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FOR IMMEDIATE RELEASE CONTACT: LYDIA LENKER

JANUARY 28, 2008 615.741.3763 (OFFICE)


615.289.9375 (CELL)

BREDESEN DELIVERS 2008 STATE OF THE STATE ADDRESS


6TH BALANCED BUDGET CONTAINS NO NEW TAXES;
FOCUSES ON BASICS IN EDUCATION, SAFETY, JOBS AND HEALTH

Nashville – Governor Phil Bredesen today delivered his 2008 State of the State Address and Fiscal Year
2008-2009 budget proposal to the 105th Tennessee General Assembly. The common sense, no growth
budget, which calls for no new taxes, commits the majority of new state dollars to education and job
creation.

“What I am proposing in this budget is to concentrate on the basics, putting our full attention to
those things that we need to do well to keep Tennessee moving forward in education, safety, jobs
and health,” Bredesen said.

For the second consecutive year, the largest portion of the $27.88 billion budget – including $13.84
billion in state dollars – will fund Pre-K-12 education and higher education. With a combined
appropriation of $8.41 billion, education represents 30 percent of the total budget.

Bredesen’s proposed budget commits $287 million in improvements for education, including:
y $25 million to fund up to 250 new Pre-K classrooms
y $5.3 million to increase retention of HOPE Scholarships by adjusting the required GPA for
scholarship recipients to 2.75
y $27 million to establish an endowment to provide need-based financial aid to 15,000 more
Tennesseans who want to go to college
The total FY 2008-2009 budget is a 0.61 decrease over FY 2007-2008, with conservative budget growth
of 0.38% in state funding. Federal funding growth also remains flat in FY 09 at less than one percent.
Other features of the budget proposal include:
y $12 million to expand home and community based health care services
y $29.3 million for an economic development jobs package
y $1.3 million for a new TBI lab in Knoxville
y $1.3 million for DNA analysis under the Johnia Berry Act of 2007
y $5.6 million for the UT Biofuels Center and $4 million for the state’s alternative fuels initiative
y $10 million for the Heritage Conservation Trust Fund

Bredesen emphasized he will resist efforts to irresponsibly raid the state’s reserves, which would
retreat back to the fiscal policies that once threatened to bankrupt the state.

(MORE)
Page 2

“I’ve made clear my commitment to running government in a competent and businesslike manner,”
Bredesen said. “One of the legacies I would like to leave as Governor is the certainty that we can
manage as responsibly through the good times as the bad. The steps we’ve taken over the past five
years have positioned us to weather the current national economic slowdown. Tennessee is ready,
prepared to live within its means, and we will make this budget work.”

Bredesen’s 2008 State of the State Address, proposed 2008-2009 budget and other related materials
can be found at www.tn.gov; click on “State of the State Address 2008.”

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EMBARGOED UNTIL 6 P.M. CST CONTACT: LYDIA LENKER
JANUARY 28, 2008 615.741.3763 (OFFICE)
615.289.9375 (CELL)

STATE OF THE STATE ADDRESS – “BACK TO BASICS”


GOVERNOR PHIL BREDESEN
JANUARY 28, 2008

Lieutenant Governor Ramsey, Speaker Naifeh, Speaker Pro Tem DeBerry, Members of the 105th General
Assembly, Justices, Constitutional Officers, friends, guests and my fellow Tennesseans.

Once again I stand before you, my sixth time, to report on the State of our State and to present a
budget prepared in accordance with the requirements of our Constitution. I recognize that the national
economy is slowing, and I’m proud that the soundness of our fiscal situation—a soundness we have built
together—helps us navigate these stormy waters safely. The budget I am recommending is a “back to
basics” one. It is realistic for the times, it is honestly balanced, it does not call on reserves, and it calls
for no new taxes.

As I have done each year, I want to begin with the recognition that tonight there are thousands of
Tennesseans serving our nation abroad. As of this evening 95 of these soldiers have lost their lives in
this service, 19 of them since I addressed you last year.

Would you join me in honoring these fallen Tennesseans, these Tennessee heroes, with a moment of
silence?

To honor the many thousands of Tennessee National Guard soldiers who have served and who continue
to serve our nation, we have invited here this evening two soldiers who have recently returned from
service in Iraq:

y Representing the Tennessee Air National Guard, we are joined by the senior enlisted officer of
the One-eighteenth Civil Engineering Squadron. This squadron of 64 airmen returned on January
19th from Iraq, where in a four month period they completed over 700 missions. Please join me
in showing our appreciation to Staff Sergeant Craig Miller from Murfreesboro and all those he
represents this evening.

y Representing the Tennessee Army National Guard, we have with us the commander of A Battery,
First of the One-fifteenth Field Artillery Battalion. This unit returned last September after a
one year deployment providing convoy security throughout Iraq. They completed 265 missions,
they touched over 1100 forward operating bases and they endured RPG attacks, IEDs, and other
terrorist actions. Members of the unit have been awarded three purple hearts, nine bronze
stars, and a number of other distinguished awards. Please join me in showing our appreciation
to the commander of A Battery, Major Steve Jayco of Camden, Tennessee and all those he
represents.
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As you know, a Tennessean, Al Gore, won the Nobel Peace Prize this past year. The General Assembly
formally honored him, as it should, and we are all proud of what he has achieved. Al Gore shared that
Peace Prize with the Intergovernmental Panel on Climate Change, headquartered in Geneva,
Switzerland.

What is less known here in Tennessee is that five of the scientists who did the work to earn that other
share of the prize are also Tennesseans, working at Oak Ridge. Two of them have joined us here this
evening; Dr. Thomas Wilbanks and Dr. David Greene, both geographers. Would you join me in showing
our respect and admiration for these Tennessee scientists and their colleagues?

This past November, I had the honor of joining Dr. Ben Hooks of Memphis in attending the ceremony at
the White House in which the President presented him the Presidential Medal of Freedom. This is our
nation’s highest civilian honor, and recognizes a rich life and great achievement in the field of civil
rights. Dr. Hooks couldn’t be here this evening, but I would ask you to honor this distinguished man as
well with your applause.

====

Before we get down to business tonight, I’d like to begin with a small celebration. We all know that
there is plenty to do, everywhere, but let’s take a moment and reflect on some things that we have
done.

Security and preparedness. This is a bedrock responsibility of any Governor. This past summer
Tennessee was named by the U.S. Department of Homeland Security as one of the ten states in the
nation to achieve their highest ranking for our disaster response plans. And we were one of eight states
to get a perfect score—10 out of 10—from the Trust for America’s Health for emergency preparedness.
To David Mitchell and Jim Basham and Gus Hargett and Susan Cooper, and to all your supporters in the
General Assembly, thank you.

Economic development. Jobs. Tennessee is a good place to do business. One of the objective ways to
measure how well our businesses are doing is to measure and compare the bottom line—how much the
per capita corporate income tax base has actually grown. The answer is impressive. If you take out
states that enacted new taxes, which we did not, we rank 15th nationally, and we rank first in the
Southeast. This is good news for our economy and for the creation of the skilled and high-paying jobs
that we are seeking. To Matt Kisber and Regan Farr and Jim Neeley, and to all those who support you in
the cabinet and in the General Assembly, thank you.

The Environment. Not so many years ago, some of our state parks had padlocks on the front gates,
others had fees to get in. This year they are open, free and just won the Gold Medal from the National
Recreation and Park Association for the best state park system in America. To Jim Fyke and to all those
who support you in the General Assembly, thank you.

Education. I’ve saved the best for last. Over the years, when others have talked about public education
in Tennessee, we always seem to be forty-something. Forty-sixth in funding, or forty-fourth in
something else.

Education Week, which is the pre-eminent and most widely-read publication in the field of public
education, does its annual report card and state rankings each January. The 2008 rankings have just
come out.
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Believe me, these kinds of grades and rankings should always be taken with a grain of salt, and they
don’t always capture what is most important. But I’ll confess to you that it was nice to look it over this
year. We’re still in the 40s on school finance, 41st to be exact. But this year for the first time they
ranked states on overall scores—the measure that tries to take everything into account—achievement,
standards, transitions, teachers, finance—the bottom line. In that ranking, this January, we’re not in
the 40s. We’re not in the 30s. We’re not in the 20s even. Tennessee is ranked this year #16 in the
nation.

In areas we have focused on, we do even better. In the category of “Standards, Assessments and
Accountability”, we’re ranked number 10 in the nation. After the actions that our State School Board
took last week to further raise standards, I expect this to climb even higher in the years ahead.
And my personal favorite ranking. In one of the six categories they look at, “Education Alignment
Policies”—this is where pre-K lives—we know we still have lots to do here, but in 2008 our Education
Week rank nationally is one.

We are making progress in education. There are a lot of people to thank for this, most especially the
wonderful teachers we have across our state. Our teachers have responded enthusiastically and
completely to the challenges we have placed before them, and speaking as Governor for all of our
citizens, we thank you.

Please allow me a moment however to thank one person specifically. I’m losing her this week, she is
moving on to new challenges and her leaving is a sore loss to me and our state. There is no single
person more responsible for the progress we have made; please join me in saying thanks and Godspeed
to our Commissioner of Education, Lana Seivers.

====

Now down to business.

Each of you here this evening knows that the economy of our nation and our state has softened in the
past six months. Changes in the economy always have to be blamed on something, and the problems
our nation is experiencing with sub-prime mortgages are the popular explanation for what is happening
right now. But even more fundamental is the reality that the business cycle has not gone away, we’ll
have better years and worse years for a long time to come. There’s no tax policy that will fix this; in
fact states with income taxes typically experience bigger swings than we do when the economy changes.

