BusinessTN

Seven years old when his father left home, Phil Bredesen moved with his mother and younger brother into his grandmother’s house in rural Shortsville, N.Y. Under that same roof lived Bredesen’s “Uncle Ozzie,” a milkman turned accountant for a local Chevy dealership. “He was as close as I had to a surrogate father,” Bredesen says during a recent interview conducted on his campaign bus as it traveled between political rallies in Sumner and Rutherford counties, two conservative-leaning counties the first-term governor lost in the 2002 election.

It was during that 2002 campaign that Bredesen first referenced Uncle Ozzie in stump speeches across the Volunteer State, wielding the anecdote to good effect in an effort to connect emotionally with voters. But the reference also bolstered Bredesen’s message that improving public education would be his focus in office—Uncle Ozzie dropped out of school in the eighth grade to work as a bellhop in a railway station in Ithaca, N.Y.

“I’ve met people who were successful heads of major companies who didn’t have any more native intelligence or energy than he did,” Bredesen says of his long-deceased uncle. “He personifies for me the difference in realizing your potential that comes from having access to a good education and taking advantage of it.”

There is hardly a better example of having access and taking advantage of it than Bredesen himself. A 1967 graduate of Harvard University, Bredesen went on to found HealthAmerica Corp., a Nashville-based health care management company that eventually employed 6,000 and went public. In 1991, Davidson County voters elected him mayor. Later this year, he ends his first term as Tennessee’s 48th governor.

Bredesen hasn’t spoken much of Uncle Ozzie in reelection rhetoric this year. He is, however, trumpeting his first-term progress on education in the state—and his commitment to make education the top priority of his second term—as a key argument in favor of his reelection.

Given Bredesen’s emphasis on education, it’s only fitting that his first-term performance be graded, too. The following pages represent a report card for Tennessee’s education-minded governor. To obtain Bredesen’s final grades, Business Tennessee contacted dozens of top business and political sources—both on the record and on the condition of anonymity—to conduct a broad-based, clear-eyed evaluation of the governor’s performance in office.

Pass or fail? That’s for voters to decide in November. These are the pertinent facts.

HOME ECONOMICS

One of Bredesen’s first tasks as head of the state household was getting its finances in order. Bredesen says what Tennessee needed was no different from what the average family household in the state needs: namely to spend within its means and put a little away for leaner times. Obviously, a state is a very big house.

The Budget Boss

Four years ago, the Tennessee legislature was in a budget crisis, hamstrung by an income tax debate that eventually shut down state operations. Horn honkers surrounded Capitol Hill, and a lame duck gubernatorial administration could provide little in the way of leadership.

Now nearing the end of Bredesen’s first term, the legislature has passed four straight balanced budgets without a tax increase. Despite a couple of tough budget years that included Bredesen making 12% cuts to several state departmental budgets (including sacred cows like transportation), the state has put a significant amount of new money behind some educational initiatives—$500 million for K-12; $600 million for higher education.

Even an ethics scandal hasn’t punctured the general feeling across Tennessee that state government is once again on solid footing and being steered by a competent leader.

But just who deserves credit for the budget turnaround—not to mention the question of whether it can last—are subjects of rancorous debate. Critics say Bredesen accomplished the feat squarely on the back of a $1 billion sales tax increase passed under his predecessor, Don Sundquist, which ended the crisis and ushered the Democrat into office. Many in Tennessee predict a second-term budget crisis as the shelf life of the 2002 sales tax increase expires.

Lance Frizzell, communications director for the gubernatorial campaign of Republican state Sen. Jim Bryson, Bredesen’s opponent in the fall election, says “Due to that tax hike, he has had to do very little managing,” adding that Bredesen’s recent spending of a budget surplus “will harm Tennessee in the long run.”

