of health care costs, a collapse of capital gains tax revenues, and overall slow economic growth. Based on the combination of these factors, an astonishing 16 states experienced negative growth in fiscal 2002. Others fared only slightly better. The report concludes, " many states have exhausted budget cuts and drawing down rainy-day funds and the most difficult decisions still lay ahead."
I agree. If there ever were any, no easy choices remain to plug the huge anticipated budget holes. The shifts have been shifted. The rainy day accounts are dry. "No new taxes" pledges are still being spoken. This Connie's Corner offers no silver bullet, but does report on a recent client engagement that approaches this problem in a dramatically different way.
In August, the Chief of Staff to Washington's Governor asked PSG for help in closing a large budget deficit, projected to be more than $2 billion in the upcoming biennium. Governor Gary Locke and Fred Kiga, the Governor's Chief of Staff, knew the state was headed for a budget equivalent of a train wreck and wanted to avert the crisis.
PSG approached WA with an unreasonable proposal. In ten weeks time, we were not going to help the state find cuts equivalent to 10% of their general fund budget. Rather, we offered to help the state find the best way to live within the resources available to them. Stated another way, we suggested we help them buy the best possible results for Washington citizens with the resources they had rather than assume spending cuts and tax increases to deal with resources they didn't have. Courageously, Washington leaders decided this unreasonable approach was the only reasonable thing to do.
Working with the Governor and his staff, PSG shepherded them through a results-based approach to inform their budget. This approach asks - and answers - four questions:
- How much money does the state have to spend - how much will it charge its citizens?
- What results form the core of what must be done and done well to serve the citizens of Washington?
- How much will the state spend to produce each of these priority outcomes?
- How best can that money be spent to achieve each of the core results?
In ten weeks, Washington:
- Set the price of government - They decided to build the budget based on expected revenues under existing law. What was new was the consideration of all available funds from whatever source. For the first time, this widened attention beyond the General Fund - to include general and dedicated, state and local, operating and capital funds.
- Set the priorities of government - They chose ten key results they believed citizens most want from government. In the Governor's words, these define the core purposes of government. These desired end results include increased student achievement, improved condition of vulnerable children and adults, and improved mobility of people, information and goods.
- Allocated available resources across the results areas - In some cases, the allocations were similar to today's level of spending. In others, they were different. For example, more resources were allocated to student achievement and fewer to safety. Also, ten percent of the budget was set aside for overhead functions, such as pension contributions and internal services.
- Developed a purchasing plan for each result - Teams were assigned to each result and asked to produce that result through their purchases.
How was this done?
Internal to the process, two teams helped steer and manage the effort. A Guidance Team, comprised of private sector and cabinet level people, set the overall price and priorities and acted on the Governor's behalf. Second, a Staff Team, made up of senior people from within the Office of Financial Management, managed the process and developed recommendations across the whole enterprise. Both teams provided feedback to work produced along the way.
Ten additional teams were created to advance the key results. The job of each of these Results Teams was to develop a "purchasing plan" to produce their given result. Each was chaired by a policy or budget lead from within the Office of Financial Management, and included members from across many agencies.
The teams were asked to:
- Define how they would know success. They had to choose 3 concrete indicators to measure achievement of their result.
- Develop a "strategy map", backed by evidence, showing what leads to their result. In essence, they had to show the 'cause and effect' of key factors contributing to their desired result. For example, the health team showed environmental, personal behavior, health access and care, and genetic factors.
- Present five to six purchasing strategies considered to offer the best leverage in achieving the result. In other words, from across all the key factors, they had to agree where the state should choose to put its money. For many teams, they had to make choices across a continuum of prevention to remediation.
- Create a detailed purchasing plan. For this, the teams literally went 'shopping' across a subset of nearly 1400 state and local activities funded by the current budget. Their plan had to indicate these things:
· what they would buy - both new and existing
· what they wish they could have bought, if they had more money,
· what they would give up, if they had even less money, and
· what they would not buy.
Prior to the finalizing these plans, the Results Team leaders met together to talk about what they needed to purchase from each other. For example, two teams jointly bought additional improvements to water quality - as a way to leverage both health and natural resources outcomes. This cross-function, cross-result buying was important because the work of state government is so interconnected.
By the end of ten weeks, ten purchase plans were created - plans that align results, indicators, strategies, and purchases. All ten were accepted by the Guidance Team and are believed by them to offer great value for informing both short-term and long-term budget decisions.
What have we learned?
Here are a few early reflections. We're still in the midst of this effort, so more will be forthcoming, I'm sure.
- Using all revenues feels really different. Like most of you, this state is used to primarily looking at only the General Fund, which in this case is only 40% of all monies available. Some managers of dedicated funds took an early 'ho-hum' approach to the effort because they felt they were immune. Then the teams started asking them about what they were producing.
- Creativity is more important than precision. OFM's Deputy Director Wolfgang Opitz made this point often. To get out of their large budget gap, they could NOT do things as they had always done them. They had to get clear about the end results that mattered - and get the best minds focused on how produce them.
- Unreasonableness spurs innovation. This project imposed unreasonable time frames and unreasonable demands on people to stretch their perspectives. People did not feel equipped to know about programs outside of their own area. They didn't always have good performance data on which to "judge" their spending decisions. Budget analysts were used to making budget recommendations, not leading teams of interdisciplinary members. This effort caused all involved to leave their comfort zone. It was very hard. But the tight time frame helped with focus and forced hard choices/ new approaches. Again, our client Wolfgang Opitz said, "Being reasonable would have resulted in the same old stuff. This brought in completely new perspectives to inform the Governor's budget submission."
To me, this new process holds much promise for our public sector to continue its long tradition of service excellence. For a full discussion of this approach to budgeting, including tools to support its success, see our paper entitled, Finding Opportunities in Fiscal Stress: How to Balance Your Budget and Improve Performance
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