We just have to learn to live with this reality and most importantly, learn to manage through it.
I want you to think this evening about our job as if we were the officers and crew of a sailing ship—we’ll
call her the “Tennessee.” In the first year we crewed together, we had a full-blown storm to navigate.
The next couple of years were in calmer waters, and last year was positively bright and sunny and with a
following wind. This year, so far, we’ve got some heavy seas once again; not a real storm yet, but
definitely some attention-getting waves.

There’s an old sailor’s adage: you can’t control the wind, but you can adjust your sails. We can’t
control the national economy, but we can make the adjustments that let us ride it out.

I liken us to the officers and crew of a sailing ship for a reason: a crew that can handle the ship in calm
waters but falls apart when the storms come is a failed crew. The public looks at us like that ship’s
crew; they look at the people in this room tonight like that ship’s officers. On sunny days, they expect
us to maintain discipline; on stormy ones, they expect us to do what we’re paid, what we’re elected to
do: sail the good ship Tennessee through whatever waters it encounters; skillfully, sensibly, and most of
all, safely.
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You know my commitment to running government—to sailing this ship—in a competent and businesslike
manner. One of my goals as governor is to leave my state with as many tools as I can to help it navigate
through smooth waters and storms and everything in between. Build on the sunny days—we’ve done
that. Trim your sails when there’s a storm on the horizon—we’re doing that. Most of all, make sure the
day you finally walk off the bridge the ship is tighter and sounder and better prepared than you found
her—we’re going to do that.

We expect our revenues this year to fall at least $180 million below the final projection you adopted
last spring, and the budget being presented to you tonight is about $400 million below what it would
have been without this year’s shortfall and with what would be normal growth next year.

The current year’s shortfall is being handled fine. TennCare in particular ran well below its budget last
year, and we were able to both return some appropriation to the general fund and further build
TennCare reserves. It is a welcome change that TennCare can be part of the solution. I thank Darin
Gordon and his staff for what they have accomplished, which is remarkable.

We have also increased our departments’ reversion targets—the amounts they are asked to return to the
general fund at the end of the year. This amounts in its effect to reductions in their budgets, while
leaving our commissioners the flexibility to handle reductions as they see fit. We expect to smoothly
finish the year within the reduced revenues; we will not call upon the rainy day fund absent some
dramatic change in circumstances. In fact, we’ll continue to grow it.

Next year presents a greater challenge, and we need to do the same thing as that sailing ship does when
the waters get rougher; focus, concentrate on basic seamanship. We’ve had some good weather,
especially the past couple of years, and we’ve used the time and our good fortune to make some much
needed repairs and improvements to the good ship Tennessee. We’ve made major capital investments,
for example, over $1 billion in higher education capital projects alone.

But now’s the time, now’s the weather, to come down from the mast, to put away the paint and the
polish, and concentrate on basic seamanship, on basic statesmanship. There are still a lot of things
we’d like to do. We leave them for another day, and put our full attention to those things that we need
to do to keep Tennessee safe and moving forward.

I want to talk with you about four of those areas: education, crime, jobs, and health.

Education. In my address to you last year, I spoke entirely about education, and asked that we make
some major changes. Together, we have done that. The BEP distribution formula has been reworked to
make it simpler, and more important, much fairer. We called it BEP 2.0. Our budgets contained large
increases in K-12 funding, and we agreed upon and set in law a framework for even further
improvements in funding in the future. This framework is a far more sensible approach than picking and
choosing items to fund year by year. We made major improvements in accountability, in local school
boards’ flexibility to manage their systems, and most importantly in standards. Tennessee, as part of
the American Diploma Project, is nationally recognized as a leader in its commitment to strong and high
standards, and I am proud of us for that.

As in years past, this budget fully funds the BEP. In addition, the remainder of the tobacco tax money—
we estimate it at $87 million—has been incorporated to further fill out the framework of BEP 2.0. This
will help us continue the progress we are making in K-12 education. I have also placed in the budget
$25 million to continue meeting the requests of communities across our state for Pre-K classrooms.
That is not enough to fund all of the requests that we have, but will keep us moving forward. Pre-K
remains, dollar for dollar, the best investment we can make in improving the chances for our children’s
educational success.
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Let me address one issue head on. I have followed some of the discussion about halting the further
funding of pre-K insofar as it serves any children other than the poor, the so-called “at-risk” students.
This would be a terrible mistake, and I ask those of you who are espousing this to reconsider.

How do you say to a middle class family with children in the public schools: “Yes you pay taxes for
these classrooms; yes, they are public schools; but no, those classrooms aren’t open to your children?”

I hope to live to see the day when we stop dividing our children up into poor and rich. These are all
God’s children, these are all America’s and Tennessee’s children; we run the schools, they are public
schools, they are a public responsibility, they need to be open to the public.

The budget that I am proposing also contains two changes to the lottery scholarship program. I believe
in the merit concept behind the Hope scholarships, and want to retain it. But when nearly 80% of the
scholarship winners lose their scholarship during their time in college, something is wrong.

It’s time to fix this, and I have proposed in this budget that we change the grade point average for
retention of the scholarship from 3.0 to 2.75.

This has a simple and I think compelling rationale; the average grade point average in college of
scholarship winners is about three tenths of a point less than it was in high school. In other words,
college is harder than high school, and the student who achieved a 3.1 in high school will on average
achieve a 2.8 in college. Changing the retention level in this way says to the student, “If you work as
hard in college as you did in high school to earn the scholarship in the first place, you can keep it.”

I know there is a lot of interest in the lottery reserves, and I agree that they have grown beyond what is
reasonably needed to operate the lottery. I’d like to suggest an approach as to how we might employ
them usefully but conservatively.

First, a short story. A week ago last Friday—the Friday before Martin Luther King Day—I spent part of
the morning at Overton High School here in Nashville, with a high school history class, talking with them
about Dr. King. These students were a delight to be with. Of the twenty or so students in the class,
there were four or five who always had their hands up. They were probably ‘A’ students, and will likely
earn one of our Hope scholarships.

There were also another half-dozen students who were more reserved, more reticent, who didn’t
express themselves quite as readily, but who when you listened to them had thoughtful and interesting
and perceptive things to say. I walked out of there understanding that those students— likely ‘B’ and
‘C’ students, I’d guess—have a voice worth hearing too, have a voice that can contribute to this world if
they have doors open for them as well.

In our state we have a lot of these students, who may not earn a Hope scholarship, but who want to go
to college and need financial help to do so. Over 80,000 students apply each year to our own Tennessee
Student Assistance Corporation, but we can only assist 21,000 of them because TSAC simply runs out of
money. Let’s keep the merit scholarships intact, and keep rewarding excellence, but let’s also start
expanding our help to others as well.

I have proposed in this budget that we take about half of the unallocated lottery reserves, $200 million
specifically, and use it to establish an endowment for TSAC. Between the earnings from this
endowment and a small additional appropriation from the annual lottery surplus, we will be able to
assist financially another 12-15,000 deserving and hard-working Tennessee students to earn a college
education.
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Tennessee has some wonderful, successful students who we know have a bright future. With our lottery
scholarships, for them we’ve straightened and smoothed the road to a college education. Now, let’s
open our hearts, let’s widen that road and let more of the others on it as well.

====

Another basic in both sunny and stormy weather is public safety; reducing crime and keeping our
citizens safe. There are three new items in the budget that address the safety of our citizens.

First, this budget contains the additional money that is needed to fully implement the Johnia Berry Act.
It funds the lab work that is necessary to quickly process the DNA samples that we will take as a result
of this act.

Second, we are proposing and have budgeted the required funding to implement Administrative License
Revocation for drivers who are arrested for drunk driving. This was a key recommendation of my drunk
driving task force, and I believe will reduce the number of drunk drivers on our roads.

And third, this budget contains substantial new money to staff the additional prison beds that are being
built in conjunction with Brushy Mountain. One of the ways to prevent crime is to make sure we have
the space to keep those who commit it behind bars.

I know this chamber is filled with people who are committed to fighting crime, and I respectfully ask
you to fund these requests so that we may continue the fight.

Education, and public safety. Another basic is jobs; making sure our economy continues to grow and
produce good jobs. Even though the year is tight, we continue in this budget to appropriate money to
the funds that allow us to offer infrastructure improvements and training to companies looking to
relocate or expand here. We continue to place special emphasis on job development in our more rural
areas. I know from the business world that when times get tight, these investments are often the first
to be cut, and I also know that this is almost always a mistake. Here in Tennessee, we have not been as
strongly affected as many other states have by the national slowdown. The reason, in part, is the
strength and diversity of our economy. Our ship is pointed in the right direction here, and I ask you to
stay the course.

While I’m speaking about jobs, I’d like to talk with you about the people we employ right here in state
government. My appreciation for the dedication and quality of our state employees has grown with
every year I’ve spent as governor. I spoke a moment ago of the importance of keeping economic
development in the top ranks of our lists of the basics. I want to add our own employees to that list as
well; I do think they all too often are the first to bear the brunt of flatter budgets.

This year’s budget includes an across-the-board 2% raise for our state employees. This is done to
recognize that attracting and retaining good employees is just as basic to state government as to any
industry in our state. We are making cuts in other areas of our departments’ budgets to make this
possible. I wish it were more, but I hope that the priority that is being given to our employees will help
assure them of our commitment to them.

