Reinventing the Budget

In solving his revenue crunch, Washington Gov. Gary Locke focuses on results, not costs.

At a time when the states face a collective revenue shortfall of $80 billion -- the worst fiscal crisis since World War II, according to the National Governors Association -- Washington Gov. Gary Locke has achieved the improbable. In addressing his state's $2 billion budget gap, he has managed to garner widespread confidence in his budgetary leadership among voters and political counterparts alike.

That public confidence has been a byproduct of an effort by Locke to invert the standard way of budgeting, in which costs are the driving concern, by focusing instead on the intended results of government spending.

In the traditional approach to addressing a shortfall, you start with your previous year's budget and you tweak it, cutting costs until the old list of expenditures comes in line with your new revenue projections. The focus is on how much from the old list has to go. You can pick through the budget looking for obvious waste, or you can cut everything across the board. Either way, it's the cuts that matter -- eliminating things government can no longer afford to do. Political turf battles inevitably ensue, as competing interest groups rally to protect their pet programs. Those fights can leave governors battle-scarred and politically weakened.

Locke's results-based method flips the cost-based approach on its head. The focus is no longer on what government can't afford to do; it's on the things government can -- and should -- do with the money that's available. Instead of taking the previous year's budget for granted as the starting point, the results-based process allows you to start from scratch. You calculate how much money you have available for all state spending; you step back and ask basic questions about what services are most important for government to provide citizens; and then you spend your money on programs that are most likely to achieve the results you want. That process forces interest groups and political opponents to argue that their priorities are more important than yours. The debate is no longer about money and cuts; it's about the priorities of government.

Thus, the brand name Locke gave the process that he and his budget team followed in writing their biennial budget for 2003-05: "Priorities of Government." It has become widely known in the state as "PoG," pronounced like "frog."

"It has allowed the governor to dramatically redefine himself as a visionary and a leader willing to make tough decisions and back them up," said Richard Davis, president of the fiscally conservative Washington Research Council, a policy group that has been critical of Locke in the past.

How Locke and his team decided to embark on the PoG process is a classic tale of necessity being the mother of invention. They knew they needed a dramatically new approach when they saw they were facing not just a short-term revenue shortfall, but a long-term structural budget problem. Addressing it by increasing revenues was not a viable option; Washington voters, like voters across the country, had shown no appetite for tax hikes. And yet it was clear that the traditional cost-cutting methods would leave no one satisfied; beyond the political fights, cost-based budgeting is also a recipe for inefficient and ineffective government. "It is like taking last year's family car and reducing its weight with a blowtorch and shears," The Seattle Times wrote in an editorial. "But cutting $2 billion from this vehicle does not make it a compact; it makes it a wreck."

That's an image one understands when one sees the budget broken down into discrete bits. As in other states, Washington's budget includes big-ticket expenditures, such as special education and the prison system, along with scores of more obscure programs and activities, like the superintendent of schools' anti-bullying and harassment training program and the attorney general's homicide investigation tracking system. Keep adding to and subtracting from that list in a piecemeal fashion, and, over time, both logic and direction are lost.

Four questions. To help Locke's budget team chart a new course, the governor's chief of staff, Fred Kiga, brought in consultants Peter Hutchinson and Connie Nelson from the Public Strategies Group in St. Paul, Minn. Over 10 weeks, they helped Locke's team plot out their PoG strategy.

The process revolved around four questions: How much money does the state have to spend? What results form the core of what must be done -- and done well -- to serve the citizens of the state? How much will the state spend to produce each of those outcomes? And how best can that money be spent to achieve each of those core results?

In answering the second question -- about the core responsibilities of government -- the budget team whittled down its priorities list to 10 things they thought the citizens of Washington most wanted to see improved: student achievement in elementary, middle, and high schools; the quality and productivity of the state's work force; the value of a state college or university education; the health of the state's citizens; the security of vulnerable children and adults; the economic vitality of businesses and individuals; statewide mobility of people, goods, information, and energy; the safety of people and property; the quality of the state's natural resources; and cultural and recreational opportunities.

To answer the third and fourth questions -- how much to allot to each desired outcome, and how best to spend the money to achieve the intended results -- the governor's staff was able to draw upon a complete inventory of programs and other activities that they had ordered state agencies to produce. The master list included 1,400 line items.

