New Budget Process Gets Results for State Govts.

Newer methods of budgeting, that focus on outcomes instead of total dollars spent could be good news for information technology initiatives

by / February 22, 2005
In an address during a recent GTC Public Sector CIO Academy, David Osborne, co-author of Reinventing Government and who has just co-authored The Price of Government warned assembled executives that all levels of government are facing a permanent fiscal crisis. The new fiscal crisis is a cost problem, not a revenue problem, Osborne said. And while technology has driven costs down in every other sector of the economy, it ironically has increased the cost of health care by increasing the span of life into the 80s and 90s. And health care is the biggest share of government expenditures, he said.

But newer methods of budgeting that focus on outcomes instead of total dollars spent could be good news for information technology initiatives, Osborne explained. Then IT changes from a cost-center to a tool to reduce the cost of achieving a specific desired result.

Meanwhile, the price of government, or the portion of their income citizens are willing to pay for government services, has remained between 35--37 percent.

This has forced governments to rethink their budgets in order to provide the best service while remaining solvent. States such as South Carolina, Iowa, Michigan and Washington as well as cities and counties have done away with the traditional method of budgeting with great success.

When in 2003, Washington state had a $2.5 billion budget shortfall, then-Gov. Gary Locke decided to rethink how the state budgeted its funds. Prior to the 2003 deficit, Washington had developed its budget just like every other state -- by taking last year as a base, adding to that base funds to cover any expected increase in service levels or inflation, and then expecting some of the money to be cut from the whole and try to limit cuts by hiding increases.

Osborne said cuts in programs have to be made smarter and not just a lump sum across the boards. Performance budgeting and budgeting for outcomes, based on the same general principles, are ways of setting the cost of government to the price citizens are willing to pay for it.

What state and local governments have to do, Osborne said, is set the price of government to their revenue estimate, find out what services citizens want, prioritize the results they want and figure out how to best purchase the desired outcome. He gave the example of improving public health. There are four factors involved in determining the general public health: environmental hazards, good habits, healthcare and risk factors. According to research, Osborne said, eliminating environmental hazards and promoting good habits are 16 percent more effective at promoting public health than the quality of health care. As a result, a program to improve public health that removed hazards from the environment and influenced people to adopt healthy habits would be more effective than spending money on health care.

"Put energy into what you are going to keep and the cuts will fall away," Osborne said. In order to fund what was going to get results, he suggested making a list of the outcomes, prioritizing them and then drawing the line on funding below the last program the state could afford to fund.

In this model, he said, the general interest trumps special interests during a time when programs would normally compete for funding. Instead of competing, programs will cooperate. Under the new budget Gov. Locke proposed, K-12 education got the biggest share of the funding with 29 percent and public safety got the smallest share with 5.5 percent. Understandably, the public safety community was quite upset at this, so they went to the table with the other programs and both the K-12 education and economic development folks agreed to invest some of their funds in public safety outcomes that would assist the other programs in achieving their shared goals.