Any good captain knows that valuing the crew, treating them with respect, and giving them the tools
they need is basic to good seamanship.

Education, safety, jobs, employees. I’d like now to address the subject of health.

We have a lot of things underway in the health field.


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I’m particularly proud of the efforts that our state is making to fight some of the underlying causes of
serious health problems, particularly in the areas of obesity and smoking. This is the real frontier in
public health, and we’re starting to show some real successes here; the smoking rate in middle school
has declined from 17% to 10% over the past year, for example. That 10% is still 10% too high.

We are also a national leader in e-health, in the use of electronic data and communication technology
to maintain and make accessible to providers a person’s health records. There are advantages to both
the cost and quality of health care that flow from this use of technology. We have paid a great deal of
attention to the privacy and security of these records as we have proceeded. The initiative we have
developed in conjunction with Vanderbilt University in the greater Memphis area is frequently held up as
one of the two or three top e-health efforts in the nation.

====

Finally, I’d like to talk this evening though about a promise that I’ve made and not yet kept—expanding
alternatives to nursing homes for our elderly and disabled residents, the so-called home and community
based services. Tennessee usually ranks dead last among the states in alternatives to nursing homes.
This is the year I want to fix that, this is the year I want to fulfill my promise.

In the months ahead, with your help, we are going to fundamentally restructure how long term care is
handled in our TennCare program, and it will be a much better and more humane program as a result.
Eligibility is slow today; we are going to speed it up. We need to make it easier to stay at home with
more home and community-based services. We need more residential alternatives to nursing homes and
we need more consumer-directed options such as allowing the consumer to select or even employ his or
her own caregivers.

These are not just goals, we will present you with the “Long Term Care Community Choices Act of 2008”
to restructure legislatively this part of TennCare, and TennCare itself will be making changes in
conjunction with this to open the doors to a richer set of choices for our citizens.

We cannot of course put significant new dollars into long term care this year. What we will do is to
restructure what we have, and provide a framework for the future in much the same way as we did with
the BEP last year. We will not do this independently, but in consultation with members of the
legislature, with the industry itself, and with citizens who have been calling for changes in long term
care for a long time.

There is a growth in my own personal understanding here. It becomes plainer to me every day that our
state has so many citizens who are elderly and who are beginning to deal with the reality that they can
no longer do everything for themselves in quite the way they did twenty years ago. Our state is full of
the children and grandchildren of these citizens who want the best for them, and are looking for ways to
accomplish that.

And most personally, I know my mother is watching this proceeding tonight, and she still hasn’t stopped
teaching me. I want to say to her, Mom,

I’ve seen how much you want to be in your own home;

I know how difficult that would have been a few times these past couple of years without some help;

I know that not everyone has a granddaughter like you do who can give that help.

My job is to open more doors to alternatives here in Tennessee. If you want to stay in your home, if it
makes sense to do so, this is the year we’re going to start making it easier.
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In this year’s State of the State, I’ve carried through a nautical analogy, likening us to the crew of a
sailing ship navigating heavy seas. I did so because there’s a real core of truth there. The public—those
who have placed their trust with us—really does expect us act like a crew when the seas get heavy.
There’s another old saying that I heard years ago, that I think sums it up: “The world is not much
interested in the storms you encountered at sea. The question is: did you bring the ship safely to
port.”

When it comes to the important things, the people of Tennessee don’t really care about governors and
legislatures, don’t really care about Democrats and Republicans, aren’t interested in the day-to-day
challenges we face in government. What they do care about is us getting down to business and sailing
the ship safely and on course through whatever seas she encounters.

“The world is not much interested in the storms you encountered at sea. The question is: did you bring
the ship safely to port.” Working together, we can bring her safely to port.

Thank you for your courtesy here tonight. May God bless Tennessee and her people, and may God
continue to bless and protect the land called America where, working together, dreams come true.

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Administration
Priorities

Stick with the Basics

Governor Bredesen led our state out of bankruptcy and put state Government back on a solid financial footing. He
accomplished this through common sense budget discipline and sound management of our state’s resources. He has
rebuilt investor confidence, confirmed by upgrades of the state’s bond rating by Fitch and Standard & Poor’s in 2006
and by Moody’s in 2007. To prepare the state to manage as effectively through economic downturns as it does times
of economic prosperity, he has built Tennessee’s “rainy day” fund to an all-time high.

The commitment the Governor has made to common sense budgeting, smart investments in education and health
care, and record rainy day reserves are moving Tennessee in the right direction. The 2008-2009 budget is the sixth
balanced, sensible and well-rounded budget Governor Bredesen has submitted to the General Assembly.

The Governor believes that state government, like a family or business, must live within its available resources. This
year’s budget balances those resources with the need to continue to focus on fundamentals that will move
Tennessee forward in education, job creation, health care, safe communities, and conservation of our precious land
and energy resources.

Educating our Children

Governor Bredesen has made education Tennessee’s number one priority. Successes of his administration to date
include a pre-K program that is growing and recognized nationally as a model, last year’s BEP 2.0 and its substantial
increases in both fairness and funding and our leadership position in the national standards movement. In 2008, we
need to continue to build on this foundation.

The Governor has once again proposed additional funding for pre-K and so we can move beyond so-called “at-risk”
children and offer all parents in Tennessee the option of a first class pre-school experience for their children. There is
continued progress toward full funding of the new BEP 2.0 formula laid out last year. More rigorous high school
graduation requirements have been adopted to make sure our graduates are college ready and work ready, and
standards have been revised for math, science and English to make Tennessee more competitive at a national level.

Governor Bredesen is committed to breaking down the barriers and cutting through the red tape to ensure we have
the best possible teachers in the classroom, particularly in critical areas like math and science. Building on the
success of Teach Tennessee, the Governor has asked the Tennessee Board of Education to help broaden the pool
of great teachers through alternative certification methods. At the same time, he is committed to working with higher
education to revolutionize our traditional teacher training programs to provide more relevant, professional teacher
training with less theory and more concentration on developing expertise in content areas.

Modernizing our Economy and Creating More Jobs

Governor Bredesen believes one of the foundations of a good life is a good, steady job. Tennessee’s success in the
area of business and quality job growth in the past five years has been stellar, and we have grown our business tax
receipts—our franchise and excise taxes—at one of the fastest rates in the nation. The Governor is committed to
moving that success beyond the seven urban and suburban counties that account for most of that growth to help our
smaller cities and rural areas prosper as well.
The Rural Opportunity Initiative Training program will build on the ROI initiative launched by the Governor in
September and the Rural Opportunity Fund, also launched in 2007. The program will provide skills training designed
to enhance and improve technology capabilities in communication and marketing, create effective local leadership to
assess, plan and build competitive communities, and strategically prepare for future economic development
prospects with a focus on rural areas.

Leading Healthier Lives

Leading healthier lives requires changes in lifestyles to reduce disease, access to health care services, and
supporting the needs of the individual through all stages of their life. Cover Tennessee’s programs are up and
running successfully, covering more children and working adults than ever before. Tennessee’s efforts to enact the
Non-Smokers Protection Act and increase cigarette taxes took Tennessee to a grade of “B” from an “F” in the
American Lung Association’s latest national report card. Adult smoking rates in Tennessee have already dropped
from 26.8% in 2006 to 22.6% in 2007. Smoking rates for our youth also improved, with a drop in high school smoking
rates from 26.3% to 25.5% and a drop in middle school smoking rates from 16.6% to 9.7%.

In 2008, Governor Bredesen is committed to increasing the home and community based care services available to
Tennesseans planning long term care for themselves or family. The need for more options in home and community
based services is clear. Tennessee currently ranks only 44th in the amount of Medicaid home and community based
waiver services spending, but ranks 16th in nursing facility spending. Rebalancing this system will modernize the
payment structure for nursing facility services with quality care incentives. More importantly, it will give Tennesseans
more options for themselves and their loved ones by incorporating more home and community based services that
make it possible to stay at home longer.

Making our Communities Safer

Governor Bredesen knows safe communities are vital to maintaining a high quality of life in Tennessee. Legislative
initiatives like the Meth-Free Tennessee Act of 2005, the Johnia Berry Act of 2007 and the Crooks with Guns bill,
turning up the heat on Internet predators and a new TBI Crime Lab in Knoxville are just a few of the initiatives and
tools Tennessee has brought to bear to keep our communities safe.

The Governor’s budget includes continued support for successful programs as well as funding for expanded prison
facilities in Morgan County, increased funding for local jails and salary increases for judges, district attorneys and
criminal investigators. He has also designated funds for a residential program for at-risk youth ages 16-18 called the
National Guard Youth ChalleNGe program, a tuition assistance program for the Tennessee Air National Guard,
resources for TEMA’s statewide communications interoperability program, and a DUI driver’s license revocation
initiative.

Promoting Energy Independence and Conservation

Governor Bredesen’s commitment to conservation encompasses protecting our precious land and water resources
and reducing consumption of energy and other natural resources. His decision to commit more than $70 million
dollars to alternative fuels development last year has truly made Tennessee a leader in the movement away from a
petroleum-based economy. In 2007, Tennessee also completed a historic 127,000-acre acquisition on the northern
Cumberland Plateau that joins the acquired forestland with other publicly owned lands to safeguard a 200-square
mile swath of forestland for preservation and public enjoyment.

