Economics

Make State Programs Compete for Funds

How "Budgeting for Outcomes" can help California escape its fiscal nightmare

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California often leads the nation, and the current fiscal crisis is no exception. With its repeated use of borrowing and fiscal sleights of hand, the Golden State has become a poster boy for irresponsibility.

Californians are sick of watching their leaders kick the state's fiscal problems into the future. They are also tired of sterile debates about how much to spend on X vs. Y, with no attention to the results these expenditures produce or the long-term liabilities they create for the state.

One big factor contributing to fiscal paralysis has been the two-thirds requirement, in both houses of the Legislature, to approve a budget. Yet without some other form of fiscal discipline, citizens are not likely to consider repeal. To create that discipline, California's elected leaders might consider a new approach, called "Budgeting for Outcomes." It helps leaders rank programs according to how cost-effective they are at achieving the results citizens want, then eliminate the low-ranked activities.

The Public Strategies Group developed this approach to help Washington Gov. Gary Locke close a nearly 15 percent budget gap in 2003. Since then, it has spread to more than 20 other states, cities, counties, and school districts.

As with other reforms, its success depends on leaders' courage to make hard choices. But it can help them make those decisions in a more rational and transparent way.

It starts where most budget processes end: Elected leaders decide how much they want to spend next year. They make a policy decision, up front, whether to raise or cut taxes and fees. (They can revisit this decision at the end of the process, of course.) Then they work with citizens to define the eight to 10 results most important to them—a better economy, better schools, better health, better safety, better mobility, a cleaner environment, and so on. They decide how much each of these outcomes is worth and divide the money among them.

This creates eight to 10 finite pots of money, for which programs must compete based on their value, the results they produce per dollar. This is the real magic: Competition for scarce resources forces creativity.

For each pot of money, leaders assign a team of experts with no ax to grind or budget to protect. These "results teams" act as buyers for the citizens. Their task is to produce the outcome, not to fund programs.

"Better mobility" might not mean more money for the Highway Patrol or the Department of Transportation; it might mean congestion pricing on toll roads and more fiber optic cable.

Results teams start by researching what factors most affect their desired outcome. Given that analysis, they recommend what strategies the state should pursue. Then they ask program managers—the sellers in this marketplace—to make their best offers.

These offers define the program, its results (or evidence that it will produce results, if it is a new idea), and its price. All tax expenditures—tax breaks for particular activities—are treated as offers, just like other spending programs.

The results teams rank their offers from most cost-effective to least, draw a line where the money runs out, send the rankings back out and ask for better offers. At this point government managers wake up, particularly if their requests are ranked near or below the line. When they realize their jobs are at risk, they scour the globe for new ways to produce better results with less money.

When the second offers come in, the results teams again rank them, buy from the top and draw a line when the money runs out. They send their rankings to the elected leaders, who use them to put together the budget. (Normally the executive does this and presents the budget to the legislature, but given California's political stalemate and two-thirds requirement, the governor and legislative leaders might be wise to collaborate.) Adjustments to reality are always necessary: Some low-ranked programs are mandated by the courts, for instance, or by voter initiative. But most of the rankings hold, and the budget thus proposes to fund those programs that will produce the best results.

It can be summarized in one page per outcome: a list of programs to be funded, a line, and below that, a list of programs the state can no longer afford, because they don't produce enough value. Every citizen can understand it, because it reflects common sense and taxpayers' priorities.

This process does not eliminate pressure from interest groups, but it does force them to fight on new turf. At budget hearings, legislators ask them questions like, "What program should we move below the line to accommodate your program, and why would your program produce better results?"

And that is exactly the kind of debate we need, if California is to avoid insolvency.

David Osborne, a senior partner at the Public Strategies Group, is the author of the new Reason Foundation report "The Next California Budget: Eliminating California's deficit and fixing the budget process through 'Budgeting for Outcomes.'" This article originally appeared in The Sacramento Bee.

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  1. For each pot of money, leaders assign a team of experts with no ax to grind or budget to protect.

    And that’s where the plan really falls apart.

    1. My thought exactly.

    2. California voters will circumvent the whole plan by voting for a proposition to allocate 40% of the budget to Problem X.

      In the same election they’ll vote in another proposition to allocate another 40% of the budget to Problem Y.

      In the next election they’ll vote in another proposition to allocate the other 40% of the budget to math education.

      1. and then vote down any tax increases

    3. The ‘get some smart, neutral people in a room to solve the problem’ fallacy that liberals are so fond of. This invariably devolves from ‘team of experts’ to ‘team of lobbyists/insiders’. Who else has expertise anyways?

