” Schwarzenegger said. “We nowhave no way out except to face our budgetdemons.”

Just how California faces those demons,whether it’s through spending cuts or rev-enue raisers, remains to be seen. But there’sno doubt that some structural changes needto be made. And that effort is beginning.The governor’s lecture included a proposalfor a Budget Stabilization Act that wouldput any tax revenues exceeding the long-term expected growth rate into a revenuestabilization fund. The Act would also cre-ate more flexibility to adjust spending levelson short notice when a year-end deficit isprojected; the governor would be given au-thority to order cuts in spending withoutlegislative approval. But the Act itself willrequire legislative enactment, as well as ap-proval from the citizens in a statewide vote.All of that will take a while.

In the meantime, California has beenmaking smaller management improve-ments to save money, such as reformingits procurement process. There are newcontracting procedures and performancestandards for agency procurement per-sonnel. And California has saved morethan $150 million through strategic sourc-ing since 2005.

The state has taken a comprehensive,long-term look at its infrastructure needs,and is beginning to address them in a sys-tematic way. Voters approved a StrategicGrowth Plan proposed by the governor andan accompanying $42 billion bond pack-age, and are being asked for more in the

proposed budget. A bond accountabilityWeb site launched last summer allows vot-ers to see where their money is going bytracking all bond-funded projects.

In a state with a habit of overspending,there is one area of chronic underspending:maintenance for existing assets. This is nota good place to conserve cash. Californiaspends $2 billion less each year on highwaymaintenance and rehabilitation than isneeded. Even by California standards, that’sa lot of money.

It’s no secret that California’s person-nel system is dysfunctional. “It’s just sodifficult to make any change at all to any-thing,” says Insurance CommissionerSteve Poizner, an elected official who over-sees 1,300 employees. “Even though Ihave significant regulatory control overthe entire insurance industry, I don’t haveany control at all over salaries.” An out-dated and inefficient merit system makesit painfully difficult for newcomers tobreak into state government. Many jobsare not even open to anyone who doesn’tcurrently work for the state, and thosethat are take months to fill. Too manychoice positions are awarded to marginallyqualified employees on the inside.

The State Personnel Board and the De-partment of Personnel Administrationshare statewide responsibilities for the over-all system. But much of the work has beendelegated to the agency level. That mightmake sense, since the state has some235,000 employees. But the agencies don’treport much information back to the centralHR offices, so there is little overarching un-derstanding of what’s happening on theground.

Efforts are finally underway to try toturn this behemoth around. The HumanResources Modernization Project kickedoff last year with a strategic plan for reformsin workforce planning, hiring, classifica-tion, compensation and employee evalua-tions—and a budget to actually get the workdone. A complementary project updatingthe state’s payroll system is underway, too.



Money D+

Long-Term Outlook l

Budget Process l




People C-


Hiring l




Infrastructure B-

Capital Planning l


Maintenance l



Information C+






Population (rank): 36,457,549 (1)Average per capita income (rank):$26,974 (12)Total state spending (rank):$225,317,442,000 (1)Spending per capita (rank):$6,180 (11)Governor: Arnold Schwarzenegger (R)First elected: 10/2003Senate: 40 members: 25 D, 15 RTerm limits: 8 years (lifetime)House: 80 members: 47 D, 32 R, 1 VacantTerm limits: 6 years (lifetime)

C




ColoradoThree years ago, Colorado’s fiscal hole hadgrown so large that some feared it mightswallow the higher education system. Thereason was the state’s Taxpayer Bill ofRights, or TABOR, a constitutional amend-ment passed in 1992 that prevented thestate from raising revenues for basic serv-ices without a popular vote. But in 2005,more than 1,000 organizations and interestgroups spanning the political spectrumbanded together to support Referendum C,which called for a five-year timeout forTABOR. It also called for an end to the“ratchet effect” that based revenue limits onprior-year revenues, even when the prioryear had revenues too low to support ongo-ing needs. Voters approved it.

The referendum provided massive fis-cal relief; without it, revenues would be at

least $700 million below current projec-tions. But the state still struggles withother restrictions that often work at cross-purposes, including one that mandatesincreases in K-12 spending and anotherthat caps annual spending growth in thegeneral fund at 6 percent.

The state is permitted to exceed that capon infrastructure spending. So, after es-sentially defunding non-transportationmaintenance during the fiscal crisis, the2008 budget includes $190 million fornon-transportation infrastructure projects.That’s a far cry from the $656 million thatagencies believed they needed, but it’s stilla big improvement. The Department ofTransportation has received a fundingbump as well, although inflation has re-duced its buying power.

Meanwhile, competition for general funddollars is fierce. And the $325 million the statespent on failed technology projects in recentyears hasn’t helped. Poor project manage-ment doomed some of the efforts, but theyalso were damaged by a fragmented IT ad-

ministration system. The current structurehas decision makers spread across 16 execu-tive agencies. “When we have turnover or fiveof them disagree,” says John Conley, deputychief information officer, “we lose the visionof what the IT project is supposed to look like.”

To address this problem, Governor BillRitter elevated the position of chief infor-mation officer to cabinet-level status andhired Michael Locatis, who turned aroundthe city of Denver’s technology in his last job.But Locatis will be hard pressed to findenough money to check many items off theIT to-do list. An $11 million upgrade to astatewide e-mail system has been shelved in-definitely, and human resources managersgrapple daily with obsolete technology. Withthis in mind, the efficiencies that often comefrom centralized IT procurement could beparticularly useful in Colorado.

Several efforts are underway to increaseoverall efficiency. The budget office has di-rected agencies, as part of their 2009 budgetrequests, to develop outcome-orientedmeasures, against which it will track per-formance. Ritter’s Government Efficiencyand Management study searched for moreimmediate gains. Ideas from more than12,000 state employees helped uncoverwhat was touted as $145 million in potentialsavings; after a second round of sugges-tions, a final report will be issued in April.

Colorado leaders seem focused on en-gaging citizens in new ways. The governor,treasurer and controller combined effortslast year to issue the first State Taxpayer Ac-countability Report, a rundown of revenues,expenditures and all large programs. TheWeb version of the report includes links todetailed spreadsheets and data. “TABORput just about every question related to thebudget in front of voters,” says TreasurerCary Kennedy. “Providing this informationis critically important.”

Nevertheless, Colorado’s near-term fu-ture is very difficult to predict. In 2010, Ref-erendum C will expire, and TABOR will beback on the books. What happens then isanyone’s guess.



Money C+

Long-Term Outlook l

Budget Process l




People C


Hiring l




Infrastructure C+

Capital Planning l


Maintenance l



Information C






Population (rank): 4,753,377 (22) Average per capita income (rank):$27,750 (8) Total state spending (rank):$20,150,921,000 (27) Spending per capita (rank): $4,239 (43)Governor: Bill Ritter (D)First elected: 11/2006Senate: 35 members: 20 D, 15 RTerm limits: 8 years (consecutive)House: 65 members: 40 D, 25 RTerm limits: 8 years (consecutive)

C+




Colorado has shed itsfiscal straitjacket forthe time being. But difficult decisions loom.

ConnecticutConnecticut is in the midst of a reformwave, generated by the contracting scan-dals that brought down the administrationof former Governor John Rowland fouryears ago. Not only has Rowland’s successor,Jodi Rell, won widespread popularity fortaking up the cause of clean government butordinary citizens have developed the habit ofreporting potential governmental misdeedson their own. The Auditor of Public Ac-counts has been so overwhelmed withwhistleblower complaints—more than 100in 2007—that the office no longer has timeto complete all the performance audits thatare supposed to be its main function. On thewhole, however, the surge in citizen vigi-lance, assuming it continues, should be aboon to Connecticut’s democratic process.

State agencies have gotten the reformmessage. Responding directly to the Row-land scandal, they have increased trans-parency in contracting and stepped up train-ing for both central-procurement office staffand agency employees. In fact, the reins mayhave been tightened a bit too much. In a re-action to the so-called “fast track” contracts ofthe Rowland era, the state has made its con-tract requirements so thorough that theyhave added significantly to delays in gettingthe contracts processed. “Five or six yearsago, we could turn things around in 30 days,”says Carol Wilson, director of procurementprograms and services. “Now, we’re more tothe 60-day or 90-day timeframe. We want tolook at reducing turnaround times.”

Meanwhile, auditing of government func-tions has become a popular pastime in the leg-islature. The Legislative Program Review andInvestigations Committee conducts a half-dozen or more in-depth audits each year ontopics such as the tax system and the state’slong-term planning activities. The committeefrequently writes legislation based on its re-port findings, and it’s had good luck achievingits goals, with more than half of the recom-mendations becoming law.

Connecticut is working to institute per-formance-based budgeting and programmeasurement. It has tried this in past years,but to little effect. Now, however, the HouseAppropriations Committee has launchedan initiative called Results-Based Account-

ability that sets outcome goals across de-partmental lines, and instructs the agenciesinvolved to report performance informationwith their budget requests. The programhasn’t taken hold across the entire Con-necticut bureaucracy, nor has the data startedto drive the Office of Policy and Manage-ment’s decisions, yet. But the fact that the leg-islature has bought in means it stands agood chance of expanding its reach.

The House and Senate have begunusing the information to track trends andredirect money toward programs that areworking, and the legislative Office of FiscalAnalysis is hiring two people dedicated tothe program. “It’s huge when you start tomake the commitment in personnel, be-cause that’s when you start to institutional-ize it,” says state Representative DianaUrban, a champion of the effort.

Connecticut has been faulted in the pastfor its poor long-range financial vision. Andthis is still a problem. Long-range planning efforts instituted in the early 1990s were de-emphasized under Rowland, and the Officeof Policy and Management—once home tomany of those efforts—operates with lessthan half the staff it had 15 years ago. Butthere are signs of change here as well, partic-ularly in the emerging willingness of the ex-ecutive and legislative branches to work to-gether in looking beyond the current year’sbudget. The Office of Policy and Manage-ment and the legislative Office of FiscalAnalysis present five-year financial projec-tions to the Appropriations and Finance com-mittees. In addition, legislative fiscal-impactstatements now extend five years into the fu-ture, and the Office of Fiscal Analysis is test-ing the accuracy of the projections two andfour years into program implementation—alook back that should be a big help.

There also is some good news on themore immediate budgeting front: Con-necticut’s reliance on one-time revenues tobalance its budget has been minimized sig-nificantly, and there has been progress to-ward building a rainy day fund equal to 10percent of the general fund budget.



Money B-

Long-Term Outlook l

Budget Process l




People B-


Hiring l




Infrastructure C+

Capital Planning l


Maintenance l



Information B-






Population (rank): 3,504,809 (29) Average per capita income (rank):$34,048 (1) Total state spending (rank):$20,674,608,000 (26) Spending per capita (rank): $5,899 (14) Governor: Jodi Rell (R)Took office: 07/2004Senate: 36 members: 24 D, 12 RTerm Limits: NoneHouse: 151 members: 107 D, 44 RTerm Limits: None

B-




DelawareRuth Ann Minner has always been inter-ested in management issues. As lieu-tenant governor in the early 1990s, shechaired a special commission on Govern-ment Reorganization and Effectiveness.So it’s no surprise that she has focused onmanagement during her two terms in thegovernor’s office. And there were things tostraighten out when she took over in 2001.

Although the state had been well run,the offices that dealt with the budget,human resources, information technologyand asset management were fragmented.Minner launched an effort to bring all ofthese central government services underone umbrella, in an Office of Managementand Budget. “Effective management of cen-tral state services should serve as the back-bone of state government,” Minner said atthe time.

By all reports, the plan has worked. Thecentralized office has fostered collabora-tion and has broken down some of the oldbureaucratic barriers to the delivery of stateservices. Consider the Delaware Employ-ment Link (DEL), the state’s new online job

application tool. From the beginning,human resources, information technologyand the budget office have been partners inthe DEL project and have formed a cohesiveteam working toward the same goal.

While there still are some problems in hir-ing, the DEL site has helped the state moveforward. Applicants create a profile, apply formultiple positions, track jobs—and are noti-fied when new positions open up. DEL alsoprovides a more efficient system for man-agers to review applicant information—a bigleap forward from its antiquated precursor.

The major state budget planning func-tions also have been consolidated into oneunit. The goal is the same: better coordina-tion—especially between state regulationsand local land-use decisions. “When the

majority of infrastructure funding is the re-sponsibility of state government,” saysMike Jackson, director of Budget Develop-ment, Planning and Administration, “it iscritical that funding decisions are made ina coordinated fashion.” Under Jackson’sdirection, the state set up monthly meetingsbetween local officials and state resource ex-perts to discuss land-use proposals andtheir broader impact on the capital budget.This new effort has enabled state and localplanners to work together within local time-lines—and better inform the capital plan-ning and budget processes.

Delaware has strong financial practicesthat include excellent long-term planning,budgeting and maintenance of a soundstructural balance. Its financial reporting ispretty good, too. The only real problemshave been with delays in getting the re-ports out. In 2006, for example, the state’sannual financial report was submitted 227days after the close of the fiscal year.

After Delaware lifted electricity rate capsin 2006, power costs for state facilitieswere projected to double. The state cre-atively aggregated the electricity load forschools, local governments and volunteerfire companies, thus maximizing public-sector purchasing power. An innovative re-verse auction was held that, according toBob Furman, the director of Facilities Man-agement, saved $9 million for the state andits aggregation partners.

There still are areas that need attention.Contrary to trends in most of the country,Delaware does not produce performanceaudits or evaluations. The state audits thatare done are fundamentally financial in na-ture, as used to be the case pretty mucheverywhere. They don’t examine programperformance or make comparisons betweensimilar programs and services over time.

Another opportunity for improvement:The state’s information technology planlacks specific details about how goals will beaccomplished. Key objectives and measureswithin the plan would be very helpful in pro-viding better direction and accountability.



Money A-

Long-Term Outlook l

Budget Process l




People B


Hiring l




Infrastructure B+

Capital Planning l


Maintenance l



Information B-






Population (rank): 853,476 (45)Average per capita income (rank):$26,812 (14)Total state spending (rank):$6,519,932,000 (43)Spending per capita (rank): $7,639 (3)Governor: Ruth Ann Minner (D)First elected: 11/2000Senate: 21 members: 13 D, 8 RTerm Limits: NoneHouse: 41 members: 19 D, 22 RTerm Limits: None

B+

State and local officials discuss how land-useproposals impact the capital budget.




FloridaFlorida’s leaders have been willing to ex-periment, innovate and manage aggres-sively. That’s good. But new ideas don’t al-ways work out well—particularly when astate lacks sufficient long-term planning.

Consider Florida’s Division of HumanResources. In 2001, under Governor JebBush, changes to the civil service laws cutback job protections and placed approxi-mately 20 percent of the workforce on an at-will basis. The following year, the state out-sourced many of its personnel functions.

The results haven’t been good. Accord-ing to the Office of Program Policy Analy-sis and Government Accountability—a na-tional leader in program evaluation—theoutsourcing has suffered from poor con-tract management and implementation.Over the past four years, voluntary turnoveramong full-time career workers grew dra-matically, leading to reliance on less capa-ble temporary replacements.

Florida spends little on its workforce asa whole, ranking last in the nation in percapita spending on state personnel. Statetraining dollars as a percentage of totalsalary also are among the lowest in thecountry—0.89 percent. And even though ithas pursued ambitious and risky personnelinitiatives, Florida has had no real humanresources strategic plan. With so manyservices outsourced and a workforce bifur-cated between those who are civil serviceand those who aren’t, it’s little wonder thatFlorida’s HR house has a leaky roof.

Fortunately, the state may have begun tolearn its lesson. Although nothing tangible isin place yet, a strategic plan steering com-mittee has been working to provide HR guid-ance. Likewise, in 2006, the state created anadvisory council to vet future outsourcingproposals—especially for the largest projects.

It might be a good idea for a similarcouncil to look into the efficiency of finan-cial reporting. The state’s decades-old ac-counting-information system isn’t nearlyup to modern needs. An upgrade was at-tempted beginning several years ago, but ithad to be canned in 2007 due to poor proj-ect governance and implementation afternearly $90 million was invested.

Florida does a terrific job in managing

its buildings and transportation assets. Per-formance measures serve as guides to bothfunding and management decisions. Forinstance, the Department of Transporta-tion is at a five-year high for projects com-pleted within 10 percent of the original es-timated price.

For the most part, Florida has managed itslong-term financial position well. The state’spensions are more than 100 percent funded,its liability for other post-retirement benefitsis relatively small and the state debt level re-mains modest. But some financial mattersstill slip through the cracks: An internal auditin March 2007 raised red flags about the in-vestments made by the State Board of Ad-ministration—warnings that never made it tothe appropriate authorities until after a runand subsequent freeze on the local invest-ment pool.

In the short term, the housing bust ishitting Florida particularly hard. Without anincome tax, it relies heavily on sales tax rev-enues, especially from the construction in-dustry, and those volatile revenues havebeen declining sharply over the past year. InJanuary, the state’s voters approved a ballotmeasure that could make fiscal problemsworse: It expanded the local property tax ex-emption for resident homeowners, thusdepriving localities of revenue many ofthem need to provide vital services. The lo-calities are bound to come to the legislaturein search of help in filling the gap.

Many Floridians also are concerned thatthe Hurricane Catastrophe Fund—a trustfund set up to reimburse insurance com-panies for a portion of future hurricanelosses on residential property—representsa risk to the state’s long-term financial se-curity. State Chief Financial Officer AlexSink has estimated that Florida might haveto issue $20 billion in bonds if a hurricanedid $28 billion in damage. Those bondswould be paid back by homeownersthrough assessments on their property.Hurricane Wilma alone—a Category 3storm when it hit the state in 2005—did $10billion worth of insured damage.



Money B-

Long-Term Outlook l

Budget Process l




People C-


Hiring l




Infrastructure A-

Capital Planning l


Maintenance l



Information B-






Population (rank): 18,089,889 (4)Average per capita income (rank):$25,297 (18)Total state spending (rank):$76,142,277,000 (4)Spending per capita (rank): $4,209 (44)Governor: Charlie Crist (R)First elected: 11/2006Senate: 40 members: 14 D, 26 RTerm limits: 8 years (consecutive)House: 120 members: 42 D, 78 RTerm limits: 8 years (consecutive)

B-




GeorgiaIn 2003, when Governor Sonny Perduedecided to set up his Commission for a NewGeorgia, it sounded like a recipe for onemore unread manifesto doomed to gathermore dust than interest. Even the gover-nor’s desire to include the state’s “best andbrightest” minds in assembling the reportwasn’t easily fulfilled. Many of the best andbrightest had long since become jadedabout the benefits of this kind of effort.

But the governor meant business. He ul-timately pressed more than 300 private-sec-tor representatives into service, promisingto do everything possible to implementtheir recommendations. And since its cre-ation, the commission has been slowly,quietly and deliberately infiltrating Georgiastate government with best practices fromprivate industry—“like a special forces in-vasion,” says Joe Rogers Jr., chief executiveofficer of Waffle House, and co-chairmanof the commission.

Key among the commission’s accom-plishments is an intense focus on customerservice and on managing for results. Thenew Governor’s Office of Customer Servicehas collaborated with front-line state em-ployees to create a more consistent—andproductive—experience for citizens seekinghelp. By aggressively training employees,leveraging technology and monitoring out-comes, the state has driven down wait timesat call centers and has shrunk the rate atwhich citizens just get tired of waiting andhang up. And the state follows up to deter-mine if citizens’ concerns were satisfactorilyaddressed.

To make sure that the focus on servicepervades all levels of government, Georgiahas undertaken new efforts to recruit andretain a qualified workforce. Based on em-ployee satisfaction surveys, Georgia is over-hauling its compensation and benefitspackages by linking pay to performanceand raising salaries for new hires.

This is critical for the future. Georgiafaces a wave of retirements over the nextfew years, while below-average salaries andthe state’s booming economy have made itdifficult for government to lure and retainyoung workers. The state also is con-fronting an unintended consequence of its

own civil service reforms of 1996, whicheliminated most civil service protectionsand allowed state agencies to make at-willhires on their own. Although the decisionhas made hiring more efficient, it also hasresulted in some inequity across agencies.The Department of Transportation, for ex-ample, pays higher salaries than other de-partments and is sometimes accused of“hoarding” the best employees. Other agen-cies, by contrast, have struggled to fill somepositions—often for long periods of time.

To address those imbalances, Georgia istaking a step back toward a standardized per-sonnel system, trying to instill worker loyaltyto the state as a whole, not to a particularagency. “If the Army can recruit for any job inthe entire Army with one sergeant sitting be-hind a desk in a courthouse in a small town insouth Georgia, why can’t the state of Georgiado something similar?” asks Frank Heiny, as-sistant commissioner for personnel.

When it comes to performance budget-ing, Georgia’s efforts have generated a diffi-cult turf battle. The agencies produce reamsof data, and the governor’s office is using thenumbers to hold them accountable. But theSenate Budget Office, unimpressed by eitherthe quality or the reliability of executivebranch performance measurement, wants totake another approach. The conflict, saysAlan Essig, executive director of the GeorgiaBudget and Policy Institute, is in fact “overpower, and who’s really responsible for dif-ferent parts of the budget.”

The governor and the legislature woulddo well to reach consensus on this issue. Thepolitics will always be tricky—but there’s astraightforward first step: Key performancemeasures can be made available to a widergroup of citizens, managers and legisla-tors. Right now, the measures are main-tained in separate systems and accessibleonly to the respective agency managers. “It’sgreat that we’re doing a better job of per-formance measurement,” says Jim Lientz,the state’s chief operating officer, “but weneed a way to share that information acrossthe enterprise.”