The Governor’s budget includes funding to continue targeted conservation initiatives through the Heritage
Conservation Trust Fund, the Wetlands Acquisition Fund and the Local Parks and State Lands Acquisition Funds.
Improved water resources management and planning to better meet the water supply needs of Tennessee
communities is another administration priority for the year ahead.
“I believe with all my heart that the real change that is needed in education is a focus on the
individual teacher; a commitment to getting the best possible person to teach in each and every
classroom. It is time we got serious about our teachers – about recruiting them, selecting them and
preparing them for the job.”
~ Governor Phil Bredesen

The following is an overview of Tennessee’s accomplishments in education under Governor Bredesen’s leadership.

Pre-Kindergarten Education
With the addition of 257 new classrooms in 2007, Tennessee now operates 934 classes serving over 17,000
students in all 95 counties and 133 school systems of the state. In the spring, the National Institute for Early
Education Research recognized Tennessee for the second consecutive year for providing one of the best quality
pre-K programs in the nation. Tennessee was ranked based on a comprehensive examination that highlighted
rigorous standards for teacher credentials in the classroom and for excellent learning standards aligned to the
behavioral and cognitive needs of a child preparing to enter Kindergarten.

School Funding – BEP 2.0


More than $376 million new dollars are being provided for local school districts as a result of 2007 revisions to the
BEP funding formula for public schools. Governor Bredesen’s BEP 2.0 plan revised key components of the formula
and changed the fiscal capacity model used to determine local school funding requirements, creating a fairer and
more equitable funding formula that provides for the increasing demands felt by districts across the state.

The new model provides a clear, fair understanding of each system’s ability to pay for schools and raise
additional revenue. In the fall, districts submitted financial accountability documents outlining exactly how they
appropriated each new dollar received under BEP 2.0. All funds supported classroom instruction by providing
additional teachers and educational specialists, curriculum and supplies.

Teach Tennessee
Governor Bredesen’s Teach Tennessee program is a unique path to teacher licensure for exceptional mid-career
professionals who demonstrate expert knowledge and want to make a positive difference in the lives of
Tennessee’s students. All Teach Tennessee Fellows have academic and workplace expertise in the most difficult
to staff subject areas: math, science, and foreign languages. Close to a third of the Governor’s Teach Tennessee
Fellows hold advanced degrees in the subject area they intend to teach. Their previous career roles include
engineers, chemists, medical technologists, software engineers, computer programmers, and college professors.

Governor’s Academy for Math and Science

In August 2007, 24 students from across the state became the inaugural class of the Governor’s Academy for
Mathematics and Science in Knoxville. Governor Bredesen proposed this unique residential program for high
school juniors and seniors to help prepare young people for the jobs of the future and make Tennessee a leader
in the world of math and science. The program combines classroom education with hands-on research
experiences in real-world settings. Key partners include the University of Tennessee, Tennessee School for the
Deaf, ORNL and Oak Ridge Associated Universities.
Accountability
With increased school funding in 2007, additional accountability measures were instituted to focus districts on
getting the best results for their students. BEP 2.0 changes required increased accountability for how the new
funds would be used to improve achievement for students at-risk for failure. A matrix designed for each school
district links the new funds received to specific areas in need of improvement at their school or district.

The Department of Education expanded its division for urban education improvement to provide the department
with more specialists with knowledge of the unique problems facing these school districts. This division held the
first summit on urban education last summer to collect best practices from districts and allow them to share
ideas and work across the state to focus on the best resources for urban settings.

Tennessee Diploma Project


In January 2007, Governor Bredesen directed the department to join the American Diploma Project Network. This
coalition of 29 states is working to align our high school curriculum, standards, assessments and accountability
policies with the demands of college and work in a 21st century economy.

In the spring, information was collected from higher education instructors to determine the skills Tennessee
graduates require to be prepared for and succeed in post secondary work. Governor Bredesen held a series of
roundtable meetings with leaders across the state to ensure that changes made to high school standards and
requirements meet the needs of the modern workplace.

This fall, the Department of Education began distributing new, more rigorous learning standards for all core
academic subjects in all grades. In order to create a learning path for students that would be successful, all
standards must be aligned and improved to give educators the tools they need to see their students succeed. This
winter the states TCAP tests will be re-bid to match the depth and rigor of the new learning standards.

Governor’s Books From Birth Foundation


In 2007, the GBBF partnered with the Tennessee Department of Human Services to expand the libraries of more
than 2,400 child care agencies serving low-income infants, toddlers and preschoolers across the state. DHS-
licensed agencies serving low-income children participating in the subsidy program (also known as the certificate
program) each received a set of Imagination Library books. Nearly 40,000 children under age five attend these
licensed agencies across the state. One hundred DHS field offices in all 95 counties also received a gift set of
Imagination Library books.

School Health
Last year, Tennessee expanded a new school health program to all districts in the state. The Coordinated School
Health program began as a pilot in 10 districts to provide comprehensive and integrated health education to
students of all ages. In May, an analysis by ETSU of the pilot systems determined that the Coordinated School
Health model provides for greatly improved health outcomes and less risky behavior patterns by students. The
study found improved academic performance, less alcohol and drug use, and more community involvement as a
result of the Coordinated School Health program. In August, more than $12 million in grants were distributed
across Tennessee to fund a Coordinated School Health program in every school of the state. Each district has
hired a qualified health expert to direct and coordinate all of the resources and activities of the district to
improve student health.
“When it comes to the health care needs of Tennessee, we’re addressing real-world concerns with
real-world solutions.”
~ Governor Phil Bredesen

The following is an overview of Tennessee’s accomplishments in health care under Governor Bredesen’s
leadership.

Covering the Uninsured


In 2007, Governor Bredesen put his idea for helping Tennessee’s uninsured into action with the launch of Cover
Tennessee. He centered his vision for Cover Tennessee on four primary principals: create programs that are
accessible; create programs that are affordable and portable; focus on preventive services; and, emphasize
personal responsibility.

Cover Tennessee’s three insurance programs - CoverTN, CoverKids and AccessTN - and its pharmacy benefit
program, CoverRx, are providing options to uninsured Tennesseans where no options existed for them before.
Furthermore, the Governor was able to launch Cover Tennessee without creating mandates requiring individuals or
businesses to buy insurance and without any new taxes on individuals, businesses, hospitals or insurance
companies.

Patterned on a commercial model, Tennessee was able to plan, design, procure and implement Cover Tennessee in
record time and, by the end of the year, more than 63,000 previously uninsured Tennesseans had health insurance
and pharmacy services. Today, all four programs have expanded. CoverKids has added vision benefits for children
and will soon add dental benefits. CoverTN now offers coverage to small businesses with 50 or fewer employees
and to working individuals whose companies do not provide health insurance. Cover Tennessee is a national model
and an example of how a state can make health insurance affordable, accessible and voluntary so the uninsured
get health care services.

Tobacco Control and Prevention


Tennessee took tremendous strides in 2007 in efforts to curb tobacco use among Tennesseans as well as their
exposure to secondhand smoke. Legislation to prohibit smoking in the majority of workplaces in Tennessee and an
increase in the cigarette tax, coupled with investments in tobacco cessation and prevention programs, are already
having a positive impact. In fact, Tennessee has moved from the third highest adult smoking rate in the nation to
10th in the nation, a significant reflection of the number of Tennesseans who chose to stop tobacco use.

Recent statistics show adult smoking rates dropped from 26.8% in 2006 to 22.6% in 2007. During the same period,
smoking rates also decreased among high school students from 26.3% to 25.5% and middle school students from
16.6% to 9.7%.

Calls to the Tennessee Tobacco Quit Line increased dramatically following implementation of the Tennessee Non-
Smokers Protection Act. More than 10,000 citizens called to learn more about QuitLine services, while more than
8,000 Tennesseans, many of them uninsured, received tobacco cessation assistance through state and local health
departments.
Get Fit Tennessee
In August, Get Fit Tennessee re-launched its Web site – www.GetFitTN.com – redesigned to give Tennesseans an
online, one-stop resource for nutrition and fitness information as well as local activities and destinations in which
to “get fit” in communities across the state. The initiative includes members like program spokesperson Eddie
George, a former Tennessee Titan player and Heisman trophy winner, and University of Tennessee football coach
Phil Fulmer. In August 2007, Commissioner of Health Susan Cooper launched a Get Fit Tennessee Back to School
Tour. By the end of 2007, the team had visited more than 50 school districts across the state to share with children
in Tennessee the importance of increased physical activity and healthful nutritional choices.

Focus on Diabetes
In November, Tennessee ranked first in the nation for numbers of adults with diabetes who monitor their blood
glucose levels daily, according to the Centers for Disease Control and Prevention’s Morbidity and Mortality Weekly
Report. Findings of the nationwide study on self-monitoring of blood glucose among adults with diabetes include
significant increases in daily monitoring from 1997 to 2006, with an average increase of 22 percent. In Tennessee,
78.2 percent of adults with diabetes reported monitoring their blood glucose daily in 2006, a 25.8 percent increase
from 1997.

Local Health Departments Expand State Safety Net


Three newly constructed local health departments opened in 2007 in Blount, Dyer and Maury counties. Each local
government was provided $1 million in Safety Net funding from the state to help cover the cost of construction.
Expansion grants were also given to establish three federally qualified health centers in counties without safety
net options. The safety net clinic network of public health departments, federally qualified health centers, and
community and faith based clinics provided over 500,000 visits for uninsured Tennesseans in 2007.

