Begin each budget cycle with a zero budget and justify all costs
There is little doubt that we will have too few dollars to accomplish all of the programs and public investments being proposed. That may be a good thing, since it can lead to better allocation procedures than those we have seen in the past.
This is an appropriate time for all public agencies to move to zero-based budgeting. This is not a new concept, but one not universally embraced for what appears to be purely political reasons. It requires not only careful planning but also a means of identifying the relative costs and benefits of using public funds.
The process takes several forms, but one of its simplest is wiping the slate clean each budget cycle. I'll address the investment aspect later on. Once the budget is eliminated (that's right), it has to be re-justified from the bottom up each budget cycle. That means the group seeking funds has to specify a per-unit cost to achieve each objective. In order to do that, there has to be an understanding of the resources that are needed to achieve each objective. Once established, the resource identification and estimation needs to be used each budget cycle to see where the cost variances are and to address the reasons for the variances.
The amount of output to be achieved has to be agreed upon by the administration (mayor, city council, governor, etc.) and the agency to provide the service each budget cycle. That output has to be in terms that can be measured, such as the number of students in the second grade, the number of miles of roads to be maintained, etc. It is clear that not all second-grade students require the same amount of resources. At the time the budget is introduced, it has to identify the expected number of special cases and the additional or reduced amount of resources required.
There are several public services where identifying resources unique to each unit of output are more difficult than others; however, difficult is a lame excuse for not moving forward and starting the process. There are numerous examples of this being done each day for most of the public services provided. There is disagreement on how to measure and allocate, but that has to be part of the process at the level of the service's delivery.
Until we understand that public services are not free and that the owner of the public service (all citizens) should be provided with an accounting of the use of their scarce funds, then we will be left with a budget process that simply adds to itself each budget cycle.
One can only imagine how many agencies that do not justify their budget each year are in the Federal government. At the same time, we have no idea what the required output is of each agency and also have no idea if they are meeting their goals. That is unacceptable when we have so many important uses for public funds and no way to effectively hold the agencies responsible for their actions.
There is the issue of how to account for investment. The investment for a second-grade class could be either a new facility or a new computer system. Both are expected to last more than one budget cycle and both will overwhelm the costs if all are posted in a single budget cycle. The simple answer is to determine the useful life (number of budget cycles) for each investment and then allocate a cost per budget cycle for each of the years of expected life of the investment.
This is not a blueprint for how to manage the use of public funds but hopefully a stimulus (currently hyped jargon) for all to find a way to gain the confidence of the public and to stop some of the waste we know exists but are frustrated in trying to identify. The result will be a better managed system that will free up funds to do more — and do it cost-effectively.