Money B+

Long-Term Outlook l

Budget Process l




People A-


Hiring l




Infrastructure B

Capital Planning l


Maintenance l



Information B+






Population (rank): 9,363,941 (9)Average per capita income (rank):$23,716 (27)Total state spending (rank):$34,944,785,000 (12)Spending per capita (rank): $3,732 (49)Governor: Sonny Perdue (R)First elected: 11/2002Senate: 56 members: 22 D, 34 RTerm Limits: NoneHouse: 180 members: 73 D, 107 RTerm Limits: None

B+




HawaiiFor decades, Hawaii has had a law requir-ing state budget writers to employ real re-sults-based information. And for decades,that requirement has been essentially ig-nored. “Even when agencies purport tohave measurements,” says State AuditorMarion Higa, “those tend to be fiction.”

There’s little doubt that Hawaii’s budg-eting methods leave something to be de-sired. A recent series in the Honolulu Ad-vertiser questioned whether campaign do-nations by nonprofits had significantly in-fluenced legislative decisions over whichnonprofits to back with state funds. Thoseare relatively small budget items. But ethi-cal questions have been raised about spend-ing procedures for the much larger capitalbudget, as well. The legislature is looking atchanges in the means used for selectingcapital projects “so there’s no appearance ofimpropriety,” says House Finance Chair-man Marcus Oshiro.

Even if the state improves at choosinghow to spend infrastructure dollars, it stillmust come to grips with an unavoidable ge-ographic truth. The regular torrent of natu-ral disasters, including mudslides and earth-quakes, requires greater attention to main-tenance than the state currently demon-strates. Hawaii has a $187 million backlog ofdeferred road maintenance. A new projectexamining the energy efficiency and main-tenance procedures of state buildings showspromise, but as in the case of roads, the realsolution has to be a transition to lasting life-cycle funding.

Hawaii’s information technology coulduse some bulking up, too. A recently insti-tuted IT governance team should help setthe agenda for investment, but the stateneeds to use that governance model to sys-tematically modernize and standardize itsIT. Right now, a datamart allows disparateagency systems to interface with the oldmainframe financial system—a smartworkaround but not a long-term solution.

On the personnel front, Hawaii has usedtargeted salary increases as a means for at-tracting workers to hard-to-fill positions. Anew online application system also hashelped to increase applications by about 30percent since 2005. All of this is linked to

the state’s broader programs to combat out-migration—one to keep Hawaiians in-stateand another to lure them home from themainland—using tactics ranging from highschool visits to job fairs to headhuntingWeb sites. Although much is being done torecruit employees, better workforce plan-ning is still needed to make the best use ofthem once they arrive.

The Procurement Office has a differentkind of people problem—too many peopleare purchasing and not enough people arereviewing the purchases. Without suffi-cient staff to analyze purchasing data, thestate is foregoing easy savings, especially onbig-ticket items.

One managerial success story in Hawaiican be found in its Department of HumanServices. Since 2003, Director Lillian Kollerhas transformed an insensitive agency thatwas removing children from their homes atfour times the national average without ap-preciable safety benefits. A differential-response approach—treating lower-riskcases with a more comprehensive assess-ment of family needs than the strict inves-tigative model allows—has dramatically re-duced the number of children enteringfoster care. And almost $10 million of fed-eral welfare grant money that sat unusedevery year is now directed to programs suchas Hui Ho’omalu, a partnership of com-munity providers that recruits better fosterparents, leading to increased adoptions andfamily reunification. Continuous qualityimprovement goals, more stringent thanfederal requirements, have improved case-worker response time and brought re-abuserates down.

One of the biggest obstacles HumanServices has faced is an IT system de-scribed as a “complete management alba-tross.” But Koller has found a way aroundit by forging a partnership with Maui Com-munity College, using students to developan entirely new system. This seems to begetting the department just what it needsat a fraction of the ordinary cost. It’s hardto argue with that.



Money C+

Long-Term Outlook l

Budget Process l




People B-


Hiring l




Infrastructure C

Capital Planning l


Maintenance l



Information C-






Population (rank): 1,285,498 (42)Average per capita income (rank):$27,251 (11)Total state spending (rank):$8,913,697,000 (38)Spending per capita (rank): $6,934 (6)Governor: Linda Lingle (R)First elected: 11/2002Senate: 25 members: 21 D, 4 RTerm Limits: NoneHouse: 51 members: 44 D, 7 RTerm Limits: None

C+




IdahoGovernment has always been a rather infor-mal affair in Idaho. With little political strife,the overwhelmingly Republican legislaturemeets for a couple of months each year,quickly passes the necessary appropriationsbills with minimal public input and headsback home. Indeed, passing a budget ontime seems like an Idaho religion, on parwith efficiency and conservative fiscal policy.“There is a tradition in Idaho that legislativesessions that last longer than 90 days are nota good thing,” says David Fulkerson, thestate financial officer.

In that political atmosphere, it’s been dif-ficult for long-range planning to take root andthrive. But state officials are beginning to re-vamp their planning process and put pro-grams to more analysis and review. It couldn’tcome at a better time. In recent years, Idahohas witnessed a remarkable economic andpopulation boom. Highways, suburban hous-ing tracts and golf resorts have spread acrossthe landscape. All this change means thestate may not be able to afford its traditionallyinformal style of management.

“In the last four years, we’ve made a big ef-fort to do our business differently,” saysRakesh Mohan, the director of the legisla-ture’s performance evaluation unit. Prior to2005, state agencies had produced strategicplans and attempted to generate perform-ance measures that would show theirprogress. But legislators found these meas-ures confusing and unreliable. Even theagencies wouldn’t fully vouch for their va-lidity—many accompanied their figures witha disclaimer that they might not be fully ac-curate. Now, agencies are allowed to presenta smaller number of measures that are morerelevant to their day-to-day work and are re-quired to certify the numbers.

The quest for efficiency has had someunintended consequences. For example,the governor decentralized human re-sources management, which used to berun out of a single department, giving morepower to the various line agencies. But thattook away some of the staff that had beentrying to create statewide workforce plan-ning, a much-needed effort since the state’sworkforce is growing and experiencinghigher rates of turnover.

Managing its money is somethingIdaho generally does well. The state has oneof the lowest debt levels in the country, andthe public employee pension system is fullyfunded. Several years ago, after the early-decade recession ended, the legislature re-scinded a 1.5 percent sales tax increase thathad helped sustain state government dur-ing hard times. But in 2006, the governorand legislature decided to bump the salestax back up again, by 1 percent. The sales taxis especially important in budgeting be-cause Idaho does not use local propertytaxes to pay for schools.

Idaho’s biggest looming managerialproblem may be coping with its success atattracting new citizens. The population hasgrown from slightly more than 1 million in1990 to almost 1.5 million today. There arestrong pressures for road construction, andthe legislature is pushing in that directionbut at the cost of neglecting maintenance.With all the new construction, what thestate really needs is a more modern assetmanagement system to track unglamorousmaintenance problems such as potholes.“What we’re looking at is at least a $5 mil-lion investment in a new system,” says JuliePipal, the deputy director of transporta-tion, “but the pressure is on to put everyavailable dollar to new roads. The publicdoesn’t want to pay more.”

No citizenry is in love with paying morefor public services, but in Idaho that ten-dency has probably been exacerbated overthe years by the short legislative sessions inwhich public participation is perfunctory.Recently, the government has taken stepsto address the problem with more targetedoutreach and public meetings. When a keyroad that connects several major highwaysin a new resort area became a traffic night-mare, hearings were convened and audi-ence members had suggestions on every-thing from landscaping to the placement ofstoplights. The result, transportation man-agers believe, will be a citizen-inspiredroad reconstruction that will finally un-snarl the bottleneck.



Money B+

Long-Term Outlook l

Budget Process l




People C+


Hiring l




Infrastructure B-

Capital Planning l


Maintenance l



Information C+






Population (rank): 1,466,465 (39)Average per capita income (rank):$21,000 (44)Total state spending (rank):$6,352,876,000 (44)Spending per capita (rank): $4,332 (41)Governor: C.L. “Butch” Otter (R)First elected: 11/2006Senate: 35 members: 7 D, 28 RTerm Limits: NoneHouse: 70 members: 19 D, 51 RTerm Limits: None

B-




Illinois“Emergency Session.” The very words con-note drama and intense maneuvering atany state capitol. Yet when Illinois GovernorRod Blagojevich called the legislature into anemergency session, just after the start of thisyear, that was hardly the reaction he got. Ex-hausted by an increasingly bitter and ex-tended budget brawl with their governor,legislators mostly just stayed away. Eventhe House speaker and the Senate president,both Democrats like the governor, ignoredhim and remained on vacation.

The Blagojevich administration has beentroubled from the start, and the conse-quences for Illinois government have beenserious. The administration began withhigh hopes: Blagojevich’s election victory in2002, bringing his party control over allthree branches and replacing a Republicanregime tainted by corruption, generatedwidespread interest in bringing the state’sshaky management into good shape. But in-traparty battles have continually stymied

progress. Political disagreements have beendelaying a new infrastructure-spending planfor years, to cite just one example, and thestate may soon lose federal matching fundsintended for roads and bridges.

It can’t be easy to manage a state such asIllinois, with huge outstanding bills and trou-bled revenue streams. But when the state’sleaders are effectively stuck in the mud, thedifficult becomes all but impossible. Lastyear, the governor proposed a major expan-sion of health care supported by a gross re-ceipts tax on business. The House rejectedthe plan 107-0. “We weren’t even talkingabout coming to some resolution,” says stateSenator Christine Radagno. Months later,the legislature passed its own budget, Blago-jevich vetoed about $500 million of it tomake room for his health care expansion andthe whole mess wound up in the courts.

Fortunately for citizens, some positivechange is occurring underneath the radar.In the past few years, the governor has re-

quired agencies to report more perform-ance information. And some of the yard-sticks now used, such as the percentage ofex-offenders who avoid going back toprison, are measuring solid outcomes.

Performance information is particularlyvital in a state where long-term financialprospects are a bit frightening. Pensionsand retiree health care benefits are probablythe biggest fiscal problems. Illinois hasstruggled for years with an underfundedpension system, and although $10 billion inpension obligation bonds were issued in2003, it’s still one of the worst-funded sys-tems in the nation at 53 percent. The gov-ernor has proposed issuing bonds and cre-ating a long-term lottery lease to generate$26 billion to deal with the pension short-fall. But before those plans bear fruit—be-fore any significant fiscal improvement cantake place, for that matter—the adminis-tration and the legislature need to restore aworking relationship. Many things hang inthe balance, such as the $25 billion capitalprogram for roads, bridges, schools, highereducation and economic development.“There are schools around the state thathave been waiting since 2002” for repairs,says Ginger Ostro, the budget director.

Clearing the poisoned political atmos-phere so that productive work can takeplace may not be impossible. In earlieryears, despite a fair amount of animosity,Blagojevich and the legislature at leastworked together long enough to expandthe state’s pre-K school program and chil-dren’s health insurance.

For now, unfortunately, acrimony reigns.In January, buoyed by an influential auditfrom the auditor general, the legislatureended months of negotiation by agreeing tofund mass transit with some higher salestaxes. At the eleventh hour, the governornearly sank the deal by tossing in a proposalto let seniors ride free. The legislatorsclenched their teeth, swallowed their anger,and voted for it. “I’ve been here for 12 years,”Radagno says, “and universally people saythey have never seen anything like this.”



Money C-

Long-Term Outlook l

Budget Process l




People C-


Hiring l




Infrastructure C

Capital Planning l


Maintenance l



Information C+






Population (rank): 12,831,970 (5)Average per capita income (rank):$26,514 (15)Total state spending (rank):$55,767,569,000 (7)Spending per capita (rank):$4,346 (40)Governor: Rod R. Blagojevich (D)First elected: 11/2002Senate: 59 members: 37 D, 22 RTerm Limits: NoneHouse: 118 members: 67 D, 51 RTerm Limits: None

C

Performance data isvital when long-termfinances are frightening.




IndianaMitch Daniels didn’t waste any time whenhe took over as governor of Indiana at thestart of 2005. He talked the legislature intovoting for Daylight Savings Time, ending acontroversy that had dragged on for decades.And he set about privatizing large chunks ofstate government in order to encourage thecompetition that he felt would bring betterperformance in the end. Not all of it hashelped Daniels politically. But the state’sgovernmental structure has been changedin important ways.

Daniels’ biggest privatization initiativewas his move to lease the Indiana Toll Roadto an international consortium. The dealbrought an immediate $3.8 billion into thestate treasury. While other states wait forfederal aid that may never come, Indiana isbusily designing and building a set of in-frastructure improvements that will carry itwell into the next decade.

With the infusion of all the Toll Roadcash has come new challenges. The trans-portation department stepped up its plan-ning to figure out how to spend such alarge volume of money quickly and re-sponsibly. A 400-project list was developedwith the aid of sophisticated traffic projec-tions, as well as citizen input solicitedthrough extensive public meetings and up-wards of 3,000 mailed questionnaires.

Building those projects presents signif-icant personnel challenges in an industrythat can barely provide enough engineersfor the status quo. But the State PersonnelDepartment—through a newly devisedstrategy of “embedding” central HR staff inthe agencies—has concocted a plan formeeting the Department of Transporta-tion’s sweeping needs.

The personnel department has success-fully fought for market-based salary adjust-ments for engineers and surveyors, imple-mented performance-based compensationand bonuses, courted talent from neigh-boring states and recruited retirees. It alsohas created a career path through whichseasonal maintenance workers are trainedto act as construction inspectors—whichleaders hope will enable the state to meetthe daunting goals of keeping these proj-ects on time and on budget.

Information technology planning in In-diana has improved vastly with the consoli-dation of IT services—enterprise-wide plan-ning was essentially non-existent in earlieradministrations. “We couldn’t have pulledthis off without the governor giving us dic-tatorial capabilities,” says Chief InformationOfficer Gerry Weaver. In the first fewmonths after consolidation, feedback wassolicited from the agencies that has beenused to direct the CIO’s efforts since.

Indiana has never excelled in managingfor results, and the state has a ways to go.Still, Daniels is getting mileage out ofsome ideas he implemented at the federallevel as the director of the Office of Man-agement and Budget under PresidentBush. Indiana’s new state-level Office ofManagement and Budget is using a ver-sion of the federal government’s ProgramAssessment Rating Tool, which informsfunding and management decisions bygiving decision makers a snapshot of pro-gram performance. So far, Indiana seemsto be getting better results with this systemthan the feds are. Through PROBE (Pro-gram Results: An Outcome-Based Evalua-tion), the state used 18 standard questionsto evaluate 420 programs over the courseof just 15 months.

While the PROBE time frame only al-lowed for a relatively superficial assess-ment, it constituted a significant step for-ward in a state where performance auditinghad been essentially nonexistent. “Thebiggest finding was that over half of theprograms couldn’t say whether they weredoing a good job or a poor job,” says CrisJohnston, executive director of the Gov-ernment Efficiency and Financial PlanningGroup within OMB. Johnston’s group is de-voting significant time and energy to help-ing the agencies develop better measuresfor their programs and linking those out-comes directly to employee performanceand agency missions. This is no substitute,however, for an independent audit agencywith a performance audit function—whichthe state would be wise to develop.



Money B+

Long-Term Outlook l

Budget Process l




People B


Hiring l




Infrastructure B+

Capital Planning l


Maintenance l



Information B-






Population (rank): 6,313,520 (15) Average per capita income (rank):$22,781 (34) Total state spending (rank):$26,958,772,000 (18) Spending per capita (rank): $4,270 (42)Governor: Mitch Daniels (R)First elected: 11/2004Senate: 50 members: 17 D, 33 RTerm Limits: NoneHouse: 100 members: 51 D, 49 RTerm Limits: None

B




IowaIowa leaders don’t like secrets, and theyhave put a high premium on sharing gov-ernmental successes and failures with thecitizenry. A few clicks on a computer, andanyone can open up the “Results Iowa”section of the state’s Web site, which showsthe goals of an array of agencies and howfar they’ve progressed toward achievingthem. Last year, the Human Servicesagency added a “Digital Dashboard,” whichposts even more detailed reports on issues,such as the speed with which permanenthomes are found for foster children.

Not all the news the state shares with thepublic is good. For example, like many

states, Iowa is having difficulty recruitingspecialized workers to serve in its ruralareas. Doctors and nurses tend to gravitatetoward larger urban areas where they cancommand higher salaries, leaving the re-cruitment pool for rural prisons and clinicsrather shallow. As a stopgap measure, thestate hired health professionals who servemore than one location, and began payingbonuses of as much as $15,000 to nurseswho accept hard-to-fill positions.

Such adjustments are common in Iowabecause the state has a thorough andthoughtful workforce planning process.Nancy Berggren, the personnel director, isfocused on efforts to get even the smalleragencies to develop detailed staffing plans.She points to the state’s aging workforceand the need for increased diversity as rea-sons why this planning is especially im-portant.

Like other states, Iowa has fallen shorton infrastructure maintenance for a longtime. Until a couple of years ago, it hadbeen spending only 25 percent of its limitedroad funds on maintenance. With growingawareness that roads were deteriorating,that figure is now 75 percent. That’s thegood news. The bad news is that 75 percent

is far from enough. The Department ofTransportation had originally hoped to getits roads, many of them built in the 1950s,up to acceptable condition by 2016. But thenationwide rise in the cost of constructionmaterials has pushed that back.

Taken as a whole, Iowa still faces a $27.7billion transportation funding shortageover the next two decades. The problemwon’t be fixed soon, but recently the DOTand the legislature held a series of well-at-tended public hearings throughout thestate, hoping to raise public consciousnesson the need for more road funds, and per-haps an increase in the gas tax.

One result was the “Time 21” report, acomprehensive look at Iowa’s transporta-tion needs over the next several decades.The state’s counties and cities signed off onthe Time 21 planning process, and for thefirst time, all the jurisdictions that receive ashare of federal road funds have agreed ona list of priorities. The Time 21 effort didn’tcome with a pile of money attached, but ithas finally led to some forward motion. “Inthe past,” says Nancy Richardson, the DOTdirector, “the biggest discussions weren’twhat to build, but what percentage of themoney everyone got.”

Iowa has a reputation for sound finan-cial management, and it has worked tomaintain it. In recent years, leaders have de-veloped a willingness to cooperate across re-gional and agency lines, and this has had apositive effect on many management prac-tices. For example, representatives of theLegislative Services Agency, the Depart-ment of Management and the Departmentof Human Services have been meetingmonthly, and one of their tasks is to arriveat a joint estimate of revenues receivedfrom the federal government. Prior to thisarrangement, each department wouldcome up with its own estimate, and wouldspend a good part of the year arguing aboutwhich figure was accurate. Now, says Den-nis Prouty, the legislative services director,“we can talk about how to best administerMedicaid, instead of who’s right.”



Money B+

Long-Term Outlook l

Budget Process l




People B+


Hiring l




Infrastructure C+

Capital Planning l


Maintenance l



Information B+




Performance Auditing& Evaluation l


Population (rank): 2,982,085 (30)Average per capita income (rank):$23,115 (31)Total state spending (rank):$14,941,961,000 (31)Spending per capita (rank):$5,011 (30)Governor: Chet Culver (D)First elected: 11/2006Senate: 50 members: 30 D, 20 RTerm Limits: NoneHouse: 100 members: 53 D, 47 RTerm Limits: None

B




Iowa’s Web site providesa wealth of data onalmost every aspect ofstate government.

KansasGovernor Kathleen Sebelius holds a mas-ter’s degree in public administration, and itshows. Where preceding governors tendedto ignore the everyday workings of the statebureaucracy—and allowed some segmentsof it to fall into general disrepair—Sebeliushas involved herself in managerial detailand forced agencies to collaborate on every-thing from water policy to training for statepersonnel. Kansas is just small enough forthis kind of approach to be feasible. “Thisship is like a medium-sized cruise boat,”says Burdett Loomis, a professor of politi-cal science at Kansas University. “It’s noteasy to turn around, but it’s possible.”

That’s the good news. The bad news isthat there’s quite a bit to turn around.Among the most significant challenges isa $5.4 billion pension liability—propor-tionally one of the largest in the country.An education funding settlement is alsoputting fiscal pressure on the state. At theinsistence of the Kansas Supreme Court,

the legislature increased education fund-ing by $466 million over three years. Thestate relies on conservative revenue esti-mates and large ending balances in lieu ofa rainy day fund, and this year, it’s spend-ing down that balance to meet the school-funding obligations.

The state’s workforce is in pretty direshape, thanks to an inconsistent pay systemthat can’t compete in the labor market andsometimes compensates veteran employeeslittle more than new hires. “Anyone who’sworth their weight in salt, we lose them toprivate industry,” says state Senator DwayneUmbarger, who chairs the Ways and MeansCommittee. “We need to do what we can toretain high-quality workers.” Given this re-ality, the absence of a meaningful workforceplan is particularly troubling.

There’s a comprehensive pay-plan re-design up for debate this spring. It has a sig-nificant pay-for-performance component,and would better align salaries with themarket rate. This would be a significantchange, because the state currently has lit-tle way to reward employees who excel. If itpasses—and right now, that seems likely—Kansas also will dramatically change itsperformance-review system to a more cen-tralized, mandatory model. Supervisorsand managers would receive training onhow to fairly assess employees.

