State governments are running better, many ready for an economic downturn

State governments are running better, many ready for an economic downturnJanuary 30, 2001A full year after Y2K, the computer bug that many believedwould shut down global commerce is having an unexpected and positive impact in asurprising area– state government management.

According to a report released Jan. 30 by The Maxwell School at SyracuseUniversity and Governing magazine, efforts to get ready for Y2K are transformingthe way governments serve citizens by boosting the efficiency and performance ofmanagement practices across the board and making the delivery of public servicessmoother than ever before. Other trends show that most states have used theprosperous economic climate of recent years to put in place the tools to helpthem through the next economic downturn, yet have been forced to contend with acrisis engendered by the strong economy-labor shortages in state government.

First published in 1999, “Grading the States: A Management ReportCard” grades state governments on how well they are managing the systemsthat deliver public services and is based on the most comprehensive survey ofstate government management ever completed. The survey is part of a multi-yearproject of the Government Performance Project (GPP), a collaboration of TheMaxwell School and Governing magazine funded by The Pew Charitable Trusts.

Dale Jones, director of the GPP at The Maxwell School, comments, “Thecomputer bug that never materialized has ironically been working all this timein ways we never expected. What started with upgrading hardware and software hasresulted in many states with well-managed information technology systems thatintegrate services from agency to agency, and from the executive branch to

the legislature. On other fronts most states have used recent years ofeconomic prosperity to save money and manage their surpluses more carefully, touse the labor shortage to develop creative approaches to hiring new employees,and to use improved technological capacities to deliver services to citizensmore smoothly.”

While the number of states receiving A’s declined from four to threebetween 1999 and 2001, a total of 23 states improved on their overall managementgrades. This reflects a significant jump in management capacity across thecountry not only in information technology, but also in areas like humanresources and managing for results.

“The up-tick in grades, after just two years, demonstrates that thissurvey has helped government officials and managers share good ideas and makeimprovements where they are needed by highlighting good models of publicmanagement,” says Peter Harkness, editor and publisher of Governing.”By putting the spotlight on state government management the report alsogives citizens the tools for measuring how well their governments are runningand holding them accountable to appropriate standards.”

But not all the news is rosy. With unemployment rates still low and salarieshigher in the private sector, states continue to have difficulty hiring andretaining qualified employees. Just two years ago, the government workershortage existed only in information technology. Today, personnel for all kindsof government positions, including engineers, nurses, corrections personnel,accountants and clerks, are difficult to find. However, crisis has forcedprogress in the human resources departments of state offices, and managers aredeveloping new ways to attract workers.

In fact, the 1999 and 2001 report cards show that states are responding torolling crises with long-term systemic changes rather than quick fixes. Twoyears ago states scrambled to get ready for the Y2K bug; now statewidecompatibility and integration of software and hardware are common. Today statesare using the crisis in hiring to change leaden civil service rules and make iteasier to hire the right people for the right jobs, more quickly. Tomorrow’scrisis may be an economic downturn, and a central theme of the survey findingsis that most states – many with memories of getting burned in recentrecessions – have been taking fundamental steps like building rainy day fundsto get ready.

The 50 states received report cards on how well they did in five criticalareas: financial management, capital management, human resources management,managing for results and information technology management. The grades providean easy-to-grasp assessment of states’ management systems.

Michigan, Utah and Washington brought home the best report cards, quite anachievement with nearly half of the states improving their overall managementgrades between 1999 and 2001. What sets them apart? “We looked closely andthere are no formulas, no two or three systems or approaches that light the wayfor the front runners,” says Jones. “The common denominator appears tobe strong leadership and well integrated systems to improve management acrossall the categories, at times with some risk from changing old ways of doingthings.”

Michigan, the sole newcomer to the top management group, scored A- infinancial, capital and information technology management. The former bad boy ofbond ratings, Michigan now has a triple-A rating, has a solid balance betweenrevenues and expenditures, is making leaps in the maintenance of buildings androads, and has a rigorous approach to building IT capacity. Washington state,with spending limits and voter initiatives that complicate budgeting, stillbrought in a B+ in financial management and A- or A in all other categories.Utah’s solid A’s in financial and information technology management make ita national model.

Carrying the banner for states with the most improved management systemssince the 1999 report are Alabama, California, Idaho, Maine, New Mexico and NewYork. Alabama, which received the only D in 1999, has implemented long-termfiscal planning into its budget process for the first time. The state is alsoworking on developing a comprehensive capital program to manage maintenance andconstruction of projects and has started to manage for results, with three pilotprograms running in the agencies of Mental Health, Youth Services and HumanResources. California’s biggest leap has been in financial management, turninga $3.6 billion deficit from 1997 into a $622 million surplus at the start of the2000 fiscal year. Its rainy day fund, empty in 1997, is now 2.4 percent ofgeneral fund revenues.

New York moved from its deficits of the mid-to-late 1990s to an unreservedbalance of $1.8 billion at the end of fiscal year 2000 and was divvying up a$1.5 billion current surplus with an eye to the future: about $1 billion forvarious reserve funds and the rest for relatively safe one-time expenditures.

