Grading the States introduction THE GOVERNMENT PERFORMANCE PROJECT Report Card: Indiana GOVERNOR Frank O’Bannon (Democrat, elected 1996) LEGISLATURE House — 53 Democrats, 47 Republicans Senate — 32 Republicans, 18 Democrats FINANCIAL MANAGEMENT: B- Indiana’s financial management is conservative — to a fault. The state has no long-term investments, apart from pension funds, and it keeps a startlingly high amount of cash on hand: some $1.6 billion in combined rainy day fund and end-of-year balances. It also is one of 11 states that issue no general obligation bonds. All debt is issued by authorities and the structure and organization of these quasi-governmental bodies vary considerably. “This complicates overall debt management and continuing disclosure,” one state official says. There are worse problems than these for a state to have: At least Indiana isn’t shortchanging its future to feed current demands. On the other hand, a keep-it-under-the-mattress fiscal policy probably does deny the citizens some social or capital investments and/or tax relief the state could afford. An effort is now being made to bring the cash balances down, and to spend the newly available money responsibly, on one-shot funding for local roads and the Teachers Retirement Plan. The plan’s $7.7 billion unfunded liability stands out as one of the worst such programs in any state in the country, even though it’s been steadily coming down. CAPITAL MANAGEMENT: B- The more money you have, the easier capital management becomes. Indiana isn’t the best when it comes to tracking maintenance needs, but thanks to the budget surplus, its agencies are doing a good job at decreasing their maintenance backlog. Preventive maintenance is funded first, followed by rehabilitation and repair, and finally major construction. Historically, that’s meant the state has been inclined to renovate old buildings rather than construct new ones. But the influx of cash has allowed it to build three new prisons, with two more under construction. Health is the next area to be addressed. A new state mental hospital is under construction, while the others will undergo rehabilitation. The state’s facilities efforts are rather decentralized. Indiana doesn’t pull its inventory information together on a statewide basis, arguing that there is little value in a process that places hospitals and parks side by side. On the transportation side, the state keeps a complete inventory of bridges and roads, updated annually. HUMAN RESOURCES: B Indiana’s legislature has chosen to take work-force planning seriously. It has provided for salary increases ranging from 4.5 percent to 12.4 percent, and has increased pay flexibility in most job categories. With these improvements, the state has moved from the bottom of the salary pack 10 years ago to the middle today. Voluntary turnover, which had been as high as 17 percent, is now at 12 percent. “Turnover is still an issue,” says Eric Scroggins, deputy personnel director, “but we’re doing a lot to plug up the leaks.” Like many other states, Indiana continues to whittle down the number of its job classifications and is moving to define jobs by competency and skill instead of relying on credentials. In a tough job market, it is hiring more on ability and less on prior experience, which helps to broaden applicant pools. The state is discontinuing most job testing and increasingly relies on applicants’ self-assessments. Recruitment has been stepped up dramatically. An advertising agency is working with managers on a “brand image” campaign. “We’ve never sold state government employment, and we’re trying to do that,” says one personnel official. MANAGING FOR RESULTS: B- Indiana is at a turning point in managing for results. In the past, it did not use performance measures in its budget and did not require agencies to create or submit strategic plans. Now the O’Bannon administration is redesigning the entire budget process, with substantial revision due in preparation for the 2002-03 biennium. An extensive fact-finding process — which has included citizens, the legislature, the media and agencies — has led the state to a budgeting system that truly will embrace MFR. Among the features: a shift from line-item to program categories, cutting across traditional boundaries; the development of quantifiable performance measurements; and clearly defined missions and funding proposals. In the future, if all goes as planned, requests for funding will be presented in the context of quantifiable expected improvements in performance. Once a budget is passed, those same measures will be utilized on an ongoing basis by managers in state agencies, by the state budget office and by the brand-new Office of High Performance Government, which examines state government as one large team rather than as separate organizations with separate responsibilities and roles. INFORMATION TECHNOLOGY: B- The state has a great new information system for its budgeting process, which it badly needed. It also has a new system for human resources. The problem is in finance. Indiana’s financial management isn’t in the province of a governor-controlled budget office, as in most other states, but is the job of a separately elected auditor, whose office hasn’t focused on the issue. The governor is pushing up-to-date technology for financial management one agency at a time; clearly not the optimal approach. The state’s Web site has just been improved, and it’s accelerating progress in putting transactions online. Although the state now has a solid set of IT standards in place, there are still a handful of significant unintegrated systems. Laura Larimer, the state’s CIO, points to the one in corrections as particularly troublesome. AVERAGE GRADE: B- Copyright © 2001, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are trademarks of Congressional Quarterly, Inc.