Kansas’ current job-classification sys-tem is set up on formalized career ladders,charting rigid routes for state employees asthey move from title to title, and requiringthem to become supervisors in order to re-ceive significant raises. The new pay planwould simplify the labyrinth of classifica-tions and allow more flexibility for employ-ees to map their own careers. It would cre-ate a dual path so that employees wouldn’thave to take on managerial responsibilitiesin order to move forward in their careers.“You can lose a great employee and get abad supervisor by promoting them into asupervisory class,” says Kraig Knowlton,manager for personnel policies and regu-lations. “Now, they won’t be topped outfrom a pay perspective.”

These changes are much needed. Thecurrent system isn’t particularly helpful orwell enforced. Because there’s been paycompression, or a lack of salary separationbetween new and more seasoned employ-ees, there’s a tendency to give “exceptional”ratings for average work.

The Sebelius administration has in-tentionally strengthened and streamlinedthe power of the public-employee organ-izations by consolidating bargainingunits and reducing the number of themfrom 42 to 17. Some of the smaller unitswere poorly represented and so were leftbehind. This is being embraced as an im-portant step in the state, a sign that the ad-ministration is more responsive to itsemployees.



Population (rank): 2,764,075 (33)Average per capita income (rank):$23,818 (26)Total state spending (rank):$12,553,494,000 (34)Spending per capita (rank): $4,542 (37)Governor: Kathleen Sebelius (D)First elected: 11/2002Senate: 40 members: 10 D, 30 RTerm Limits: NoneHouse: 125 members: 47 D, 78 RTerm Limits: None

B-

The Kansas personnelsystem has no real wayto reward governmentemployees who excel at doing their jobs.




Money B-

Long-Term Outlook l

Budget Process l




People C+


Hiring l




Infrastructure C+

Capital Planning l


Maintenance l



Information B






KentuckyKentucky has been under heavy politicalstress for the past couple of years, strug-gling to cope with the fallout from a pa-tronage scandal that brought indictments ofseveral top state officials, including formerRepublican Governor Ernie Fletcher. Inthe midst of all this, an agency known as theLong-Term Policy Research Center wascharged with the difficult job of focusing onthe future while much of the political es-tablishment was still trying to survive thepresent. The Policy Center has done prettywell, under the circumstances, in keeping

the state’s strategic direction from being de-railed. Governed by a joint legislative-exec-utive committee, it produces a biennial re-port outlining the state’s progress towardmeeting its long-term goals.

What Kentucky isn’t doing particularlywell right now is short-term planning. It’sdeficient in setting interim objectives forwhich leaders and managers can be held ac-countable. The new governor, SteveBeshear, has an opportunity to improve onthis, but he has his work cut out for him.The state’s budget is out of structural bal-ance, there are huge unfunded pension li-abilities, and Beshear made a campaignpromise not to raise taxes. The fiscal burdenis somewhat lighter than it might havebeen, however, because Kentucky has donerelatively well at keeping Medicaid costsunder control and modernized its tax sys-tem with a law passed in 2005.

When it comes to planning, Kentucky’sTransportation Cabinet offers meaningfulavenues for public input. But the processfalls apart when it is time to decide what tobuild. “When we come down to actuallyputting together a plan,” says one high-ranking transportation official, “we’re veryreluctant to have that be an open process,because you can imagine the hue and cry aspeople see their projects going in and out.”

There is considerable room for im-provement in workforce planning. The leg-

islature has been pushing for years to cutthe state workforce down to the statutorylimit of 33,000, and it established retire-ment incentives for employees who retirebetween June 2008 and January 2009.What legislators didn’t take into accountwas the interplay of that offer and the factthat a huge number of baby boomers willbecome eligible to retire during that sameperiod: some 8,000 in all, out of 35,000current state workers. It appears that largenumbers of workers will take the incentive,picking up as much as $500 a month in theprocess. But the state could be left with a dis-proportionate number of empty slots tofill. The legislature is being urged to changethe incentive so that eligible workers cancash in on it after January, but there’s noguarantee that will happen.

The process of making improvements inworkforce planning has been complicatedby the patronage scandal in the Fletcher ad-ministration, in which partisan affiliationappeared to be the driving force behind hir-ing at all levels of government from top tobottom. “It just made the water so toxic,”says former Personnel Cabinet SecretaryBrian Crall. “It precluded our ability to driveworkforce planning the way we wanted to.”

But progress is being made at the agencylevel in Kentucky. The state GovernmentalServices Center put out a high-quality work-force-planning guide and is devoting muchenergy to assisting agencies with workforce-planning activities. Agencies are presentedwith different avenues for transferring andmanaging knowledge among employees.

According to Penny Armstrong, formerlythe head of the Services Center, one problemfor both the central government and the agen-cies is that data on employees aren’t very reli-able, particularly on turnover. Currently, thepersonnel administration’s data system can’ttell you who has put in enough time to retirebecause it can’t keep track of complexities inthe way years of service are calculated in theKentucky Retirement System. So while man-agers should know ahead of time about re-tirements, that’s not always the case.



Money C+

Long-Term Outlook l

Budget Process l




People C+


Hiring l




Infrastructure A-

Capital Planning l


Maintenance l



Information B






Population (rank): 4,206,074 (26)Average per capita income (rank):$21,112 (41)Total state spending (rank):$21,992,340,000 (25)Spending per capita (rank):$5,229 (26)Governor: Steven L. Beshear (D)First elected: 11/2007Senate: 38 members: 15 D, 22 R, 1 ITerm Limits: NoneHouse: 100 members: 63 D, 37 RTerm Limits: None

B-




A patronage scandalhas set back workforceplanning in Kentucky.

LouisianaRarely has there been a better test of astate’s management systems than Hurri-cane Katrina. It challenged Louisiana’scapacity in personnel, infrastructure, fi-nance and information, all at once. Andwhile the New Orleans area is still deeplytroubled by the effects of Katrina’swrath—and individual leaders have facedconstant criticism over some of their cri-sis decisions—the state’s managementstructures weathered the storm surpris-ingly well.

Even in the immediate post-Katrinachaos, employees got paid—on time.Agency managers were allowed to com-pensate workers for extraordinary duty.And ultimately, when it became necessaryfor budget reasons, existing rules allowedfor layoffs of about 3,000 employees. “Wehad a lot of flexibility in the system to man-age as needed,” says Jean Jones, deputy di-rector of the Department of State CivilService.

Post-Katrina Louisiana needs lots ofskilled engineers and managers, and re-cruiting isn’t easy when state salaries arebelow those in the private sector. So the De-partment of Civil Service has respondedwith higher starting pay rates, housing andreferral stipends for New Orleans-basedpositions, and direct-hiring authority that al-lows individual agencies to fill crucial posi-tions quickly. An online-application sys-tem, soon to be launched, should help bringthe state closer to competitiveness with pri-vate industry.

Budgeting, of course, has been an un-usual challenge in the post-storm environ-ment. Louisiana has a deservedly praisedperformance-based budgeting process, andrespectable systems for purchasing, con-tracting and financial reporting. But thosebusiness-as-usual strengths didn’t helpvery much when nobody could guess howmuch money would need to be spent alto-gether. “It affected half our state,” saysState Economist Deborah Vivien. “We weremaking an estimation based on historicalsituations when there was no historicalprecedence.”

In the end, Louisiana slashed its bindingrevenue projection for 2006 by $1 billion, a

tough hit to take for agencies already bat-tered by the storm. It turned out the $1 bil-lion figure was wildly pessimistic. Withinweeks, millions were flowing into the statefrom the federal government, insuranceclaims and companies starting to rebuild.Louisiana ended 2006 with an $800 mil-lion surplus. That grew to $1 billion in2007, thanks to higher-than-projected in-come and sales tax revenues and the boom-ing oil and gas industry.

Although the state wisely directed a por-tion of that money toward needed one-time expenses, some fear that too much ofthe surplus went to tax cuts that will be hardto repeal in future situations of scarcity.Says State Treasurer John Neely Kennedy,“Reconstruction will end at some point.”

The state’s most visible managementweakness—now, as in the past—relates toinfrastructure. There is a deferred-mainte-nance backlog for buildings and roads in ex-cess of $5 billion. As for new building, al-though the Office of Facility Planning andControl made some improvements in thepast two years, allocating estimated fundsacross 10 categories and slating requestedprojects into them, that hasn’t fixed themost significant capital-planning problem:the legislature’s proclivity for approving alaundry list of projects many times longerthan the state could ever fund or accom-plish. The real prioritization comes afterthat, when the governor, according to his orher own priorities, recommends a subset ofthose projects to be funded by the BondCommission.

A state with such pressing capitalneeds deserves a less political planningprocess, starting with a legislature thatstops promising projects that will nevermake it to the drafting table and leadershipthat arrives at priorities in the light of day.A new legislature, with an unusual num-ber of newcomers brought in by term lim-its, will have the chance to make dramaticprogress here simply by allowing realityinto the process. That’s not too much toask for.



Money B

Long-Term Outlook l

Budget Process l




People B


Hiring l




Infrastructure C+

Capital Planning l


Maintenance l



Information B+






Population (rank): 4,287,768 (25)Average per capita income (rank):$20,367 (47)Total state spending (rank):$24,220,667,000 (21)Spending per capita (rank): $5,649 (17)Governor: Bobby Jindal (R)First elected: 10/2007Senate: 39 members: 23 D, 16 RTerm limits: 12 years (consecutive)House: 105 members: 53 D, 50 R, 2 ITerm limits: 12 years (consecutive)

B




MaineMaine has an on-again, off-again relation-ship with performance measurement thatdates back to the early 1990s. It recently en-tered an “off-again” phase. Right now, agen-cies are not required to include perform-ance data with their budget requests—al-though many continue to use the informa-tion internally to make decisions.

Predictably, all of the involved partiesare quick to blame others for the currentstate of affairs. The legislature, which fell inlove with performance measurement backin 2001, lost interest when its supporterswere term-limited out of office. “You had agroup that’s very committed to perform-ance budgeting and put it in place,” saysstate Senator Peggy Rotundo, who chairsthe Appropriations Committee. “Then with

the new people rotating through, you didn’thave the same level of understanding. Itsort of lost steam over a period of time.”

While performance information hasgone by the wayside, other elements in thestate budget process are improving. A new,more transparent budget format debutedwith the 2007-09 biennial budget and hasbeen almost universally embraced by thelegislative and executive branches.

Prior to the budget reforms, the statepassed a “Part 1” budget that was a continua-tion of current services, followed by a “Part 2”budget that consisted of longer-term initia-tives. These now have been combined in away that is similar to procedures used inmost other states. Equally important, the newbudget is organized by program, not lineitem, making it a more effective vehicle for thegovernor to set a strategic direction. “Now,everyone understands what the budget pur-chases and can see it in one place,” says Con-troller Ed Karass. “Everyone has an opportu-nity to make better decisions.”

This opportunity is critical, givenMaine’s shaky history of fiscal decisionmaking. Consider, for example, a tax-credit package that passed in 2007. It wasdesigned to help keep college graduates inMaine after they finished their educationby enabling them to pay back loans moreeasily. The problem, says Ellen Schneiter,the state’s budget director, is that whilethe system will be relatively cheap in theshort run, “you look out 20 years or so andit’s going to be really expensive.” Regret-tably, Maine has had a penchant for thiskind of shortsightedness in its recent fis-cal history.

Lurking in the shadows is a citizen ini-tiative that could wreak havoc on the state’sfinances. If it passes this fall, it would cut oreliminate the excise tax on automobiles,which brings in some $203 million a year.Where would the money come from tomake up for that loss? Hard to say, particu-larly given that the state is being tightlysqueezed by heavy Medicaid costs and a2004 initiative requiring increased levels offunding for education.

Some people in Maine are optimisticabout the potential of the new budget for-mat to curb bad habits. Although the stateis still far from achieving structural bal-ance, it’s been making some progress—inpart by restructuring statewide adminis-trative functions so that they don’t requireas many full-time employees. That consol-idation, paired with a lack of salary separa-tion between new and more seasoned em-ployees and a new law that requires auto-matic payroll deductions for union dues,has led to low morale among state workersin recent months. “My hate mail is at an all-time high,” says Alicia Kellogg, director ofthe Bureau of Human Resources.

The clear next step for the state, aftereveryone gets used to the new budget for-mat, is to reintroduce performance infor-mation into the budget process in a way thatmakes clear to the legislature and to agen-cies that it’s more than just a burdensomepaper exercise.



Money C

Long-Term Outlook l

Budget Process l




People C-


Hiring l




Infrastructure C+

Capital Planning l


Maintenance l

Internal Coordination lll


Information C






Population (rank): 1,321,574 (40)Average per capita income (rank):$23,226 (30)Total state spending (rank):$7,854,687,000 (40)Spending per capita (rank): $5,943 (13)Governor: John E. Baldacci (D)First elected: 11/2002Senate: 35 members: 18 D, 17 RTerm limits: 8 years (consecutive)House: 151 members: 90 D, 59 R, 2 ITerm limits: 8 years (consecutive)

C




Performance-basedbudgeting in Maine has been a casualty ofthe state’s legislativeterm limits law.

MarylandIt takes a lot of guts to raise taxes. But a fewmonths ago, in a special session of Mary-land’s General Assembly, Governor MartinO’Malley accomplished just that. As a re-sult, the state’s finances are in reasonablygood balance.

When O’Malley took office last year, heinherited a $1.7 billion budget shortfall, ac-cumulated through tax cuts during the pre-vious administration and big boosts in aidto elementary and secondary schools.

States in similar condition frequentlypaper over cash needs with accounting gim-micks and by using one-time revenues—and that’s precisely what Maryland hadbeen doing for several years. This time,however, with no rabbits left in the hat, thegovernor convinced citizens and the legis-lature that a tax increase was the only ap-

propriate option. The revenue changes areexpected to generate $1.4 billion in newmoney, mostly though a sales tax increasefrom 5 to 6 percent; a corporate sales taxboost from 7 to 8.25 percent; a tobacco taxhike from $1 to $2 per pack; and a new salestax on computer services of 6 percent.

Despite the new revenue, Maryland re-mains fiscally vulnerable to weaknesses inthe economy over the next several years.Long-term structural balance may hinge onan upcoming referendum that could legal-ize some 15,000 slot machines at five loca-tions. Estimates of the impact on Mary-land’s budget vary, but the governor’s officeargues that Marylanders wager $400 mil-lion a year at slots in neighboring Delawareand West Virginia, and that the bulk ofthis would return to Maryland if the refer-endum passes.

The current administration has been

committed to making Maryland’s govern-ment more accountable. O’Malley haspretty good experience at this game. Asmayor of Baltimore, he launched CitiStat,a means for evaluating services throughreal-time data. As governor, O’Malley haslaunched a statewide version, appropriatelycalled StateStat.

The impact of StateStat will not beknown for a long time—there are obvioussnags in converting a city system to a muchlarger entity with less-than-spectacular in-formation technology. But promoters ofStateStat believe that the obstacles can beovercome and that the system will generatesavings proportional to the millions ac-crued in Baltimore.

StateStat data are used in regular meet-ings of the governor and his executive team,along with leaders from the agencies beingexamined. These sessions look at past per-formance, follow up on previous tasks andset new objectives that allow for real-timeadjustments. The program began with afew pilot agencies but now includes mostmajor departments—corrections, juvenileservices, labor, health, state police, housingand general services. “StateStat puts agencyheads on the spot,” says one high-rankingstate official. “They are personally held ac-countable and must answer for daily oper-ations—they can’t hide.”

Maryland is moving ahead of otherstates in providing financial incentives tocontractors to spur positive results. For ex-ample, the Department of Juvenile Ser-vices is creating incentives for social-serviceproviders based on attainment of GEDs forthose in treatment or subsequent enroll-ment in college.

Although Maryland is hiring employeesmore quickly than in the past, it may not begetting the most out of the people it hires.A few years ago, the duties of the centraltraining office were dispersed to the agencylevel. So the central government does notmonitor whether agencies are providingadequate training and development oppor-tunities for staff.



Money B+

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People C+


Hiring l




Infrastructure B+

Capital Planning l


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Information B-






Population (rank): 5,615,727 (19)Average per capita income (rank):$31,888 (2)Total state spending (rank):$28,965,977,000 (17)Spending per capita (rank): $5,158 (28)Governor: Martin O’Malley (D)First elected: 11/2006Senate: 47 members: 33 D, 14 RTerm Limits: NoneHouse: 141 members: 104 D, 37 RTerm Limits: None

B

A new initiative putsagency heads on thespot. They are held personally accountablefor results. “They can’thide,” says one official.




MassachusettsThis past January, after 16 years of con-struction, and unimaginably large budgetoverruns, Massachusetts officially com-pleted the Big Dig, the mega-project thatrerouted Boston’s main urban highwayinto a 3.5-mile tunnel under the city. Totalcost: $15 billion.

A sigh of relief is not in order. The stateis going to have to come up with an addi-tional $15 billion to $19 billion over thenext two decades for maintenance on exist-ing transportation assets. Massachusettsbelieves that a proposed consolidation of itshodgepodge transportation managementinto a single MassTrans agency will trimdown that tab. But for the moment, thehuge bill stands.

Non-transportation infrastructure ishardly in better shape. State buildings re-ceived a complete assessment in 2001. “Wedocumented over $1.2 billion in needs,”says Hope Davis, the director of FacilitiesMaintenance, “but we didn’t get a lot ofmoney subsequently to repair those needs.”That number has since grown by an esti-mated $1 billion, but the state can’t know forsure because it does not perform annualcondition assessments.

If Massachusetts did decide to makeinfrastructure a top priority, it’s hard toknow where the money would come from.The state’s total outstanding debt alreadyexceeds $18 billion—the highest in thenation per capita—and the Massachusettsbudget for next year already faces a $1 bil-lion shortfall.

Part of that budget hole owes to thecommonwealth’s ambitious health careprogram, adopted under former Gover-nor Mitt Romney. Initial estimates of140,000 enrollees proved low, which willleave the program an estimated $245 mil-lion over budget this year. Governor DevalPatrick’s proposed budget for fiscal 2009expects 225,000 enrollees by this June,for a total cost of $869 million—nearly$400 million more than was budgetedlast year. To plug the numerous gaps,Patrick’s budget request would tap rev-enues from the rainy day fund, tweak thecorporate income tax and license casinosin the state.

The Human Resources Department isseeking an upgrade in its computer system.“If we had data, that would give us a fight-ing chance,” says Director Paul Dietl. Abetter handle on personnel information,such as the time it takes to hire new em-ployees, would give Dietl a better vantagefrom which to improve the state’s humancapital planning.

One human resources advance alreadyin place is the state’s evaluation of supervi-sors. They are no longer eligible for per-formance raises unless they complete eval-uations of their subordinates.

Those evaluations are one of the fewperformance measures Massachusetts has.A new financial-management system givesthe state a better handle on its cost infor-mation, but Massachusetts lacks both astrategic plan and a performance-budgetingsystem to guide those expenditures. Al-though the budget office has begun lookinginto rectifying this, Michael Widmer at theMassachusetts Taxpayer Foundation says,“Any notion of performance-based pro-gram budgeting has never really grabbedhold here.”

The beleaguered Corrections Depart-ment has recently seen an epidemic of in-mate suicides brought on by mismanagedmental health treatment and lack of pris-oner programs. Massachusetts leaders areoptimistic that the new corrections com-missioner, Harold Clarke, who has been anational champion of reentry and early-re-lease programs, as well as performancemeasurement in prisons, will be able to im-plement accountability.

A source of fiscal pride for the state hasbeen its decision—relatively rare amongthe states—to begin earnestly addressingthe huge liabilities it faces for retiree healthcare. This year, the state will pay about$760 million (including $343 million fromthe general fund) to put money aside forthis obligation in advance. Over the actuar-ial lifetime of the payments, prefundingwill cut the state’s total 30-year cost from$13.3 billion to $7.6 billion.



Money C+

Long-Term Outlook l

Budget Process l




People C


Hiring l




Infrastructure D+

Capital Planning l


Maintenance l



Information C






Population (rank): 6,437,193 (13)Average per capita income (rank):$30,686 (4)Total state spending (rank):$39,880,324,000 (11)Spending per capita (rank):$6,195 (10)Governor: Deval Patrick (D)First elected: 11/2006Senate: 40 members: 35 D, 5 RTerm Limits: NoneHouse: 160 members: 140 D, 19 R, 1 VacantTerm Limits: None

C




MichiganThe Battle of Lansing, as many have cometo remember the state’s bloody budget de-liberations last year, drew national atten-tion to Michigan’s economic woes. Andthere’s no question that fiscal austerity hashurt the state’s capacity to deliver basicservices. The workforce has been drasti-cally reduced, and Michigan officials worrythat agency staff reductions have gone be-yond fat and deep into bone and marrow.No new workers are likely to arrive soon.As the automobile industry continues tosuffer, revenue streams are in trouble andthe state’s credit ratings have dropped.And for all the emergency moves, includ-ing a substantial tax increase, Michigan isfar from structural balance between rev-enues and expenditures.

With all that in mind, the surprise inMichigan is the strength and suppleness ofmuch of its management, in both goodtimes and bad. “To be honest, when theeconomy’s doing well, you tend to be a lit-tle bit blasé about things,” says TreasurerRobert Kleine. “When things are goingbadly, you’ve got to focus a lot more.”

“Focus” is what Michigan has generallybeen able to do, both in a short-term andlong-term sense. Over the years, the statehas been a leader in all forms of strategicimagination: workforce planning, infor-mation technology planning, capital plan-ning and others as well.

Early in Governor Jennifer Granholm’sfirst term, agency representatives were or-ganized into six teams reflecting the ad-ministration’s major initiatives. For exam-ple, a team focused on improving the econ-omy includes the departments of trans-portation, economic development andlabor. There’s far less attention on individ-ual agency goals in Michigan, and more onbroad objectives.