  2. Wow, dude, that’s really cool! I am either an AI program or a poorly paid contractor in a third world country! Or, I could be an idiot-savant who is abused by an evil corporation known as The Centre.

    Lou

    randomurl.tld

    1. Now the bot is getting trolled. What strange days we live in.

      1. Pan with Us

        Pan came out of the woods one day,–
        His skin and his hair and his eyes were gray,
        The gray of the moss of walls were they,–
        And stood in the sun and looked his fill
        At wooded valley and wooded hill.

        He stood in the zephyr, pipes in hand,
        On a height of naked pasture land;
        In all the country he did command
        He saw no smoke and he saw no roof.
        That was well! and he stamped a hoof.

        His heart knew peace, for none came here
        To this lean feeding save once a year
        Someone to salt the half-wild steer,
        Or homespun children with clicking pails
        Who see so little they tell no tales.

        He tossed his pipes, too hard to teach
        A new-world song, far out of reach,
        For sylvan sign that the blue jay’s screech
        And the whimper of hawks beside the sun
        Were music enough for him, for one.

        Times were changed from what they were:
        Such pipes kept less of power to stir
        The fruited bough of the juniper
        And the fragile bluets clustered there
        Than the merest aimless breath of air.

        They were pipes of pagan mirth,
        And the world had found new terms of worth.
        He laid him down on the sun-burned earth
        And raveled a flower and looked away–
        Play? Play?–What should he play?

  3. rank programs according to how cost-effective they are at achieving the results citizens want, then eliminate the low-ranked activities.

    That’s just crazy talk!

    Nothing the government does is nonessential.

    1. Nothing the government does is essential.

      1. What about roads!!!

        1. What about the children???

        2. If you need government to build roads, then you need government to build everything else.

  4. If only they could cut pensions for retired government workers

    1. dk, why do you hate retirees?

    2. If only they could cut pensions for the throats of retired government workers

  5. This plan works perfectly if you completely ignore human nature and the entire history of appropriation.

    Why is creating a group of “experts” to make a list any more corruption-proof than our current system of electing professional politicians (who would presumably appoint said group) based on our desire for more pork and sound bytes about how they are against pork?

  6. California’s elected leaders might consider a new approach, called “Budgeting for Outcomes.”

    Great idea, and well-presented. But…

    Californians are sick of watching their leaders kick the state’s fiscal problems into the future. They are also tired of sterile debates about how much to spend on X vs. Y, with no attention to the results these expenditures produce or the long-term liabilities they create for the state.

    Color me skeptical. I’m sure some residents of California are disgusted, but is it anywhere near a majority? Somehow I doubt many of the unionized public employees are disgusted about anything but the limits on increasing the budget, and they alone are a hefty minority.

    As with other reforms, its success depends on leaders’ courage to make hard choices.

    The first hurdle is electing such leaders. Let me know when Californites pull their heads out of the sand and start voting for fiscal responsibility.

    1. Words are absolutely meaningless, actions are all that should be judged.

      Everyone is against pork-barrel spending, and love the new federally-funded turtle museum where they work.

      Everyone says we need to get the deficit under control, but want to keep Social Security and Medicare exactly as-is.

      Everyone wants to get rid of “waste” which is defined as any government-provided service that they don’t personally use.

      1. I think that Greece is a wake up call that is actually starting to make anyone with a brain realize that they can’t have their cake and eat it too. Hopefully the lesson will not be lost. We can only move forward once we realize our ignorance and correct it. People will have to get over the belief that THEIR programs that benefit THEM are necessary while everyone else is screwing the system. We need to understand that cutting taxes and spending are good, because it will create more opportunities in the private sector while only losing failed government programs that only benefit a few.

        1. I think that Greece is a wake up call that is actually starting to make anyone with a brain realize that they can’t have their cake and eat it too.

          The flaw in your logic is you assume there are a significant number of people with brains. If there were, we wouldn’t be where we are now.

          If you did a random poll of voters, I’d be shocked if 50% had even a faint idea what is going on with Greece.

          1. And 20% will tell you why they don’t eat bacon anymore…

          2. Voters in general, naw. The much smaller pool of elected officials and those vying to be such, probably most of them have heard of Greece.

            That’s what disappoints me about the article, which is okay in its way but ignores the fact that CA voters tend to screw up the budget with lots & lots of propositions. (Not making a general case against the referendum/recall etc., just saying it’s uniquely screwed up & insane in CA.)