Bredesen’s campaign spokes- man Will Pinkston counters that Bredesen still faced a budget gap of more than $500 million when he took office in 2003 and that he took the steps necessary to address it, which included, among other initiatives, negotiating with the federal government to get fiscal relief from crushing Medicaid obligations. “If all that doesn’t reflect an exceptional track record on management, then we don’t know what does,” Pinkston says. As for future turbulence, Bredesen says the permanent cuts he made to various state departments, alongside TennCare cuts that halted the 15% annual growth in the program in its tracks, will help inoculate Tennessee from another revenue crisis in a second term. As will his bolstering of the state’s rainy day fund (which now for the first time holds a bond rating agency-recommended 5% of general fund revenue). Bredesen also points to the boost to the state’s economy brought about by better promotion of Tennessee’s richness as a tourist destination as insulation against future upheaval. During his first term, Bredesen grew the state’s tourist department’s marketing budget from nearly nothing to over $5 million and this past year saw tourist spending in the state rise by 8.3%, or a billion dollars.

Budget Management: A- Extra Credit: Bonding Time

Tennessee’s return to firm financial footing has translated into confidence in the financial markets as well. On Bredesen’s first visits to the bond rating agencies in New York, all he could do was tell of his great plans for the state. Stop the TennCare bleeding. Patch the rainy day fund. Invest in education. The reaction was lukewarm at best.

This year, Bredesen was able to go beyond promises. That could translate into a tick upward in the rating for Tennessee bonds when they next go to market. An improved outlook will significantly reduce the state’s cost of paying down debt and borrowing—no small development given the massive public infrastructure needs Tennessee faces in the coming years.

And it would also add significant new accelerant to the momentum Tennessee currently has within the national corporate community.

Extra Credit: Hot, Hot, Hot!

The fiscal turnaround was also music to the ears of corporate America. Site Selection magazine recently ranked Tennessee #2 nationally for jobs and investment. Expansion Management magazine named four Tennessee cities among America’s 50 “hottest” for business (including three in the top 10). Business Facilities magazine reported in July that Tennessee leads the nation on a per capita basis when it comes to job creation, job retention and capital investment. Major companies expanding or relocating to Tennessee in recent years have included such stalwarts as Nissan, International Paper, CareMark, Louisiana-Pacific and Dell.

eFinal Grade:A

The “Comp”-troller Bredesen’s critics say he gets entirely too much credit for being a pro-business governor. They say the math just doesn’t add up. Bredesen supporters hang their hat on the workers’ comp reform he pushed through in 2004 against the wishes of organized labor and the trial bar, key components of his voter base. But on closer scrutiny, Bredesen bent over backwards to preserve two of the key drivers behind high workers’ comp costs in Tennessee. Unlike 48 other states, all appeals still go straight to court instead of a board or commission of experts that stands between the appeal and the award. And while Bredesen’s reform reduced from 100% to 50% the amount a judge could multiply the size of an appealed award, Tennessee remains the one of the very few states that even has a multiplier. Bredesen stresses the psychological impact of the action he took more so than the specific outcomes.

“The belief that the state is willing to step up to a variety of issues that affect business when they come up—even if they are not ideologically down the middle for the governor—is in some ways even more important than the narrow issue of workers’ comp,” he says. Big businesses clearly benefited. Williams-Sonoma, which has a significant warehousing operation in Memphis, stayed in Tennessee as a direct result of workers’ comp reform, Bredesen says. For small businesses, though, the resulting premium reductions haven’t been so sweeping. While Bredesen’s workers’ comp reform was a positive for business in Tennessee, if only psychologically, it was more of a single stretched into a double than the home run it has been portrayed to be.

Ditto Bredesen’s recent executive order enacting regulatory flexibility in Tennessee. The order barely grazes what business in the state really wants—strong language forcing state government to take the time and spend the money to study the impact new regulations will have on business and seek alternatives where necessary.

Grade: C

HEALTH CARE Though Bredesen’s stated goal in office has been to focus on educational improvement across Tennessee, no other issue was more central to his first term than that of health care and the management of the TennCare crisis in Tennessee. Only by reforming the state’s fiscally dire health care program has Bredesen been able to clear the space, mental and financial, to move forward on new education initiatives he believes will pay major dividends for the state down the road.

The TennCare Tempest

Among Tennessee’s business class, a silent majority approves of Bredesen’s gutting of the TennCare program. As Bredesen says, “the press always has to treat every issue as having two sides, but the feedback I get is overwhelmingly that people knew something had to be done.”

Michele Johnson, co-founder of the Tennessee Justice Center, which advocates on the behalf of TennCare enrollees, offers a different opinion.