Progress toward these goals is built intoproject-level indicators, targets and dead-lines. All the information is compiled in atechnological tool called MiPlan that caneasily be accessed by all involved. Posterstracking progress and reminding staffers ofdeadlines and targets are plastered on officewalls throughout the capitol complex—andserve as an accountability tool during cabi-

net meetings. More than 100 of the meas-ures are available on the state’s Web site, al-lowing citizens to keep tabs on how theirgovernment is performing.

That Web site is a national model for avariety of reasons. After a dramatic over-haul, it now allows both citizens and busi-ness to easily perform a great range oftransactions, often saving the state money.The site uses blogs, surveys, RSS feedsand video streaming to engage and in-form citizens—critical outreach at a timewhen confidence in state government hasbeen crippled by hard times and by thepain of the last budget process.

As Granholm puts it: “We have con-solidated departments. We’ve eliminatedagencies. We’ve done all of that restruc-turing. But the key to being able to con-tinue to serve, and to serve better—even inthese really challenging times—is throughleveraging technology.”

Technology is, of course, expensive—and difficult choices have had to be made.In the Department of Human Services,for example, a long-term information up-grade that will eventually mean lighterworkloads for overburdened social workerswas chosen in lieu of shorter-term im-provements in other technology.

Similar choices have been required ininfrastructure management. State build-ings languish in varying degrees of dilapi-dation. But the Department of Transporta-tion, laudably, accomplished its 10-yeargoal of bringing 90 percent of the state’sroads into good condition. Michigan’s DOThas few peers in asset management—andin preventive maintenance—and has allthe tools necessary to make smart deci-sions, even if it doesn’t always have thefunding. The DOT knows, for example,that it can save 29 lives and prevent 114 se-rious injuries by installing cable guardrailsand rumble strips on key roadways. Thatwill cost $40 million that it can’t easilyspare. But at least managers can see thetrade-offs involved in their decisions—inasset conditions, in funds and even in lives.



Money C+

Long-Term Outlook l

Budget Process l




People B+


Hiring l




Infrastructure A-

Capital Planning l


Maintenance l



Information A






Population (rank): 10,095,643 (8)Average per capita income (rank):$24,097 (25)Total state spending (rank):$53,087,424,000 (9)Spending per capita (rank): $5,258 (25)Governor: Jennifer M. Granholm (D)First elected: 11/2002Senate: 38 members: 17 D, 21 RTerm limits: 8 years (lifetime)House: 110 members: 58 D, 52 RTerm limits: 6 years (lifetime)

B+




MinnesotaIn the wake of the Mississippi River bridgecollapse in Minnesota last summer, a harshlight was cast on the way the state had beentreating its infrastructure—more like a po-litical football than a vital asset. Just a fewmonths earlier, for example, a bipartisangroup of legislators had passed a 10-centsper-gallon increase in the gas tax, in part tohelp with maintenance, but Governor TimPawlenty vetoed it. A couple of years ago, itwas the governor who proposed to issue$4.5 billion in bonds for infrastructureneeds, but the legislature didn’t act.

Many observers thought that last sum-mer’s tragic incident, now believed to havebeen caused by a design flaw in the 1960s-erabridge, would be a wake-up call to state lead-ers. But after an immediate spate of com-mentary, little has happened to address Min-nesota’s sizeable backlog in road and bridgerepairs. Both the governor and legislatureproposed solutions that the other side thenrejected. The state may get back on track thisyear. In January, Pawlenty proposed a $1 bil-

lion bonding bill that reserves more than$400 million for transportation projects, in-cluding more than $200 million for bridges.But that still leaves lots to do.

It’s been discouraging for the Pawlentyadministration, which has done some verygood work on other fronts. Dane Smith, thepresident of Growth & Justice, a liberal ac-tivist group, strongly opposes Pawlenty onmost issues, but gives the governor creditfor paying attention to the day-to-day as-pects of state management. The governorhas made efficiency a hallmark of his ad-ministration, most prominently throughhis Drive to Excellence, a series of 11 proj-ects that have run the gamut from newworkforce planning to building a central-ized property management system.

To take one example, Minnesota is nowa national leader in negotiating better pricesfor goods and services. “Many agencieswere not aware they could negotiate with a

vendor,” says Kent Allin, the governor’schief procurement officer. He cites the ex-perience of the state’s Pollution ControlAgency, which knocked thousands of dol-lars off the price of a single small contractjust by asking for more documentation.Historically, Allin says, “some contractorsprobably thought we were suckers.”

Progress also has been made on thetechnology front. Minnesota established acabinet-level IT department that put to-gether the state’s first information tech-nology master plan in January 2007. Manyof Minnesota’s smaller agencies are still la-boring with antique technology, and thenew department has successfully pressed toget them funding necessary for upgrades.

Last spring, Pawlenty announced plansto merge the state’s central human re-sources office into the Department of Fi-nance. To the governor’s credit, he turnedto the legislature for approval, even thoughhe could legally have made the move on hisown. In the end, the decision turned out tobe uncontroversial. The state also is puttingfinishing touches on a new statewide work-force plan, due for release in June.

Minnesota appears to be at a crossroadswhen it comes to performance measure-ment. In the 1990s, the state was a pioneerin this field. Since then, the effort has hadits ups and downs. Some of the downs areattributable to an overload of measures onthe legislature, as well as an over-politiciza-tion of the process.

Now, the governor has asked all agen-cies to come up with no more than threenew performance measures. It’s an exper-iment in simplification. “In the past, agen-cies were just told to do it,” says James No-bles, the state’s legislative auditor, “ratherthan allowing them time to build infra-structure and training” necessary to putthe measures to constructive use.

For the time being, one benefit appearsclear: When the measures are designed bythe people who actually do the work, theytend not to get distorted by political in-fighting. And that’s a good thing.



Money B+

Long-Term Outlook l

Budget Process l




People B-


Hiring l




Infrastructure C+

Capital Planning l


Maintenance l



Information B






Population (rank): 5,167,101 (21)Average per capita income (rank):$27,591 (9)Total state spending (rank):$30,988,533,000 (15)Spending per capita (rank): $5,997 (12)Governor: Tim Pawlenty (R)First elected: 11/2002Senate: 67 members: 45 D, 22 RTerm Limits: NoneHouse: 134 members: 85 D, 48 R, 1 ITerm Limits: None

B-

A bridge collapsed, buta backlog in road andbridge repairs stands.




MississippiMississippi government has never beenparticularly good at thinking about the fu-ture. It showed some movement in this di-rection in the immediate aftermath of Hur-ricane Katrina, but the idea of long-termplanning has yet to become a part of the ad-ministrative culture.

There are modest signs of change. Forexample, the Joint Legislative Committeeon Performance Evaluation and Expendi-ture Review (PEER), widely respected for itsauditing skills, decided to investigate howwell prepared the Department of MentalHealth might be for problems 20 yearsdown the road. What’s striking isn’t the an-swer; it’s the fact that the question has fi-nally been asked.

Mississippi’s usual myopia is most evi-dent in the realm of personnel. The state’sannual workforce turnover rate is near 16percent, among the highest in the nation.What’s the problem? Embarrassingly lowsalaries and the traditional reluctance of thelegislature to do anything about them. Cur-rently, there are 16,000 state employeeswho earn less than $30,000 a year. “We’retrying to convince the legislators that em-ployees can’t afford to work,” says JohnMulholland, deputy director of the StatePersonnel Board. He may finally be makingsome headway. In 2006, the state boostedthe salaries of nurses, pharmacists and di-rect-care workers in mental health andother departments.

A change-resistant legislature has tobear some of the responsibility for the ab-sence of planning when it comes to infra-structure, as well. For several years, state of-ficials have unsuccessfully pushed law-makers to fund a systematic assessment ofthe state’s buildings. “We would take the ex-isting facilities,” says David Anderson, thedirector of the state’s bureau of buildings,“and first, determine if they are program-matically functional, and second, decide ifit’s appropriate to renovate or upgrade.” Sofar, legislators seem more interested inplugging current leaks than in developinga long-term infrastructure strategy.

It would be unfair to dwell on Missis-sippi’s managerial weaknesses withouttaking note of the generally effective man-

ner in which it handled the crisis that fol-lowed Hurricane Katrina in the fall of2005. “Just a few days after the hurricane,”says State Fiscal Officer J.K. “Hoopy”Stringer Jr., “I was on a helicopter flying upand down the coast, and for mile aftermile, there was nothing left.” Under theleadership of Governor Haley Barbour,the state recovered more quickly than mostoutsiders expected it to.

Beyond dealing with the immediatechallenge, Barbour went to great lengths tosolicit citizen input. Thousands of peopleattended more than 50 town hall meetingsin the months after Katrina, many comingfrom towns that had essentially disap-peared. Barbour also set up a recovery com-mission to focus on design issues and ap-pointed Jim Barksdale, former CEO ofNetscape, to lead it. Design conferenceswere held in the 11 worst-hit coastal cities toshow residents potential reconstructionideas and garner input.

As in Louisiana, a major influx of cashfollowed the destruction. Barbour turnedout to be rather adept at soliciting federal as-sistance. Once the money started to pour in,contractors began rebuilding homes andcitizens purchased goods to replace thosethey had lost. As a result, the state’s cofferswere soon replenished with sales tax rev-enues. In 2006, for example, revenueswere about $320 million higher than ex-pected. And Mississippi leaders, accus-tomed to fiscal frugality, generally resistedthe temptation to spend this money onprojects that could not be sustained on apermanent basis.

To be sure, there are complaints that thestate has not spent its billions in federal hur-ricane aid in ways that maximize help tolow-income Mississippians. Officials re-spond that they will utilize the aid for thispurpose, but want to make sure they planappropriately beforehand. Perhaps, but thisissue bears watching, given the state’s his-toric reluctance to spend money for socialpurposes, and a government culture thathas rarely put emphasis on planning.



Money C+

Long-Term Outlook l

Budget Process l




People C


Hiring l




Infrastructure C+

Capital Planning l


Maintenance l



Information C




Performance Auditing& Evaluation l


Population (rank): 2,910,540 (31)Average per capita income (rank):$18,165 (50)Total state spending (rank):$16,293,095,000 (30)Spending per capita (rank):$5,598 (18)Governor: Haley Barbour (R)First elected: 11/2003Senate: 52 members: 27 D, 25 RTerm Limits: NoneHouse: 122 members: 75 D, 47 RTerm Limits: None

C+




MissouriMost states have seen their infrastructureand transportation problems get worse overthe past few years; Missouri is one of thefew that has managed to improve.

Throughout the 1990s and on into thecurrent decade, the state was burdened bya 15-year plan laced with promises it couldnot keep. It failed to complete projects onschedule and ran up costs $5 billion overbudget. Indeed, the Department of Trans-portation was the object of considerablepublic derision.

Today, the state’s transportation-plan-ning processes are a model for the nation.More than 80 percent of the vehicle milestraveled on major highways are in good con-dition—up from 52 percent just five yearsago. Change has been accomplished througha combination of unorthodox methods, suchas offering bonuses to construction engi-neers who minimize change orders and giv-ing engineers flexibility instead of holdingthem to rigid design standards. The DOT hassaved money by deviating from a variety ofobsolete rules. Pouring the standard 14inches of pavement defied all logic in therocky Ozarks, for example. “Less pavementdoes not necessarily mean less durability ifyou’re building on top of rock,” says PeteRahn, the MoDOT director.

The department’s public image hasmade a speedy recovery. “There’s a generalperception that the department is respon-sive,” says Mark Tranel, director of thePublic Policy Research Center, a nonparti-san think tank. “Maintenance isn’t sexy, butit’s clear they’re doing it because it’s whatthe public wants.”

Management of the state’s publicbuildings also has improved, aided by amerger of the Division of Facilities Man-agement with the Division of Design andConstruction. In the past, the state has hada fair amount of funding for maintenanceof buildings, but had little understandingof its real needs because of unreliable in-formation from state agencies. “Youweren’t getting a real picture of the con-dition of the buildings,” says DavidMosby, director of the combined office.Now, a sophisticated software programtracks up-to-date information about the

condition of all state facilities—and alertsmanagers when preventive-maintenancetasks need to be performed.

Missouri’s work in results-based gover-nance and the use of information has beensolid for some time, and over the past fewyears, the state has reinforced its status as aleader by improving its strategic-planningand performance-measurement efforts.Agencies are asked to incorporate the gov-ernor’s priorities into their strategic plansand report on progress once each quarter.The state has revised its budget-requestforms for agencies to require three differentlevels of measures: broad outcomes, out-puts and a middle measure capturing pro-gram effectiveness, efficiency and customersatisfaction.

The level of legislative interest in per-formance measurement is increasing. TheHouse Appropriations Committee now dis-tributes a guide for legislators about how touse the information. Meanwhile, the non-partisan Legislative Budget Office, whichwas created in 2006 and serves as a sort ofin-house think tank, has prodded legislatorsto ask more questions about performance—and to make better use of the numbers infront of them. This is critical at a time whenlegislative term limits have eroded some ofthe technical expertise underlying thebudget process.

Missouri has a track record of extremelyconservative fiscal management and cur-rently is in strong structural balance. Still,costly tax-cut packages passed in 2007—in-cluding one phasing out taxes on Social Se-curity benefits—are creating some uncer-tainty about the long-term fiscal outlook.

The state’s workforce, sadly, is the victimof archaic civil service laws, although it iscompetently managed within the confinesof those statutes. Workforce-planning ef-forts are in early stages in Missouri, and thestate needs to modernize its hiring practices.Until 18 months ago, all applicants for officesupport assistant jobs were given a test thatwas written in 1982 and included questionsabout mimeographs and microfiche.



Money B+

Long-Term Outlook l

Budget Process l




People B-


Hiring l




Infrastructure B+

Capital Planning l


Maintenance l



Information A






Population (rank): 5,842,713 (18)Average per capita income (rank):$22,916 (33)Total state spending (rank):$24,355,850,000 (20)Spending per capita (rank): $4,169 (46)Governor: Matt Blunt (R)First elected: 11/2004Senate: 34 members: 14 D, 20 RTerm limits: 8 years (lifetime)House: 163 members: 71 D, 92 RTerm limits: 8 years (lifetime)

B+




MontanaYou’d think that a projected surplus of $1 bil-lion—about half of the state’s entirebudget—would make for an even-keeledbudget process. Not in Montana, where rev-enue forecasts exceeded planned expendi-tures by that much in 2007. The state’sbudget processes themselves aren’t partic-ularly troublesome. But term limits havemade the Montana legislature a hothouse,as dozens of new lawmakers, untutored inthe ways of fiscal negotiation, debated their

way last year into the most tempestuousbudget sessions in memory. Thanks to par-tisan acrimony about property-tax relief, thebudget had to be split up into several differ-ent bills during the session.

Legislators tried to put their HumptyDumpty budget back together again, butcouldn’t make the pieces fit without a last-minute special session. This led to a mix-ture of seemingly inconsistent decisions.On the one hand, the state sensibly putsome of its large surpluses toward pro-posed fixes for infrastructure maintenance.At the same time, though, a bill to fundmaintenance on a permanent basis died.Similarly, while $100 million of the surpluswas placed in reserve, Montana remainsone of only four states with no real rainy dayfund. A fund exists, but there is no statutoryrequirement to maintain a balance in it be-yond the current biennium.

That’s a noteworthy issue in a state suchas Montana, where revenues are extremelyvolatile because they rely heavily on theprice of natural resources. True, the econ-omy has begun to diversify a bit—but agood share of the state’s revenues stillcomes from mineral extraction. Mean-while, the inevitability of an uncertain fu-ture points to the need for a statewide strate-gic plan—one that emphasizes the fundingof technology and human capital steadilythrough both booms and busts.

Better performance information couldhelp Montana to make sure it spends itsmoney most wisely whether times are flushor hard. Ideally, such information couldeven help de-politicize the process that ledto the recent budget mess. But performanceinformation hasn’t gained a foothold in thestate. Isolated pilot programs spring up, butbudgets are not linked to long-term per-formance goals.

On the technology front, Chief Informa-tion Officer Dick Clark takes justifiable creditin the funding of two new data centers, aswell as upgrades to the social services datasystem, in the state’s capital budget. “We nowsee IT as an asset,” he says. “We did a fun-damental change in the way we think aboutIT.” But the presence of an asset doesn’tnecessarily mean that it’s used. Some agen-cies do not take full advantage of availabletraining in information technology re-sources, and the budget office sometimesfinds that agency managers don’t know howto access the information available to them.

The state’s director of personnel is mak-ing a valiant effort to focus attention on work-force planning. Montana’s strong economymakes recruiting and retaining employees achallenge as private-sector jobs lure youngmen and women toward corporate payrollswith generous salaries. A market-based,broad-banded initiative called PayPlan 20was developed to respond to that problem bymatching private-sector salaries and by in-stituting targeted pay-for-performance raises.

But despite the best intentions of theHR office, the legislature isn’t making lifeeasy. The reasonable notion that employeesshould get performance-based raises hasbeen stymied by a 0.6 percent limit on theincreases. Another example: HR officials,concerned about succession planning,wanted to purchase a computer system forthat effort—and it was supposed to pay foritself within four years. But the legislaturedecided not to fund the purchase. That’stroublesome news for a state in which 20percent of the workforce will be eligible toretire in the next three years.



Money C+

Long-Term Outlook l

Budget Process l




People B-


Hiring l




Infrastructure C+

Capital Planning l


Maintenance l



Information C+






Population (rank): 944,632 (44)Average per capita income (rank):$21,067 (42)Total state spending (rank):$5,194,561,000 (46)Spending per capita (rank): $5,499 (19)Governor: Brian Schweitzer (D)First elected: 11/2004Senate: 50 members: 26 D, 24 RTerm limits: 8 years (consecutive)House: 100 members: 49 D, 50 R, 1 ITerm limits: 8 years (consecutive)

C+




Montana now thinks of technology as an asset but doesn’talways use it well.

NebraskaMost of the time, when governors want tohave a conversation with their budget di-rectors, it’s about the crisis of the day, theproblem of the week or the dilemma of themonth. But not long after the end of the2007 legislative session, Nebraska Gover-nor Dave Heineman approached BudgetAdministrator Gerry Oligmueller to talkabout problems he thought might crop upin the next six years.

This wasn’t just an idle gesture. In2006, voters made it clear that they werefrustrated by the fact that Nebraska’s taxburden is relatively high for its region. Al-though a ballot measure calling for a con-stitutional spending limit failed to pass,the message was unmistakable: The statehad to start making careful plans to spendwisely and tax less or else citizens mighttake matters into their own hands.

Long-term thinking may be easier inNebraska than elsewhere because the “uni-cameral” (the only single-chamber statelegislature in the country) is officially non-partisan. “They all belong to a party, but theparties don’t tell them what to do,” saysOligmueller. The entire legislative processis more collaborative than in most otherstates; the governor’s budget office con-sults with the legislative fiscal office beforeissuing instructions for the biennial budget.

Agencies submit their budgets to boththe governor and the legislature at the sametime, and their requests immediately be-come public documents. That degree oftransparency, which is unusual, doesn’tseem to bog down the process too much.The only real downside in Nebraska’s ap-proach to budgeting is that neither the leg-islature nor the budget office has mademuch progress over the past few years inthe use of performance information to ac-tually craft the budget.

The state has had greater success thanmost in chipping away at deferred mainte-nance in its general-facilities infrastruc-ture, thanks to a cigarette tax-based fundingstream. “We don’t have tremendous re-sources,” says Building Division Adminis-trator Jeff Jensen, “but we really focus onmaintaining what we have.” The state hiresinspectors who evaluate agency repair re-

quests. Then a task force gets together andranks priorities based on established crite-ria. The state’s prioritization process forthese minor projects rivals those of manyother states for more major infrastructureimprovements.

On the transportation side, Nebraska isless sophisticated—which is perhaps re-flected in the fact that the relevant agencyis still called the Department of Roads.The department’s construction budget,which includes the amount it spends eachyear on major maintenance and new-laneconstruction, has been decreasing steadilybecause of declining revenues and in-creasing inflation—which makes criticalplanning difficult.

Because revenues have fallen, statetransportation managers have focused al-most entirely on preserving what’s alreadythere. They ascertain the level of fundingnecessary to maintain the current sys-tem—for next year, they have estimated$170 million. That leaves them with a rel-atively meager $100 million for new capi-tal projects. But Nebraska is careful to alignits spending with the latest federal designrecommendations: Recently, for example,the state decided it no longer needed toconvert highways from two-lane to four-lane status when they reach a threshold of6,000 vehicles a day—waiting to reach10,000 a day would meet the most recentstandards. That change will save $1.4 bil-lion over 20 years.

The work of a funding-distributionteam, which is currently in the process ofprioritizing and selecting projects based onneed, will be critical. According to JohnBartle, a professor of public administrationat the University of Nebraska-Omaha, theDepartment of Roads would benefitmightily from more long-range planningin the face of a powerful highway lobby.“There’s not a real strategic focus on howthey use their money,” he says. “There’s atendency to respond to legislative demandsfor ‘we need to connect the roads from thistown to this town.’”



Money A-

Long-Term Outlook l

Budget Process l




People B-


Hiring l




Infrastructure B+

Capital Planning l


Maintenance l



Information B-






Population (rank): 1,768,331 (38)Average per capita income (rank):$23,248 (29)Total state spending (rank):$7,702,325,000 (41)Spending per capita (rank): $4,356 (39)Governor: Dave Heineman (R)Took office: 1/2005Legislature (unicameral, nonpartisan): 49 membersTerm limits: 8 years (consecutive)

B




NevadaNevada has been the nation’s fastest-growingstate for much of the past decade, and despitecurrent hard times brought on by the hous-ing-market collapse, population growth isn’texpected to drop off anytime soon.

