Viewpoint: Budget gaps: It is time to face reality
In January 2010, at least 42 states faced major budget gaps, and many have not been closed. The temptation is to try to take the usual approaches to close the gaps: across-the-board cuts; raiding accounts from non-general fund accounts; delaying funding of some legislation; not fully funding pensions; using accounting gimmicks (delaying payments to the next fiscal year; changing earnings assumptions of pensions so they invest less funds in pensions, etc.) and using the federal stimulus funds to postpone meaningful budget reforms. Those actions may provide a temporary patch to the budget gap, but when the federal funds run out in a year or two, the states and local governments that did not take action to permanently solve their budgetary gaps will face even larger holes.
The current budget crisis provides the perfect time to reform government budget systems and fundamentally reform government. It is important to remind government agencies that they are not entitled to taxpayer dollars; governments are created by the governed and must be accountable and transparent.
Many governments start the budget process by focusing almost entirely on inputs, i.e., they take the programs already in place and the costs they have incurred and do not question the effectiveness of those programs. When budgets are built in the traditional manner of adjusting the current budget for inflation, adding caseload increases, splicing in a few new initiatives, and calling that the baseline budget, elected officials become “enablers” for agencies and programs that likely have fundamental design flaws, or that may be providing services in direct conflict with lawmakers’ policy views. Building budgets the conventional way virtually assures overspending because little, if any, focus is on efficiency or effectiveness.
Following that method, elected officials often find that the baseline budget is higher than the estimated revenue forecast. The traditional budget approach then focuses entirely on how to fill the budget gaps. The question, “How do we maximize the value of the tax dollars spent?” is rarely asked even in tough economic times.
Governments should take action this year to address the serious financial crises by changing their budgetary system to one based on reality-based budgeting focused on outcomes. Reality-based budgeting focuses on results: what is government getting in return for the investments, and how do the measurable outcomes best support the agency’s mission and strategic goals?
Reality-based budgeting views all of government — all of its agencies and all of its functions — as a single enterprise. New proposals are evaluated in the context of all that government does, and the strategies for achieving priority results are developed with an eye on all available state resources.
Elected officials need to answer the following questions:
1. What is the forecasted revenue for the next budget cycle?
2. What does government want to accomplish? What are the essential services government must deliver?
3. How will government measure its progress in accomplishing those goals?
- a. What will success look like?
- b. What measurable outcomes can be identified?
4. What is the most effective way to accomplish government’s goals with the money available?
- a. If a service/program is a core function of government, what level of government should provide it?
- b. How can services be provided efficiently and effectively?
- c. How can market forces and competition be introduced into core functions, assuring costs are controlled and quality enhanced?
Now is the time for reality-based budgeting. I urge elected officials to use this current budget shortfall crisis as an opportunity to reform their budget process from an input system to an outcome reality-based budgeting system.
Bob Williams is an American Legislative Exchange Council scholar and the founder and Senior Fellow at the Evergreen Freedom Foundation in Olympia, Wash.