Better Management in TennCare

TennCare has continued to build a financially viable healthcare program for low-income families. The bureau’s
strong financial status is the result of TennCare's diligent fiscal stewardship over the past five years. Building on
the program’s operational strength, TennCare has focused on increasing accountability with managed care
organizations to improve overall health outcomes for enrollees. Targeted efforts to manage enrollee’s health
needs through the whole person model have already resulted in the successful integration of behavioral and
physical health in Middle Tennessee and is moving statewide.

Preparedness

In December, Tennessee achieved 10 out of 10 possible indicators of preparedness to respond to public health
emergencies, according to Ready or Not? Protecting the Public’s Health from Disease, Disasters and Bioterrorism,
a report issued by the Trust for America’s Health. Tennessee is one of only seven states with a top score in this
national assessment.

In August, Tennessee received a score of 85 out of a possible 100 points from the Centers for Disease Control and
Prevention for its level of preparedness to receive the Strategic National Stockpile during an act of bioterrorism or
a mass casualty event. SNS is a federal program, which aids state governments in establishing pre-positioned
caches of medicines and medical supplies that can be shipped in less than 12 hours in the event of a large-scale
public health emergency severe enough to cause local supplies to be depleted.
“Tennessee won’t be truly strong until each and every county has a strong economic foundation.”

~ Governor Phil Bredesen

The following is an overview of Tennessee’s accomplishments in Economic and Community Development reached
under Bredesen’s leadership.

Job Creation
Governor Bredesen knows the wealth of the state is in the hard-working Tennesseans who have good jobs with good
futures and the companies that employ them. He believes job creation is critical to improving our quality of life
with a focus on developing higher skilled, better paying jobs.

Since taking office, Governor Bredesen’s programs have generated more than 130,000 new jobs and nearly $20
billion in new capital investment in Tennessee. In 2007, Forbes magazine ranked Tennessee the 13th best state in
the nation to do business, up from 20th the year before, tying Tennessee with Washington for the most improved
state in the nation for business climate.

Rural Opportunity Initiative


At the 2007 Governor’s Conference on Economic and Community Development, Governor Bredesen unveiled the
Rural Opportunity Initiative, a series of new incentives designed to jump start job growth in Tennessee’s rural
counties. The ROI program establishes three tiers of economic distress in Tennessee’s rural counties and offers a
series of progressive tax credits for companies that locate or expand in counties with historically high rates of
unemployment.

The program is outlined in the Tennessee Tool Kit, the state’s first ever comprehensive document spelling out
economic incentives. More than 5,000 Tool Kits were distributed in the first six months of the program and are
downloadable from the ECD Web site.

The program was developed in tandem with the Rural Opportunity Fund, a $12 million dollar capital fund seeded
with $2 million in state funding. The fund is designed to provide high potential rural businesses with much needed
capital to fund expansion and job creation. To date, the fund has made four loans and is reviewing the applications
of 15 more businesses.

Agricultural Enhancement
Tennessee is largely a rural state, and Governor Bredesen is committed to meeting the challenge of economic
development in rural areas head on. Building on the foundation provided by the Rural Opportunity Initiative and
Rural Opportunity Fund, the Governor launched a series of Rural Economic Roundtables in 2007 to explore the
challenges and additional tools needed to spur economic growth in rural communities.

The Tennessee Agricultural Enhancement Program is successfully targeting rural economic growth with an
unprecedented investment of $26 million in agricultural development activities to increase farm income. The first-
ever state funded farm cost share program was proposed by Governor Bredesen in 2007 and funded by the General
Assembly to help safeguard animal health, improve cattle management and encourage farm innovation and
diversification.
In the first six months of Fiscal Year 2008, more than $25 million has been committed in cost share assistance to
8,200 Tennessee farmers, a response especially noteworthy in what has been described as one of the worst
agricultural production years on record in Tennessee. These public/private investments will help improve farmers’
bottom lines and help them better manage through difficult growing seasons like the one experienced in 2007.

Helping Small Business


Since taking office in 2003, Governor Bredesen’s administration has taken the approach that economic
development should serve small, minority and women-owned businesses as well as large corporations. That’s why
the Business Enterprise Resource Office was created. BERO launched a program of business matchmaking events
across the state to assist small companies in meeting procurement executives from large corporations and
government agencies, executives with whom they would otherwise have difficulty arranging a meeting.

To date, those events have been a resounding success with more than 900 small, minority and women-owned
companies taking part in BERO Business Matchmaking events, generating more than $565,000 in new business
contracts for small business. BERO also provides one-to-one business counseling for small business and in 2007
counseled 1,811 companies, a six percent increase over the previous year.

Global Outreach
The state expanded efforts to assist Tennessee companies in taking part in the global economy through a number
of important initiatives in 2007, including Governor Bredesen’s October 2007 trade mission to the People’s Republic
of China. The effort developed strong working relationships with Chinese trade officials and raised the profile of
Tennessee through the opening of the Tennessee China Development Center, the state’s first ever trade office in
China.

The Governor’s trip moved forward several important agreements including Phenotype Screening Corporation’s
contract with the Chinese Institute of Botany and raised the profile of West Clinic of Memphis’ opening of a new
cancer treatment center in Shanghai. The Governor also held meetings with Chinese health care officials and laid
the groundwork for a visit of Chinese medical experts to Tennessee in 2008 to study rural medicine, health care
financing and organizational leadership at institutions like the University of Tennessee, East Tennessee State
University, Vanderbilt and the University of Memphis.

Corporate HQ Success
The success of Governor Bredesen’s focus on higher skilled, better paying jobs is clearly evident in the continued
attraction of new corporate headquarters to the state. In August, Verizon Wireless announced plans to build its
regional headquarters in Franklin, becoming the 31st company to locate a corporate headquarters in Tennessee
since 2003. The state also successfully convinced longstanding corporate citizens like Eastman Chemical and
General Motors to continue investing in Tennessee, with $1.3 billion and $800 million in new investment
respectively.

National Recognition
Tennessee’s unique job creation strategies continue to get the state noticed nationally. In addition to being
recognized by Forbes as one of the most improved states in the U.S. for business climate, Site Selection magazine
ranked Tennessee one of the 10 best states in the nation for business for the third consecutive year in 2007.

Tourism: A Major Economic Driver


Direct and international travel spending in Tennessee reached more than $13.4 billion in 2006, a $1 billion increase
from 2005, once again confirming tourism’s position as a major economic driver for Tennessee. For the second time
in the state’s history, more than $1 billion in state and local taxes was generated from travel-related revenues.
“The need to find alternative sources of energy is a vital issue. It is an issue of national security, an
issue of economic responsibility, of environmental stewardship, and of our citizens’ quality of life.”

~ Governor Phil Bredesen

The following is an overview of Tennessee’s accomplishments in Environment and Conservation under Governor
Bredesen’s leadership.

Tennessee at the Forefront of Biofuels Development


Governor Bredesen’s decision to commit more than $70 million to alternative fuels development has truly made
Tennessee a leader in the movement away from a petroleum-based economy. The Governor created the
Alternative Fuels Working Group, an interagency task force designed to look at ways the state can reduce its costs
for energy consumption and launched the BioTENN program, aimed at developing the market for alternative fuels
by increasing alt fuels availability across the state.

Perhaps most significant, however, is the commitment to assist research currently underway at the University of
Tennessee and Oak Ridge National Lab to develop cost competitive ethanol from non-food source products like
wood chips and switchgrass. With Governor Bredesen’s support, UT will begin building a pilot ethanol
refinery/research center in East Tennessee. Tennessee's investment was instrumental in the successful bid by ORNL
and UT to win a $135 million Bioenergy Research Center that will be located in Oak Ridge. The combination of
state and federal investments has catapulted Tennessee to the forefront of the emerging bioenergy industry.

Land Conservation
Governor Bredesen continues to make land conservation a priority, announcing in November the completion of a
historic 127,000-acre acquisition on the northern Cumberland Plateau in Anderson, Campbell, Morgan and Scott
counties. The project, called “Connecting the Cumberlands,” joins the newly acquired property with other publicly
owned lands to safeguard a 200-square mile swath of forestland for preservation and public enjoyment.

The Heritage Conservation Trust Fund, which Governor Bredesen established in 2005 with support from the General
Assembly, has allowed the state to better respond to emerging opportunities for preservation of priority open
spaces. In 2007, the Trust Fund awarded 14 grants totaling $17.3 million, leveraging other public and private
dollars to protect more than 22,000 acres.

Environmental Management
In 2007, state and federal agencies united to form the Tennessee Drought Task Force. Participating agencies
include the Departments of Agriculture, Environment and Conservation and Economic and Community Development
as well as the Tennessee Emergency Management Agency, TWRA, TVA, Army Corps of Engineers, U.S. Fish and
Wildlife, the National Weather Service and the Tennessee Association of Utility Districts. Together, the Drought
Task Force tracked drought-related issues and potential problems across Tennessee and worked with local
governments and municipalities to provide community-specific technical support and information on funding
assistance options.

Shortly after taking office in 2003, Bredesen directed the Departments of Environment and Conservation and
Transportation to achieve better environmental management with a focus on protection. Those cooperative efforts
were demonstrated in 2007 with several initiatives like a statewide watershed signing project to increase public
awareness of the importance of watersheds and encourage good stewardship of state water resources. The two
agencies implemented an environmental agreement outlining processes for the two agencies to improve
environmental protection and efficiency by including environmental officials in road projects earlier in the
planning process. And TDOT launched two new grant programs aimed at reducing emissions from diesel engines to
improve air quality.