This swift growth is straining much ofstate government, notably an overbur-dened social-services system. Difficulty inhiring new employees for a variety of po-sitions, such as nurses and correctional of-ficers, has become increasingly trouble-some. Last year, the legislature approved

the hiring of additional social workers toreduce caseloads—a commendable effort.But the Department of Health andHuman Services has been able to fill onlyone-third of the jobs.

Personnel Director Todd Rich pointsto a number of reasons positions go un-filled. Much of the need for new person-nel is in the booming Las Vegas area,where the applicant pool tends to be lesseducated. Nevada’s compensation phi-losophy compounds the issue. Not only isthe state uncompetitive with private em-ployers; it also lags behind city and countygovernment. “That puts us in a toughspot,” Rich says. “We’re structured to ap-peal to people who want to be in a job for30 years. That just doesn’t happen any-more. We need to be more flexible and ap-peal to a younger crowd.”

Nevada might have forecast some of itsproblems with better analysis. But work-force planning has been ad hoc and reactiveat best. The absence of succession plans isbecoming increasingly evident as top man-agers retire and employees are promotedwithout the training or experience theyneed. “We have a policy I refer to affection-ately as ‘promote and pray,’ ” says Correc-tions Director Howard Skolnik. More cen-tral guidance is in the works: Among Rich’spriorities are developing a succession-plan-

ning model for agencies and crafting astatewide workforce plan.

The state’s workforce issues will be all thetougher given growing fiscal pressures. Be-cause of the housing slowdown, Nevada hadto close a sizable budget hole for the currentbiennium; within months, the shortfall hadgrown to $540 million. Governor Jim Gib-bons announced an across-the-board budgetcut of 4.5 percent, taking what many saw asa meat ax approach to the problem rather thanapplying a carefully targeted strategy.

The budget hole for current operationsmay be a problem—but it pales in compari-son to the dollars necessary for long-term in-frastructure needs. Nevada’s transportationdepartment has identified 10 so-called“super” and “mega” projects costing an esti-mated $4.8 billion that need to be completedby 2015 to avoid gridlock in urban areas andon truck routes. In 2006, a blue-ribbon panelconvened by then-Governor Kenny Guinnrecommended a combination of tax in-creases and changes to pay for the projects.The Gibbons administration rejected thesuggestions, and instead pieced togetherfunding last year to start one project, a $1.6billion reconstruction of I-15 through LasVegas. “Taking this approach in a piecemealfashion is going to be a problem,” cautionsone former transportation official. “If youjust defer a $4 billion problem for severalyears, it becomes a $10 billion problem.”

Facing such short- and long-term fiscalpressures, Nevada is looking to use andmanage technology more efficiently. Likemany states, it is examining potential sav-ings through IT consolidation and alreadyhas completed a much-needed contractingdatabase, including a vendor-rating systemthat should allow the purchasing division tobetter leverage statewide spending. Thisadds to other advances in the procurementarea in the past few years, including partic-ipation in cooperative purchasing agree-ments and concentration on “green” pro-curement. On the minus side, Nevada trailsmany states in its use of electronic pur-chasing and bidding.



Money C+

Long-Term Outlook l

Budget Process l




People C-


Hiring l




Infrastructure B-

Capital Planning l


Maintenance l



Information B-






Population (rank): 2,495,529 (35)Average per capita income (rank):$26,340 (16)Total state spending (rank):$10,341,683,000 (36)Spending per capita (rank): $4,144 (47)Governor: Jim Gibbons (R)First elected: 11/2006Senate: 21 members: 10 D, 11 RTerm limits: 12 years (lifetime)House: 42 members: 27 D, 15 RTerm limits: 12 years (lifetime)

C+




Pay in Nevada not onlylags behind the privatesector. It trails city andcounty government.

NewHampshireThere is a myth that New Hampshire’s fis-cally conservative state culture creates frugalbut fit government—no taxes, no frills, noproblem. In truth, while New Hampshiremay provide fewer services than other states,the notion that its finances are emblematic ofold-fashioned New England Puritanism justisn’t true. Meager cost and performance in-formation and tortuous business processescreate an institutional inertia that wastesmuch of the state’s limited resources.

The governor, who serves a two-yearterm, doesn’t necessarily appoint—and can-not remove—his own agency heads, whoserve four-year terms. So the governor canspend lots of time banging heads withother members of his own cabinet. “Thebasic system of government is designed tomake it difficult to transform anything,” ex-plains one former state official.

In New Hampshire state government, itcan even be tricky buying a bunch of file cab-inets. If a manager wants to purchase some-thing that costs more than $5,000, the dealnot only has to go through a central pur-chasing office but also must get approvalfrom a five-member elected board known asthe Executive Council. Hundreds of itemshave to be reviewed every few weeks, in-cluding some out-of-state travel. Much workgets held up until the council meets and ap-proves expenditures ranging from $60 mil-lion for a new management informationsystem to a $930 trip to Delaware for threeFish and Game officials. To be sure, suchcontrols protect the state against fraud—and that’s a good thing. But at what cost?

The problem isn’t only in the structureof government; it’s in the process of gettinginformation to the people who most need it.A particularly egregious example: One di-rector whose job deals with institutionaland employee improvement stepped intoher office on Day One to discover that herpredecessor had taken every single docu-ment when he left. That may be unusual,but antiquated technology producing hard-to-use data definitely is common. Thestate’s old computer systems spit out somany numbers, with such minimal expla-nation, that the information often is of lit-tle value for analytical management.

State officials are awaiting the arrival ofan enterprise resource planning system asthe state’s IT salvation, but new machinesdon’t necessarily change the way people useinformation. Making the system operate ef-fectively will be as much a workforce-train-ing issue as a tech issue. There is cause forconcern here, especially given the fact thatthe state initially managed the ERP imple-mentation on a volunteer basis, dedicatingfull-time staff to the project only after it wasdelayed by more than a year.

Among New Hampshire’s most trou-blesome issues is a tendency to push to to-morrow that which should have been doneyesterday. Decisions about how to complywith court rulings ordering more equitableschool funding have dragged on for nearlya decade. Another example: When CharlesO’Leary, the former commissioner of theDepartment of Transportation, came out ofretirement to fix the department’s finances,he announced that the state’s 10-year trans-portation plan would actually take 35 yearsto complete. He sliced $1 billion of the leastworthy projects; the new plan, which hasnot yet been approved by the legislature,would take 22 years to complete.

In addition, underfunding and lack ofclear priorities for buildings, bridges androads leaves New Hampshire with “killer” de-ferred maintenance problems and positivelypre-modern infrastructure: The average dailytemperature in January is 17 degrees, butmany hallways in the New Hampshire De-partment of Corrections have no heat—em-ployees cling to space heaters in some offices.

There’s a philosophy in the Granite Statethat constant fiscal crisis helps keep thestate efficient. However, without strategicplanning, performance information oreven timely expenditure data, how doesNew Hampshire know where efficiencyends and strangulation begins? The BudgetOffice—actually, the budget director, sincethere’s just one person in the office—ismired in the same Catch-22 as the rest ofthe state: stretched too thin today to preparefor tomorrow.



Money C-

Long-Term Outlook l

Budget Process l




People D


Hiring l




Infrastructure D+

Capital Planning l


Maintenance l



Information D+






Population (rank): 1,314,895 (41)Average per capita income (rank):$28,828 (6)Total state spending (rank):$5,987,952,000 (45)Spending per capita (rank): $4,554 (35)Governor: John Lynch (D)First elected: 11/2004Senate: 24 members: 14 D, 10 RTerm Limits: NoneHouse: 400 members: 237 D, 158 R,1 I, 4 VacantTerm Limits: None

D+





New JerseyThe problems in New Jersey’s fiscal stew-ardship have never been clearer than theywere on the Fourth of July, 2006, when thestate’s casinos and parks had to be closed—the result of lawmakers’ inability to pass abudget on time. The budget fracas revolvedaround Governor Jon Corzine’s plan todeal with structural money shortfalls by

raising the sales tax from 6 to 7 percent.The impasse was resolved only when leg-islators agreed to approve the increase butsend half of it back out in the form ofproperty tax relief.

Last year the governor and legislatureseemed genuinely dedicated to avoidingsimilar embarrassment. And they took astep toward accountability by publishing acomprehensive Citizens’ Guide to thebudget that included every change to thegovernor’s original submission along withthe name of the official who proposed thatchange. Transparency seemed to help; thebudget passed nine days early.

But an on-time budget isn’t necessarilya good one, and New Jersey hasn’t yet founda way to deal with the long-term imbalancebetween its revenues and its spending. Thestate’s citizens have begun to understandthe problem. In November 2007, staringdown a $3 billion hole in a $33 billionbudget, voters rejected a plan to dedicate theremaining half-penny of the sales tax in-crease to property tax relief—and they didthis despite the fact that New Jersey has thehighest property tax in the nation. With adebt of $32 billion, such hard decisions aregoing to be necessary for some time.

The consequences of the fiscal prob-lem hit home everywhere in state govern-

ment. Deferred maintenance in the trans-portation system has swelled to $13 billion.As one Department of Transportation offi-cial puts it, “we are holding ground on thepavement and we are losing on the bridges.”Although New Jersey has the nation’s third-lowest gas tax, a tax increase to bolstermaintenance doesn’t seem politically pos-sible. Corzine talks about creating a non-profit public benefit corporation to managethe day-to-day operation of several majorroadways, including the New Jersey Turn-pike and Garden State Parkway.

Non-transportation infrastructure is nobetter off. The state dedicated $7 millionthis year toward a prioritized list of roof im-provements on public buildings; even so,life-cycle roof replacement is three or fouryears behind schedule.

Similarly, the state’s dwindling invest-ment in human capital training has begunto leave a mark. With a hiring freeze on formany positions in the state, maximizing theproductivity of each employee becomescritical. But New Jersey spends less than 0.2percent of its corrections payroll on train-ing, for example, while neighboring Penn-sylvania and Connecticut spend 1 percentand 1.8 percent, respectively. Likewise, thedevelopment of a new Department of Chil-dren and Families is destined for difficultyif it continues to spend only $44 per man-ager for training. Both expenditure figuresrank among the lowest in the nation. Civilservice rules dictate that employees withseniority have protected jobs during lay-offs, potentially compounding the prob-lems of the baby-boomer retirement waveby leaving a dearth of young, well-trainedtalent in its wake.

Worse still, New Jersey faces a newly re-vealed $58 billion long-term bill for post-employment retirement benefits owed to itsworkers. Many other states are up againstbig bills on this front, but New Jersey’s is awhopper by anyone’s standards. On thepension side, the state is similarly hobbled.Despite improved funding in the past twoyears, liabilities continue to grow.



Money C-

Long-Term Outlook l

Budget Process l




People B-


Hiring l




Infrastructure C+

Capital Planning l


Maintenance l



Information C-






Population (rank): 8,724,560 (11)Average per capita income (rank):$31,877 (3)Total state spending (rank):$54,073,301,000 (8)Spending per capita (rank): $6,198 (9)Governor: Jon Corzine (D)First elected: 11/2005Senate: 40 members: 23 D, 17 RTerm Limits: NoneHouse: 80 members: 48 D, 32 RTerm Limits: None

C

New Jersey faces a newly revealed $58 billion tab for post-employmentretirement benefits—a whopper by anyone’s standards.



New MexicoIn the past five years, New Mexico has takenstrong steps toward addressing some of itsmost glaring management weaknessess, in-cluding what may have been the worstmethod of capital spending in any state in thecountry. Instead of having a centralized plan-ning process for its infrastructure, the statesimply divided capital funds into three equalportions, one each for the governor, theHouse and the Senate. The latter two split themoney further by putting much of it underthe control of individual legislators. Every-thing was political; hardly any decisions weremade on the basis of rational planning.

Governor Bill Richardson set out tochange that when he took office in 2003.Robert Apodaca, director of the state’s Cap-ital Projects Division, recounts the newgovernor asking such questions as “Whyare we spending $25,000 on a water systemin Las Cruces that needs at least a half a mil-lion?” Richardson began negotiating withthe legislature to reserve more money, in

addition to his own one-third share, forstrategic purposes. This year, the governorand the legislature agreed that about $300million extra, or nearly two-thirds of the leg-islature’s share, would be set aside for long-term goals. And even though the rest wassplit the traditional way, legislators haveagreed to pool much of this money and tar-get it toward needed projects.

For example, the city of Taos recentlyasked the state for $1 million to build a newwater system. The Capital Projects Divisiongot the local legislators to kick in $200,000from their slices of the capital fund; then thegovernor made up the difference. Negotiat-ing in this fashion, project by project, is farfrom the best way to handle capital planning.But it’s a big improvement over what NewMexico did for decades.

Long-term thinking has emerged in thepast couple of years on an enterprise-wide

basis, as well. All major state agencies havebeen assigned planning responsibilitiesand charged with fulfilling one part of thestate’s strategic plan.

It seems to work. Consider the NewMexico Home for Boys, a juvenile detentioncenter in the remote town of Springer. Ac-cording to the state personnel director, thiswas “one of the last of these facilities set upas a jailing center,” instead of a place wherejuveniles could get an education. It wasonly when the Corrections Department andthe agency that handles youth servicesfound themselves in the same planninggroup that they were able to come up witha solution. The boys from Springer weremoved to a more appropriate residence inAlbuquerque. Meanwhile, the Springer sitewas converted into a minimum-securityadult facility—saving the town from dis-abling job losses.

Last year, New Mexico consolidated itsinformation technology services, and madethe state’s IT agency a cabinet-level depart-ment. These moves have had an effect al-ready, with the IT department helping toconsolidate what had been 30 different e-mail systems into one. The state also ismoving belatedly into workforce planning,an effort that got a boost with the installa-tion of an advanced HR data system in thesummer of 2006.

At the moment, New Mexico has a fis-cal advantage over most other states in theoil and gas money that flows into its coffers.But New Mexico’s infrastructure hasgreater maintenance needs than most. It isa “bridge state,” meaning it sees a greatdeal of transcontinental traffic crossingback and forth. “We’re paying a tremen-dous amount so the nation’s goods can getto market,” says Transportation SecretaryRhonda Faught. The state is adapting. Ithas saved millions of dollars by pavinghighway shoulders, which rarely have traf-fic, with far less asphalt than the road itself.For the state to continue making strides, itwill need to continue making moves likethis, both large and small.



Money B-

Long-Term Outlook l

Budget Process l




People C


Hiring l




Infrastructure C+

Capital Planning l


Maintenance l



Information B






Population (rank): 1,954,599 (36)Average per capita income (rank):$20,913 (46)Total state spending (rank):$13,399,021,000 (33)Spending per capita (rank): $6,855 (7)Governor: Bill Richardson (D)First elected: 11/2002Senate: 42 members: 24 D, 18 RTerm Limits: NoneHouse: 70 members: 42 D, 28 RTerm Limits: None

B-

It’s a struggle to keeppolitics out of planning,but New Mexico is making an effort at it.




New YorkNew York always seems to be on the vergeof reforming its fiscal processes. It neverquite seems to get there. Budget negotiationbecame an object of statewide ridicule after20 budgets in a row failed to meet the an-nual statutory deadline, mostly because thethree individuals who made the decisions—the Senate and Assembly leaders and thegovernor—had trouble coming to any con-sensus. A barrage of scorn from the mediaand citizens finally shamed the leadershipinto meeting a schedule in each of the past

three years. The progress, however, hasbeen more cosmetic than real. Last year, thebudget was issued within a few hours of thedeadline, but few legislators and virtually nocitizens got a chance to read it. Factors suchas the actual effectiveness of state programsweren’t considered in the debate.

Now some critics are actually longing forthe late budgets of years past. “It kind ofbackfired on those of us who had been ad-vocating for good government,” says ErikaRosenberg, of the Center for GovernmentalResearch. Rosenberg and others complainthat for Governor Eliot Spitzer, AssemblySpeaker Sheldon Silver and Senate PresidentJoseph Bruno, simply meeting the deadlineseemed to take precedence over serious dis-cussion of the state’s fiscal problems.

Promising reforms were made last year tothe revenue-estimating process, including anindependent estimate that can be set by thecomptroller should the involved parties failto reach timely agreement. That good ideawasn’t tested last time around because anagreement was reached early on. But thenthe number was haggled over extensivelypost-“consensus” and eventually ignored.

Even though the budget process seemsto proceed without any intelligent use ofperformance measures, the bureaucracy isslowly stumbling toward a more perform-

ance-oriented approach to management.Many state agencies now engage in mean-ingful strategic planning, and regularlymonitor and report on a wide range of per-formance measures. This is partially due toa Government Reform Initiative createdby former Governor George Pataki, andpartly the result of a push coming fromSpitzer to include cross-agency task forcesand a central monthly reporting require-ment for key metrics.

Of particular note is momentum com-ing from the Office for Technology and itsnewly created Department of PerformanceManagement and Process Improvement. Awide range of stakeholders are now con-sulted about the state’s strategic direction intechnology through workshops and inter-views, and an online “wiki” tool is being de-veloped to solicit input from the public.The Office for Technology is aggressivelyoverseeing adherence to service-level agree-ments with agencies, and pushing them tomonitor a wide range of IT-related per-formance measures. Those metrics willsoon be electronically accessible across stategovernment, and some of them will bemade public. A logical next step, of course,would be adapting that practice to track keystatewide metrics unrelated to IT.

The New York Civil Service system issqueezed by its statutory inability to recruitoutside government ranks for all but entry-level positions. That’s a problem that willlikely worsen with the upcoming exodus ofretirees. Innovative training programs havehelped lower-level employees rise to thechallenge, but even the smartest trainingcan only develop a fledgling civil servant sofast. The Governor’s Office of EmployeeRelations took an important step this win-ter by launching a statewide learning-man-agement system that will keep an importantrecord of the skills, training and compe-tencies held by all state employees. In theabsence of meaningful civil service re-forms, this centralized approach will becritical in helping the state deploy its work-force in the most strategic way.



Money C+

Long-Term Outlook l

Budget Process l




People B-


Hiring l




Infrastructure B-

Capital Planning l


Maintenance l



Information C+






Population (rank): 19,306,183 (3)Average per capita income (rank):$28,024 (7)Total state spending (rank):$142,853,305,000 (2)Spending per capita (rank): $7,399 (5)Governor: Eliot Spitzer (D)First elected: 11/2006Senate: 62 members: 29 D, 33 RTerm Limits: NoneHouse: 150 members: 108 D, 42 RTerm Limits: None

B-

New York finally met its annual budget deadline, but changesto the system are morecosmetic than real.





North CarolinaWhen it comes to personnel management,North Carolina is up to speed on all the lat-est ideas. Workforce planning, successionplanning, knowledge management—thehuman resources department is tryingthem all. But a tough obstacle has stood inthe way of real accomplishment: the de-centralized structure of North Carolinastate government. The individual agencieseach run their own human resources shop,and frequently they don’t want to run it theway the state would like them to. “The stark

reality,” says Thom Wright, director of theOffice of State Personnel, “is that I’ve gotsome flat HR directors and they’re not de-livering services to their employees.”

Despite the slow progress, Wright’s of-fice continues to pursue innovation. It re-cently rolled out NCWorks, a workforce out-look and retirement knowledge system withimpressive analytic and predictive modelingcapabilities. The system allows managers toidentify employees who are likely to leave,and in general makes workforce planning amatter of data rather than guesswork. Re-tention and recruitment challenges oftenhave a geographical dimension in NorthCarolina, and the NCWorks system is par-ticularly useful in pinning those down.

BEACON, the state’s new enterprise-wide computer system, constitutes a hugestep forward as it rolls out. It will create newand more effective procedures for account-ing, budgeting, cash management, datawarehousing and tax and revenue tracking.

Information technology changes arelong overdue, because the state has beenoperating on legacy software that did notadequately meet managers’ needs. A com-plete analysis of core business practicesfive years ago showed numerous ineffi-ciencies resulting from a jumble of differ-

ent systems that sometimes made it diffi-cult for one agency to communicate withanother. “We found that primarily thosesystems are in excess of 25 years old andwere built and being maintained by indi-viduals who are retired or at the point of re-tirement,” says Controller Robert Powell,who chairs the BEACON committee. In all,some 500 employees are planning and ex-ecuting the BEACON changeover.

The state finally has produced its firstfull-fledged statewide capital plan for gen-eral infrastructure, which uses criteria andcondition-assessment information to pri-oritize needs across agencies. “I’m not en-tirely convinced we have a good way to pri-oritize an art museum against a prison,but I think we have a much stronger way tomake those decisions than we did,” says JimKlingler, of the Fiscal Research Division.

Advances also are afoot on the auditingfront. Although the state auditor’s officehas a limited performance-audit function, anewly created Program Evaluation Divisionwill conduct performance audits and assessprogram effectiveness at the direction of alegislative committee. And the use of per-formance information finally is becomingintegrated into the budget process. Thestate’s Results-Based Budgeting Initiative isstill new but is a major improvement, par-ticularly in terms of transparency and thequality of information available to all partieswhen making decisions.

Unfortunately, if all of this is going to havethe success that its architects want, there willhave to be improvements in the way infor-mation is solicited and communicated. Asthings stand, the governor’s budget docu-ment is the place where transparency ends.Some budget information published by thelegislature can be difficult even for experts tofollow, and public input in legislative hearingsis in most cases severely limited. “I was at onehearing all session long where public com-ment was allowed,” says Meg Gray, a policyanalyst at the North Carolina Budget and TaxCenter. “At that one hearing, we were able totalk for one minute.”



