Bruce Nye is a board member of Make Oakland Better Now!. Budget reform will be on the agenda at the joint Make Oakland Better Now! and East Bay Young Democrats meeting on Sunday, February 20, 2011, 2:00 p.m. at Lakeshore Avenue Baptist Church, 3534 Lakeshore Avenue (directions). All are welcome.
At Make Oakland Better Now!’s February 20 meeting, we will be looking at ways our city could reform its budget process to make city government more responsive and more cost-effective. Thanks to our host V Smoothe at A Better Oakland for giving us the platform to discuss two possible reforms. Yesterday we talked about Performance Based Budgeting. Today we consider “Budgeting for Outcomes.”
What Does The Budget Process Look Like Now?
In recent years, Oakland’s budget process has worked this way: The Budget Director asks department heads to submit their budget requests. Departments submit information — usually not very detailed — about what they think they need for personnel and other resources (often adding a margin because they know their requests will be cut). The Budget office prices out the requests, estimates the year’s revenues, and makes proposed cuts to the requests until the budget is, theoretically, balanced.
The proposed budget goes to City Council for public hearings, during which members of the public, public employee unions and other stakeholders mobilize to plead their cases against what they perceive — often correctly — as devastating cuts. Council makes some political compromises, and eventually agrees on a budget that is, on paper, balanced.
We understand that the new Mayor is taking a much more active role in the process than did her predecessor, and the new Budget Director has been moved to the Mayor’s office. The budgeting process has been fairly quiet since the first of the year, but we also understand that staff are trying to close a $40+ million gap (not including the $46 million PFRS bombshell). So it sounds as though the process is the same as before. And, as before, there is much likelihood that once it is adopted, the budget will be the subject of repeated mid-year corrections as revenue assumptions turn out to be too high and expense assumptions too low.
We doubt many Oaklanders think this process is getting us the government we want. Is it time for Oakland to try something new?
The Price of Government: Budgeting for Outcomes
Last November, Ventura City Manager Rick Cole spoke to a gathering of concerned citizens in Vallejo about how to make city government work in tough financial times. Obviously, if there is any California city in urgent need of finding new ways of doing business, it is the recently bankrupt Vallejo.
The core theme of Coles’ presentation was this: cities can go on cutting and trimming and slicing all their city services until no city function is performed well — the proverbial death by a thousand cuts. Or they can turn the process on its head. Specifically, they can prioritize their desired municipal outcomes, determine how much money they have to spend, allocate sufficient funding to the highest priority functions to ensure cost-effective outcomes, and when the available funding is exhausted, stop. In other words, they can take on less, but do the most important things well.
The “budgeting for outcomes” approach, which Ventura has used for several years, is based on a book by David Osborne and Peter Hutchinson, The Price Of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis. As the authors describe it at their web site, there are four key elements:
- Set the price of government: Establish up front how much citizens are willing to spend. Get agreement on a revenue forecast and any tax or fee changes. Set the priorities of government: Define the outcomes or results that matter most to citizens, along with indicators to measure progress. Set the price of each priority: Divide the price or revenue among the priority outcomes on the basis of their relative value to citizens.
- Develop a purchasing plan for each priority: Create “results teams” to act as purchasing agents for the citizens. Ask each one to decide which strategies have the most impact on their desired outcome.
- Solicit offers to deliver the desired results: Have the results teams issue “requests for results” to all comers including their own government’s agencies or department, other governmental jurisdictions, unions, non-profits and businesses. Invite them to propose how they would deliver the result and at what price. Then choose those proposals that will provide the best results for the money.
- Negotiate performance agreements with the chosen providers: These should spell out the expected outputs and outcomes, how they will be measured, the consequences for performance, and the flexibilities granted to help the provider maximize performance.
Budgeting for outcomes is not a privatization or outsourcing initiative, nor a bludgeon against public employees. Indeed, Coles reported that the transparency and buy-in processes that are part of budgeting for outcomes have resulted in collaborative and even cordial relations between the city and its unions. This is despite Ventura’s ongoing and worsening financial problems.
Budgeting for outcomes is a mechanism for inviting more innovative, more cost-effective ways to deliver the most critical services. The underlying theory is that competition makes service delivery more innovative and efficient. And Osborne and Harrison find that when city departments compete for the right to provide those services, most become more efficient and win the competition.
In a post-tax rebellion world, most cities are in a permanent state of fiscal crisis. Tax increases are unlikely, revenue growth from business growth is years away, and government will never have what it feels it needs to do everything. Indeed, in Oakland, the permanent fiscal crisis threatens to worsen dramatically (PDF) if some or all of Governor Brown’s budget proposals are adopted.
The usual way to address this permanent crisis is to make cuts every year. Certainly when Osborne and Hutchinson describe the usual budget process, it sounds awfully familiar:
The usual, political way to handle a projected deficit is to take last year’s budget and cut. It is like taking last year’s family car and reducing its weight with a blowtorch and shears. But cutting $2 billion from this vehicle does not make it a compact; it makes it a wreck. What is wanted is a budget designed from the ground up.
In the budgeting for outcomes approach, the community, and responsible leaders, jointly determine what outcomes they value most. They determine what it will cost to achieve those outcomes. And they provide sufficient funding to achieve the highest-priority results.
This process cannot be part of the routine, annual budget process. The initial organization and implementation will be complicated, contentious and time-consuming. So making budgeting for outcomes a reality will have to be a separate process from the usual, disheartening biennial budget dance.
It is too late to change the process for the 2011-13 budget. But wouldn’t it be refreshing to see a revolution in time for 2013-15 and beyond?
Should Oakland do this? We will discuss on Sunday, February 20.