“The Governor’s Office is a world away from the realities of many Tennessee families. Those families’ experiences provide us and other community service agencies insights about the way state bureaucracies and government contractors really work—or fail to work—down where the rubber meets the road. That is information elected officials badly need if they are to manage government effectively.” Bredesen campaigned on the premise that he was the man to fix TennCare based on his status as a manager and a businessperson—of a health care management corporation, no less. Whether his definition of “fix” meant as one option killing it remains a political debate. Lingering criticism is that Bredesen promised to manage his way out of the TennCare morass only to do what voters feared his 2002 gubernatorial opponent Van Hilleary would do—take out the axe. Bredesen counters that the state couldn’t go forward with the program knowing it would devour the lion’s share of the state’s anticipated new revenue over the next decade. “It was so far in the ditch it was dragging the whole state into the ditch,” Bredesen says. “We’ve gotten it back to the middle of the road.”

And middle of the road isn’t bad. Even after the cuts, Tennessee remains among the top quartile of states providing health care to its citizenry. It is not a bare bones program by any stretch of the imagination.

Despite that, even the most die-hard conservative in Tennessee realizes there’s a time when government is the absolute last resort for the uninsurable. Whether he had a choice in doing so or not, it’s hard to grant a very high grade for taking action that leaves Tennessee’s most disadvantaged, at least temporarily, without the health care they need.

Grade:B Political “Cover”

The top concern of Tennessee small businesspeople is the need for affordable health insurance for their employees. It’s equal parts financial burden and competitive disadvantage given what bigger corporations can usually offer potential workers. Bredesen’s shiny new Cover Tennessee plan—his most ambitious first term art project— aims to offer affordable health care to the working poor and employees of small businesses currently without health benefits. (Other branches include CoverKids, Access Tennessee and Cover Rx to extend health coverage to children, pregnant mothers and those with pre-existing medical conditions.) More the brainchild of a businessman than a politician, the state-run program that unlike TennCare is free of federal oversight divides health care costs between individuals, their employers and the government. If successful, it could be a model for health care coverage nationally. “It always struck me as really bizarre that we would have these divisive arguments about whether you had the gold plan or the platinum plan for TennCare enrollees, totally ignoring the 600,000-plus working Tennesseans that didn’t have health insurance either and who got sick, too,” Bredesen says. “Let’s take all people without insurance, put them in to a pool and get the most important things done for each of them.”

Will it work? Questions include: How many will want the product? Will businesses buy in? How much health insurance can $150 monthly buy? Will insurance providers step up to offer coverage? Wouldn’t they already be selling such a product if there were market demand for it?

As one source says, “the proof is in the pudding; and they haven’t started making pudding yet.” Nevertheless, Bredesen almost universally gets high marks for his artistic vision in crafting the program. But for now, Bredesen’s overall grade on health care is an “incomplete.”

Grade:I

eFinal Grade:I

CORPORATE LURE

Bredesen has made significant new investments in the state, including the creation of aggressive new economic incentives packages to attract large corporations to the state. Legislation passed under Bredesen made Nissan (and other companies relocating to Tennessee) eligible for sizable new tax rebates (up to $200 million in Nissan’s case.) This ain’t your daddy’s Tennessee incentives package program. “It’s like in business. You’ve got to make carefully judged investments,” he says.

Opponents of corporate welfare are not assuaged. Ben Cunningham, founder of Tennessee Tax Revolt, says “state and local tax giveaways for corporations are, at best, counterproductive and, at worst, an open invitation to political corruption. Study after study shows that job growth is dependent on low taxes for everyone, not just a few select corporate fat cats.”

All things considered, Nissan’s incentives are a drop in the bucket compared to the economic impact the carmaker is likely to have on the Midstate, particularly in light of the recently proposed GM alliance. And, generally speaking, Tennessee remains middle of the road nationally in terms of the generosity of its packages.

Grade:B

A Tech Head Bredesen has also made significant new investments in science and technology initiatives—notably, the relationship between UT-Knoxville and the Oak Ridge National Lab (which includes paying UT’s portion of the salaries for world-class joint appointment professors). UT president John Petersen says Bredesen “understands how science can enhance economic development. He has been our partner on every major project affecting big science.”