Money B-

Long-Term Outlook l

Budget Process l




People B


Hiring l




Infrastructure B-

Capital Planning l


Maintenance l



Information B-






Population (rank): 8,856,505 (10)Average per capita income (rank):$22,945 (32)Total state spending (rank):$41,107,916,000 (10)Spending per capita (rank): $4,642 (34)Governor: Michael F. Easley (D)First elected: 11/2000Senate: 50 members: 31 D, 19 RTerm Limits: NoneHouse: 120 members: 68 D, 52 RTerm Limits: None

B-

As things stand in thestate, the governor’sbudget document is the place where transparency ends.



North DakotaYou might almost forgive a state for feelinga little complacent at a time when an oil- andgas-price boom and an increasingly diver-sified economy have combined to provide abiennial budget 24 percent larger than theprevious one.

But complacency isn’t really part ofNorth Dakota’s governmental culture. Thestate has lived through enough boom-and-bust energy cycles to recognize that bal-loons are made to be burst. In line with theirtradition of fiscal conservatism, budgetershere have used some of their extra cash toput $200 million—about 8 percent of gen-eral-fund revenues—into the state’s rainyday fund. That complements a number ofother trust funds in which the state con-serves cash to fund schools, health careand fiscal emergencies.

Aside from that, much of the windfallhas gone toward one-time expenditures,including $14 million on an integrated tax-information system that went live last year,replacing 40-year-old technology that was

inefficient and difficult to maintain. Plansalso are underway for replacement of thestate’s 28-year-old, mainframe-based Med-icaid management system.

In fact, there are quite a few areas ofNorth Dakota government that could usesome help right now. Blessed with the na-tion’s lowest crime rate, North Dakota’sDepartment of Corrections used to rent outexcess beds to other states. Now, however,it is trying to cope with a rapidly growingprison population and overcrowded facili-ties, created in large part by drug offenses.A debate rages about whether to expand ex-isting facilities or to build a new prison, buteither way, the price tag will stretch into thetens of millions.

It may be easier to find the money for

new beds than to adequately staff the prisonhallways. The department routinely receivesapproval for fewer positions than it needs.Pay levels are low, and turnover among cor-rectional officers is edging up. In the lastbudget, lawmakers approved $1.5 million forsalary increases; the department had re-quested $4.2 million.

In fact, salary levels pose a significant chal-lenge across state government. In the last leg-islative session, lawmakers approved a pack-age readjusting some of them to make thepay scale more consistent across agencies.Overall, though, compensation remains un-competitive. Some states close that gap by of-fering generous benefit packages, but NorthDakota falls behind there, too, with benefitsworth about half as much as the nationwideaverage. Agencies do have some flexibility tooffer higher starting salaries to attractive can-didates, but without more competitive payacross the board, the state will continue tostruggle to fill open positions.

Human resources management islargely decentralized in North Dakota, sosome agencies have pushed ahead to ad-dress personnel needs on their own. The De-partment of Transportation, facing a pend-ing crush of retirements, started a career-path initiative last year to help lower-level em-ployees develop skills they will need to moveup within the department. It’s a programother departments would be well served toemulate. With the difficulty in finding newemployees, North Dakota needs to try espe-cially hard to make the most out of the onesit has, investing more to train and developthem for bigger, better jobs.

As for the state’s infrastructure, thebudget surplus has helped funnel newmoney toward maintenance; DOT bondedfor two major maintenance projects in2005. Building maintenance is still morethan 50 percent underfunded, though, androutine roadway upkeep has been set backas a result of dramatic increases in the costof asphalt. The department expects thisyear’s assessment may show some declinein road-condition ratings as a result.



Money B

Long-Term Outlook l

Budget Process l




People C


Hiring l




Infrastructure B-

Capital Planning l


Maintenance l



Information C+






Population (rank): 635,867 (48)Average per capita income (rank):$22,619 (35)Total state spending (rank):$3,633,349,000 (49)Spending per capita (rank): $5,714 (15)Governor: John Hoeven (R)First elected: 11/2000Senate: 47 members: 21 D, 26 RTerm Limits: NoneHouse: 94 members: 33 D, 61 RTerm Limits: None

B-

Without making paymore competitiveacross the board, NorthDakota will continue tostruggle to fill positions.





OhioWhen the Ohio House and Senate bothpassed the state budget unanimously lastyear, it was the first time that had hap-pened since the 1920s. The calm in Colum-bus was all the more surprising because,with a newly elected Democratic governorand a Republican-controlled legislature,Ohio had a divided government for the firsttime in more than a decade.

The universal unpopularity of formerGovernor Bob Taft—he left office at theend of 2006 with an approval rating in thesingle digits—certainly was a factor thatencouraged state leaders of both parties to

push for a new climate. But, to their credit,they didn’t do this by throwing out Taft’spositive management initiatives.

For example, incoming Governor TedStrickland followed through on his prede-cessor’s plans for a phased replacement ofthe obsolete corporate franchise and tangi-ble personal property taxes with a singlecommercial activity tax. This fix won’t payimmediate dividends, but fiscal analystsbelieve it could help make Ohio competitivefor new business and lift the economy outof its Rust Belt slide. Strickland also per-sisted in and expanded upon Taft’s badlyneeded campaign to renovate the state’sschool buildings and build new ones.

The rest of Strickland’s TurnaroundOhio vision is new. Flexible PerformanceAgreements between the governor andagency heads drive the state toward spe-cific, measurable goals. The AdvantageOhio partnership of public officials andprivate leaders will eliminate redundantand contradictory regulations. Quarterlyreviews and a publicly available scorecardwill let citizens know more about how the

state is doing. These strategic mechanismswill depend on more accurate numbersthan have been available in the past. Anew Administrative Knowledge Systemcame on line in July 2007 and, despite a re-grettable data theft, the system has been asuccess so far.

Other aspects of Ohio’s governmentallife aren’t going so well. In Strickland’sfirst budget, the Department of Correc-tions needed to cut 25 percent from facilitiesoperations and maintenance—a risk in asystem already functioning at 129 percentof capacity. The Division of Children andFamilies lost some administrative fundingfor information technology just as its newWeb-based child welfare system came online. As a whole, the state budget is showinga two-year revenue shortfall of between$733 million and $1.9 billion.

That big range is indicative of theshortage of precise numbers in the state.Ohio has no comprehensive data on de-ferred building maintenance, for example.The Department of Corrections doesn’ttrack employee turnover and job vacancyrates. When Ohio does have data aboutstate programs and performance avail-able, it’s generally good at sharing that in-formation with the public via the Web.Just be careful if you want to send an e-mail: You’ll have to fight your waythrough one of the most complicated setsof domain names among the states—adifferent one for each agency.

For the ambitious Turnaround Ohioplan to have a chance at success, Ohioneeds to invest in human capital planning,for starters. The coming wave of retire-ments among state employees demandsthat it put in place strategies for both re-placing them and retaining what theyknow about how agencies work. A knowl-edge-management system the state is de-veloping will likely help some. But an old-school, rigid relationship with laborunions—and the resulting Byzantine em-ployee classification system—may impedenecessary change.



Money B

Long-Term Outlook l

Budget Process l




People C+


Hiring l




Infrastructure B-

Capital Planning l


Maintenance l



Information B-






Population (rank): 11,478,006 (7)Average per capita income (rank):$23,543 (28)Total state spending (rank):$64,928,716,000 (5)Spending per capita (rank):$5,657 (16)Governor: Ted Strickland (D)First elected: 11/2006Senate: 33 members: 12 D, 21 RTerm limits: 8 years (consecutive)House: 99 members: 46 D, 53 RTerm limits: 8 years (consecutive)

B-

The big range of revenue shortfall estimates is indicative of the shortage of precisenumbers in Ohio.



OklahomaPopulism is alive and well in Oklahoma’sgovernment. The 46th state admitted to theUnion approaches its finances with astrongly held belief that the citizens canspend dollars a lot smarter than the state can.A deep distrust of centralized authority hasleft Oklahoma with dozens of boards andcommissions that usurp a great deal of theexecutive authority that other states vest intheir governors’ offices. Agency plans some-times need approval from a long list of offi-cials. Says Janice Buchanan, the fiscal direc-tor for the House of Representatives, “Thereare a lot more decision makers here.”

Right now, the economic climate in Ok-lahoma is healthy; soaring oil and gas priceshave helped to fill the state treasury to over-flowing. But if prices decline over the nextfew years, some of the state’s decisionsabout how to spend the current windfallmay leave it with serious problems. Insteadof using the money for one-time expendi-tures—such as cutting a $230 million de-ferred-maintenance bill for state high-ways—officials opted for long-term tax cuts.Since reversing the cuts would require anunlikely three-fourths majority in the leg-islature, Oklahoma is effectively spendingone-time money on ongoing bills. That’scontrary to one of the golden rules of pru-dent management.

But a downturn in oil and gas might notbe quite as troublesome as it would havebeen in past years. The state’s economy hasbecome much more diverse. Twenty yearsago, oil and gas taxes provided 30 percent ofthe revenue, whereas now they are less than15 percent. Moreover, the state’s rainy dayfund is full for the first time in history.

Still, Oklahoma would be well advised toconsider paying more attention to the fu-ture impact of current-day decisions. “Longterm in our environment is two years,” saysBuchanan. One example: The legislaturepassed laws that lengthened prison sen-tences but now refuses to fully fund a prisonsystem afflicted with overcrowding. Cor-rections officials have to return to the legis-lature before the end of each fiscal year foradditional funds.

The state did succeed in revamping itsagencies’ strategic plans, which now look

ahead at least five years. But it’s hard not tonotice that many of their goals are quitemodest. The Department of Human Ser-vices’ health care measures, for example,show few plans for getting improved healthcare to more Oklahomans for at least an-other four years.

Another problem is the low pay scale forstate employees. Each year, agencies withextra cash on hand do make an effort toboost the salaries of difficult-to-recruit em-ployees. In 2006, some 7,000 employeesreceived more than $9 million in skill-based pay raises and market adjustments.But that’s in the context of workforcesalaries that are still unrealistically lowoverall. Oklahoma does provide employeeswith good benefits. “It’s one of the fewareas where we can fully compete with theprivate sector,” says Hank Batty, deputy ad-ministrator of personnel. “We have notseen the erosion in benefits that otherstates have had.”

In the past, Oklahoma has providedmany of these benefits without any real at-tention to how they would eventually bepaid. The teachers’ retirement fund was inparticularly bad shape. “Over the past fewdecades, benefits were increased withoutmatching funds,” says Jauna Head, the di-rector of special projects for the Office ofState Finance. “It’s taken a number of yearsto get everyone to pay attention to the prob-lem,” she adds, “and now we’re trying toplay catch-up.”

But legislators seem to have gotten themessage. Recent legislation mandated in-creased contributions to the system. In2008, the pension fund will get an extra $9million, in 2009, an extra $48 million andin 2010, $58 million. “Within 20 to 25years,” says Budget Director Brandy Manek,“these changes will get the teachers’ fund toan acceptable 80 percent funding level.”

Perhaps the best news of all on this front:In 2006, the legislature passed an “Actuar-ial Analysis Act,” which mandates that anychange to employee benefits must be care-fully analyzed for its long-term fiscal impact.



Money B-

Long-Term Outlook l

Budget Process l




People C+


Hiring l




Infrastructure C-

Capital Planning l


Maintenance l



Information C






Population (rank): 3,579,212 (28)Average per capita income (rank):$20,935 (45)Total state spending (rank):$16,882,365,000 (29)Spending per capita (rank): $4,717 (33)Governor: Brad Henry (D)First elected: 11/2002Senate: 48 members: 24 D, 24 RTerm limits: 12 years (lifetime)House: 101 members: 44 D, 57 RTerm limits: 12 years (lifetime)

C+




OregonOregon’s government does many thingswell. And it employs an impressive numberof talented individuals. Unfortunately forthem, all the good intentions in the worldcan’t overcome the state’s thoroughly un-wieldy fiscal structure, which leaves con-tinual concerns about whether there’ll becash in the bank next year.

Oregon has no sales tax. The vast ma-jority of its revenue comes from personaland corporate income taxes, which are ex-tremely volatile and tied closely to eco-nomic ebbs and flows. When fiscal dol-drums set in, the state falls faster and far-ther than most others.

So it’s no surprise that Oregon finds itdifficult to estimate future revenues, ham-pering any effort to plan for effective long-term strategies. The state works off a two-year budget, and in the most recent cycle,actual revenues came in $1.4 billion higherthan estimated. That’s not the worst prob-lem to have, of course, but it’s indicative ofthe uncertainty the state’s leaders continu-ally confront. They know there will be yearswhen the estimate is wrong in the other di-rection, and that’s the scenario they appro-priately dread.

Complicating the picture even furtherfor Oregon’s budgeters is the fact thatthey can’t use extra cash for pressingneeds. By law, most surplus money has tobe returned to taxpayers. Among theneeds that have gone begging as a result:replacing the state’s decrepit psychiatrichospital, which has not undergone amajor rehab since it was used as a locationfor the film “One Flew Over the Cuckoo’sNest” in 1975; modernizing state infor-mation technology; or dealing with thegeneral deterioration of infrastructure.

Infrastructure may be the most seriousof the neglected categories. In 2006, a stateaudit concluded that deferred maintenanceon state facilities had exceeded $600 mil-lion. “Without a fully implementedstatewide process to identify, prioritize andhelp minimize deferred-maintenancecosts,” the report concluded, “some high-priority maintenance may not be addresseduntil a costly and avoidable failure occurs.”

Despite its precarious fiscal structure,

Oregon has made several strides forwardwhen it comes to financial management.Executive branch officials and legislatorsnow get the budget in on time, and there isfinally a rainy day fund—although with amodest $300 million in it. The state’s lot-tery has been set up as a permanent rev-enue stream for schools, and by June2009, that fund should hold about $400million. Pension funds are fully stocked,and benefits for the most part are rela-tively generous. Workforce morale wasshaken several years ago, however, whenthe state began to move away from the tra-ditional defined-benefit pension structure.“We still have some people who haveangst,” says Susan Wilson, the state per-sonnel director.

Oregon has improved its ability to ana-lyze the programs in its budget, and thisshould make a big difference when it con-fronts nearly inevitable future shortfalls.In the past, says Ken Rocco, the legislature’sfiscal officer, “legislators did not knowwhether to bleed all programs equally, orpick from a list of lower-priority activities.They ended up cutting programs by a fixedpercentage across the board.”

That is less likely to happen in the future.Agencies now list their top priorities byprogram, and identify key performancemeasures to which they are linked, thus al-lowing more rational, targeted cuts. Forthe current biennium, cutting wasn’t nec-essary, but the agencies went through thesame prioritizing exercise to help legislatorsbetter understand what the various depart-ments of state government actually do.

Oregon was a pioneer in the use ofperformance information, and afterspending several years recalibrating its ef-forts, now has a strategy to move forward.While many states measure outcomes,not all draw clear connections between ac-tions and results. George Naughton, thedivision administrator for budget andmanagement, says connecting outcomesto operational details is “the next evolu-tionary step for us.”



Money C+

Long-Term Outlook l

Budget Process l




People C+


Hiring l




Infrastructure C+

Capital Planning l


Maintenance l



Information B-






Population (rank): 3,700,758 (27)Average per capita income (rank):$24,418 (23)Total state spending (rank):$20,070,629,000 (28)Spending per capita (rank): $5,423 (20)Governor: Ted Kulongoski (D)First elected: 11/2002Senate: 30 members: 18 D, 10 R, 1 I, 1 VacantTerm Limits: NoneHouse: 60 members: 31 D, 29 RTerm Limits: None

C+




PennsylvaniaPennsylvania river crossings have beennoteworthy since George Washington madehis way across the Delaware in 1775. The firstPresident may have been lucky he didn’thave to cross a bridge. The Common-wealth’s state-owned bridges are in alarm-ingly bad shape. Last year, the Departmentof Transportation declared nearly 6,000 ofthem to be “in critical need of immediate re-pair”—more such deterioration than in anyother state. All told, the bill for fixing thisproblem of deferred maintenance is esti-mated at $11 billion.

It’s not that PennDOT hasn’t been try-ing. Actually, it has sought to make bridgemaintenance a priority for some time. Morethan four-fifths of the annual transporta-tion budget goes toward maintenance, andthe state more than doubled its funding forbridge repairs between 2002 and 2006.But that hasn’t been nearly enough. Thestate needs alternate funding sources tounderwrite necessary transportation im-provements, which include another $3 bil-lion in backlogged road repairs.

For a while last year, it appeared that thesolution was going to be a deal to raisemoney by leasing the Pennsylvania Turn-pike to private investors. Instead, the statesettled on a partnership between the DOTand the Pennsylvania Turnpike Commis-sion. The agreement, which will increasetolls on the Turnpike and initiate them onanother major state highway, will helpbankroll improvements not only to roadsand bridges but also to the state’s perenni-ally strapped mass transit system.

Unfortunately, Pennsylvania hasn’t ex-hibited a similar tenacity when it comes tothe rest of its assets. But it’s starting to movein that direction. The Department of GeneralServices has spent the past year conductingcondition assessments of state buildingsand developing a complementary computersystem. More than just a condition-assess-ment database, it tracks the cost of workdone to each building, including labor andmaterials costs. The robust system shouldhelp the department write 20-year life-cycleplans for each building.

Information about many of the state’sprograms tends to be plentiful and of rela-

tively high quality. The budget office, whichis committed to easily verified measures ofwork done in state agencies, has movedthem toward more complex and more usefulinformation that concentrates on the waythat work influences real results. The budgetoffice is kept informed through quarterlyperformance reports, and the state rolledthe data into its first statewide performancereport, which it published in January. Addi-tionally, several independent offices producestrong performance audits and evaluations.

The availability of information doesn’t al-ways lead to its use, though. Legislatorsdon’t regularly apply the performance datato their budget deliberations, for example.What’s more, budget debates can belengthy, heated and—worst of all—unpro-ductive. Last year, a stalemate between thegovernor and the legislature led to a briefgovernment shutdown.

Labor contracts negotiated in 2003 and2007 included changes to retiree benefits.Eager to hold on to the provisions in priorcontracts, thousands of retirement-eligi-ble workers put in their papers. James Hon-char, deputy secretary for human resources,estimates that the state lost about 10,000employees in the two rounds of departures.Some of the retirees cleared out with littlenotice or preparation. “We had individualswho walked out the door with 30 to 35 yearsof institutional knowledge,” Honchar says.

The fact that mass retirements hit thestate twice in one decade increases the im-portance of efforts by the central human re-sources office to encourage agencies to de-velop succession plans and ways to transferknowledge among employees.

Those efforts could be bolstered by moretraining opportunities. Pennsylvaniaspends less per employee on training thanit did three years ago, and leadership devel-opment is limited to its Women in Gov-ernment Institute. Human resources offi-cials say they’re considering a statewideleadership academy—a good idea, becausemale employees would likely welcome de-velopment, too.



Money B

Long-Term Outlook l

Budget Process l




People C+


Hiring l




Infrastructure B-

Capital Planning l


Maintenance l



Information B






Population (rank): 12,440,621 (6)Average per capita income (rank):$24,694 (21)Total state spending (rank):$64,917,023,000 (6)Spending per capita (rank): $5,218 (27)Governor: Edward G. Rendell (D)First elected: 11/2002Senate: 50 members: 21 D, 29 RTerm Limits: NoneHouse: 203 members: 102 D, 101 RTerm Limits: None

B-




Rhode IslandAuditors haven’t issued Rhode Island’s fi-nancial reports a clean bill of health in morethan 30 years. You don’t need a formal audit,however, to know that the state’s finances arein shaky condition. Long-standing fiscal prob-lems persist, and the situation seems to be get-ting worse—or at least that’s what Rhode Is-land’s bond ratings suggest. Dependence onone-time revenues to balance ongoing ex-penditures has led one official in the budgetoffice to lament that the budget requires “solv-ing in a painful way every year and then com-ing back and doing it all over again.”

A last-minute securitization of tobacco-set-tlement funds plugged $124 million into thebudget hole for fiscal 2008. But 2009 nowlooks to be about $380 million light; that’s ap-proximately 12 percent of state revenues.Rhode Island is accustomed to trimming—a

Fiscal Fitness initiative has cut $275 millionsince its 2004 inception—but the state may fi-nally have reached the realization that whole-sale restructuring is in order. It is hard toimagine where more areas could be found tocut. The Department of Children, Youth andFamilies has lost three human resources man-agement positions without replacing them.There is one maintenance worker for every 75state bridges, which Namvar Moghadam, theadministrator for highway and bridge main-tenance, admits “isn’t a whole lot.”

At the same time, there are issues over theuse of contract workers to keep staffing lev-els down. An $11 million-a-year no-bid con-tract for temporary staff services created abattle in the legislature in 2007 and high-lighted just how difficult workforce choiceswill be in heavily unionized Rhode Island. Inthis case, the state paid a salary premium ofmore than 22 percent to a staffing companyrather than take on full-time employees withexpensive health benefits and pensions.

Moreover, without state or agency strate-

gic plans—much less workforce planning—it will be difficult to link personnel reductionsto management goals. In order to set thingsright, the state will need better human-capi-tal planning than it currently has.