Tennessee State Parks


The commitment Governor Bredesen made early in his administration to Tennessee’s state parks received national
recognition in 2007. The Tennessee State Parks system was selected as the best state parks system in the country
by the American Academy for Park and Recreation Administration and the National Recreation and Park
Association.

Improved fiscal discipline and management has allowed Tennessee to reopen 14 parks closed by the previous
administration, eliminate access fees at 23 parks that had instituted them in 2002, and make other improvements.
With a wide range of recreational and educational opportunities, Tennessee State Parks and Natural Areas also play
a key role in the protection of ecologically significant lands and the preservation of state cultural and historic sites.

Protecting Soil and Water Resources


More than $6 million in state cost share assistance was provided to nearly 1,700 landowners in the last fiscal year
to improve water quality and protect soil resources on almost 100,000 acres of farm and forestland in Tennessee.
Dollars from the state’s Agricultural Resources Conservation Fund were also used to leverage an additional $3
million in federal funding to improve another 14,000 acres and to support various water quality projects and
educational programs across the state.

New resources provided to the Department of Environment and Conservation in 2007 were focused on protecting
water quality from erosion and storm water runoff from uncontrolled construction sites, which can pose a
significant threat to the state’s water resources, damage wildlife habitats and affect drinking water resources.
Tennessee also received an EPA grant to fund the first phase of a four-year storm water project designed to help
local municipalities develop comprehensive strategies to manage water resources at the local level for water
quality protection.

Reducing Emissions to Improve Air Quality


In December, as part of the U.S. Environmental Protection Agency’s Clean School Bus USA program, the Southeast
Diesel Collaborative presented the Department of Environment and Conservation with a $250,000 grant to install
diesel retrofit devices on 40 school buses in Sumner County. In June, TDEC awarded nearly $1 million in Alternative
Fuels Innovation Grants to 14 recipients. The grant program was created to encourage local governments and
public universities to assess opportunities to increase the use of alternative fuels in their fleets and measure
positive impacts to state air quality, particularly in areas not attaining federal air quality standards.

In January, the Department of Transportation launched two new grant programs aimed at reducing emissions from
diesel engines. The program, which provides funds for retrofitting older diesel engines used in locomotives and
road construction equipment, has received a National Leadership Recognition Award from EPA. TDOT is also
implementing the Green Island Network Corridor program, which provides grants to qualifying retail fueling
stations for the promotion and sale of the biofuels, B20 Biodiesel and E85 Ethanol. The goal of the program is to
help locate biofuel stations no more than one hundred miles apart along Tennessee’s interstates and major
highways.

Cultivating Environmental Stewardship


The Tennessee Youth Conservation Corps proposed by Governor Bredesen in 2006 completed its first season in
2007. The program engages young people with hands-on conservation experiences at Tennessee State Parks and
Natural Areas. In 2007, 80 college students and 30 high school students had the opportunity to explore career
options in conservation in this program designed in the tradition of the Civilian Conservation Corps, which built
parks and a range of public projects across the U.S. between 1933 and 1942.
1
Budget Principles

Maintain Education as the State’s Top Priority


Stick with the basics – Investments in
Education, Health Care, Jobs, Safety and
Environment
Submit a balanced, fiscally conservative
budget with no new taxes

2
Budget Record

6 common sense balanced budgets


Conservative budget growth
FY09: 0.38% growth state funds; -0.61% total budget

Record savings in Rainy Day Fund


$750 Million in FY08; $785 Million in FY09

Improved bond rating (AA+)


Record investments in education since FY03
$1.306 Billion in Pre-K-12; $1.038 Billion in higher ed capital funds

3
Budget Overview

Total FY 08-09 Budget (including federal dollars)

RECOMMENDED
SOURCE FY08-09
TennCare $ 7.57 B
Pre K-12 $ 4.97 B
Higher Ed $ 3.44 B
Transportation $ 1.8 B
Other $ 10.1 B

TOTAL $27.88 Billion

4
Budget Overview

FY 08-09 Taxpayers’ Budget (state dollars only)


RECOMMENDED
SOURCE FY08-09
Education $ 5.7 B
Health and Social Services 3.76 B
Law, Safety Correction 1.18 B
State Shared Taxes 864 M
Transportation 804.5 M
General Government 462 M
Resources and Regulation 406 M
Business and Economic Dev. 174 M
Other $ 497 M

TOTAL $13.84 Billion


5
Budget Breakdown

Revenue (federal and state dollars)

ESTIMATED RECOMMENDED

SOURCE (millions) FY07-08 FY08-09 CHANGE


State Appropriations $ 13,793 $ 13,845 .38%
Federal Revenue 9,562 9,564 .02%
Other Departmental 3,389 3,337 (1.5%)
Tuition and Fees 1,010 1,020 1%
Bonds 295 112 (62.03%)
TOTAL $ 28,049 $ 27,878 (.61%)

Net decrease
in overall
state budget.

6
Budget Breakdown

Breakdown by fund (federal and state dollars)


ESTIMATED RECOMMENDED

FUND (millions) FY07-08 FY08-09 CHANGE

General Fund $ 24,482 $24,492 .04%


Transportation 1,747 1,802 3.15%
Debt Service 329 321 (2.4%)
Capital Outlay 454 231 (49.12%)
Facilities Revolving 197 168 (14.7%)
Cities & Counties (SST) 840 864 2.8%
TOTAL $ 28,049 $27,878 (.61%)

7
Federal Funding Challenges

Flat Federal Funding Growth


– FY09 <1 %
– FY08 1.9 %
– FY07 -5.5 %
– FY06 2.6 %
– FY05 11.4 %
– FY04 12.5 %

FY09 Federal Funding Issues


– TennCare
ƒ CPE
ƒ GME
– DCS –Targeted Case
Management
– Lower Estimated Federal
Transportation Projects

8
Budget Breakdown
Appropriations (state dollars only)
ESTIMATED RECOMMENDED
APPROPRIATIONS (millions) FY07-08 FY08-09 CHANGE
General Government $ 446 $ 462 3.59 %
GENERAL FUND

Education * 5,456 5,700 4.47 %


Health and Social Services 3,810 3,755 (1.44 %)
Law, Safety & Correction 1,177 1,183 0.51 %
Resources & Regulation 488 406 (16.80 %)
Business & Economic Dev. 213 174 (18.31 %)
Transportation 757 804 6.21 %
Debt Service 329 321 (2.43 %)
Capital Outlay 264 164 (37.88 %)
Facilities Revolving 13 12 (7.69 %)
Cities & Counties (SST) 840 864 2.86 %
TOTAL $ 13,793 $ 13,845 0.38 %

* Includes education lottery appropriations


9
Budget Breakdown

State tax collections


SOURCE ESTIMATED ESTIMATED
(millions) FY07-08 FY08-09 CHANGE
Sales $ 7,031 $ 7,306 3.91%
Dept. of Revenue Collections

Franchise & Excise 1,766 1,801 1.98%


Gas 858 864 .70%
Motor Vehicle Reg. 259 263 1.54%
Privilege 317 305 (3.78%)
Gross Receipts 270 284 5.19%
Other 977 1014 3.79%
SUBTOTAL $ 11,478 $ 11,837 3.13%
Other State Rev. 954 922 (3.35%)
TOTAL $ 12,432 $ 12,759 2.63%

10
Base Budget Cuts

9 TennCare $ 26.9 M
9 Cover Tennessee $ 23 M
9 Correction $ 6.2 M
9 Human Services $ 4.3 M
9 Children’s Services $ 1.6 M
9 TCRS Rate Reduction $ 12.1 M
9 Miscellaneous $ 11.7 M
Subtotal Base Reductions $ 85.8 M
9 Increase in Over-Appropriation $ 43.4 M
Total Reductions $ 129.2 M

11
FY09 Improvements

Highlights of Major Improvement Initiatives


Education $ 287 M
(Includes BEP, BEP 2.0 Year 2, Pre-K Expansion, Academy for Math & Science Year 2, Books
From Birth Match Increase, Save the Children Literacy Program Year 3, FFA and 4H Foundation
Grants, HOPE Scholarship Retention, Nursing Loan Forgiveness Program, UT Biofuels Year 2,
Teacher Quality Initiative, Teacher and Higher Education Salary Increases)

Job Creation/Rural Development $ 37.6 M


(Includes Soil Conservation, Tourism Advertising, Jobs Package, Rural Opportunity Fund)

Home and Community Based Care $ 20.7 M


(Includes Home and Community Based Services, Arlington Community Mental Retardation Services,
Community Mental Health Services Waiting List Reduction)

Safe Communities $ 41.9 M


(Includes Johnia Berry DNA Analysis, Knoxville TBI Lab, Internet Crimes Against Children Task Forces,
Morgan Co. Prison Expansion, National Guard Youth ChalleNGe Program, Communications Interoperability,
and Fire-Fighting Communications Equipment)

Energy and Conservation $ 34.5 M


(Includes Alternative Fuels Awareness (BioTENN) Year 2, Heritage Conservation Trust Fund, Local Parks
and State Lands Acquisition Funds, Water Resource Management, Wetlands Acquisition Fund,
UT Biofuels Research Initiative)

12
Budget Breakdown
State Dollars

GENERAL GOVERNMENT TOTAL $ 461.7 M


Finance and Administration $ 37.4 M
Dept. of Revenue (Includes Title & Registration) $ 86.9 M
Comptroller $ 86.8 M
Legislature $ 39.2 M
Other $ 211.4 M

FY 09 IMPROVEMENTS $ 88.3 M
(continued on next slide)

13
Budget Breakdown
State Dollars

GENERAL GOVERNMENT (cont.)