Bredesen has also budgeted $15 million over the past two years to speed the transformation of Memphis into a national biotech Mecca. Though slow moving, he’s laid significant rhetorical groundwork aimed at moving Tennessee’s telecommunications powerhouses to provide greater cyber-infrastructure for the sake of research and business in Tennessee.

He’s poured $4 million into hastening cutting-edge alternative fuel research in Tennessee, potentially positioning the state as a leader on a crucial national issue.

His program to rapidly credential willing mid-career math and science professionals as high school teachers will enhance public school instruction in those critical areas.

Investing state dollars in science “is a little like venture capital,” Bredesen says. “You’ve got to put small amounts on the table to try some things out and see what’s going to work. If the opportunity is indeed there, then, you can come behind it with much more serious money.”

Science:A

THE “A” IN “TEAM” Even Bredesen’s critics give the governor plaudits for surrounding himself with a stellar cast that includes Lt. Gov. Dave Cooley and commissioners Dave Goetz, Jerry Nicely and Matt Kisber. Kisber sealed the Nissan deal and also runs what many state business leaders perceive as Bredesen’s well-oiled business public relations outfit.

This team can be seen as the main source of Bredesen’s unusually high approval ratings throughout his first term. In the assessment of one critic, Bredesen has “created an enormous perception of himself as a solid manager that is so deep it might as well be reality. I certainly give him an ‘A’ for rhetoric.” More than any one else on Bredesen’s staff, credit for Bredesen’s public relations preeminence goes to Bredesen’s right hand man, Cooley, who studied the art of political theater at the feet of the master, national Democratic strategist James Carville.

Cooley’s value to Bredesen was on clear display earlier this year after stories ran in Nashville’s Tennessean newspaper placing Cooley in the realm of a Tennessee Highway Patrol scandal wherein contributions to gubernatorial campaigns were shown to loosely translate into promotions within the department, regardless of other more objective criteria. Amid murmurings of a call for Cooley’s ouster, Bredesen publicly defended him.

Team Building:A

Demerit: Plays Well with Others Uncharacteristically, Bredesen allowed negotiations with advocates on TennCare reform to spiral into an unprofessional and very public string of personal attacks against lead advocate Gordon Bonnyman. “I put way too much faith at the outset in those advocates helping me and being an ally on TennCare,” he says.

The Justice Center’s Johnson replies that the Bredesen administration’s “lack of genuine openness” and “tendency to ‘shoot the messenger’” prevented a healthy dialogue about public policy.”

To this day, Bredesen describes failed negotiations with Bonnyman as his biggest disappointment in office, yet he seems unable to admit any personal responsibility for the dismantling of TennCare.

EDUCATION

Few people would dispute that a primary obligation of a government to its citizenry is to educate it. Bredesen has often called it his highest priority. From preparing a skilled workforce to recruiting new industry, the vibrancy of any state’s business climate hinges on its educational systems.

It is a mantra in Tennessee business circles that the state must improve on its perennial rankings in the 40s on seemingly every national educational ranking if it wishes to achieve great strides economically.

Universal Pre-K

Bredesen’s biggest boost to reading and writing in Tennessee public schools is the establishment of the state’s first universal pre-K program. Now using $55 million in state funding (227 new classes will open this year), Bredesen plans for the program to one day be a recurring $175 million state expenditure.

Critics say there is little empirical evidence to demonstrate any lasting educational or socioeconomic benefit of government preschool programs. Drew Johnson, head of the Tennessee Center for Policy Research, a nonprofit think tank, says Bredesen modeled his pre-K program on the one in Georgia, which has served more than 300,000 children at a cost of $1.15 billion “without improving children’s test scores or academic performance.”

Yet other studies tie pre-K to economic development gains in states. Though largely favorable, research remains inconclusive. Certainly, improved graduation rates have not yet been directly linked to early childhood education. Some, including Bryson, would prefer a focus on curbing the state’s deplorable dropout rate. All things considered, Bredesen at least deserves credit for standing solidly behind and rapidly deploying a program in pre-K that he believes can take a strong swipe at Tennessee’s education crisis.

Bredesen has provided over $60 million in new state dollars to raise teacher pay above the Southeastern average (albeit under a court order to do so), and he’s aided the TEA in its fight against nontraditional schools in Tennessee.

