Thursday, March 20, 2003


Governor Phil Bredesen puts the brakes on state spending Ð big-time.

Posted By on Thu, Mar 20, 2003 at 4:00 AM

A NEW BALL GAME Tennessee’s new governor, former Nashville mayor Phil Bredesen, was careful during his campaign last year against Republican Van Hilleary not to promise anything but a determination to “manage” the state’s difficult financial predicament. How much worse it was than he foresaw became obvious, he says, shortly after his inauguration in January, when budget shortages amounting to half a billion dollars turned up. This was despite the passage last year -- during the waning days of the administration of Republican Governor Don Sundquist, an income-tax advocate -- of a sales tax increase, designed to net a billion dollars, presumably enough to catch the state up with its obligations. What Democrat Bredesen did, after a series of highly public meetings with his cabinet, was decree a 9 percent across-the-board cut in state spending -- excepting only TennCare and K-12 education and a few like programs and including the heretofore sacrosanct state roadbuilding funds and the state-shared funds normally returned to local governments, themselves needy. So far at least, Bredesen is enjoying a honeymoon with the legislature -- both houses and both parties. After a visit to Memphis’ Autozone Park on Friday, March 14, during which he continued his tireless advocacy of his unprecedentedly austere state budget, Tennessee’s surprising new governor sat down with The Flyer and discussed the reasons for his live-within-your-means budget strategy What follows is a sampling from that Q and A: Why was the need for budget cuts of the magnitude you’ve proposed not foreseen after last year’s 1 percent sales tax increase, the largest tax increase in Tennessee history? The tax increase was an 11th-hour solution to a problem they thought was going to be solved by the income tax. Much of that increase went to fill a hole that was made by spending one-time-funds in previous years. I don’t think there was really thoughtful fiscal planning the last two or three years. It was: ‘Once we get this holy grail of an income tax passed, we’ll have plenty money and won’t have to think of these things.’ I always thought, looking from the outside in at the income-tax debate, there were two things getting confused into one: One thing was, how much tax do you want to collect, and what is the level of services you want to have for the state of Tennessee? Do you want to be 45th or 25th or 15th ion education funding? That’s a longer-term issue having to do with how you want to position your state in the United States of America and so on. Then there was the short-term issue of ‘we’ve had some really good years and the economy has gone south and we’ve got some pressure and how’re we going to solve that problem?’ And I think the income tax got used as a solution to Problem Number Two. Baecause if you look at the numbers Tennessee grew its budget substantially over the last couple of years. We created between two and three thousand news jobs in the middle of the huge budget crisis. The percentages by which our jobs grew in that period were among the highest in the country. What happened was that no one ever got focused on how you deal with these tough times because they were reaching for the Holy Grail up here. And I think the legacy of not managing for tough times for two or three years in tough times is what produced the problem for this year. Yeah, you put a bunch of new money in, but a lot of it went to take care of one-time moneyÉ. A lot of that -- particularly the emphasis on one-time money -- was as much the responsibility of the legislature as it was of the executive. But are you saying that Gov. Sundquist did not foresee what he should have foreseen? I really don’t want to criticize the previous administration. I just think that’s a senseless exercise. I fully intend to leave some problems for my successor. But I do not think we did a good job of managing out budget when conditions changed. When did you discover the extent of the deficit that was coming? And how? I would say during transition in that basically I went over to have my first meeting with the Finance and Administration guy, the guy from UYT. And what I thought was going to get. Here is where we are and here are the problems with where we are. And what I got was a lit of improvements we needed to have for the budget and they totaled 7 percent of the total budget before any consideration was given to TennCare. You look at that and you say, ‘In a good year you can’t find 7 percent improvements in the budget, and when you add TennCare to it it’s 10 percent. And that’s crazy, and that’s all the thought that had gone into it. At that point, I knew that we had a problem. The size of the deficit for this year really only became clear when I was sworn in. At first it was $350 million, and it very rapidly became 500. The first two weeks of my term we had the funding board meet and reduce their estimates for the year and then TennCare came back and said, oh, by the way, we need an extra hundred million dollars. During your inaugural address, one of the shortest on record, you said, basically, ‘Like I told you, I’m going to manage things.’ I guess, at that point, it was all an Unknown Quantity? Yeah, I’d say that’s correct. The extent of the problems this year were truly an Unknown Quantity, and they are a substantial contributor to next year’s . To get to next year’s numbers I wanted to work off the actuals for this year, not the budget for this year. É Would there have been more revenue this past year with an income tax than with the enacted sales tax? No. I think an income tax will grow somewhat more rapidly than a sales tax will -- both because it doesn’t have the sales tax leakage and because personal income will grow faster than what you spend on sales tax for things. But that’s a marginal difference. It takes years to develop into anything serious. The amount of money that was raised [in sales tax], I believe, was 933. That’s virtually the same amount of money that an income tasx was going to raise. It was right at a billion, as I recall. Whatever good things were going to happen with an income tax really should have happened when they passed that sales tax. Are you pledging no new taxes during your first term? No, the phrase I used was ‘no major new tax.’ I’m not going to propose an income tax, and I’m not going to propose another penny on the sales tax. There certainly may be fee increases, and I can imagine other smaller things. But not stuff that fundamentally changes the structure. Last year you seconded Van Hilleary in promising to “repeal” an income tax if the legislature passed on. House Speaker Jimmy Naifeh, who was just then trying to pass an income tax, was publicly displeased about that, as were other Democrats. Your take on that now? My assessment from the beginning was that, if this election is about an income tax, I lose. And while I was not in favor of it, no Democrat is ever going to out-seg a conservative Republican on how much you can be against an income tax or any of those kinds of things. I would just say there was a campaign strategy: Don’t let it be about the income tax. But you were aware that you were ruffling feathers? I would say not only risking, but I ruffled some feathers and had some hurt feelings. But I also felt that when I got there by exercising some judgment I would get it back. And the relationship with the legislature right now is wonderful. Privately, relations [with Naifeh] are very good, and I would say that my relationships on both sides of the aisle are very good. Some observers consider you to be more like the traditional Republican than the usual Democrat. Your reaction? I’ve reflected on the irony of this, but I also think that’s way too glib. There certainly are differences in ideological views between Democrats and Republicans. But I don’t think there’s anything about being a Democrat that forces you to be irresponsible in the way you handle fiscal matters. This was the third time in 30 years that the actual state appropriation has gone down. The last time was in McWherter’s administration -- another Democrat. [The first time was Alexander, a Republican). Alexander had one, McWherter had one, Sundquist had none, and I had one. I think realistically to manage state budgets, occasionally you’re going to have to go down, as the economy goes down. Sundquist didn’t, but I think it’s more of an anomaly in the way Don Sundquist ran the office, different from Alexander or McWherter or me, than it is a general statement about Democrats or Republicans. Why then do you consider yourself a Demorat? I grew up in a single-parent family living with my grandmother. My grandmother took in sewing for a living, and I think Democrats have always had a lot more concern about people who take in sewing for a living than Republicans have. And one of the things that I didn’t like about my life before I got involved in politics was that I’d gotten into the business world and I’d made a bunch of money and I looked around, and none of my friends took in sewing for a living. Or were bank tellers like my mother was. I’m betting a lot on being able to fix TennCare. It would be the easiest thing in the world to flip that back to Medicaid, drop 400,000 people off the rolls, and go. To me, it’s worth risking your governorship to try and keep 400,000 on the TennCare rolls. And, you know, I think the Democratic Party in general is a place I’m more comfortable in, with those kinds of concerns. Did you seriously consider going back to Medicaid? Not in the short term. I’ve always been carefully to say to people, I don’t know that I can solve TennCare. I’m going to bust my back trying. That’s something I could easily fail at and we’d go back to Medicaid. But I think a willingness to kind of peg your reputation to trying to make it happen is a reaching-out to 400,000 Tennesseans. Maybe if we can make it work, 40 million Americans. I’d love it if other states looked at it and said, Yes, that’s the way to make it work. That, of course, was one of Governor McWherter’s original premises for TennCare. Yes, but it never worked. This country is looking for a way to keep people from falling between the cracks. Every time it’s come up they’ve rejected some national health care system, and so the interest probably in things like TennCare, filling in the pieces and so forth, that’s a worthwhile thing to do. During the 1994 campaign, you had some unpleasant memories. Such as election night For example [laughs] But there were hiigh moments, too -- for example, your well-received speech to the Kiwanis Club in Don Sundquist’s home base of Memphis: ‘10 Things I Can Do for Memphis’. One of them was bringing in NFL franchise. [laughs]They didn’t want me, so I brought one to Nashville. Another was to give the University of Memphis its own governing board. I certainly have said that the University of Memphis occupied this kind of middle ground between a lot of the other Board of Regents schools and the University of Tennessee. And I certainly think that one thing that ought to be considered is to find some way to make it more of a research university, to engage the leadership of Memphis, and to give it its own board would be one of the ways of doing that. I think I stopped short in the campaign of saying, ‘Elect me and there will be a new board for this university by June 30th’ or something. But I expect over the next seven years and 11 months, I’ll spend a lot of time on higher education, and Id like to just move that system into a whole different plateau. Did you ever consider not asking higher education to take a 9 percent cut? Yeah, I considered it, but I couldn’t balance the budget. I had to do it. I think one of the things I have to explain better to people is that this is not game-playing. We have a serious problem. At the end of this