FY 09 IMPROVEMENTS – PAY AND BENEFITS


9 Employee Pay Raises $ 30.6 M
(State Employees 2%)

9 Group Health Insurance Increase $ 34.8 M


9 Alternative Fuels Initiative - Year 2 $ 4M
9 Internet Crimes Against Children Task Force $ 400 K
9 Public Records Ombudsman $ 40.5 K
(Additional Position)

14
Budget Breakdown
State Dollars

EDUCATION TOTAL $ 5.7 B


Pre K-12 Education $ 4.019 B
Higher Education $ 1.68 B

FY 09 IMPROVEMENTS $ 287 M
9 Pre K-12 Improvement $ 220 M
9 Higher Education Improvement $ 67 M

BEP 2.0
More than $376 million new dollars are being provided for
local school districts as a result of Governor Bredesen’s 2007
revisions to the BEP funding formula for public schools.

15
Budget Breakdown
State Dollars

EDUCATION (cont.)

FY 09 IMPROVEMENTS – Pre-K-12 $ 220 M


9 Fully Fund BEP Growth $ 83.9 M
9 BEP 2.0 – Year 2 $ 86.5 M
9 Pre-K Expansion – General Fund $ 25.0 M
(Adds up to 250 new classrooms)
9 Governor’s Academy for Math and Science – Year 2 $ 400 K
9 Governor’s Books From Birth Foundation $ 500 K
9 Save the Children Literacy Grant $ 2M
9 FFA and 4-H Foundation Grants $ 1M

16
Budget Breakdown
State Dollars

EDUCATION (cont.)

FY 09 IMPROVEMENTS– HIGHER EDUCATION $ 67 M


9 HOPE Scholarship Retention – GPA 2.75 $ 5.3 M
(5% increase)
9 Need-Based Student Financial Aid $ 27 M
(TSAA $9 M, Lottery for Education $18 M)
9 Higher Education Salary Increases – UT and TBR $ 22.9 M
9 Nursing Loan Forgiveness Program $ 1.4 M
9 UT BioFuels Center – Year 2 $ 5.6 M
9 TBR Teacher Quality Initiative $ 500 K

17
Capital Outlay Budget

CAPITAL OUTLAY $ 230.7 M


Bonds $ 0M
Cash $ 163.5 M
Other $ 67.2 M

PROJECTS
Correction $ 120.0 M
K-12 Education (State Special Schools) $ 2.2 M
Higher Education (Maintenance) $ 53.6 M
Mental Retardation $ 11.4 M
Library & Archives (Planning) $ 2.1 M
State Museum (Planning) $ 2.0 M

18
Budget Breakdown
State Dollars

HEALTH AND SOCIAL SERVICES TOTAL $ 3.755 B


TennCare $ 2.679 B
Children’s Services $ 341.3 M
Health $ 205 M
Human Services $ 183.5 M
Mental Health $ 179.1 M
Cover Tennessee $ 73.1 M
Mental Retardation $ 80.5 M
Other $ 13.5 M

(continued on next slide)

19
Budget Breakdown
State Dollars

HEALTH AND SOCIAL SERVICES (cont.)


FY 09 IMPROVEMENTS $ 54.7 M
9 Home and Community Based Care Expansion $ 12 M
9 Smoking Cessation – Year 2 $ 10 M
9 Primary Care Clinic Safety Net Grants $ 6M
9 HIV/AIDS – Ryan White Program $ 3M
9 Arlington Area HCBS Transition $ 4.1 M
9 Mental Retardation Services Waiting List Reduction $ 610 K

20
Budget Breakdown
State Dollars

TRANSPORTATION, BUSINESS & ECD TOTAL $ 1.066 B


Transportation $ 892.2 M
Economic and Community Development $ 65.8 M
Agriculture $ 94.5 M
Tourism $ 13.8 M
Housing $ 350 K

FY 09 IMPROVEMENTS $ 42.4 M
9 Jobs Package $ 29.3 M
9 Rural Opportunity Fund $ 1.2 M
9 Soil Conservation $ 2.25 M
9 Tourism Advertising $ 4.75 M

21
Budget Breakdown
State Dollars

LAW, SAFETY AND CORRECTION TOTAL $ 1.183 B


Correction $ 673.8 M
Safety $ 123.7 M
TBI $ 40.2 M
Military $ 15.6 M
Other $ 329.7 M

FY 09 IMPROVEMENTS $ 36.7 M
(continued on next slide)

22
Budget Breakdown
State Dollars

LAW, SAFETY AND CORRECTION (cont.)


FY 09 IMPROVEMENTS $ 36.7 M

9 Morgan Co. Prison Expansion $ 6.2 M


9 Local Jail Reimbursements $ 3.2 M
9 National Guard Youth ChalleNGe $ 1.2 M
9 Air Guard Tuition Assistance $ 310 K
9 Communications Interoperability $ 201 K
9 DNA Analysis – Johnia Berry Act of 2007 $ 1.3 M
9 Knoxville TBI Lab $ 1M
9 Real ID Reserve (non-recurring) $ 6.5 M
9 DUI Initiative – ALR $ 2.8 M

23
Budget Breakdown
State Dollars

RESOURCE AND REGULATION TOTAL $ 406.4 M


Environment and Conservation $ 202.6 M
Commerce and Insurance $ 87.9 M
Labor and Workforce Development $ 43.1 M
Financial Institutions $ 8.2 M
Other $ 64.6 M

FY 09 IMPROVEMENTS $ 25.3 M
9 Heritage Conservation Trust Fund $ 10 M
9 Water Resource Management $ 2M
9 Lands Acquisition Fund $ 4.9 M
9 Wetlands Acquisition Fund $ 4.9 M

24
TennCare Reserves
$598M as of 6/30/07
Non-Recurring Commitments $ 48.5 M
9 Essential Access Hospitals/Critical Access $ 30 M
9 Capital funds for Med and Metro $ 5M
9 CoverTN $ 5M
9 Minimum wages for nursing homes $ 8.5 M
Potential Recurring Problems $ 377 M
9 Certified Public Expenditures $ 200 M
9 Nursing Home CPE $ 67 M
9 Targeted Case Management $ 78 M
9 Graduate Medical Education $ 32 M
Potential Non-Recurring Problems $ 150 M
9 Disallowance of 2006 & 2007 Nursing Home CPE $ 140 M
9 FY08 effect of TCM $ 10 M
Economic Downturn – 10,000 new enrollees $ 11.9 M
25
TennCare Reserves
$598M as of 6/30/07

Where Did the Savings Come From?

Settlement of long-standing federal disputes - $133 million


Delay in Medically Needy program - $150 million
One-time retro-active Nursing Home CPE - $73 million
Conservative estimate of federal funds - $131 million
Reduced administrative fees for MCOs - $41 million
Unused HCBS funds - $19 million
Pharmacy Savings - $147 million
Controlling utilization trends - $173 million

26
Revenue Fluctuation Reserve
In Millions – Rainy Day Fund

27
Budget Recap

Tennessee well positioned to weather anticipated


national economic downturn
6th common sense balanced budget
No new taxes
Total budget growth less than 1%
63% of all new state tax dollars in education

28
29
Appendix
Available Revenues 2008-09
Recurring Non Recurring

Department of Revenue Growth $ 343,700,000 $ -


Recurring Base Adjustment 5,100,000 -
Revenue Base Availability 100,000,000 -
Less: Revenue Undercollection Estimate (180,000,000) -
Less: License Plate Production (Transfer to Hwy Fund) (2,400,000) -
Add: Other State Revenue Growth 1,500,000 -
Add: Tobacco Settlement MSA @ $164.5 Million 7,200,000 -
Less: Miscellaneous Revenue Adjustment (100,000) (400,000)
Add: Reserve for Future Requirements @ 6/30/08 - 337,600,000
Add: Debt Service Fund Revenue 10,000,000 -
Less: Supplemental Appropriations - (19,600,000)
Add: Base Reductions 85,800,000 -
Less: Base Adjustments (400,000) -
Less: Base Balancing - Highway Fund Issue ($32.8M) (30,800,000) -
Less: ICF-MR Gross Receipts Tax (1,300,000) -

Sub-total Available Revenues $ 338,300,000 $ 317,600,000

Plus: Increase Overappropriation to $120 Million 43,400,000 -

Total Available to Fund Improvements $ 381,700,000 $ 317,600,000

30
Appendix
2007-2008 and 2008-2009
Additional Requirements Reserve for Future Requirements at 6-30-08
Recurring Non Recurring
I. Available Revenue (A + B): $ - $ 510,900,000
A. Reserve for Future Requirements @ 6-30-07:
1. Department of Revenue Overcollection $ - $ 51,000,000
2. Other State Revenue Overcollection - 7,300,000
3. Miscellaneous Revenue Overcollection - 2,700,000
4. Tobacco Settlement MSA Overcollection - 6,200,000
5. TennCare Additional Reversion @ $550.2 M Unearmarked Reserve - 171,000,000
6. Additional Reversion - Other Agencies - 43,400,000
7. Other - (1,100,000)
Total Reserve for Future Requirements @ 6-30-07 $ - $ 280,500,000

