Wednesday, January 11, 2006

Zero-Based Budgeting

One of the ideas that's been kicked around in the Virginia blog world is the concept of zero-based budgeting.

At first blush, and particularly to folks like me, it sounds like a grand idea -- manna from heaven. And in some ways, it might be. But there are pitfalls, too.

Michael LaFaive, the Director of Fiscal Policy at Michigan's Mackinac Center, ran through some of the pros and cons of zero-based budgeting in testimony before Michigan's legislature. In it, I learned one startling thing:

...the first use of zero-based budgeting in government has been tracked back to Gov. Jimmy Carter’s use of it in Georgia in the early 1970s.

Which is enough for some to abandon the concept entirely.

LaFaive also notes that applying a ZBB system to every state agency and department may fail. Time to strike the tent? Not just yet. Rather than a blanket approach, he suggested a modified system that would tackle agencies one, two or more at a time:

...don’t attempt to do zero-based budgeting for every department, every year. Such a move may prove impossible to manage. Instead, choose several departments and/or agencies, and rotate through every facet of state government over time. In Oklahoma, which has recently adopted zero-based budgeting, officials are applying the method to two departments and several agencies each year. Once those reviews are complete, the same departments and agencies will not see another zero-based review for eight years.

While the application of even a limited ZBB in Virginia would prove traumatic for those involved, it may yield results that justify the pain:

*Increase restraint in developing budgets;

*Reduce the entitlement mentality with respect to cost increases; and

*Make budget discussions more meaningful during review sessions.

Needless to say, this approach hasn't exactly taken the states by storm, at least according to this chart from the National Council of State Legislatures. In Virginia's case, the NCSL notes:

Program budgets organize the Appropriation Act, and performance measures are coming into use as a way to examine agency activities. Most executive budgets, however, begin with some calculation of a base, i.e., the approximate amounts required to continue current activities and caseloads.

"Performance measures" are fine and good. But if we're going to be serious about reducing costs and increasing efficiency, then perhaps it's time for Virginia to give zero-based budgeting a closer look.


  • I agree that ZBB, especially in a "modified" form, should be studied or tested in a fair and neutral atmosphere. While there are all sorts of "mini" objections that might be raised (such as by state employees worried about job security), it would seem to be ideally suited to those situations where priorities come and go. There are a lot of those, especially in economic development.

    Motorsports are hot, then cold, nano-technology is hot and cools, motorcycle tourism suddenly gets hot, etc., etc.

    Outsource a new priority for a fixed period, or assign state employees to do whatever the new priority is and hire contract employees to fill in until the job is done. Don't hire permanent staff to perform the new priority, when the chances are it will fade but the infrastructure will remain, trying to justify its existence.

    This kind of thinking might stimulate the development of private businesses that could actually do state functions well enough to eventually consider privatizing them.

    Test it, try it. What's the harm?

    By Blogger Will Vehrs, at 1/11/2006 8:30 PM  

  • While not practical on a statewide or national scale, it certainly should be done at the locality level. When I ran for Supervisor here in Rockingham County two years ago, I proposed "baseline" budgeting whereby every department would have to justify it's budget from $0 on an annual basis.

    I'll be proposing that, again, in the next Supervisor election cycle my District has in 2007.

    By Blogger David Briggman, at 1/11/2006 9:21 PM  

  • I have a lot of kin in Georgia. Carter's ZBB was a joke. Doing ZBB every budget cycle is pointless. ZBB on occassion can be worthwhile.

    By Blogger James Atticus Bowden, at 1/12/2006 1:51 PM  

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