year we’re going to have nothing in reserve. If I can find a bunch of money from the federal government, we can preserve the Rainy Day Fund. But you know that means $50 million or something. ÉIt’s a serious problem, and to me the only way to get it solved without the legislature descending into these enormous fights about this area vs. that area was to take this kind of across-the-board approach. I didn’t think that I could protect it [RD] but taking 12 percent out of the departments and leaving it alone. I don’t think it would have survived the legislature. It would have meant another new budget fight. Do you consider the previous administration disgenuous about the shortfalls you discovered? The thought has occurred to me, Okay? And there’s stuff that I don’t know how to read. TennCare, everyone was announcing right up to the 5th of November, was solved after this last waiver. It clearly wasn’t. And in fact it has dramatically overrun its budget.And the waiver has some problems in it that make it difficult to handle the overrun, the cap, and that kind of stuff. And whether, you know, somebody said, well, let’s just keep our chins up until November 5th, when it’ll go away and be somebody else’s problem, or whether they genuinely didn’t know what they were dong, I don’t know the answer to that. You sit there at night and stay up wondering which it is, but I don’t spend a whole lot of time worrying about it, because it doesn’t make any kind of difference for me. We’re not going to handle it differently, whichever it was. There were issues like the failure to budget any increases in health care costs for state employees this year, and it was a $60 million problem that I have upon entering the office. How did you forget to budget $60 million? Somebody had to say, ‘Well, let’s just push that one aside and make this thing work.’ Did you actually, as was widely reported, propose delaying the implementation of lottery scholarships by a year? Not at all. I guess that’s a great example of how somebody won’t listen and will run with it. Some of them did, and some of them did not. I saw both kinds [of coverage] in the press. I didn’t do as good a job as I should of making it clear. What I’m saying is that I think it is vitally important that we act like we know what we’re doing and run this in a businesslike fashion. And that if we make commitments to families about what we’re going to do for them, if they get a B average or a B-minus average or whatever it is, that we be prepared to honor those commitments. When I started looking at the lottery in detail, which was after the budget had been sent to the printers and I had been asked by a couple of reporters to weigh in on the lottery and look at a few of these details, I sort of looked around and thought, you know these revenue estimates are very soft. I hope they’re right, but they’re very sort. The ‘they’ who was saying it’s gong to be $240 million, which was taken to be gospel at the moment, what that actually is, is a small study that TACIR [Tennessee Advisory Commission on Intergovernmental Relations] did six years ago which today they will tell you was done very hurriedly. We called one of the vendors, and they sent us some presentation information, and they thought it would be $160 million, $170 million, something like that. That’s not my estimate, but here are two vastly different numbers, neither of which have too much behind them. When we do estimates for our tax revenues it’s an elaborate process. We’ve got models, we have economists involved in the thing, you look at history, you break it down into a whole bunch of individual tax categories and estimate each of them individually and take into account these things, and then you have the whole thing vetted by a funding board which has got Morgan and Adams and the F &A commissioner involved, and you still don’t know if you’ve got it right. We’re not doing any of those things about the lottery; we’re taking this number, which is six years old, and we were treating it as gospel. And so all I said. I said, ‘look, I don’t know how you get your arms around this too much in the next month while you’re looking at this. I guess we could hire an economist, at least get a better estimate of the thing, but what I said was, ‘Why do you have to do it at all. Go ahead, implement the lottery, set the thing up, we can get it under way, and next year we come back and revisit the issue of how much the scholarships and exactly what the terms of the scholarships are, because you can still issue scholarships in September of 2004, they’ve got plenty of time to do that, and you’re going to have two or three or four or five months of the lottery under your belt at that point. That’s the only suggestion I made. When there’s no reason to do it now, why not wait until you’ve got more information. Okay? I don’t think that’s where they’re going to go for political reasons. The political reasons are, as you know, that the conservative Republicans have some non-negotiable demands about the way the lottery stuff has to be put out, and they won’t go for implementation of the lottery absent t knowing how all that stuff is going to work. So, fine. That may mean it doesn’t work that way. But it certainly seems to me a reasonable, businesslike suggestion to make, to the leadership. You’re talking to somebody who could not have gone to college without putting together a whole bunch of assorted funding sources. I’m totally on board with the lottery, I’m totally on board with getting money into the hands of those students as you possible can and helping as many students as you possibly can go to college, but I also thought we ought to be mature and conservative about this and not make promises we don’t know we can keep. We’ll get through it all. In particular, how much you’re going to give them and what are the rules for getting it. You can’t make those decisions in a vacuum without knowing how much money you’re planning to spend on them. If I say the scholarship is $4,000 and it’s a 3-point grade average, and it’s the same amount of money for private and public schools, that gives you a different number than if I say it’s $3,000 and it’s a 2.75 grade point average. You’re not designing this thing in a vacuum. You’re designing to some kind of number you’re trying to live with. We should know what that number is and not design to a number we can’t produce. Either you invade the general fund to meet your obligations or you look like fools and end up going back and telling these students ‘We told you $4000 last year, but it’s really $2500.’ Neither of which are good outcomes. Are you prepared to be flexible on the issue? Sure, and I want it to be conservative. As long as it’s conservative and we’re taking a step at a time and so forth , I’ll be fine with it. But this thing has been marked a little bit by -- I mean, I like Steve, there’s no some enmity there, or something like that but, you know, Steve is the guy, this has been his life’s work, getting this thing done. And the only argument we’ve got with him is, ‘This is not your lottery.’ This is a lottery that lots of people have got some investment in, lots of people have got some reason, and I got elected governor of this state, and I’m not prepared to just stand aside and say, ‘Oh, by the way, this is your lottery.’ I’m going to have some opinions on some of those things. What about Senator Cohen’s argument that the lottery is a “creature of the General Assembly?” So is every constitutional amendment. That’s what the General Assembly does. That’s like saying any law is a creature of the General Assembly. Well, it is, but the governor’s still got lots of responsibilities related to those laws and lots of things to say about them. I mean, the budget’s a creature of the General Assembly in something of the same way, but Lord knows, I’m up to my eyebrows with the budget and the General Assembly’s happy for me to be doing it. I think that’s silly. Are you okay with the compromise board membership formula of 3-3-3 [three appointments each by thesSpeakers of the two legislative chambers and by the governor]? No. I wouldn’t be there. I’m certainly not signed off on that. I’ll talk more about that later. Ultimately the governor’s going to be held to account for this thing, and Id like a little more role for the governor. There’s a bill to bring The Med in Memphis, a 501C3 institution, under the liability limitations of 100 percent government hospitals. What’s your attitude toward that? I’m suporting it. I think it’s going to need some work. I don’t think it’s been well drawn, what they’re proposing. The basic idea is the med is even more than a quasi-governmental entity. It’s got deep links to government. Other hospitals with less clear links to government -- to wit, Erlanger, in Chattanooga -- have used their links to bring themselves under the limitation on awards that governments enjoy -- which is what now, $325,000 or something like that? It’s a relatively small number. Since the Med is a serious hospital with one of the most serious emergency rooms in the United States of America, they have lots of potential for malpractice awards. If they could get a lmitation they would save a lot of money -- they estimate $2 million on their malpractice insurance costs. If the hospital were just flat owned by county govt., there’d be no question about it. They’d be subject to those limitations. Other hospitals like Erlanger with a connection, that have boards appointed by the county mayor, or something like that, have done private acts and gotten themselves included. And the Med has probably got more of a case to make than Erlanger. And I believe the one in Jackson has got the same situation. They should have done it years ago. It’s not something new. But this year they’ve got a fiscal crisis, and they’re making lists of things do do that can help them out, and that’s one they could clearly do to help them out, and I think it’s fine, I’m supportive of it. I think the bill they have has some problems. We actually spent some time, as late as today talking about how to get this thing passed. What’s your take on the current welter of tort reform bills? We have not yet had outrageous kinds of malpractice awards in Tennessee. Some malpractice rates have grown in anticipation that we could be next. That isn’t necessarily to me reason to rush off and change the law. As I said during the campaign, I’m sensitive to it. There’s no reason in the world for us to cut down on the amount of health care that we’re able to provide with the money we have so that a few people could Éwin huge awards, and if that’s where we’re going, I’m clearly going to ask the legislature to step in and fix it. I’m not sure we’re there yet. I’d like to learn more about it and study it more. Do you regard the doctors’ warnings as overheated? They’re seeing increases in their malpractice costs. No question about that. Number one, it’s happening all over country. Insurance rates in general are soaring these last couple of years. Number two: The. Doctor owned insurance company with which most of them have their insurance also paid out a huge amount of their capital in dividends the past couple of years. So in other words they’re giving money back over here and charging some more back in premiums over here. Number Three: I don’t see the evidence of those huge awards. You can’t go pointing to those huge awards. In fact, Tennessee juries are proving remarkably conservative about this kind of stuff. I’m just saying I’d like to see a lot more evidence. You’ve got to diagnose the disease before you write the prescription. And I don’t feel that I’ve diagnosed the disease yet. On the malpractice insurance costs, several things could be at the root of that other than crazy juries and greedy lawyers making doctors go out of business. We’ll take a serious look at it. If it takes action, we’ll propose it.

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