How different types of management systems are faring

States are as prepared as never before for the next economic dip that may bearound the corner. Based on lessons learned from the last recession in the early1990’s, state budget managers are attempting to husband their resources bymaking sure that permanent spending remains at sustainable levels and avoidinguse of one-time revenue for on-going expenditures. Also, more states haveestablished rainy day funds to prepare for less economically fruitful periods.Fifteen states, including Michigan, Florida, Massachusetts, Minnesota, Ohio and

Pennsylvania, have set aside over 5 percent of general fund expenditures, andCalifornia has for the first time begun setting aside cash. A growing number ofstates are engaged in long-term strategic planning, which helps them allocateresources more efficiently. Things to watch while the economy makes up its mind:Downward creepage of rainy day fund levels and budget surpluses; increasedexpenditures and tax cuts; and accuracy in estimating revenues.

The economic good times of these past years have provided many states withthe resources to make long overdue repairs to buildings, roads, bridges andother capital projects while also planning for long-term capital improvementneeds. For example, Texas has created a five-year plan, which is helping stateofficials make fiscally effective choices. Some states are finding new sourcesof funding for capital improvements, including Utah, which has tapped itsgeneral fund revenue for maintenance, and Indiana which has developedreplacement fund reserves for new buildings. And finally, states are doing abetter job at understanding the value and condition of their capital assets tohelp them plan for and prioritize repairs. Come a downturn, capital improvementbudgets are among the first to come under pressure. Stay tuned for staying powerof some of these reforms.

The only management category that is hurt by a strong national economy ishuman resources. Prosperous times mean that hiring and retaining qualifiedworkers is much more difficult for government agencies that simply cannotcompete with private sector salaries. The good news is that states are usingthis crisis to force changes in rigid personnel systems and to get buy-in toideas that will help solve the problem. For example, workforce planning-astrategic approach to assessing a state’s future personnel needs-is becomingthe norm compared to two years ago when it had only a handful of practitioners.One in four states now has a formal workforce plan. Some states, such asVermont,

New Mexico and Washington, have eliminated rules that require applicants tomeet certain qualifications in order to give managers more flexibility and speedin the hiring process. Others are raising pay scales to attract qualityemployees. Almost every state is using tax revenues to boost investments intraining new workers.

While states are taking different approaches to managing for results, allstates recognize that measuring performance is important and are working toimprove how they measure outcomes and put the process to work. Virginia’smanaging for results process, for example, links strategic planning, performancemeasurement, program evaluation, and performance budgeting. Louisiana puts ahigh priority on performance measurement accuracy. Missouri, Washington, Iowa,Utah and Texas each bring uniquely strong approaches to managing for results.Few states, however, have taken the challenging next step – communicatingperformance results to their citizens.

Among all the management categories, change has been greatest in IT,primarily because the threat of the Y2K bug drove states not only to replaceoutmoded technology but also to rethink almost every aspect of IT planning on astate-wide basis. As a result, the grades in IT management went up in 30 states,a major driver of the rise in overall management grades. For example, Kansas(whose grade rose from C+ to A-) has developed standards for purchasing newtechnology which helps all three branches of government stay compatible in bothsoftware and hardware. Increasingly, states are centralizing responsibility foroverseeing IT projects to make sure standards are met, costs are controlled andbreakdowns are averted. And most exciting for citizens is how accessible stategovernments have become through the Internet. Most states are making electroniccommerce a priority, compared to two years ago when states provided only a fewtransactions online. Now, from Alaska to Washington to Virginia to New York withits brand new portal, citizens can renew their driver’s licenses, apply forjobs, purchase fishing permits, make reservations at state-run facilities, andmuch more.

• Alabama C- (D)
• Alaska C (C)
• Arizona C+ (C)
• Arkansas C (C-)
• California C+ (C-)
• Colorado C+ (C+)
• Connecticut C (C-)
• Delaware B+ (B)
• Florida B- (C+)
• Georgia B- (C+)
• Hawaii C (C-)
• Idaho B- (C)
• Illinois B (B-)
• Indiana B- (C+)
• Iowa B+ (B)
• Kansas B (B-)
• Kentucky B+ (B)
• Louisiana B- (B-)
• Maine B- (C)
• Maryland B+ (B)
• Massachusetts C+ (B-)
• Michigan A- (B+)
• Minnesota B (B)
• Mississippi C+ (C+)
• Missouri B+ (A-)
• Montana C+ (B-)
• Nebraska B- (B)
• Nevada C (C+)
• New Hampshire C (C+)
• New Jersey B- (B-)
• New Mexico C+ (C-)
• New York C+ (C-)
• North Carolina B (B)
• North Dakota B- (B-)
• Ohio B (B)
• Oklahoma C (C )
• Oregon C+ (B-)
• Pennsylvania B+ (B)
• Rhode Island C (C-)
• South Carolina B+ (B)
• South Dakota C+ (B-)
• Tennesee B- (B-)
• Texas B (B)
• Utah A- (A-)
• Vermont B- (B-)
• Virginia B+ (A-)
• Washington A- (A-)
• West Virginia C (C+)
• Wisconsin B- (B)
• Wyoming C (C)

*Each state’s average grade for 2001 is listed in the first column; itsaverage grade for 1999 is listed in parentheses in the second column.

The Government Performance Project (GPP) is a multi-year project created torate the effectiveness of government management systems that support publicservice delivery. Funded by a grant from The Pew Charitable Trusts, The MaxwellSchool’s Alan K. Campbell Public Affairs Institute administers the project.The GPP links The Maxwell School with Governing magazine, one of the nation’sleading magazines dedicated to fostering better public management. In 1999, theGPP reported on all 50 states and 15 high profile federal agencies. In 2000, thereport focused on the 35 largest cities by revenue in the United States. The2001 report re-examined all 50 states to chart progress made in improvingmanagement systems. In 2002 the GPP will report on county government management.