Monday, February 05, 2007

SB0063:Zero-based Budget

I must confess some ignorance on the concept of government implementing zero-based budgeting, so I've had to do a little research on it. Zero-based budgeting forces an organization to justify the total cost of a program, rather than just the cost of an increase for that program, when an increase is proposed. There is a Senate bill that is getting zero attention from the media that would implement this on a State level. Here is what I've found from other states that have tried this.

California's Senate

"Many commentators credit Peter A. Pyhrr with developing zero-based budgeting as a management tool for Texas Instruments. In 1971, Governor Jimmy Carter applied the concept to state budgeting in Georgia. Other states have since used aspects of the budgeting technique, including Florida, Texas, Ohio, Oklahoma, Virginia and Rhode Island. After studying the various attempts at using ZBB, the National Conference of State Legislatures (NCSL) found that zero-based budgeting has limitations. It concluded, in Fundamentals of Sound State Budgeting Practices, that states have certain rigidities in their spending structure. Specifically: Statutes, obligations to local governments, requirements of the federal government, and other past decisions have many times created state funding commitments that are almost impossible to change very much in the short run. Much state spending, therefore, cannot usefully be subjected to the kind of fundamental reexamination that ZBB in its original form envisions. No state government has ever found this feasible. Even Georgia, where Governor Jimmy Carter introduced ZBB to state budgeting in 1971, employed a much modified form. Given the state's fiscal structure, would the author intend for school funding-including the funding required under Proposition 98-to be subject to a zero-based budgeting approach? Would the VLF backfill be subject to zero-based budgeting? Creating exemptions from the zero-based budgeting methodology will reduce the effectiveness of the bill."
Mackinac Center for Public Policy
"In addition to saving money and improving services, zero-based budgeting may:

  • Increase restraint in developing budgets;
  • Reduce the entitlement mentality with respect to cost increases; and
  • Make budget discussions more meaningful during review sessions.

On the cost side of the equation, zero-based budgeting:
  • May increase the time and expense of preparing a budget;
  • May be too radical a solution for the task at hand. You don’t need a sledgehammer to pound in a nail;
  • Can make matters worse if not done in the right way. A substantial commitment must be made by all involved to ensure that this doesn’t happen."
"...First, 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. Indeed, it is incumbent upon proponents of zero-based budgeting to ensure that those reviewing the budget do not have a pecuniary interest in maintaining the status quo. Allowing people who will be most affected by the elimination of programs to conduct their own reviews may be counterproductive, since most people are quick to defend their own interests.

Second, don’t attempt to do zero-based budgeting for every department, every year. Such a move may prove impossible to manage. Instead, choose several departments and/or agencies, and rotate through every facet of state government over time. In Oklahoma, which has recently adopted zero-based budgeting, officials are applying the method to two departments and several agencies each year. Once those reviews are complete, the same departments and agencies will not see another zero-based review for eight years.

Third, ensure that each review is conducted by referencing all aspects of a department, agency or program to what its goals are. This makes the very purpose of the entity being reviewed transparent, and can increase the opportunities available for making objective measurements of a department, agency or program’s success rate."

The Pros and Cons of Zero-based Budgeting [Mackinac Center for Public Policy]
SB0063:Zero-based Budget

2 comments:

Jesse said...

Wayne Niederhauser proposed something almost exactly like this during his campaign for State Senate including rotating out which departments do the justifying each year. That's one of the main reasons I voted for him.

Tyler Farrer said...

Yes, there is a link to Niederhauser's bill at the bottom of the post.