Monday, February 10, 2003

Zero-Based Budgeting--The Latest Procedural Gimmick to Avoid a Substantive Problem

This week, they matched me up with Kevin McCarthy of the Arizona Tax Research Association. His point was that you can't keep education, health and welfare, and prisons "off the table" and hope to limit state spending. But McCarthy's still talking only about lack of flexibility, and efficiencies, and process, nothing substantive to be cut. Don't want to give any specifics, just process. The usual crapola, pardon my French.

And why is it such a blazing priority to balance the budget anyway? All this fiscal discipline talk seems pretty bizarre, given the $300+ billion deficits we're being promised from George W. Bush for the next five years. We should just follow the moral example of our president (isn't that what conservatives wanted?) and spend money we don't have. Heck, if deficits don't matter, why stop at $309 billion? Let's just borrow it all. Why pay any taxes? Don't do as Bush says, do as he does.

I also should mention I'm recovering from a bout of cognitive dissonance brought on by attending the tribute dinner in honor of the retirement of our friend, Monsignor Ed Ryle, as chair of the Arizona Catholic Conference. (Yes, he really does make friends all over the spectrum.) The evening was styled as a political convention, with people coming together to cheer for affordable housing, medical care, education, and such, at the direction of the evening's Master of Ceremonies, Martin Schultz, the lobbyist for Arizona Public Service. Of course, Msgr. Ryle's efforts to preserve public assistance and to enhance health care, education, and housing always seemed to run into the brick wall of lowering taxes at the state legislature. Nobody was impolite enough to notice that all the wonderful ideals being saluted just never quite got to be as important as improving returns for APS shareholders. But with a charitable donation, the brick wall gets to host your retirement dinner, and maybe rewrite history--unless enough of us have sufficiently bad manners to mention it.

Carter-style budgeting no solution

East Valley Tribune, Feb. 9, 2003

Jimmy Carter lives -- in the GOP-controlled Arizona Legislature!

The GOP legislative leadership has a brand-new budget gimmick, zero-based budgeting (ZBB). Proving those who don’t study history are doomed to repeat it, they’re using Jimmy Carter’s discarded idea.

Wonder how “Fast Eddie” Farnsworth looks in a cardigan?

ZBB sounds logical, leading smart guys like former President Carter to try it in government. Carter learned about ZBB from a 1970 Harvard Business Review article by Peter Pyhrr of Texas Instruments. Carter used it as Georgia governor, and launched ZBB at the federal level in 1977.

ZBB requires all agencies, programs, and “decision units” to justify all spending. Instead of beginning with last year’s budget, everybody starts from scratch. But like a lot of easier-to-express-than-to-apply ideas, ZBB didn’t work as theorized.

First, ZBB fits the private sector better, where all employees have some stake, however remote, in overall profitability. Unfortunately, in government, there are no profits and little cross-fertilization; police don’t benefit if agricultural inspections become more efficient.

Moreover, government simply can’t abandon basic functions. Motorola can stop manufacturing semiconductors, but we can’t close down the prisons because the Department of Corrections isn’t as productive as the Office of Tourism.

Second, ZBB is terribly time-consuming. Examining all spending takes tremendous time and effort, which can’t be devoted to providing services, and is imposed on agencies required to shed administrative “fat.” Carter required federal agencies to submit three different budgets, showing results of a 20 percent cut, current funding, and increased resources -- which doubled or tripled the planning workload.

The real burden, however, fell on the reviewers. Few budget staffers, much less legislators, have time to read, much less understand, the paperwork that an honest examination of all spending requires. The Carter administration got bogged down in forms and details, and lost sight of the “big picture” that ZBB was supposed to clarify. The federal government still collects acres of data on productivity annually -- so much that nobody ever seems to use it.

(The current Bush administration hasn’t done better. They instituted a rating system, declaring certain programs “ineffective.” The punishment? Generally, 10 percent budget cut. They have yet to explain why spending 10 percent less makes an ineffective program actually work.)

ZBB failed because it didn’t change the culture of the players. Of course, bureaucrats could “game” ZBB by suggesting politically-popular programs for cuts, effectively shielding lower priorities. The process rewarded schemers and penalized those who were honest about accountability.

However, the more effective enemy of ZBB wasn’t the bureaucracy, but Congress. Virtually all government spending has both a public and a legislative constituency. We’ve heard plenty about how much government spending is mandated or entitlements, but the real change recently has been the increase in line-items and earmarked funds since the GOP took control of Congress in 1995.

Even if bureaucrats admitted their failures, Congress insists on controlling spending. Given legal and legislative requirements and directives, no agency ever gets much say on spending -- thereby making the whole prioritization process irrelevant. ZBB ignored politics, but politics beats good-government theory almost every time.

ZBB’s revival probably means less legislative oversight. More time reviewing a few agencies means many others get ignored. As an Arizona legislative staffer noted, “The mere fact that agencies attend [budget] meetings and answer questions makes legislators more knowledgeable. But the fact is, you address the issues that are before you, you’re drawn to the issues of the moment.”

Of course, what the GOP is doing really isn’t ZBB. Their budget already allocated all the money. Programs under review don’t just have to justify their spending; they also must convince legislators to take money back from other programs.

Despite the name and the association with Jimmy Carter, the GOP isn’t reinventing the wheel here. Unlike ZBB, the wheel actually worked.

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