B. Other Available Funds:


8. 2007-08 Debt Service Fund Transfer - 106,000,000
9. 2007-08 TennCare Reversion - Medically Needy @ $45.3 M Budget - 45,300,000
10. 2007-08 Additional Reversion - TennCare - 20,000,000
11. 2007-08 Reversion - Cover Tennessee - Estimated Excess - 37,000,000
12. 2007-08 Additional Reversion - State Prosecutions - Estimated Excess - 10,000,000
13. 2007-08 Additional Reversion - Other Agencies - 12,100,000
Total Other Available Funds $ - $ 230,400,000

31
Appendix
II. Other Adjustments: $ (173,000,000) $ (19,862,600)
14.Less: 2007-08 Revenue Undercollection Estimate $ (180,000,000) $ -
15.Less: 2007-08 ICF-MR Gross Receipts Tax ($1.3 M) (700,000) -
16.Less: 2007-2008 Trauma Center Fund - Due at 6-30-07 - (297,500)
17.Less: 2007-2008 Supplemental Appropriations - (19,565,100)
18.Plus: 2007-2008 Tobacco MSA @ $162.0 4,700,000 -
19.Plus: 2007-2008 Sales Tax Reconciliation - Telecomm. Ad Valorem Tax Reduction 3,000,000

III. Budget Surplus / (Deficit) = $318 M - Reserve @ June 30, 2008 $ (173,000,000) $ 491,037,400

32
Appendix
Improvements by Functional Group
Funded by State Taxes, Licenses, Fees, and Lottery Proceeds

General Government $ 88,254,700

Education 287,053,100

Health and Social Services 54,743,800

Law, Safety, and Correction 36,659,400

Resources and Regulation 25,263,600

Transportation, Business, and Economic Development 42,372,000

Total Recommended Improvements $ 534,346,600

33
Appendix

General Government Improvements

Secretary of State
Library Information Management System $ 300,000

Comptroller of the Treasury


Public Records Ombudsman/person $ 40,500

Finance and Administration


Internet Crimes Against Children Task Forces $ 400,000
Basic Education Program (BEP) Fiscal Capacity 34,200
Subtotal Finance and Administration $ 434,200

Revenue
Call Center Equipment $ 600,000

34
Appendix

Miscellaneous Appropriations
Salary Increase – State Employees $ 30,600,000
Group Health Insurance – January 1, 2008 14,500,000
Group Health Insurance – January 1, 2009 20,300,000
Alternative Fuels – Year 2 4,000,000
Data Center Equipment 7,800,000
Enterprise Resource Planning (ERP) 3,800,000
Email Archive 160,000
State Veterans Homes 1,700,000
Federal A-87 Rent Rate 1,000,000
Facilities Revolving Fund 1,600,000
Red Cross in Tennessee 845,000
Fisk University 500,000
State Legislative leaders Foundation 75,000
Subtotal Miscellaneous Appropriations $ 86,880,000

Total General Government Improvements $ 88,254,700

35
Appendix
Education Improvements
Education (K-12)
Basic Education Program (BEP) $ 83,900,000

BEP 2.0 - Year 2 86,500,000

Pre-K Program 25,000,000

Governor's Institute for Science and Math 400,000

Group Health Insurance - January 1, 2008 7,800,000

Group Health Insurance - January 1, 2009 5,500,000

TCRS (Retirement) Rate Increase - July 1, 2008 3,200,000

Comprehensive Assessment Program (TCAP) 1,350,000

Student Management System 2,700,000

Governor's Books from Birth Foundation 500,000

Literacy - Year 3 2,000,000

FFA and 4-H Foundation - Year 3 1,000,000


Teacher Training and Experience - State Special Schools 187,300
Sub-total Education (K-12) $ 220,037,300

36
Appendix
Higher Education - State Administered Programs
Salary Increase $ 333,200
HOPE Scholarship Retention - Lottery Source 5,300,000
Need-Based Student Financial Aid - Lottery Revenue and Lottery-Funded Endowment 27,000,000
Nursing Loan Forgiveness Program 1,400,000
Sub-total Higher Education - State Administered Programs $ 34,033,200

University of Tennessee System


Salary Increase $ 10,257,400
Mouse Genome Consortium 1,000,000
Biocontainment Lab Equipment 3,000,000
UT Biofuels Center - Year 2 5,600,000
Sub-total University of Tennessee System $ 19,857,400

State University and Community College System


Salary Increase $ 12,625,200
Teacher Quality Initiative 500,000
Sub-total State University and Community College System $ 13,125,200

Subtotal Higher Education $ 67,015,800

Total Education Improvements $ 287,053,100

37
Appendix
Health and Social Services Improvements
Finance and Administration, Bureau of TennCare
Home and Community-Based Services (HCBS) $ 10,127,900
HCBS Electronic Visit Verification 933,400
HCBS Rate Equalization - TennCare and Aging Commission 944,000
Pediatric Office Visit Rate Increases 528,500
Mental Retardation Services 5,348,600
Children's Services 585,800
Human Services 1,262,200
Sub-total Finance and Administration, Bureau of TennCare $ 19,730,400

Health
Tobacco-Smoking Cessation - Year 2 $ 10,000,000
Primary-Care Clinics 6,000,000
HIV/AIDS 3,000,000
Meharry Wellness Program (HBCUs) - Year 3 2,000,000
Medical Examiners Program 1,000,000
Health-Care Facilities Incident Tracking 540,100
Sub-total Health $ 22,540,100

38
Appendix

Finance and Administration, Division of Mental Retardation Services


Arlington Area – Home and Community-Based Services $ 4,083,500
Waiting List Reduction 610,900
Subtotal Finance and Administration, Division of Mental Retardation Services $ 4,694,400

Human Services
Standard of Need 2,170,900
Family Assistance Service Center 2,104,100
Individual Development Accounts – Year 3 100,000
Child Support - Assistant District Attorneys’ Step Raises 35,300
Subtotal Human Services $ 4,410,300

Children’s Services
Residential Provider Rate Increase $ 1,386,000
Foster Care and Adoption Assistance Rate Increase 769,700
Adoption Assistance Caseload Growth 870,200
211 Program – Family and Children’s Services 283,000
Teacher Training and Experience 59,700
Sub-total Children’s Services $ 3,368,600

Total Health and Social Services Improvements $ 54,743,800

* Dedicated Appropriation
39
Appendix
Law, Safety, and Correction Improvements

Court System
Mandated Salary Increase $ 972,800
Indigent Defendants and Dependent Children Representation 5,000,000
Sub-total Court System $ 5,972,800

Attorney General and Reporter


Statutory Salary Increase $ 5,600
District Attorneys General Conference
Statutory Salary Step Raises $ 1,029,500
District Public Defenders Conference
Statutory Salary Step Raises $ 556,000

Office of the Post-Conviction Defender


Statutory Salary Step Raises $ 24,000
Operational and Staffing 109,300
Sub-total Office of the Post-Conviction Defender $ 133,300

Correction
Prison Expansion - Morgan County $ 6,188,500
Operational Increase 5,442,100
Local Jails 3,212,800
Sub-total Correction $ 14,843,400

40
Appendix
Military
Youth ChalleNGe $ 1,200,000
Administration Legislation - Air Guard Tuition Assistance 310,000
Communications Interoperability 201,400
Sub-total Military $ 1,711,400

Tennessee Bureau of Investigation


DNA Analysis - Violent Felonies - 2007 Johnia Berry Act $ 1,306,100
Knoxville TBI Lab 1,012,500
Sub-total Tennessee Bureau of Investigation $ 2,318,600

Safety
Statutory Salary Step Increase $ 802,300
Administration Legislation - Real ID Driver's License 6,500,000
Administration Legislation - Driver's License Revocation 2,786,500
Sub-total Safety $ 10,088,800

Total Law, Safety, and Correction Improvements $ 36,659,400

41
Appendix
Resources and Regulation Improvements
Environment and Conservation
Land Acquisition Funds $ 4,874,400 *
Heritage Conservation Trust Fund 10,000,000
Water Resources 2,000,000
Watershed Restoration and Study 1,750,000 **
Transportation Projects Environment Support 491,000
Bicentennial Mall Maintenance 333,200
Subtotal Environment and Conservation $ 19,448,600

Tennessee Wildlife Resources Agency


Wetlands Acquisition Fund $ 4,875,600 *
Statutory Salary Step Increase 533,800
Subtotal Tennessee Wildlife Resources Agency $ 5,409,400

Commerce and Insurance


Statutory Salary Step Increase $ 8,200
Regulatory Boards 203,900
E-911 Emergency Communications - Staffing
193,500
Subtotal Commerce and Insurance $ 405,600
Total Resources and Regulation Improvements $ 25,263,600
* From $12 million allocation of the real estate transfer tax ** Dedicated appropriation
42
Appendix
Transportation, Business, and Economic Development Improvements
Agriculture
Soil Conservation - Agricultural Resources Conservation Fund $ 2,250,000 *
Fire-Fighter Communications Equipment – Year 2 4,822,000
Subtotal Agriculture $ 7,072,000

Tourist Development
Advertising $ 4,750,000

Economic and Community Development


Jobs Package $ 29,300,000
Rural Opportunity Fund 1,250,000
Subtotal Economic and Community Development $ 30,550,000

Total Transportation, Business, and Economic Development Improvements $ 42,372,000

* From $12 million allocation of the real estate transfer tax


43