Shopping for results. In their results-oriented process, that list, in effect, became a selection of goods on the shelves of a grocery store. The budget team browsed the aisles, viewing the offerings with the skepticism of discriminating, fixed-income shoppers. They saw each line item as a service option that was available to them as a potential means of advancing their core set of goals. They took an enterprise-wide approach, ignoring the established order of which agencies had traditionally been responsible for which activities. With their core list of priorities in mind, they simply took their $23 billion, looked down the master list of 1,400 service options, and -- using every piece of data they could find to measure each program's performance -- they went shopping for the best results they could afford.

For example, to improve student achievement, they proposed buying $1.2 billion worth of special education, $426 million worth of pupil transportation, $144 million worth of bilingual education, and $4 million worth of information technology, among other things. But they decided that anti-bullying and harassment training, summer vocational training, and "readiness to learn" activities were not good values for their education dollar.

Down the list of top state priorities they went, shopping for the programs and activities they felt were most likely to produce the results the citizens of Washington wanted, until they had finished spending their $23 billion.

The process was a creative one that encouraged substantial reforms. For each of the budget team's core goals, a "results team" was charged with identifying the five or six key expenditures that would most likely achieve the intended result. In cases where the options on the existing master list seemed inadequate, they were encouraged to propose new options. For example, the team handling K-12 education proposed moving to a "pay-for-performance" compensation system for teachers, instead of the traditional fixed pay scale. That team also proposed moving away from across-the-board education funding and toward more targeted funding for the schools and students with the greatest needs. Such creative reforms are generally absent from the traditional cost-based budgeting process.

The budget Locke submitted to the legislature cut spending by a brutal $2.4 billion -- nearly 10 percent of the projected cost of continuing all state services at existing levels -- without imposing ineffectual across-the-board cuts or calling for substantial general tax increases. Instead of producing a chorus of gripes, it was greeted by widespread praise. A January poll conducted by Moore Information for the Washington Roundtable, a business-oriented policy group, found that 64 percent of voters, regardless of whether or not they agreed with Locke's specific budget recommendations, respected his leadership and vision in working to solve the state's desperate fiscal situation. Support for Locke's approach was strong among Democrats (72 percent), Independents (62 percent), and Republicans (56 percent).

"People here feel good about the process," said Lynne McGuire, budget operations manager in Locke's Office of Financial Management. "They can explain it. It's more understandable than before."

The governor and his budget team are by no means out of the woods, though. Everyone agrees the PoG process has been a breath of fresh air. But with spring comes the legislature's chance to make edits. And then there's the really hard part -- showing the results of the spending plan they've chosen.

Are they advancing that list of top priorities? It will be a while before anyone knows, and the wait may test voters' confidence. "The time it takes to demonstrate results is often longer than the anti-tax populace may be willing to give you," said Davis, of the Washington Research Council. "So there has to be a strong communications strategy -- an evangelical, ambassadorial component that lets people know what to expect, when to expect it, and what's being done to ensure effective and efficient delivery."

But the long-term benefits of pulling that off may be huge. "This is a value-for-money question," said Hutchinson, the consultant. "The anti-tax crowd says there's no value for money. Locke is saying, 'There is value for money, but we have to prove it.' Over time, if he does prove it, history shows citizens will want to pay for the value they get, which can translate to more revenues."

Randolph Court is a senior editor of Blueprint.

There's nothing wrong with using this methodology for budgeting. Nor is there anything new, much less magical, about it.

Indeed, it is the way most businesses approach their own budget process. Every line item is questioned every budget cycle -- or, at least, should be.

Nonetheless, I'm immediately skeptical -- as the two of the most disastrous budgeting "tricks" in our history came from the liberals.

1. Zero baseline budgeting -- courtesy of Jimmy Carter, thereby assuring that any reduction in the percentage of growth of any program would be falsely labelled a "cut".

2. The consolidated budget -- LBJ merged the federal government's operating budget with the Social Security Trust Fund in order achieve "guns & butter" and a "balanced budget" during the Viet Nam war. Out of control government spending traces to exactly this development (just as LBJ wanted).

So, on the face of it, I've no problem with Locke's "results-based" budget. But I have a host of problems with any liberal Democrat being responsible for any public budget...

"That is pretty good for a start and for a democrat, it is astounding."

Credit should be given where credit is due.

Fact is, no new taxes and spending cuts is astounding for any government budget, at any level, irrespective of party.

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