Thursday, January 31, 2008

The Never-Ending Budget Process

Who among us doesn't despise this time of year - the time when football has ended, spring training hasn’t started, winter has stretched on too long and spring can’t come soon enough?

Leaders in government, that's who. This is the time when governmental chief executives, from the President on down, deliver “State of” speeches, setting forth a series of new issues and priorities to develop and debate. With a new budget in place and preparation for the next one still a few months away, it’s the time when government officials can evaluate, cogitate and develop big ideas for the year ahead.

Or is it? Here in Wisconsin, after a grueling eight-month State budget debate that ended just a few months ago, the governor and legislature now face the prospect of fighting the same fights all over again in order to address a $400 million budget hole. In fact, the Associated Press reports the governor wants this hole filled before the legislature adjourns in March.

At the county and municipal level, meanwhile, budget officials already deeply concerned about how the economic downturn will impact their tax and fee collections now face the prospect of re-opening their budgets if the State decides to share its pain by cutting into local aids.

For years, the Public Policy Forum has urged local governments to plan strategically and develop long-term fixes to structural budget problems. Unfortunately, such planning takes time and resources that most governments can’t muster when top fiscal staff are consumed with never-ending annual budgeting.

What can be done about this? One obvious solution is for State and local governments to establish sufficient reserves and “rainy day funds” that will prevent unanticipated lags in revenue collections from necessitating mid-year corrections. Of course, that’s easier said than done.

Another is to establish the type of budgeting philosophy and framework that lends itself to making difficult budget decisions – even those that occur mid-year – in a thoughtful, logical and timely manner. Authors David Osborne and Peter Hutchinson, of the Government Finance Officers Association and others have been pushing an approach referred to as “Budgeting for Outcomes”, described by GFOA as follows:

The contrast between traditional budgeting and the Budgeting for Outcomes approach is stark. Rather than having the starting point be what was funded by departments in the previous budget, the starting point becomes what results the jurisdiction wants to achieve. The budget office works with results teams to identify activities and programs most likely to achieve results rather than on cutting budgets. Elected officials spend more of their time making decisions on how much revenue citizens can afford to provide and on choosing results and less time on deciding how much money to cut from the budget and where to cut. The incentives for agencies and departments change from making it difficult for the budget office to find places to cut their budgets to figuring out what activities work best to achieve results and how to provide those activities at lower cost.

The wrong approach to bridging a deficit is the across-the-board strategy, in which cuts are doled out among departments and services on an equal, percentage basis without regard for priorities, performance or consequences. Unfortunately, that’s particularly likely to happen when mid-year cuts are required, as few policymakers wish to revisit the difficult budget debates that had just concluded.

That’s where Budgeting for Outcomes comes in. If the annual or bi-annual budget is based on a strategic framework that recognizes and identifies the top priorities for the government, and that allocates resources based on anticipated results, then budget-cutting becomes more of a science than an art. It may not make the cuts any less painful, but at least it makes them logical and, ideally, apolitical.

Of course, developing such a framework requires time and resources from top budget officials, who every year must deal with mid-year budget crises, which then renders them too busy to work with elected officials to develop priorities…

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