The state has performance measuresbut they do not drive budgeting or manage-ment decisions. Technology should be help-ing the state get a handle on expendituresbut it usually doesn’t. Rhode Island tried tocreate an integrated financial informationsystem in 2002. Because of a lack of re-sources, however, it was never fully imple-mented. Several modules of a new enter-prise system were launched in 2006, givingmanagers a better handle on financial data.But until the personnel and payroll modulescome on line, the state still will need to pe-riodically reconcile files from the old main-frame—a chore that in some cases requiresone office to fill out a form using a typewriterand send it to another office for entry.

One bright spot in Rhode Island hasbeen the consolidation of building man-agement. Agencies dedicated to capital proj-ects and facilities management now coordi-nate buildings statewide, a leap forward in astate that until recently didn’t even have acomplete inventory of fixed assets. Unfor-tunately, inadequate funding stifles neces-sary upkeep; most facilities are well pasttheir life expectancy by the time the statecomes up with money for repairs or re-placement. The same holds true for trans-portation infrastructure: One-fifth of RhodeIsland’s National Highway System bridgesare structurally deficient, by far the highestproportion in the nation.

Amid all its cuts, the state has added atleast one important position, filling the di-rectorship of the new Department of Rev-enue—a long-overdue position in a high-taxstate with numerous tax expenditures. AnOffice of Tax Research and Analysis, nowhoused within the Department of Revenue,had been created in 2005, but hasn’t beenfully utilized until now—a situation em-blematic of Rhode Island’s all-too-frequenthand-to-mouth approach to the future.



Money D+

Long-Term Outlook l

Budget Process l




People D


Hiring l




Infrastructure C+

Capital Planning l


Maintenance l



Information C






Population (rank): 1,067,610 (43)Average per capita income (rank):$25,937 (17)Total state spending (rank):$6,955,860,000 (42)Spending per capita (rank):$6,515 (8)Governor: Don Carcieri (R)First elected: 11/2002Senate: 38 members: 33 D, 5 RTerm Limits: NoneHouse: 75 members: 61 D, 13 R, 1 VacantTerm Limits: None

C-

Consolidation of building management is a bright spot, butinadequate funding stifles upkeep.




South CarolinaThe first thing to know about South Car-olina government is that the governor can’tdo much without the legislature’s coopera-tion; he doesn’t even have direct controlover many of the executive agencies. Thesecond thing to know is that, especially inrecent years, the governor, House and Sen-ate have disagreed about virtually every-thing. The Budget & Control Board—thestate government’s administrative policy-setting body—has been mired in a morassof disputes involving its five leading play-ers: the governor, the treasurer, the comp-troller, and the chairs of the House andSenate money committees. Oft-changingalliances and misalliances inevitably deter-mine state policy.

Take the Department of Transporta-tion. A battle among the House, Senateand governor for control of the woefullyunderfunded DOT forced the 2007 legis-lature to hold a special session. All sideswanted reform—an audit of the depart-ment had revealed poor contract and fi-nancial management. But no decision wasever made. In fact, the result of the sessionwas a hapless arrangement that created anew position, appointed by the governor, toreform the department, but left the leg-islatively appointed commission to selectprojects. The combination, as one DOTemployee puts it, hangs a sword of Damo-cles over the department. Much-neededmaintenance money for dilapidated high-ways will have to wait until some futuredate when the state stops treating the DOTlike a political football.

Where politics isn’t in the way, SouthCarolina does many things right. The Of-fice of Human Resources provides soundhuman-capital planning, girded by tech-nological tools such as e-recruitment ande-learning; director Sam Wilkins’ weeklypodcasts serve human resources staff atthe various agencies an easily digestiblebite of state and national issues affectingHR policies.

Even though the state is cash-strapped,it offers incentives to high-performing em-ployees. For example, the Department ofNatural Resources rewards groups thatcomplete difficult tasks with exhilerating

temporary missions, such as alligator-cap-ture trips. Unfortunately, even such smartassistance cannot compensate for the prob-lems in more challenged agencies—be-tween voluntary departures and termina-tions, the Department of Corrections re-tains only 20 percent of its new hires afterthe first year.

On the information-technology front,South Carolina implemented the firstwave of a new enterprise resource plan-ning system successfully. A challenge forany state, the ERP was doubly difficult forSouth Carolina because the state made thetough decision to switch consultant-con-tractors midway through the $62 millionproject. The chief information officer andcomptroller risked failure in order to getthe job done right, but close oversight bya committee of 19 different agency stake-holders and a dedicated team of state em-ployees has seen the adjustment throughwithout a stumble.

South Carolina government is generallyquite good at producing information; it’snot always so good at using it. Each year, aCapital Budgeting Unit reviews every cap-ital-improvement request from state agen-cies, evaluates them according to 15 criteriaranging from safety concerns to fundingavailability—and then places the evalua-tions in a file cabinet. Ostensibly they are tobe employed later to prioritize the state’sbuilding plans, but most of the time theyaren’t employed at all. Neither the budgetoffice nor the legislature asks for the scores,and so they are an exercise in wasted time,effort and data.

This is unfortunate in a state that pro-duces a great deal of worthwhile cost andperformance information, including ac-countability reports that review agencyobjectives and results, and forward-look-ing activity inventories that link agencygoals to the budget. Some of these num-bers aid in decision making, but too manyare forgotten once they run into the twinmeat-grinders of bureaucracy and poli-tics as usual.



Money B-

Long-Term Outlook l

Budget Process l




People A-


Hiring l




Infrastructure C-

Capital Planning l


Maintenance l



Information B-






Population (rank): 4,321,249 (24)Average per capita income (rank):$21,875 (39)Total state spending (rank):$23,430,743,000 (23)Spending per capita (rank): $5,422 (21)Governor: Mark Sanford (R)First elected: 11/2002Senate: 46 members: 19 D, 27 RTerm Limits: NoneHouse: 124 members: 51 D, 73 RTerm Limits: None

B-




South DakotaSouth Dakota has never shown much in-terest in long-term planning or performancemeasurement. Quite a few other states arein a similar boat, but many of them make upfor it, at least in part, by using specializedagencies or departments to do performanceaudits and evaluations. This effort is non-ex-istent in South Dakota and has little chanceof developing.

Leaders here don’t think this is much ofa problem. They argue that this small ruralstate doesn’t need the same kind of man-agement expertise that bigger states do.“It’s easier to feel the pulse” of programsand the staff that run them in South

Dakota, says Auditor General Martin Guin-don. He adds that the kind of expertisenecessary to do top-flight performance au-diting just can’t be found in South Dakota’stiny capital, Pierre. The fact is, though, thatseveral small states do manage to practicesolid performance measurement, andthere’s a case to be made that even thesmallest can benefit from at least a mod-icum of introspection.

Still, it’s undeniably true that many ofSouth Dakota’s governmental functions runsmoothly. That’s certainly the case when itcomes to finance. The state has one of thebest-funded pension systems in the country,maintains low debt loads and has a budgetcomfortably in structural balance. With oneof the broadest sales taxes in the country—one that includes many services—and aheavy inflow of federal dollars for agricul-ture, the revenue base is extremely strong.“We don’t have the huge bumps up or downwhen income tax is hot or when the econ-omy goes in the can,” says James Fry, direc-tor of the Legislative Research Council.

Given that kind of stability, it mightseem that the state wouldn’t need a large

reserve fund. But it has one. South Dakotahas nearly $1 billion in the bank to back upa total budget of only $3.5 billion. Accord-ing to Fred Schoenfeld, chief fiscal analystfor the Legislative Research Council, thatcushion isn’t intended for temporarydownturns, as in many other states.Rather, it’s for major emergencies, such asnatural disasters.

Of course, like all states, South Dakotadoes run into financial trouble now andthen. In fiscal 2007, the federal govern-ment blew an $11 million hole in thebudget by requiring the state to boost theportion of Medicaid payments it had tomake. “That’s a big number for SouthDakota,” says Fry.

South Dakota also is taking steps to im-prove its procurement practices. It’s insti-tuted a new e-procurement system, com-plete with an online catalog, which saves thestate and its vendors money and time. “Wehope to pretty much eliminate paper fromthe process,” says Jeff Holden, director ofthe Office of Procurement Management.

If there’s one area that cries out forlong-term planning, it’s transportation. Al-though the state has an efficient system totrack routine maintenance needs, most ofits interstate highways were built in the1960s and need new pavement. The statehas $756 million in deferred-maintenanceand construction needs. With rising con-struction costs tightening the transporta-tion department’s budget, the mainte-nance-and-construction backlog isn’t likelyto decline anytime soon.

Another bill that may be coming due hasto do with the schools. A 2006 lawsuitbrought by a coalition of parents in 59 schooldistricts charged that the state’s educationsystem was underfunded. South Dakotateachers are the lowest-paid in the nation.

“If we get whacked with a major judg-ment” in the school case, Fry concedes, itmight cause the state to rethink the way ituses its reserve funds. And that’s why evensome South Dakotans now think that it’stime for long-range planning.



Money B+

Long-Term Outlook l

Budget Process l




People C+


Hiring l




Infrastructure B

Capital Planning l


Maintenance l



Information D+






Population (rank): 781,919 (46)Average per capita income (rank):$22,066 (38)Total state spending (rank):$3,465,272,000 (50)Spending per capita (rank):$4,432 (38)Governor: Mike Rounds (R)First elected: 11/2002Senate: 35 members: 15 D, 20 RTerm limits: 8 years (consecutive)House: 70 members: 20 D, 50 RTerm limits: 8 years (consecutive)

C+

With rising materialscosts, the backlog inmaintenance andconstruction isn’t likelyto decline anytime soon.




TennesseeFor more than half a century, Tennessee’slegislative and executive branches havegiven the state’s Comptroller of the Treasurya growing range of tasks that they didn’thave faith in each other to handle. These du-ties extended well beyond the normal reachof that office. In particular, they empowereda man named William Snodgrass, who heldthe position for 44 years before retiring in1999. “They trusted him to help bring orderout of the chaos,” Comptroller John Morgansays of his predecessor.

As it turns out, this was quite a smartmove. Despite a heavy workload that in-cludes property assessment, debt manage-ment and policy analysis, the Tennessee

comptroller’s office manages to do a betterjob of both performance auditing and fi-nancial reporting than can be found in al-most any other state. The office generatesconsistently clean and timely reports, andmonitors federal grants with meticulouscare. And at least once every eight years, itperforms a “sunset review” of every agency,board and commission to help determinewhether the body should be abolished, re-structured or continued.

The one function William Snodgrassalways wanted to take on, but was unable to,is centralized statewide planning. Programoperations are highly fragmented. Whenthe state wants to deal with issues of the eld-erly, for example, the lack of a central plan-ning office prevents a clear look acrossagency lines to leverage the various effortson which money is being spent.

There used to be a planning office—created decades ago in order to draw downfederal funds—but it went out of favor, andthen out of existence. Now, the state is try-ing to establish some planning capacitywith an entity called the Office of Consult-ing Services. But skeptics doubt that thiswill be enough to transform a deeply seg-mented culture.

Agencies do submit five-year strategicplans with their annual budget requests, andthese are sent on to the legislature. This is agood idea, but the legislators rarely pay muchattention to the plans or the performancemetrics they include. Part of the problem isthat the measures themselves aren’t alwaysuseful. Many of the numbers don’t relate toactual results. “The challenge here is findingperformance measures that are truly sum-marizing and meaningful,” says Finance &Administration Commissioner Dave Goetz.

Tennessee’s consumption-based rev-enue structure grows at a slower rate thanthe rest of the economy, forcing painful taxincreases more frequently than would benecessary with a more balanced system.Still, the state does try to take a long viewwhen it comes to managing finances. An in-dependent fiscal-review committee projectsthe budgetary impact of new legislation.Newly enacted bills are required to containat least a year’s funding in order to becomelaw. And the state’s pension system isamong the best funded in the country.

When it comes to managing human cap-ital, the picture isn’t so pretty. Tennessee’spersonnel process still operates on an anti-quated register system that agency man-agers find painful to use. They’re required bystatute to hire from among the top five peo-ple who say they’re interested in a position,leaving little incentive to invest in recruitingstrategies. “You spend a lot of time trying torecruit people and then you can’t hire themanyway,” complains William Haynes,human resources director in the Depart-ment of Children’s Services.

Tennessee’s personnel system also hasbeen plagued by hiring delays, createdmainly by the large number of applicantsflowing through the central HR office. Ittakes 15 to 21 days just to certify the appli-cants and get them on the registers. But anonline application process is beginning tospeed up hiring. Instead of accepting ap-plications for all jobs at all times, the statenow restricts continuous recruitment to alimited number of key classifications.



Money B-

Long-Term Outlook l

Budget Process l




People C


Hiring l




Infrastructure B

Capital Planning l


Maintenance l



Information B






Population (rank): 6,038,803 (17)Average per capita income (rank):$22,074 (37)Total state spending (rank):$23,967,779,000 (22)Spending per capita (rank): $3,969 (48)Governor: Phil Bredesen (D)First elected: 11/2002Senate: 33 members: 16 D, 16 R, 1 ITerm Limits: NoneHouse: 99 members: 53 D, 46 RTerm Limits: None

B-

Tennessee’s antiquatedhiring process can bepainful for managers.




TexasTexas has a long history of effective per-formance-based management, but a fewyears ago, that tradition seemed to be injeopardy. Governor Rick Perry had clearlydemonstrated his distaste for performancebudgeting, and turnover in the House andSenate had meant the loss of many legisla-tive champions of the effort.

But in a state where the governor has rel-atively little formal power, established man-agement practices proved stronger thanthe governor’s skepticism. There are nu-merous examples of this—a vivid one hasto do with the recent decision to shift moneyaway from building more prisons andspend more of it on rehabilitative programsfor inmates.

As last year’s budget deliberations began,Texas was looking at a 17,000-bed shortageof prison space over the next five years. Todeal with that problem, the Department ofCriminal Justice submitted a $520 millionproposal for three new prisons, as well as

modest support for drug treatment in orderto cut down on recidivism.

But the legislature, bolstered by a reportfrom the Sunset Advisory Commission—alegislative entity that assesses the effective-ness and efficiency of Texas’ agencies—crafted an alternative plan to invest morefunds in programs with a track record of re-ducing recidivism. This biennium, those ef-forts are getting $240 million. Current pro-jections for prison population show zerogrowth over the next five years.

Is this kind of work now part of thestate’s permanent governmental culture—impervious to changes in leadership?That’s hard to know. But the state’s budgetprocess leaves legislators with the tools theyneed to focus on performance. Five-yearstrategic plans for each agency—goals, ob-jectives, strategies, performance measures

and workforce plans—are made available toall legislators during the session. Reliable,audited performance measures and targetsfor future performance also are attached toall appropriations requests.

The budget always passes on time, de-spite the short, 140-day legislative sessionsonce every two years. The state’s conserva-tive revenue-estimating processes have re-sulted in sizable surpluses in recent years,although a 2006 decision to pick up moreof the tab for school finance is putting con-siderable strain on the state’s general fund.Texas will get a better sense of its fiscal out-look this spring, when receipts from a newbusiness tax—expected to bring in $3 billionmore than the tax it replaced—will come infor the first time.

The Texas Department of Transporta-tion is strapped for cash, but has demon-strated a commitment to maintaining thecondition of its existing assets even whenit’s meant putting off more glamorous proj-ects. The executive director of the depart-ment, Amadeo Saenz, has increased itsfocus on strategic planning and perform-ance management. He also has begun talk-ing frankly to employees about his visionfor the agency in periodic video messagesposted on the TxDOT intranet.

This is an important time for theagency to communicate its message to thegeneral public, because there is wide-spread unease in the state about toll roadsand joint public-private highway financ-ing mechanisms. The Trans-Texas Corri-dor is especially controversial. It’s a north-south super-highway that’s beingplanned to incorporate truck lanes andrail lines. The public got the impressionthat TxDOT had made up its mind aboutwhat to build and where to build it, andwas allowing input only as a formalityduring hearings. “That really gave us ablack eye,” admits Saenz. Now, TxDOT fi-nally is allowing Texans to engage it in aconversation about the project, with a setof informal town hall meetings thatkicked off in January.

For additional data and analysis, go to:


Money B

Long-Term Outlook l

Budget Process l




People B


Hiring l




Infrastructure B

Capital Planning l


Maintenance l



Information A-






Population (rank): 23,507,783 (2)Average per capita income (rank):$22,501 (36)Total state spending (rank):$85,513,928,000 (3)Spending per capita (rank):$3,638 (50)Governor: Rick Perry (R)Took office: 12/2000Senate: 31 members: 11 D, 20 RTerm Limits: NoneHouse: 150 members: 71 D, 79 RTerm Limits: None

B+

Texas’ budget processleaves legislators withthe tools they need tofocus on performance.





UtahWhen John Nixon talks to audiencesaround the state of Utah, he says thingssuch as, “Thank you for investing in my or-ganization.” That wouldn’t be remarkable ifhe were a venture capitalist or a corporateCEO. What makes it notable is that he hap-pens to be the director of the Governor’s Of-fice of Planning and Budget. But that’show public managers often talk in Utah:They act as if they have hundreds of thou-sands of cheerleaders all the way from SaltLake City to Blanding, people who reallywould want to invest in something as mun-dane as a budget office.

Then again, there’s a lot to cheer about.Utah manages itself with savvy businessacumen. Financial decisions are madewisely, with an eye toward return on invest-ment and long-term performance in allfacets of state government. True, it may besomewhat easier to manage in a state that isoverwhelmingly controlled by one party, asUtah is by the Republicans. But the level ofcoordination between the governor’s office

and the legislature goes beyond party loyalty.The two branches are tied into the same fi-nancial system, for example. Both can trackstate expenditures in real time. This doesn’tmean the branches always agree. But whenthey disagree, they’re using the same well-re-searched, carefully organized data.

Perhaps because they share informa-tion well, Utah’s decision makers can takesome pretty decisive measures. Utah begancalculating the long-term liability for itsemployees’ post-retirement health care—and putting money aside for it—at a timewhen other states were still blithely ignor-ing the growing bill. Similarly, when con-fronted with the challenges of a boomingpopulation and growing transportationneeds, Utah authorized bonding $1 billionfor a Critical Highway Needs Fund.

Strong information-sharing would befruitless if it didn’t lead to better implemen-

tation of services. Staffs from the human re-sources and technology departments areembedded in each state agency, helping tolink resource support to agency goals andalign the incentives for all stakeholders.Chief Information Officer J. StephenFletcher likes to make the point that hisagency can’t really be considered successfulunless all the agencies are successful.

The integrated Utah management sys-tem is not only good at helping the depart-ments do their work—it’s good at spottingproblems and dealing with them. Recently,a performance audit turned up hints of fa-voritism among managers in the Depart-ment of Corrections. That wasn’t goodnews, but it showed that Utah had the toolsin place to uncover the situation. In manystates, the top executive leadership wouldn’teven have known the problem existed.

Similarly, Utah has a good idea of whatits infrastructure requires in the way ofmaintenance. And unlike most states, Utahactually budgets for it each year, to the tuneof 1.1 percent of the total replacement valueof state-owned buildings. Still, the dollarsare short. Last year, Utah stopped trackingdeferred maintenance on non-essentialbuilding decorations such as fresh paintand carpets—the list of big-ticket needshad become so long that it no longer madesense to tabulate the rest.

There are a few challenges on the per-sonnel front. A hot economy has led to a“war for talent,” says Jeff Herring, thehuman resources director. The state takesthis battle seriously, offering its new em-ployees good benefits as well as discre-tionary bonuses and raises as rewards foraccomplishment. The reorganized Depart-ment of Human Resources Managementhopes to improve the connection betweenindividual and agency goals via a new indi-vidual Utah Performance Managementevaluation process. They’ll need to do this—and to evaluate every employee on a moreregular basis—if they hope to take full ad-vantage of the young talent willing to un-dertake careers in state government.



Money A

Long-Term Outlook l

Budget Process l




People B+


Hiring l




Infrastructure A

Capital Planning l


Maintenance l



Information A






Population (rank): 2,550,063 (34) Average per capita income (rank):$21,016 (43) Total state spending (rank):$12,044,631,000 (35)Spending per capita (rank): $4,723 (32) Governor: Jon Huntsman Jr. (R)First elected: 11/2004Senate: 29 members: 8 D, 21 RTerm Limits: NoneHouse: 75 members: 20 D, 55 RTerm Limits: None

A-



Utah knows its maintenance needs—and budgets for them.

VermontVermont is a national leader in handlingsmall discrete issues and huge global ones.It’s one of a handful of states, for example,that takes enough interest in foster childrento deal with the problems they have gettingdriver’s licenses (they often move too fre-quently to complete driver’s ed). While it iscoping humanely with this and similarsmall-scale challenges, the state govern-ment is focused intensely on the mega-issueof climate change and what to do about it.

It’s in that in-between territory that the

state tends to fall short. The present health-coverage crunch is typical. Vermont’s ag-gressive Catamount health plan uses Med-icaid dollars to cover people with incomesthree times higher than the poverty rate—well above the federal reimbursement limit.A laudable goal? Perhaps. But without fed-eral dollars covering that gap, Vermont’sbudget has a $22 million Medicaid shortfallto deal with next year.

Medicaid is competing with a host ofother outstretched hands. In order to fundbenefit obligations to its retired employees,for instance, the state will have to double the$25 million it currently puts into pensions.And expenditures for education and cor-rections are growing faster than revenues.Can taxes be raised? Unlikely. Vermont al-ready has one of the highest per capita taxstructures in the nation.

Solutions aren’t going to appear overnight.Unfortunately, the state is short on formallong-range strategic thinking. “Vermont ishandicapped because it doesn’t have a plan-ning tool,” says Lisa Ventriss, president of theVermont Business Roundtable. Exacerbatingthe situation is the fact that biennial electionstend to push leaders to a short-term horizon.This plight used to be compounded by unionnegotiations that coincided with election

years. But at least that problem has beeneased this year by alternating the two cycles.

