The better budget approach: Zero-based, or results-based?

Story by Chris Graham
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Mike Harris has tried to seize the momentum in the marquee race in the upcoming May 4 local elections with a proposal that revolutionized government budgeting 40 years ago.

It’s called the zero-based budget, and the idea is that budget writers start their work on fiscal plans with the assumption that they don’t have a single dollar to spend that is guaranteed, and that they’ll have to justify every penny they ask for as they seek ways to continue providing public-sector services like police, fire, rescue, trash pickup and others.
 

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The most serious limitation to the zero-based budgeting concept, which fell into disfavor in the 1980s: “The assumption built into a real, genuine zero-based budgeting approach is, well, maybe we don’t need to spend any money on public schools. Let’s start with zero, and make the public schools justify every dollar they get from us. One could realize immediately what a silly exercise that would be. Do we really need to build roads and maintain them?” said David Shreve, an economist with the Virginia-based Virginia Organizing Project.

“I’m exaggerating a little bit, but only to make the point. If you want to question the way in which we maintain roads and the way in which we can change school budgets, to build incentives for student performance, better teaching, that’s not zero-based budgeting. That’s the way we’ve always done budgets, by changing them on the margins,” Shreve said.

And therein lies the rub with the plan from Harris, who did not return a message seeking comment for this story. His opponent for the Ward D seat on Waynesboro City Council, incumbent Lorie Smith, notes how a zero-based budget could work in private business, “where if you’ve got a department that isn’t doing well, it’s not functioning, it’s not complementing the bottom line, you can just do away with that department and move on to something else.”

“But with a municipal budget, we just can’t look at a particular service and say, Well, our bottom line doesn’t look like it should, so we’ll just eliminate the service,” Smith said. “What we need to do is we need to roll our sleeves up and do what we’re currently doing, and have been doing, and that’s budgeting line item by line item, and understanding what it takes to deliver services here in Waynesboro, and that the taxpayers’ dollars are being maximized to provide those services.”

That’s called performance-based or results-based budgeting, and it’s the concept that sprang from the ashes of the failed zero-based budgeting experiment of the 1970s.

“That’s where you have a process by which the public sector engages in some strategic planning around what the organization’s mission and performance goals are. And then you figure out, How do we measure that performance, and what do we benchmark against? The idea is that using the budget system to allocate resources based on results holds agencies responsible for budgetary outcomes,” said Michael Cassidy, the executive director of the Richmond-based Commonwealth Institute for Fiscal Analysis.

“Zero-based budgeting has been discounted as not being an effective way at getting at the core issue, which is getting the result out of the public investment that we need,” Cassidy said.

Michael LaFaive, the director of fiscal policy at the Midland, Mich.,-based Mackinac Center for Public Policy, has a different view on the efficacy of zero-based budgeting as a concept. He thinks it can work as people like Harris suggest in making government more accountable for the dollars that it spends, but with a caveat.

“The success of such a change like this hinges strongly on leadership that is dedicated to the task. If those appointed to conduct budget reviews are unwilling to truly assess every item in their budget, word will get out quickly that this new budgeting technique is more symbolism than substance,” LaFaive said in 2003 testimony to the Michigan state legislature.

LaFaive reaffirmed that sentiment in an interview with AugustaFreePress.com this week. And not only must the governing body be committed to a thorough budget review, but it will also have to accept a narrowed scope with a focus on one or two departments a year even at that to make sure that the review can get the attention that it deserves.

“The reason you do not want to adopt an across-the-board zero-based budgeting program is you couldn’t possibly hire enough accountants to get it done. There’s just too much going on. If you zero in on one budget per year, you can work your way through these programs or departments with the type of care that you should run through them,” LaFaive said.

Smith points out the reluctance of City Council to commit to anything resembling the schedule of budget reviews that were the order of the day in the administration of former city manager Doug Walker.

“I can tell you that over the last two years my requests have not been met to have Council meet and review the budget in a very detailed manner. We just don’t have a Council that wants to do a thorough review of the budget,” Smith said.

“We need to remember that the way the city-manager form of government works is we task the city manager with the job of bringing a budget to us, and then it’s up to us to take the budget as presented and tear it apart at any level that we wish to do so. That’s the way this process needs to work, and we can do a better job to make it work,” Smith said.

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