More Budget Plays

Budgeting for Outcomes (BFO) challenges public leaders to determine what outcomes citizens most value, prioritize their tax dollars to purchase those results, and rethink the way their departments and agencies go about producing them. The traditional question in cost-based budgeting is: What programs can we cut to keep the budget in balance? Budgeting for Outcomes asks a different question: How can government increase the value it delivers to citizens with the money that is available?

Former Washington Gov. Gary Locke was the first to try Budgeting for Outcomes, with the help of Public Strategies Group consultants Peter Hutchinson and Connie Nelson. The process begins with five important steps:

• Getting a grip on the problem: Is it short or long term? Is it driven by revenue or expenses, or both?
• Setting the price of government: How much are citizens are willing to pay for public services?
• Setting the priorities of government: What results do citizens most value from government?
• Setting the price of each priority: How much should government spend to produce each of the outcomes citizens want?
• Purchasing the priorities: What are the best ways to produce the desired results at the price citizens are willing to pay?

Budgeting for Outcomes helps put the focus on the need to deliver higher-value government with the revenue that is available. But one question that remains is "how?" The answer, as David Osborne and Peter Hutchinson explain in their book, The Price of Government, is through smarter sizing, spending, management, and work process. Osborne and Hutchinson provide examples of proven methods for doing those things. They include strategic reviews, consolidation, buying services competitively, rewarding performance instead of good intentions, improving customer service, and using flexibility to get accountability.

Former Iowa Gov. Tom Vilsack's office launched a website designed to explain the new budget process and allow visitors to try their own hand at balancing the state budget. Vilsack's interactive website allows citizens access to the same information used by his office when developing the executive budget. Citizens can read the governor's "requests for results," the "results offers" submitted by state agencies, performance indicators, and even the "cause-and-effect maps" used by the budgeting team to explain the causal links between services, environmental influences and the end results desired by citizens.

Multnomah County, Oregon's largest county faced a huge budget problem when it asked the Public Strategies Group for help in 2006. On June 30, 2006, a temporary income tax surcharge put in place to deal with the fiscal crisis expired and the county was expected to lose $30 million in revenues. County leaders, already placed on credit watch by Moody's, used budgeting for outcomes to pay down some of their debt, set aside a $10 million reserve in anticipation of that loss, and correct a general fund structural deficit for fiscal years 2006 and 2007. Moody's was impressed enough to lift the credit watch.

Snohomish County, Washington, was facing a $135-million budget deficit when Aaron Reardon took office as county executive in January 2004. To address the problem, he turned to "priority-based budgeting" -- a strategy former Washington Gov. Gary Locke had used a few years earlier to erase a $2.5-billion state budget shortfall without raising taxes, back when Reardon was a state senator. Today, Snohomishs huge deficit is gone, but the county continues to use budgeting for outcomes -- "because it worked so well the first year in eliminating the deficit," Reardon said. The Snohomish County Council adopted the county's $203-million general fund budget for 2007 -- the third consecutive spending plan using priority-based budgeting.

Spokane, Washington, began a crash, six-week effort midway through fiscal 2004, to close an $11 million hole. The effort has paid off in a bond rating increase from BBB to AA-, saving the city $200,000 on an initial batch of bonds issued for street improvements. Like Iowa, Spokane has put all of the offers made to provide services in 2006 in an online "Budget Calculator," which allows citizens to try their hands at buying services with the money available.

Fort Collins, Colorado, a city of 135,000 an hour's drive north of Denver, provides a typical example of BFO's power to force managers to rethink. Like many cities, Fort Collins offers Dial-a-Ride service for the elderly and disabled. But all offers made through BFO must include performance data, and when Dial-a-Ride's offer came in the numbers indicated that at night, when demand for the service was low, the average cost for one ride was $90. Not surprisingly, the Results Team and City Manager ranked that portion of the offer below the cutoff line, which meant it would not be funded. When the City Council took up the budget, Dial-a-Ride users protested. Predictably, the Council asked City Manager Darin Atteberry if there wasn't some way to save the evening service. His office called a number of taxi companies and negotiated a contract with one for less than $20 a ride -- and evening Dial-a-Ride survived.

The Benefits of Budgeting for Outcomes

While most obvious benefit of BFO is to help maintain fiscal responsibility, almost just as important is how BFO pushes leaders to rethink their priorities and managers to rethink the way they deliver service. In addition, BFO helps policymakers:

Eliminate obsolete or low value activities. While the idea of killing off obsolete or low value activities is common sense, it is all too rare in government. BFO is designed to make it inevitable.

Find the money for important new investments. With BFO, if an investment is important, it rises to the top of the list, whether it is old or new. Other spending, which offers less value, falls off the list.

Ensure the general interest trump special interests. In a normal budget process, when a line item comes up for review the interest groups that care about it show up and pound on the legislators involved. When they do so in a BFO process, those legislators are looking not at one line item but at a whole list of spending items to achieve a particular outcome, ranked by priority. The trade-offs involved in any budget become very clear. Typically, legislators ask the interest groups some interesting questions: "What program should we not fund so we can afford yours?" And: "Why do you think your program promises better results for the dollar than that program?"

Ensure accountability for performance. Programs must deliver results or they don't get funded.

Talk about the budget in common sense terms. Most traditional budgets are so complicated they seem to be in another language. But BFO budgets are designed for anyone to understand.

Like the fiscal crisis, Budgeting for Outcomes is here to stay, because it keeps the focus on what really matters: purchasing the results citizens want at a price they're willing to pay.

Resources For Action

"Budgeting for Outcomes," The Budget Strategies Group, 2005
www.psg.us/reinvention/pogbforeinvent.html

The State of Michigan, "Budgeting for Outcomes" www.michigan.gov/cabinetplan/0,1607,7-176--124930--,00.html

Additional Reading

David Osborne and Peter Hutchinson, The Price of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis, Basic Books, April 13, 2004
www.dlc.org/ndol_ci.cfm?contentid=252574
&kaid=125&subid=162

David Osborne, "Leadership in Tough Times," Blueprint, April 15, 2003
www.dlc.org/ndol_ci.cfm?contentid=251477
&kaid=104&subid=116

Randolph Court, "Reinventing the Budget," Blueprint, April 15, 2003
www.dlc.org/ndol_ci.cfm?contentid=251476
&kaid=104&subid=116

Washington Gov. Gary Locke, State of the State Address, January 14, 2003
www.dlc.org/ndol_ci.cfm?contentid=251158
&kaid=104&subid=116

David Osborne, Peter Hutchinson, and Anne Spray Kinney, Budgeting in Tough Times, Democratic Leadership Council, July 2002
www.dlc.org/ndol_ci.cfm?contentid=250690
&kaid=125&subid=162

Contacts

David Osborne
25 Belcher Street
Essex, MA 01929
(978) 768-3244
DOsborne@aol.com

Paul Weinstein, Jr.
Chief Operating Officer
Progressive Policy Institute
600 Pennsylvania Avenue, SE, Suite 400
Washington, DC 20003
(202) 547-0001
(202) 544-5014 (fax)
pweinstein@ppionline.org