Trust and confidence in government need to be restored, and it has to start with an honest accounting about the challenges we face along with a vision of where we want to go. It’s time to be truthful to the public and acknowledge that government’s capabilities must be reshaped for some time to come. Can state and local elected officials get back to basics by adopting zero-based budgeting and conducting a healthy review of government’s core missions and competencies? Can they decide a program is no longer affordable and then cut it entirely out of the budget? Can they get ahead of the revenue forecasts and stop changing budgets every few months? Can they redesign services to face a new economic reality? For their reelection’s sake, they better hope they can, because if they can’t, the voters will replace them with others who will.
Well, what is Zero Based Budgeting?
Zero-based budgeting is a technique of planning and decision-making which reverses the working process of traditional budgeting. In traditional incremental budgeting, departmental managers justify only increases over the previous year budget and what has been already spent is automatically sanctioned. No reference is made to the previous level of expenditure. By contrast, in zero-based budgeting, every department function is reviewed comprehensively and all expenditures must be approved, rather than only increases.[1] Zero-based budgeting requires the budget request be justified in complete detail by each division manager starting from the zero-base. The zero-base is indifferent to whether the total budget is increasing or decreasing (Wikipedia).
Pure zero-based budgeting probably can't be applied here in Montgomery, in part due to the fact that a bit over half of the budget comes out of the School Board.
The Wikipedia article points out the advantages and disadvantages of Zero-Based Budgeting ("ZBB") as well as advantages and disadvantages of Incremental Budgeting ("IB").
As I see it, the biggest problem with ZBB is that even the most compressed summary that still contains all essential detail will be too large for any one person to read, much less to understand. As I see it, the greatest benefits are that it promotes efficient allocation of resources and also it reduces duplication and overlap. Yet both advantages and disadvantages of this include significant administrative overhead and the generation of reports that add to that administrative overhead.
Perhaps the biggest advantage of Incremental Budgeting ("IB") is that in steady times, incremental budgeting requires almost no additional administrative overhead. Perhaps the greatest single disadvantage is that of creating an incentive to "use it or lose it", to spend up all available funds to justify receiving comparable funding in the next budget.
It's really clear that we need to move to a combination model. I'll call this "Half-Based Budgeting". Some may be tempted to call it "Half Baked Budgeting" and that might even be appropriate.
I'd propose something like sending word to every program and agency manager that they will be working with exactly half of the previous year's budget. That should wake them up! And then tell them that once they have worked out a budget for their agency or program core, that for the rest of their budget exercise, they will use Zero-Based Budgeting.
Reasonable people might argue that if these managers know that this will be the approach, they'll just spread the rest of their previous year's budget plus this year's incremental increases across the Core Needs budget and the Zero Based Optional Needs budget. And that's probably correct. However, the valuable task will have been accomplished. There will be a separate budget for Core Needs and Optional Needs.
This is where reasonable people would suggest that some managers might tend to expect this, and thus would shift Optional Needs items into the Core Needs budgets. That's probably a reasonable suspicion. This is where a lot of oversight will be needed.
You could think of this as being not too different from planning a trip to the beach.
There is an element of planning that covers getting to the beach and getting back. Let's say that it takes half a tank of gas to get to Ocean City, and half a tank of gas to get back. Assuming that the vehicle is roadworthy, the price of a full tank of gas is your Base Budget.
Of course, the question remains, having accomplished the core mission of going to the beach and coming back, what do you do at the beach, and on the way to and from the beach? That is your Optional Needs Budget.
Keep in mind that you could spend an awful lot of money at the beach, if you've got the money to spend. If you planned and budgeted well, you could spend an awful lot of money at the beach, and accomplish all that you intended.
Then again, if all you wanted to do was to go to the beach, and enjoy everything that's available for free, you could do that on the Base Budget.
Sometimes, you can only afford to go to the beach and enjoy everything that's free. There are a lot of temptations there to spend your return trip money, so be sure to spend all of your money filling up the tank before you go.
And if you've spent all of your money filling up the tank before you go, you had better exercise a lot of oversight against anyone siphoning your tank.
These are the circumstances a lot of agencies are in, here in Montgomery. Their previous budgets are being, as it were, siphoned. They may not make it home from the beach, so to speak.
A "half-based budget" approach could function, as it were, like the kindly relative you call from the beach, who can let you use their credit-card number to fill up your car's fuel tank so you can get home. The main budget authority would provide each agency or program with their "guaranteed Core Needs minimum budget" and as revenue and treasury circumstances permit, Optional Needs lump sums could be released.
Reasonable people might suggest that this might, as it were, tempt the kids to drive around too much at the beach, and burn up all of their trip-home gas, because they know that auntie will let them use the credit card numbers. This is where you have to have oversight. There may well be unforseen emergencies that would eat into the Core Needs budget of any given agency. For example, dry weather might lead to a major conflagration in the Urban Forest of Montgomery County, and the Core Needs budget of the fire department might be used up practically overnight. Well, that's why the County should be very austere in terms of authorizing Optional Needs funding. It's good to have something in reserve.
The "Rainy Day" funding system needs to have a Core Needs budget of its own, and not be thought of as the auntie you can call when you run out of gas in Ocean City (so to speak). You can't always rely on auntie to get you home from the beach, she's not all too wealthy herself.
"Half based budgeting" is a compromise between the administration-heavy yet otherwise effective Zero Based Budgeting and the traditional Incremental Budgeting. Indeed, the present implementation of Incremental Budgeting is not far from what I propose, but rather than a formalized approach, they're just starting with last-year's budget and picking likely targets for cuts and asking those targets to justify their continued existence.
That will be effective, but in many ways it's suddenly imposing the administrative overheads of Zero Based budgeting onto management layers that simply aren't prepared to deal with it, either in terms of training/experience, or in terms of being able to shift the resources needed to fund the new administrative overhead. This puts people in the position of having to have more money now, so that they can justify getting any money later. Even in the best of situations, this is inherently unfair to impose without warning; in this less than best of situations, it's almost like being dragged into court without being given any opportunity to develop evidence to support your defense.
The problem here is that this is fiscally unavoidable in the present circumstances... except for the fact that there are Federal stimulus dollars coming into the system. One thing about those funds... they must be seen as only providing a little bit of breathing-room, as it were. This gives time to choose between a direct and straightforward textbook model of Zero Based Budgeting, or my proposed "Half Based Budgeting", or more likely, something somewhere in between either or both of those, and a vastly-downscaled Incremental Budgeting system that one might be tempted to call "decremental budgeting".
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