State of the State Address
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This is the eighth and final time that I will report to you on the state of our state; it is the eighth and final time that I'll present a budget to you. We've had a share of easy years and tough years, but by any standard these past two years have been extraordinary. This coming one will be as well. The recession that has gripped our nation has been felt strongly here in Tennessee. We have seen unemployment and housing issues affect far too many of our families. Our state revenues have plummeted, creating tough challenges for us to maintain the services that our citizens want.
There are many things about this recession that we can't affect here in Tennessee. Believe me; I'm very aware of the pain and uncertainty that this recession is causing in homes all over our state, and I'm very gratified by the renewed focus in Washington on our economy. I wish the Congress and the President well in their efforts to address these difficult issues. There are many things we can't address from Tennessee. and what I've tried to do is to concentrate on two things that we can: managing our own house — state government — to live within its means and continuing to look for ways to move forward on those things on which our future depends. Every day, every week, every month, and every year is precious, and the state of our economy should never be an excuse for failing to advance the things that are most important to us.
Even as we have made some painful cuts, we have made some amazing progress as well. The special session just ended, and its reforms to both K-12 and higher education are examples of that. The work we've done in setting higher standards in our K-12 system has gained us national recognition. We have attracted major private investments in the past 18 months that will benefit us for years to come. The Volkswagen plant in East Tennessee and the Nissan investment in electric vehicles in Middle Tennessee help secure our place in automotive manufacturing. Our concentration on green technologies and jobs has produced investments of more than a billion dollars each by Hemlock and Wacker. The Pew Charitable Trusts named Tennessee one of the top three states in the nation for green jobs. To Matt Kisber, and his partner in this work Reagan Farr, great job, fellows. To Jim Neeley and Jim Fyke and all the members of my Jobs Cabinet, for all you have done to advance this work, thank you as well.
We've talked about education and economic development before, but I'd like to take a moment this evening to celebrate an even more recent and quieter victory.
Vi Miller has run our Department of Children's Services for the past six years. I know that Vi and all the people who work in her department privately take great pride in loving and helping the many unfortunate children that come into their world. I also know that there may not be a more publicly thankless job in state government; their successes are quiet — the final adoption of a precious child to a loving home and family. But when things don't work out, they are front page news and the subject of brutal Monday-morning quarterbacking.
When Vi Miller joined us, she told me that she wanted to try to achieve formal accreditation for the department. I encouraged her; my own background is in healthcare, where, as with children's services, the outcomes are not always what you would want. In child welfare, just as in healthcare, accreditation is how you assure yourself and the outside world that even when the results are imperfect, your approach is right, that you're doing the best that anyone knows how to do.
I have to admit I was skeptical. The Department of Children's Services had a host of internal tensions and philosophical differences. We didn't have nearly the budget that other states devoted to child welfare. The department was the subject of legal action in federal court brought by an outside advocacy group, and it was operating under the terms of a consent decree — the so-called Brian A Decree — that the state entered into in 2001. May I say as an aside, the advocacy group in question — Children's Rights in New York City — has educated me about the very constructive role that advocates can play. They have been very tough, and Ms. Lowry has certainly made both the Commissioner and me angry more than once. It's best when we work these things out ourselves, but if there has to be a forced marriage, this particular one is the way it ought to be.
Despite the problems and my misgivings, Commissioner Miller persevered and started the accreditation process in May of 2005; they developed new policies, they found problems and improved record-keeping, they trained some people, and they fired some. They fixed environmental issues in their offices and redid emergency preparedness plans. They underwent onsite reviews for almost a year.
Commissioner Miller, would you please stand? I'm pleased to announce tonight that on January 22, Tennessee became the seventh state in the Union to operate a fully accredited child welfare system. Vi, to you and all of your team, congratulations.
Let's move on now to our state's financial situation and to the budget that is being presented to you tonight. My goal throughout this recession has been to remain true to the principle of the "family budget" that I talked about when I first became governor. It's nothing more than the commonsense idea that we're going to adjust our expenses to match our income, and we're going to be very careful about using money from our savings account. It's the way sensible families have to manage through these times, and while the numbers for state government are much larger than for any family, the principle is the same.
In addition, while there was no way to avoid some use of our Rainy Day Fund as revenues continued to fall, it has been important to me to have our finances stabilized so that I could pass on to the next governor a budget that matched recurring revenues and expenses. I've spoken before about the value I place on good stewardship.
I want to talk about our finances in three parts tonight. First, to walk you through just where we are right now, with regard to both expenses and our reserves. Second, I'll describe to you the basic budget that I recommend. Third, I believe we are in a strong enough position and it is raining hard enough that we can use some reserves to soften the worst of the cuts.
Just today, our President announced that he was proposing to extend for an additional six months a portion of the financial help to the states that was in the Recovery Act. This would take the form of funding in the Health and Human Services budget to continue through the first and second quarters of 2011 the higher Medicaid match that has been in effect since last year; this is the so-called enhanced FMAP about which you have heard. I very much appreciated the help to state finances in the Recovery Act; it enabled a much "softer landing" than would otherwise be possible and allowed us to preserve jobs and plan more carefully for the reductions we would need to make. I thought it was a good move.
We were all very aware that these funds would disappear at the end of December this year and have carefully planned how we transition from using those funds to once again standing on our own. That was the four-year budget that we presented to you last year. We have a good plan, and I think that it is important that we stick with it and not get our heads turned by the possibility of more one-time money.
Accordingly, the budget you are being presented makes no use whatsoever of any additional stimulus funds. If the Congress passes what the President is proposing, we or the next Governor and General Assembly will deal with it once it actually happens. For now, let's stick with the plan.
First, our state's financial position: we're in a very strong one. As I stand here tonight, we have over $900 million in the bank, in uncommitted reserves in our Rainy Day and TennCare reserve funds. We will draw those down modestly in the next few months according to the plan you approved. We'll end this fiscal year with about $850 million in our two major reserve accounts.
In the budget that you passed last spring, there was a plan to draw down our reserves by $430 million this year. As you know, this year's revenues have fallen short of last May's projections by about $178 million. One might therefore expect that our reserves would decline by that additional amount, or a total of slightly over $600 million this year. I'm pleased to report to you tonight that we have handled this year's entire additional problem with additional expense reductions, so that our reserves will end this year at the levels you budgeted despite the revenue shortfalls. In fact, we'll have an additional $100 million to carry forward.
In short, we are on track with the plan you approved last spring and have further adjusted it "on the fly" with additional spending reductions to match the additional revenue shortfalls that have occurred.
Second, the budget itself. The budget document that you are receiving tonight reflects the four-year plan we submitted last year, with further reductions to reflect the further revenue declines that we have experienced along with the rest of the country. As you will see, this is a very difficult budget, and it will seem even more difficult as the year unfolds. Many cuts that were in the budget you passed last year were deferred using stimulus money but will hit in the months ahead. There are in essence cuts from two different years becoming effective at the same time.
First of all, I want you to know that once again, our state's Basic Education Program, the BEP, is fully funded.
To achieve that, we had to make one commonsense adjustment and froze the growth in the capital outlay component this year. This relates to the growth component only; the underlying capital project allocation remains. Across state government, we are doing very little capital construction this year. It seems fair to ask public education to do the same.
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