            Splitting CA up into several states would be tough politically, but may be inevitable in the long run.

            1. I can see moose grease from my house!

            2. It takes 50%+1 to raise spending and 2/3 to raise taxes. How did anyone not see where that may cause problems?

        2. And anyone with a brain could also look at Sweden, Norway, Denmark and Finland to see how a robust public sector can have significant benefits…

          Use these countries as an example next time if you want to be objective. Oh wait… that’s right. You have an ideology that to push. lol.

        3. And anyone with a brain could also look at Sweden, Norway, Denmark and Finland to see how a robust public sector can have significant benefits…

          Use these countries as an example next time if you want to be objective. Oh wait… that’s right. You have an ideology that to push. lol.

          1. Norway, Sweden, Finland and other Viking countries also have a culture in which those social programs work. Beehives work well for bees, not jackals.

            1. Poor logic.

              By your reasoning it never would have worked in the Nordic countries before they tried the model.

              They created this culture themselves around the concept that expanding the government and redistributing wealth can benefit society as a whole.

            2. Yes and this was when they were pulling their own weight to begin with.

              1. exactly… 19th Century Nordic countries were free traders, entrepreneurial heavens… even post WWII they had a coubple of decades before they went socialist..

          2. My comment wasn’t even about the merits of social spending, you agenda pushing fuck. My comment was about running a public sector efficiently, and the fact that you can’t just borrow money indefinitely. I’m not seeing how you are even discussing the point that I made.

            http://mjperry.blogspot.com/20…..ed-us.html

            OF all the countries that you mentioned, only Norway is objectively wealthier than us. Sweden would be one of the poorest states of the US, if it broke off to become a state. The fact of the matter is that social spending doesn’t increase opportunities. It is simply a luxury good, and all social spending needs to be seen as a luxury good, not as a generator of economic wealth.

            Not to mention the fact that you couldn’t compare countries with tiny homogeneous populations with a country such as the US with a population of 300 million diverse peoples. I could probably make New York City its own country (since 10 million people live there), and declare it one of the richest countries in the world, but these are just lines in the sand. You need equivalent population sizes before you can make a comparison.

            1. Don’t use a message board if you have to resort to name calling when you get your feelings hurt.

              Your post becomes about social spending if you talk about the need to cut down the social sector.

              You were actually the one that made the comparison with a smaller country in case your memory has failed you when you mentioned Greece. Now you want to backtrack when I bring up another example against you it seems.

              Social spending does increase opportunities. Quality education is a large driver. Research has shown that in the US your social status is more often determined by your parents than in Sweden and other developed countries in large part due to expensive schooling and higher education. Children in nordic countries receive better schooling and subsidized higher education opportunities that help give all kids a chance. They pump way more money into schooling and it has a direct and clear effect. We lack the spending in these areas.

              Also, your comparison about the strength of the Swedish economy is disingenous. You should also keep in mind that the Nordic countries work 20 days less than the average American, receive a year maternity leave and work shorter weeks and still have strong economies. If you want to use other measures besides GDP it isn’t hard to argue that they are in better shape than America.

              Even if you look at nominal GDP the USA scores in comparison to the Nordic countries. And GDP is a rather poor comparison as well imo. Other comparisons that take into account innovation, quality of life, life span, education, etc help the Nordic countries even more.

              And wow, I just saw the blog you posted as your defense. You seriously think this is supposed to shoot down the Swedish model? It was poorly written and poorly researched. Come on. If you go around name calling try and defend yourself a bit better.

      2. Some Guy, you don’t seem to understand the issue with SS and Medicare.

        The congress has raided those programs for decades. I have paid into SS and medicare for 40 years and you want to take it away from me? You do realize that even after paying into Medicare for 40 years, now that I am actually on Medicare, I pay over $90 a month for Medicare coverage (part A and B).

        Put the blame and the fix where it belongs… an out of control government.

        1. And do you realize that within a mere 9 years you will have raided SS for every thin dime you and your employer put in? Come, let us shoot you on the 10th aniversary of your beloved retirement, lest you fuck up the Ponzi actuarial schedule.

          1. Snip snap!

          2. 9 years? SS went into the red this year (or maybe late last year, not sure.)

        2. So you’ve been paying in for 40 years, huh? That means you’ve been voting for the people who raided SS for 40 years and you’ve already gotten your money back in terms of the stuff that that money was raided for. Your generation did this, your generation should be the one to feel the largest effects.

