by Joe Sullivan
The gods, or is it the judges, seem to be conspiring to make things as difficult as possible for Phil Bredesen when he takes office as Tennessee's new governor on January 18.
A federal judge has invalidated the outgoing Sundquist administration's not-so-well-laid plans for removing an estimated 150,000 deemed ineligibles from TennCare's 1.4 million enrollment. Gov. Don Sundquist has estimated the cost of this ruling at $300 million in the current fiscal year alone. This decision, which could be stayed pending appeal, comes on the heels of a State Supreme Court decision mandating equalization of teacher pay throughout the state that could cost several hundred million more in the years ahead.
At the same time, the state's revenue growth remains anemic (exclusive of the $933 million sales tax increase that the Legislature enacted in desperation to escape a state government shutdown last July). Not even the 1.6 percent, or $150 million, growth on which the current fiscal year's budget was based is now expected to be met. And the projections for the fiscal year beginning July 1 on which Bredesen must base his first budget aren't likely to be much better.
At one level, balancing that budget represents the most formidable challenge staring Bredesen in the face. Yet underlying that is the even more fundamental need to restore public confidence in state government that has been severely shaken by the recurrent budget crises of the past four years. Rebuilding confidence and trust is the prerequisite to Bredesen's ability to lead—something Sundquist squandered with his call for tax reform (however meritorious) in 1999 after campaigning for reelection in 1998 on a "no new taxes" platform.
Bredesen made managing the state's way out of its fiscal difficulties without new taxes the mantra of his successful campaign last year. His credentials as a highly successful health care entrepreneur in the 1980s and a highly acclaimed mayor of Nashville in the 1990s attest to both executive and political skills that made his mantra credible. Yet even with the benefit of last year's tax increase, it's daunting to contemplate how he can deliver on it amid multiple pressures for higher state spending on the one hand and weak revenue growth on the other.
Mere continuation of existing state programs is projected to cost an additional $300 million in the fiscal year ahead because of mandatory increases in school funding and health insurance costs for state employees. These alone exceed projected revenue growth before getting to any additional funding for employee pay raises and for higher education, areas that Bredesen acknowledges have been underfunded by the state. Beyond that lies the possibility that a court order could drive up costs by several million more by requiring equal pay for all of the state's public school teachers, which now ranges from as high as $45,817 in Oak Ridge to as low as $30,505 in Sequatchie County.
Bredesen's managerial prowess may well beget efficiencies, economics, or just plain cutbacks in the panoply of state departments and programs that comprise the state's $9.3 billion budget. But Sundquist administration officials and veteran state legislators are dubious about his ability to make much of a dent after mostly unavailing efforts on their part as the state's fiscal crisis deepened over the past four years. Redirection of some of the $670 million in fuel tax revenues that are dedicated to road building could be the single largest potential source of funds for meeting other needs. But legislative leaders rule out any encroachment on what amounts to a sacred TDOT trust fund.
Containment of prospective cost increases will also be challenging, and that's where TennCare and teacher pay equalization loom largest. It's going to take separate columns on each of them to begin to do justice to the complexities of these issues. So the synopses that follow only scratch the surface.
TennCare. The current court battle over the validity of TennCare's re-enrollment process represents the latest stage in the state's bumbling efforts to remove people believed to be ineligible from its rolls. The eligibility issue centers on determining how many of the 1.4 million enrollees don't qualify, primarily because they have access to some other form of health insurance. U.S. District Judge William Haynes ruled that the state Department of Human Services had been overwhelmed in making these determinations, especially in affording due process to the mentally ill and individuals who are otherwise impaired. So he ordered that all 200,000 enrollees who had been found ineligible (50,000 more than the state expected) must be reinstated.
While this order could be halted pending an appeal by the state, Bredesen has sided with Haynes' reasoning. Indeed, he's declared his intent to undertake a fresh review of eligibility once he takes office. So the state's ability to shed any of its $1.9 billion in TennCare costs through reductions in enrollment remains in doubt.