This last point creates a drag on Bredesen’s education grade. Four years into his reign, his less-than-urgent approach to allowing greater experimentation in the public school arena (particularly in the troubled Memphis school system) has arguably kept Tennessee from achieving the rapid gains its students, systems and societies so desperately need.

Extra Credit: When 95 = 100%

Bredesen also hastened expansion of Dolly Parton’s literacy program to all 95 Tennessee counties. The program addresses a major workforce issue in Tennessee where more than half of adult Tennesseans currently rank in the lower two quartiles of a five-tier literacy scale.

Grade:B Higher Funds for Higher Ed

Bredesen’s satisfactory higher education score derives more from increasing expenditures in the area, not for doing anything revolutionary.

Bredesen’s use of surplus state revenue to hold college tuition increases at 4% this year was a significant improvement over the 10% spikes in recent years.

His approach to funding capital projects on college campuses, prioritizing facilities where private matching funds were raised, is innovative and laudable.

On the flip side, Bredesen has refrained from delving too deeply into the flawed structure of higher education in Tennessee, where oversight is split among several different constituencies including the UT system, the Board of Regents, the Tennessee Higher Education Commission and others. A bureaucratic morass defined by redundancies, a lack of cohesion and politics, many in the business community would like to see the UT system and the Board of Regents system merged, something only a second-term governor could achieve. Bredesen says his focus is on making Tennessee universities “less entrepreneurial” so as to avoid competing doctoral programs. “I certainly don’t mind looking at organizational structure,” he says. “But I want to have a much clearer idea and understanding of everybody and what their strategy is going to be.” Though a good start, it’s hardly a battle cry.

Grade:B-

Vocation Time

Along with ever greater expansion of the state’s economy comes the need for a more highly skilled workforce. The state’s industry titans are sounding the alarm about Tennessee’s inadequacies when it comes to producing potential employees ready to go to work. For instance, Tom Cigarran, chairman of Nashville-based Healthways, announced publicly to members of the Nashville Technology Council in May that his company is “struggling” just to maintain its current level of information services employees in the area and will have to go offshore in the future to meet its needs.

In response, Bredesen, who calls workforce development “ultimately, the issue,” has poured a ton of new state dollars into the department of economic and community development for training grants for companies. But he hasn’t done enough to force the hand of higher education in the state to more appropriately train Tennessee’s up-and-coming workforce.

Bredesen acknowledges that getting traction with the powers that be in Tennessee’s higher education corridors is difficult even for him. “I’m trying to work with the higher ed schools, which is always a long-term prospect, to push some of those courses of study where there is a clear employment demand out there,” he says.

Grade:B-

eComposite Grade:B

Legacy Building

One reason Tennessee is a desirable place to live is its sheer physical beauty. But increasingly, state forestland is being converted into mini-farms and residential developments that are forever transforming the state’s physical character.

This year alone, Bredesen budgeted $30 million for conservation, including the purchase of 13,000 acres on the Cumberland Plateau. “I hope to leave behind an awful lot of land that would have been logged over or developed to be available for people 100 years from now,” he says.

Conservation:B+

anyway he wants it Bredesen’s performance with the legislature has been masterful. “I can’t think of any major thing I’ve wanted in the legislature that I haven’t been able to get something close to the form I wanted it in,” he says. The reason? So unpopular was the legislature when Bredesen took office that its members gleefully hitched their wagon to his star. That relationship, though, is eroding. Lawmakers on both sides of the aisle believe Bredesen views them merely as a necessary evil that exists only to validate his decisions.

Legislative Influence:A

FINAL Grade:B

All things considered, Bredesen earns a solid B, and it’s unlikely voters will turn down an above average governor, especially given the behaviors of previous administrations. Granted, Bredesen’s reelection bid in Tennessee won’t hinge on grades from the media. In addition to the usual movers—a healthy campaign chest and apathy in the voting population—Bredesen will have history on his side—every incumbent governor who has chosen to run for reelection since the state codified it has been easily returned to office. Not unlike the state’s broken educational system, where students often get passed on to the next grade regardless of the quality of their performance in the classroom, incumbents in Tennessee at all levels of government largely get a free pass.

Nonetheless, it’s good to know the state won’t be getting an under-achiever.