  7. I also like the “failure standards” idea. All spending bills should come with failure standards that lay out the goal of the program, it’s projected costs, what is to be done if the program goes over cost, and what cost (or failure to achieve goals) is necessary before the program needs to be brought to an immediate end. This way politicians couldn’t low ball an estimate without endangering the program itself. This coupled with performance based budgeting should eliminate much of the waste. True, its not hard to play games with the number, but at least a politician has to justify a program, and prove that it has long term relevance while keeping an eye on its cost and effectiveness.

  8. How to make state programs compete for funds, in one sentence:

    End taxation and let the public purchase the services they want voluntarily on their own.

    1. This is a very risky proposition for kids whose parents who make either poor decisions or do not have the economic means to afford better schools.

      I think a better option is to make public schooling as good as possible.

      Our middle class is shrinking enough as it is and this would make it shrink even more.

  9. How do you deal with non-excludable services? In California, for instance, putting out forest fires?

  10. Obama is the Master of the Progressives:

    http://canadafreepress.com/index.php/article/21056

  11. This a great article,thank you very much.

  12. this is nice article,thank you.

  13. Why isn’t this the case for federal and local governments? This is the way it works in private industry. In large companies, departments compete for resources everyday. The capital goes to the project that is expected to produce the greatest retun.

  14. I can’t believe this article. The state has basic responsibilities. EVERYTHING outside of those basic responsibilities needs to be cut. No need for performance based programs if you get rid of the programs that the state has no right running.

    They also need to get rid of the unionization of the state workers. If Jerry Brown can implement it, we can get rid of it. The unions cost far to much and are unwilling to compromise and tighten their belts like the rest of us.

    The other thing they need to do is create a no strike law for all unions. It’s not right that teachers can get paid this well, and if they don’t want to take a cut, they strike. It’s BS and the unions have to much power.

    Our state is run be very liberal democrats who feel it’s the states responsibility to do everything for everyone. Their anti-business, anti-wealth policies have cost the state billions in revenue (we went from $135billion / year to $85 billion / year in just over 3 years – and the revenues continue to shrink).

  15. You have forgotten to implicate the chief villains in this story: California’s voters. As long as they believe that government’s role is to fetch them, gift-wrapped, anything they are pleased to desire, and then make someone else pay for it-
    until that stops there will NEVER be enough money for anything! OR for that matter, enough water, trees, land or air.

    Just look how the voters of this state responded to the clearest possible warning that the money was running out: they passed the High Speed Rail Initiative. In the full knowledge that the Magic Choo-Choo was guaranteed to cost more and deliver less than was promised, at the worst possible time for the State’s financial fortunes.

    I could cite dozens of other cases and instances, but the revelation is clear:

    Whom the Gods would destroy, they first send to California.

  16. The federal government should stick to what it is constitutionally-allowed to do. Everything else should be off limits.

    The next big curveball they’re throwing our way is this Value-Added Tax (VAT). If you don’t know about it, read this article to see just how bad it will be for our already floundering economy:

    http://www.truthoffering.com/e…..s-bad.html

  17. Talking about budgets?

    Here they are folks, the greedy little Congressmen/women who need the extra money with a raise while the rest of the country is enjoying a recession:

    Who Voted Against Blocking a Pay Raise for Congress?

    The House voted today to block an automatic pay raise for themselves that is scheduled to happen next year. Each year, Congress is automatically given a pay raise (a.k.a. a “cost of living adjustment”) of about $1,500, but they blocked this year’s pay raise last year and with both chambers of Congress now having now passed legislation for 2011, they are set to block next year’s raise as well. Senators and representatives currently make $174,000 a year.

    The final vote count was 402-15, with 13 members not voting. Here’s a list of the 15 “no” votes (all Democrats):

    Rep. James Clyburn [D, SC-6]
    Rep. John Conyers [D, MI-14]
    Rep. Donna Edwards [D, MD-4]
    Rep. Keith Ellison [D, MN-5]
    Rep. Sheila Jackson -Lee [D, TX-18]
    Rep. Eddie Johnson [D, TX-30]
    Rep. Carolyn Kilp atrick [D, MI-13]
    Rep. Barbara Lee [D, CA-9]
    Rep. Gregory Meeks [D, NY-6]
    Rep. James Moran [D, VA-8]
    Rep. Donald Payne [D, NJ-10]
    Rep. Bennie Thompson [D, MS-2]
    Rep. Edolphus Towns [D, NY-10]
    Rep. Melvin Watt [D, NC-12]
    Rep. Lynn Woolsey [D, CA-6]

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