A state that’s well-enough managed toconsider the problems of its foster chil-dren ought to be able to develop a strategicplan focusing on five- to 10-year outcomes.A couple of years back, it looked likeprogress was being made on this frontwhen Vermont leaders kicked off their so-called Strategic Enterprise Initiative. Buteven though each agency drew up goals,these were never compiled into a state plan,and most of the agency goals have beentabled or delayed. The original initiativehas been pared down to the smaller goal ofreducing the state workforce by 400 em-ployees over the next two years. But the stateshows little evidence that it has a plan evenfor accomplishing this.

Vermont maintains its buildings, roadsand bridges as well as any state, but eventhe infrastructure management is taintedby an inability to plan. Most years, agencybudget requests are simply rolled into acapital-plan master list. This year, the man-ager who usually compiles the list wastemporarily reassigned to a different de-partment and no master list was compiledat all. The dearth of talent at the top meansthat planning in one area requires a gameof musical chairs in another.

The rub is that Vermont’s poor plan-ning puts kinks in the things it does well—especially when it comes to informationtechnology. The “Screen Door” online serv-ice-eligibility portal is a one-stop shop for cit-izens trying to determine what form of stateassistance best suits them. It looks elegant tooutsiders, but old mainframes support theback end. And for all the good things Ver-mont does in child welfare, it does themwithout the benefit of 21st-century technol-ogy. The old information system for youthservices is obsolete. When a parent has chil-dren with more than one partner, for exam-ple, the system requires a workaround toconnect the children to the parents, makingit that much harder for case workers to craftsolutions for those who need the help.



Money B-

Long-Term Outlook l

Budget Process l




People C+


Hiring l




Infrastructure B+

Capital Planning l


Maintenance l



Information C-






Population (rank): 623,908 (49)Average per capita income (rank):$25,016 (19)Total state spending (rank):$4,647,719,000 (47)Spending per capita (rank): $7,449 (4)Governor: James Douglas (R)First elected: 11/2002Senate: 30 members: 23 D, 7 RTerm Limits: NoneHouse: 150 members: 93 D, 49 R, 8 ITerm Limits: None

B-



Vermont does manygood deeds, but oftenwithout the benefit ofusing 21st-centuryinformation technology.


VirginiaThe trick to making performance meas-urement work is to avoid the temptation toconvert it into simple formulas. Managinga state is just too complicated to yield to one-size-fits-all equations.

And that’s what makes Virginia’s ef-forts in this field so impressive: The stateavoids formulas and focuses on the harderwork of asking why goals and targets aren’tbeing met, then seeks to address the un-derlying problems. Virginia Performs, thestate’s performance-accountability system,tracks measurable societal outcomes aswell as the agency goals and managementbenchmarks that will help achieve them.

Firm knowledge of what works and whatdoesn’t makes a difference with budget offi-

cers and agency managers—especially whenthey face reductions in revenue such as the$980 million shortfall Virginia confronts in2008. Good performance data can make oth-erwise clumsy cuts more precise and ensurethat reductions don’t frustrate state goals.

Virginia proves that tracking data—andholding employees accountable for out-comes—can work wondrous efficiencies.Five years ago, a mere 27 percent of De-partment of Transportation projects werecompleted on time. Thanks to the VDOTDashboard, which tracks performance out-comes in seven key areas of transportationmanagement, including construction, 87percent of projects now come in on time.

Virginia Performs and the VDOT Dash-board aren’t the state’s only all-access in-formation repositories. CommonwealthDatapoint displays complete financial fig-ures and demographic statistics for the en-tire state, detailing where every penny camefrom, where it was spent and how mucheach locale gets back from Richmond. Thestate’s eVA procurement system is anotherbig cost-saver. In fact, eVA is the first stateprocurement system anywhere that inte-grates with that of the federal General Ser-

vices Administration, allowing Virginia toeasily access federal contract discounts.

Virginia’s information technology isn’tperfect. Its financial information system, forexample, isn’t “functionally rich,” accordingto Comptroller David Von Moll. But lackingthe money to buy a new system, the state ex-perimented in order to upgrade. A partner-ship with Northrop Grumman provided aninfusion of expertise and cash to replace thesystem without raising the overall IT budget.

In a state blessed with such abundantdata and careful planning, Virginia’s infra-structure management is playing catch-up.The governor and legislature currently arenegotiating formal prioritization criteriathat would guide the capital budget agenda.Whatever criteria they choose, an improvedassessment of the state’s maintenanceneeds will help the planning process. A2005 report from a task force on deferredmaintenance led to the implementation ofa Facility Inventory and Condition Assess-ment System, which still is gathering in-formation on more than 10,000 state build-ings. It would be better to have regular fullassessments of all state buildings—untilthis happens, the state won’t fully know theextent of its deferred maintenance.

Virginia has worked hard to improve itslong-term fiscal outlook over the past fewyears. It has enhanced tax administrationand compliance activities to speed the re-ceipt of tax revenue, with good results. Ithas made payments and even prepaymentsinto its mandatory Revenue StabilizationFund in order to have contingency funds inperiods of fiscal decline.

Still, the state has to scramble relentlesslyto attain structural balance. Virginia is con-stantly tweaking its revenue code—it hasmade tax changes in 15 of the past 20 years.Many of the adjustments have been made inan attempt to undo the lasting budget effectsof a poorly planned car-tax repeal and othertax cuts that were made just prior to the2001-02 recession. Virginia needs to con-tinue working on a thoughtful plan to main-tain structural balance in the future.



Money A-

Long-Term Outlook l

Budget Process l




People A


Hiring l




Infrastructure B+

Capital Planning l


Maintenance l



Information A






Population (rank): 7,642,884 (12) Average per capita income (rank):$29,899 (5) Total state spending (rank):$34,776,228,000 (13)Spending per capita (rank): $4,550 (36)Governor: Tim Kaine (D)First elected: 11/2005Senate: 40 members: 21 D, 19 RTerm Limits: NoneHouse: 100 members: 44 D, 54 R, 2 ITerm Limits: None

A-




Virginia has a good handle on what works and what doesn’t.

WashingtonWashington has been a consistent leader inresults-based governance. It was ahead ofnearly all other states in controlling spend-ing by keeping track of where investmentswere and were not paying off.

Under Governor Christine Gregoire,Washington’s government has, if anything,moved further ahead on this front. Upontaking office, Gregoire instituted a Gov-ernment Management Accountability andPerformance program, or GMAP, whichemphasizes periodic public forums dur-ing which key players on particular issuescome together to problem-solve and reportresults to the governor and her leadershipteam. Participants walk away with well-for-mulated plans, due dates—and often com-mitments from the governor in exchangefor vows for tangible improvements.

All of this has been helpful to Gregoirein negotiating with the legislature overmajor programs. “Everyone’s got pent-updemand,” says Wolfgang Opitz, deputy di-rector of the Office of Financial Manage-ment, “but she’s able to go to the legislatureand say ‘Here’s the payoff in clear terms.’”Meanwhile, the governor and other key staffare communicating results to the citizens ina more complete way than has been thecase in the past. The effort includes a regu-lar schedule of town hall meetings andworkshops that take place all over the state.

The GMAP mentality has filteredthroughout the bureaucracy and is beingput to good internal use by many agencies.Offices such as the Department of Person-nel are adapting the concept to meet theirparticular challenges. Statewide monitor-ing of human resources indicators, in-cluding time-to-hire and turnover, is beingused to make the state more competitive asan employer in a tight labor market. “Hav-ing that tool has been tremendous for me tolook across the board at where we are as anemployer,” says Eva Santos, director of theDepartment of Personnel.

In a six-month period, aggressivestatewide tracking of performance ap-praisals helped realize a 20 percent increasein the number of employees with up-to-dateevaluations. Many agencies used the data toidentify and root out sick-leave abuse. And

agencies that demonstrate a high level ofcompetency in managing employee per-formance now are allowed to use this infor-mation when making decisions about com-pensation or layoffs. The rigorous HumanResources Management ConfirmationProcess ensures that managers take em-ployee performance issues seriously beforelinking them to rewards.

Bottom line: No state in the nation is bet-ter at developing and sharing informationthan Washington. That doesn’t mean itisn’t trying to expand its definition of ex-cellence. A case in point is that the governoris pushing for more easily accessible fi-nancial data. “Even if I can figure out theright question to ask, I am all too often hav-ing them scramble to manually constructthe data,” she says.

Why? The state’s financial informationsystem has some flaws. It doesn’t allow foractivity-based accounting or costing, and inareas where relatively sophisticated dataare available, that data can’t always beshared seamlessly across the enterprise be-cause of the decentralized approach thestate takes to IT management. The state isslowly addressing these issues as it workstoward replacing its remaining legacy com-puter systems, but any additional speed inthis effort would be a boon. “If the ac-counting data were there, I could get themanalyzing instead of compiling and dis-secting,” says Opitz.

One financial challenge was addressed in2007 when the legislature approved a con-stitutionally based rainy day fund for the firsttime in the state’s history. The fund onlymandates that 1 percent of general fund rev-enues will be set aside—a relatively smallamount. But it’s still a significant step, be-cause despite an exemplary revenue-esti-mating process, Washington continues toface challenges matching revenues and ex-penditures. The two-thirds majority re-quired in the legislature to increase taxes hasmade it difficult for state leaders to raise thefunds necessary for balance at times whenrevenue dips.



Money A-

Long-Term Outlook l

Budget Process l




People A-


Hiring l




Infrastructure B+

Capital Planning l


Maintenance l



Information A






Population (rank): 6,395,798 (14)Average per capita income (rank):$27,346 (10)Total state spending (rank):$33,914,746,000 (14)Spending per capita (rank): $5,303 (24)Governor: Christine Gregoire (D)First elected: 11/2004Senate: 49 members: 32 D, 17 RTerm Limits: NoneHouse: 98 members: 63 D, 35 RTerm Limits: None

A-




West VirginiaSkeptics have long labeled West Virginia asa governmental lost cause. The coal indus-try has been in decline for decades—espe-cially when it comes to providing jobs—andwhile the economy suffered, a long series ofstate administrations saddled the treasurywith budget-busting pension bills. Thesehave had an obvious constituency: Thenumber of West Virginia residents aged 75and over has exploded in the past 30 years,at a time when the state’s birth rate was thelowest in the nation.

No one is predicting a full-scale economicrenaissance for West Virginia anytime soon.But there’s some reason to be hopeful. Coalprices have doubled since 2003, and largely

as a result of this, the state saw double-digitgrowth in revenues for fiscal 2005 and 2006.What’s especially encouraging is that thestate didn’t blow this extra cash on pork-bar-rel extravagance. One of the first things it didwas to address its pension woes.

The Teachers Retirement System was byfar the worst problem. Many years of inade-quate funding had left it with an unfunded li-ability of nearly $5 billion. “Teachers were get-ting out of teaching because they were unsureof retirement,” says state Budget DirectorMike McKown. But since the pension’s lowpoint in 2005, the state has been pouringmoney into the system, including $673 mil-lion this year. That doesn’t mean that TRSisn’t still a big problem. The state will need tospend about $289 million per year until 2034just to fund teacher retirement.

West Virginia also is gradually movingback from the brink in workers’ compen-sation. For years, the state-run and state-owned system deteriorated, and it reachednear-bankruptcy by 2003. Two years ago,however, West Virginia turned to a privateinsurance company to operate the system.At the same time, it dedicated a severancetax worth more than $90 million each yearto workers’ compensation. West Virginia

still has about $2 billion in unfunded work-ers’ comp liabilities, but by 2016, McKowninsists, “this debt will be retired.”

While pensions and workers’ comp rep-resent clear areas of progress, many of thestate’s long-standing management prob-lems remain. West Virginia has never donemuch long-range planning and needs tobegin addressing this. In the coming years,agencies are going to be hit with a hugenumber of retirements, but little work hasbeen done toward evolving a strategy tocope with the departures.

The failure to plan applies equally to trans-portation. The Department of Transportationgets no money from the state’s general rev-enue fund; it is funded largely by a state fueltax. A small increase in that tax several yearsago contained a sunset provision, and theDOT has had to fight just to get it renewed.

The state’s roads and bridges have been sobadly neglected that transportation officialsdon’t even try very hard to put a dollar figureon maintenance needs. “We’re not going toget the dollars,” says Alice Taylor, the DOT’sbudget director, “so why spend precious stafftime on calculating deferred maintenance?”

Even in this field, however there aresmall signs of improvement. This year,West Virginia will activate a new pavement-management system, and it is in the processof hiring a contractor to begin collecting dataon the many thousands of miles of high-ways. (West Virginia, unlike most states, hasresponsibility for all of its roads, save citystreets.) Officials say it should be ready to goby this spring, and then the department atleast will have information at its disposal onsuch details as the number of cracks or pot-holes in a given mile.

One last piece of good news: The state’senergy-fueled economic gains haven’t in-duced any misplaced euphoria among itsleaders. They point out that the price of coalin futures markets has been sinking. Tohelp prepare, they have stocked their rainyday fund at 15 percent of average generalfund revenues, making it one of thestrongest in the nation.



Money B

Long-Term Outlook l

Budget Process l




People C


Hiring l




Infrastructure C-

Capital Planning l


Maintenance l



Information C






Population (rank): 1,818,470 (37)Average per capita income (rank):$19,417 (49)Total state spending (rank):$9,791,417,000 (37)Spending per capita (rank): $5,384 (23)Governor: Joe Manchin III (D)First elected: 11/2004Senate: 34 members: 23 D, 11 RTerm Limits: NoneHouse: 100 members: 72 D, 28 RTerm Limits: None

C+




West Virginia has neverdone much in the way of long-range planning.

WisconsinThis isn’t a fun time to be a state employeein Wisconsin. Hiring freezes, ongoingbudget disputes and a lagging pay scalehelp explain why Wisconsin has the second-highest turnover rate in the country for vet-eran employees. The personnel situationeven sounds a little Kafkaesque when youhear the story of Georgia Thompson.

A well-respected state procurement su-pervisor protected by civil-service rules, shewas briefly jailed in 2006 in a politically mo-tivated prosecution. An appellate courtthrew the case out in an afternoon, but theepisode didn’t do much to help overall em-ployee morale. “Every single person in thestate’s civil service is saying, ‘There but forthe grace of God go I,’ ” says Mordecai Lee,a professor of governmental affairs at theUniversity of Wisconsin-Milwaukee.“‘Somebody somewhere is going to distortthe decisions that I make and I’m going tobe in the same position as her.’”

While Governor Jim Doyle’s Account-ability, Consolidation and Efficiency Initiativehas led to some improvements in the state’scontracting processes, this, too, has been asource of considerable tension for state em-ployees. “The state is contracting out for allsorts of things without monitoring them suf-ficiently,” complains one recent high-levelDepartment of Revenue retiree. “The statewas willing to spend money on outside ‘ex-perts’ but wouldn’t spend the money neces-sary to retain the qualified personnel neededto run its agencies and programs.”

Intricate cost-benefit analyses are now re-quired before contracting out for state activ-ities, but agency managers complain thattheir inability to hire additional personnelmakes the difficult-to-produce findings ir-relevant. Last year’s hiring freeze meantthat for a period of time one of the state’slargest agencies, the Department of Healthand Family Services, was lacking a procure-ment chief. Turnover in the Department ofCorrections, another of the state’s largestcustomers for goods and services, has led tothe loss of its delegated purchasing author-ity—and the flexibility that came with it.Now, just about everything the CorrectionsDepartment buys must be cleared by thestate’s central purchasing office.

The irony is that Wisconsin is widely ac-knowledged to have a high-quality work-force. Its challenge will be to iron out someof the current problems before too muchlasting damage takes place.

Wisconsin has been struggling with astructural budget deficit for years—the stateended fiscal 2007 with a $2.44 billion gen-eral-fund deficit. On the other hand, thestate’s handling of infrastructure is gettingbetter. Although Wisconsin’s backlog forgeneral infrastructure maintenance is $1.2billion, a pretty big number, the state hasbeen spending a growing amount on iteach year—enough to keep the figure fromgetting any larger. The backlog for roadsand bridges is now down to $69 million.Both the Department of Transportationand the Department of Administrationseem to have a solid grasp of their needs,aided by sophisticated asset-managementcomputer systems.

Unfortunately, this kind of planningfor the future hasn’t been commonplace inmost other facets of management. Someagencies engage in efforts at strategic plan-ning but the central government hasn’tjoined the party. “Policy making by crossingtheir fingers is the best way to explain whatlong-term planning means in Wisconsin,”says Professor Lee, a former state legislatorhimself. Agencies monitor and report onperformance internally to varying degrees,and performance measures play a smallrole in the state’s budget process.

Wisconsin’s Legislative Audit Bureau re-mains among the most important and cred-ible audit shops in the country. Not only hasthe office proved itself willing to go after thehot-button news items of the day, it hasmanaged to direct the legislature’s attentionto crucial management deficiencies.Spurring legislative action in these areas is nosmall feat, especially in long-neglected sec-tors such as information technology. And allof the bureau’s findings are more accessiblethese days thanks to new, tech-savvy meansof communicating findings to citizens, in-cluding podcasts, webcasts and RSS feeds.



Money C+

Long-Term Outlook l

Budget Process l




People B-


Hiring l




Infrastructure B-

Capital Planning l


Maintenance l



Information C+






Population (rank): 5,556,506 (20)Average per capita income (rank):$24,875 (20)Total state spending (rank):$30,125,092,000 (16)Spending per capita (rank): $5,422 (22)Governor: Jim Doyle (D)First elected: 11/2002Senate: 33 members: 18 D, 15 RTerm Limits: NoneHouse: 99 members: 47 D, 52 RTerm Limits: None

B-




Wyoming“It is a fantastic time to be in Wyoming,” de-clares Nancy Thomson, deputy director ofplanning and operations for Wyoming’sSchool Facilities Commission. Thomsonhas good reason to crow. The state is awashin mineral revenues, and has used them toinvest in every public school. Once theschools are upgraded, the state will turnthem over to school districts—but will con-tinue to fund their maintenance. “Wyomingis in a position—thankfully—that we can dothis,” Thomson stresses, “but we certainlydon’t want to be in a position in 30 years thatour buildings are no longer suitable and wehave to replace them again.”

Maintenance has been a perennial prob-lem in Wyoming, not just for schools butfor other infrastructure, as well. Just a few

years ago, more than one-third of stateroads were rated as being in less than“good” condition. Today, it’s even worse;closer to half are at that level. An infusionof $175 million in 2007 helped, and a re-quest for an additional $200 million is giv-ing the Department of Transportation hopethat it will be able to make some progress.

Regardless of its legacy of weak main-tenance, WYDOT is the crown jewel ofWyoming management. In three years, aproactive strategy has cut the average timefor correcting construction problems frommonths to weeks. Rather than waiting formanagers to spot issues in monthly re-views, front-line workers notify superiors oflarge and small deviations immediately. Anew computer system combines finances,pavement management and enhanced ge-ographic-information capacity.

Wyoming’s strategic plan isn’t a page-turner—in fact, it’s only one page long. Butthe performance measures in its Results-Based Accountability model influence budg-eting decisions. Not long ago, the Depart-ment of Corrections asked for 150 “excep-tions” to the standard budget, tying each oneof these requests to a performance measure.

For example, it cited its alarming staffturnover rate—one-quarter of the positionschange hands each year and one-third aresometimes vacant at a given moment—tosecure extra money for recruitment.

If a recent upgrade in the online finan-cial system is any indication, Wyoming’snew IT governance model is working. Thesystem improves the security, efficiency andspeed with which 200 entities in the threebranches of state government can controltheir finances and payments. “It ain’t yourgrandpa’s state government,” boasts Audi-tor Rita Meyer. Some of grandpa’s regula-tory remnants persist, however. The pro-curement office, for instance, struggles witha complicated rule that favors local productsand services but may cost more to calculatethan any value it brings.

Besides, it hardly seems that Wyomingneeds much more home-state business.Already, competition with the private sectorfor labor is hindering its ability to fulfill coreservices—particularly in less-populous ju-risdictions. The Department of Family Ser-vices, for instance, would like to shift per-sonnel to some of the energy-boom towns,but can’t transfer them because that wouldmean removing the sole staffer in a ruralcounty. And the Department of Correc-tions simply can’t offer entry-level jobs com-petitive with ones in the energy industry.

Wyoming’s small population and strongeconomy create inevitable challenges forthe Human Resources Division. While theHR agency is determined to be more help-ful to other state agencies, the governmentas a whole badly needs improved human-capital planning and coordinated training.Wyoming’s leaders are far from having aclear strategy to fill jobs in ways that aretimely and fair.

Wyoming would be vulnerable to a dras-tic drop in mineral prices, but interest fromthe $3.3 billion Permanent Mineral TrustFund and a habit of socking away budget sur-pluses in “coffee cans,” as the state’s contin-gency funds and trusts are affectionatelycalled, give the state a tightly knit safety net.



Money B

Long-Term Outlook l

Budget Process l




People C-


Hiring l




Infrastructure B

Capital Planning l


Maintenance l



Information C+






Population (rank): 515,004 (50)Average per capita income (rank):$24,544 (22)Total state spending (rank):$4,011,496,000 (48)Spending per capita (rank): $7,789 (2)Governor: Dave Freudenthal (D)First elected: 11/2002Senate: 30 members: 7 D, 23 RTerm Limits: NoneHouse: 60 members: 17 D, 43 RTerm Limits: None

B-




A small population andstrong economy createstaffing challenges.

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