Moreover, the eligibility issue is just the most visible of an array of deep-seated problems with the program which, if left unsolved, promise to keep pushing its cost higher. Perhaps the most fundamental is the state's abandonment of the managed care approach on which TennCare was founded. Under that approach, managed care organizations (MCOs) were charged with overseeing the care of those assigned to them for a flat fee per enrollee and faced losses if health care utilization costs exceeded those fees. After several MCO failures and threats to quit the program, however, the state has agreed to pay the MCOs a straight administrative fee and absorb any losses itself.
Escalating prescription drug costs have also been a big part of the problem. Paradoxically, some state officials believe the best way to contain them is for the state to take over management of drug benefits rather than look to the MCOs to control them. Their reasoning is that the state can get much deeper price discounts from drug makers that the MCOs have been able to obtain.
Bredesen's health care credentials render him uniquely qualified to make sense out of the nonsensical way that TennCare has been managed up to now. But his best single hope for budgetary relief may lie in Washington rather than Nashville. Congressional extension of Medicare to cover prescription drugs could spare the state an estimated $125 million a year in drug costs it's now incurring for the indigent elderly under Medicaid. The governors of all 50 states are joining in the push to shift these costs from Medicaid to Medicare.
Teacher Pay Equalization. In the decade since enactment of then-Gov. Ned McWherter's Basic Education Program, the state has done much to augment school systems in poorer counties relative to more affluent ones. Nearly all of the $1.2 billion increase in state funding under the BEP (which was phased in over five years) has gone to counties with below average "fiscal capacity" under a complex formula. But where teacher compensation is concerned the formula only provides for coverage, in all counties, of a state pay schedule that averages $27,928.
Localities have supplemented the state schedule to the point where teacher pay throughout the state averages $38,515 but with wide disparities among school systems. In a terse decision last October, the State Supreme Court ruled that, "the lack of teacher salary equalization in accordance with the BEP formula continues to be a significant constitutional defect in the current funding scheme." If that decision means what is says, in the name of equal educational opportunity to all students, then it would appear that the state must start paying or requiring payment of all teachers equally.
Raising the state schedule to the state average for Tennessee's approximately 50,000 public school teachers would cost upwards of $500 million a year. Raising the state schedule to equal the highest paying system in the state (namely Oak Ridge's $45,818 average) would cost on the order of $900 million. And beyond the cost issue lies the fundamental question of whether local school systems can continue to supplement their teacher pay, except perhaps to cover cost of living differentials.
It's hard to imagine a more vexing and perplexing set of issues than those posed for the Bredesen administration and the legislature by the court's stark decision. Some legislators keep voicing hopes that the costs of compliance will be much lower, but they have yet to offer a plan for holding them down. Bredesen, for his part, is awaiting recommendations from the state Board of Education while voicing a belief that, whatever the costs, they should be phased in over several years.
The Lottery. Any list of challenges facing the incoming governor would be incomplete without mention of the enactment and implementation of a state lottery that voters authorized in November. But the difficult decisions to be made on uses of lottery proceeds must also be the subject of a separate column, particularly since their required dedication to college scholarships and pre-school programs means these proceeds aren't part of the solution to the state's fiscal woes.
To his great credit during last fall's campaign, Bredesen refused to take the expedient course of joining his Republican opponent Van Hilleary in pledging opposition to a state income tax beyond the end of his first term as governor. This refusal almost cost him the election, but it now gives him leeway to address what has to be the single biggest challenge facing the state in any longer run: namely, tax reform.
In a recent interview with the News-Sentinel's Tom Humphrey, Bredesen held out the possibility of taking tax reform to the electorate in 2006 in the form of a constitutional amendment. He analogized it to the way in which, as mayor of Nashville, he gained voter approval in a referendum for funding a football stadium for the Tennessee Titans. But as Bredesen knows as well as anyone, the chances for success in such a campaign will depend on convincing a majority of Tennessee that he has exhausted every other means for meeting the state's needs—needs that must also clearly be established.
So ardent income tax proponents such as myself must be patient even to the point of accepting painful shortfalls in funding for imperatives such as higher education. At the risk of ending this column on a cliché, inflicting pain in the short run may be the only way for Phil Bredesen to gain acceptance for the more progressive tax structure that this state sorely needs.
January 9, 2003 * Vol. 13, No. 2
© 2003 Metro Pulse
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