Zero base budgeting and Pennsylvania’s yearly budget battle

Zero base budgeting and Pennsylvania’s yearly budget battle

0

By Robb Hanrahan

It’s budget time in Pennsylvania and the usual questions are popping up. How late will it be? Or, will it be on time? Every year, the state legislature wrestles with how the Commonwealth will spend its money. Cuts are often considered “draconian” to those who like a program and “necessary” to those who don’t.

So every year around this time on my show “Face the State” the idea of zero base budgeting is tossed about. It’s the total opposite of how we currently decide how much and where the money will be spent in Pennsylvania.

The way we do it now

Currently we use incremental budgeting which always begins with the budget from last year. It’s not a bad way to budget and is used in many businesses and governments. The idea is to approach the coming budget year with the current budget’s numbers. If a department or agency needs more money for programs or services, it requests an increase. The increase must be justified. But here’s where many lawmakers have a problem with this practice. If a department doesn’t use all of the money in the previous budget year, they lose it.

It’s this “use it or lose it” philosophy that has many thinking the only way to go is up. More spending, which requires more revenue, which these days often means more taxes. Money isn’t pouring into the Commonwealth at this point. So to keep the budget balanced without an increase, departments and agencies often have to cut spending. That’s hardly a popular thing to do for one running a multi-million-dollar government agency.

So why not start at zero?

To remove the “use it or lose it” mentality, a process known as zero-base budgeting is floating out there. It’s far from new. A guy named Peter Pyhrr wrote an article about Texas Instruments use of it in 1970. Interest grew in its success. Then, Governor Jimmy Carter implemented ZBB into the state of Georgia’s budget. Carter brought it to Washington where it lasted all of four years until President Reagan killed it in 1980.

It’s a simple idea that gets complicated quickly. Zero based budgeting starts at zero. Sounds good, right?  Each department gathers every expense that it will incur during the next year. Every expense. Then they simply budget for that amount. There’s no “bagging” of last year’s budget and asking for more. The simple genius behind it is that there’s no incentive to spend all of the current year’s budget, and it requires proof of every expense needed. Here’s where it gets complicated. That’s a lot of detail. Detail that requires managers, department heads, even mid-level employees to be recording current expenditures and predicting next year’s. Governments that have used it often had to hire and train more people in order to get it up and running. In other words, it needs more work and is often not very popular with employees.

The reason many government agencies abandoned zero-base budgeting was because it requires time and understanding of its complexity. Units in every department have to justify spending, not only to meet minimal expectations but also to include predictions for providing higher levels of service. The analysis has to be handed up through several levels before finalization. In Pennsylvania, that would have to be done every year. Whew. That would include counting every pencil, paper clip and folder, not just major expenses.

Advantage: detail

ZBB is a great way to have a working knowledge of where every cent is being spent. It provides an efficient allocation of money and can improve cost effective spending on services. It also takes away the “entitlement” philosophy of spending the entire current budget.  ZBB can also weed out stale and outdated programs and departments.

Disadvantage: complexity

With Pennsylvania on a yearly budget cycle, implementing zero-base budgeting would require enormous preparation time and increase the cost of preparing the spending plan. Our state government is huge and complex in and of itself. ZBB requires a microscopic examination of everything that needs money. In my opinion it would probably need a year-round department of its own just to gather the information needed to produce a yearly zero-base budget.

So why all the talk about ZBB?

Because we’re looking at a possible $6-billion-dollar budget deficit by the end of next year if we don’t close the current $700 million deficit this year. Lawmakers are looking for money in every corner and ZBB appears to be an answer to wasteful government spending. In a recent appearance on CBS 21’s “Face the State,” House Appropriations Chair Stan Saylor talked about performance base budgeting. It’s a sort of hybrid off-shoot of ZBB which requires accountability and measurable objectives. PBB presents its own list of challenges but may be a possible road to explore as we face the state budget challenge every year.

According to the National Conference of State Legislatures, almost half the states use performance information but differ in when and where the information is used in the budget process. Basically all information is important in the budget process and performance information can provide background on the purposes of state-funded programs and the results they achieve.

Robb Hanrahan is host of CBS 21’s “Face the State.” The show can be seen every Sunday morning at 8:30 a.m.