Bruce Nye: What does budget reform look like? Part 2

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.

Part II

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.

17 thoughts on “Bruce Nye: What does budget reform look like? Part 2

  1. ralph

    Bruce,
    I am behind this approach 100%. I think I conveyed this message to some not long ago. Gary Locke, former WA gov used this process in the 90s, and Baltimore is doing it now. I look forward to Sunday aftn.

  2. len raphael

    Ralph,

    How did Baltimore persuade it’s various interest groups to even pretend to agree upfront that all expenditures were on the table for eliminating?

    -len raphael, temescal

  3. ralph

    I would say because my friend, SRB is “all balls” and “hot like sixteen” but truth is a few years ago the city and residents settled on the core services and this effort is just an extension.

    I think if someone would give Ms. Brooks her way we could do something similar here. For as long as I have been attending council mtgs she has been adamant that we need to identify our core services. From there, it is a matter of evaluation. It all stems from the top.

    The City’s budget process aims to align resources with results that matter most to citizens, as determined by the Baltimore Citizen Survey.

    For the Fiscal 2011 budget, these results are organized around six City Objectives. They are:
    􀁠 Make Baltimore a Safer City
    􀁠 Build Strong, Healthy, and Educated Children and Families
    􀁠 Strengthen Baltimore’s Economy and Promote Economic and
    Cultural Opportunities for all its Residents
    􀁠 Make Baltimore’s Government More Innovative, Efficient, and
    Customer Friendly
    􀁠 Cultivate Stable, Vibrant, Livable Neighborhoods
    􀁠 Make Baltimore a Cleaner and More Sustainable City

  4. len raphael

    Ralph, aren’t those goals motherhood and apple pie to politicians?

    i can understand that degree of consensus in a small relatively homogenous place like Ventura or some town in Wisconsin.

    So when a bunch of Baltimore active residents gather in one big room, somehow they don’t get stuck in our chicken or egg priority disputes about guns or butter; density or neighborhood livability etc. Did some urban planning god knock their heads together one night? or was this the result of the whole city watching themselves on the The Wire?

  5. Patrick M. Mitchell

    But isn’t the problem with this newfangled budgeting process – at least as far as Oakland is concerned – the fact that Oaklanders all agree that police and fire are our top priority? OK, so now that virtually all of the budget is off the table for “reallocation”, we end up with the same thing as before.

    Unless of course we outsource policing to Alameda County…

  6. Steve Lowe

    Patrick, even if all Oaklanders agree that Police and Fire are the top priorities, they’d be a little off the mark, wouldn’t they? After all, isn’t the reason we have cities in the first place so that commerce can occur? It’s from that source that the police forces and fire brigades can be paid for to help protect the henhouse, wherein lies the golden egg, from the varmints and/or other forces that would destroy it, no?

    I’m not disputing the fact that Oakland needs to have police and fire at the very top of its list, but if we’re not going to protect trade, where in the world will we get the funds to pay for the protections we need? If we’re going to lie back and assume that trade will take care of itself because the guys running the show are all experts (just like we assume that the folks who are in charge of our budgets always know what they’re doing), then we’re in deeper doodoo (or soon will be) than we ever thought – and a lot of it right straight out of the henhouse, at that.

    Maybe we ought to be moving in parallel with the police and fire issues and tack on a trade and commerce component so that we won’t end up with a local economy that’s faltering even beyond the sad and sagging national program that we have today. When we have our City representatives all voting for the Oakland Airport Connector instead of trying to get High Speed Rail over the Altamont (because the economic redound to the entire Bay Area will be far and away much more superior), then you have to know that there’s a serious problem at City Hall that no end of police and fire personnel will ever even begin to address.

    And Oakland, in particular, is doubly damned in that those folks who have the capacity to serve on City Commissions are becoming a rarity these days. We don’t have the volunteerism in Oakland that other cities do, especially when the result of appointments in the past has been so frequently a matter of politics and not expertise. You’d think from the intensity of debate and behind the scenes maneuvering that Commission appointments in Oakland were akin to Supreme Court nominations in DC, a process that is another sure indication of this county’s near-imminent descent into Tea Party madness.

    Until we recognize the huge shortcomings of our leaders and demand that they not act as imperiously as they’ve been doing – mostly by ignoring the hoi polloi who voted for them in the first place – we’ll be forever stuck on stupid and still dealing with police and fire issues when we’re totally out of dough and the whole joint comes tumbling down around us. More citizens advisory boards and more interaction with our betters is the key to unlocking the door that stands between good policy and backroom dealing: how can healthy thought emerge from any group that is perpetually sequestered in closed session?

  7. Livegreen

    This is how everything typically breaks down in Oakland. Some do-gooders come up with good ideas, then everybody concentrates on the negatives or the “why it won’t work”, until there’s nothing left.

    I support what Bruce, Max and others at MOBN r doing. Keep up the good work.

    I also support what MOBN, Russo and IDLF r doing around the Gang Injunctions. I understand some will b showing up for the Tuesday Council Public Safety Committee mtg.

    If that’s true, Tuesday will b a busy day…

  8. MarleenLee

    To the extent that this meeting helped to highlight Oakland’s ongoing and severe mismanagement and corruption, that’s a good thing. But I also am cynical, and believe that most of this is just grandstanding by the politicians.

    Performance based budgeting? If any of the City officials really supported such a concept, they would have voted against the most recent revision to the Oakland Municipal Code that completely eliminated any competitive bidding or RFP requirements for “grants” awarded to non-profit agencies. But the Council unanimously voted in favor of the change, to ensure that the patronage continues.

    This new change essentially eliminates competition and accountability requirements for the groups that pound the pavement on a regular basis to support our elected officials, the tax proposals they want passed, in order to ensure that the millions and millions of dollars keep filling their coffers and paying their salaries. IDLF voted in favor of the new change. Courtney Ruby’s audit faulted the City for not using the RFP process for many of the “grants” awarded to non-profits. Did she speak out against this new change to the OMC? The new change had to be approved by the City Attorney. Did he oppose it?

    These are the proclaimed “reformers?” Yeah, I don’t buy it. I have spoken on an individual basis to all of these people, trying to persuade them to lead us to true reform. Their actions speak louder than their words.

  9. Max Allstadt

    @Livegreen,

    MOBN has not taken a position on the gang injunction. My support for it is as an individual.

    @Marleen,

    I’ll look at that rule change. Doesn’t sound like it should have happened. There may be opportunity to undo it.

    Russo and De La Fuente both mentioned their support for charter reform at our meeting. Russo, in particular, was suggesting contracting reform. The grant issue you’re talking about might fall under that umbrella.

  10. Livegreen

    Marleen, I think you make some good points. However I will take your Cynicism one step further: Even if there were an RFP process Oakland would find a way to corrupt it.

    My example is how OFCY switched their RFP scoring system AFTER awards were already decided.

    And I voted for OFCY believing that intent was the goal, to b judged by the most productive RFPs and programs. It’s not. The goal is to allocate money based solely on need, even if some programs do NOT work.

    The goal is noble. The process is rotten.

  11. Livegreen

    Max, re MOBN’s position on the Gang Injunctions, fair enough. I jumped to an assumption made after communicating with another MOBN member.

    Also I understand that some Russo and IDLF supporters have asked for turnout from common folk in the Fruitvale and other areas. I wish they would publicize this a little more, as sometimes a half ass effort comes off looking worse than all or nothing. Especially if not many turn up.

  12. Max Allstadt

    @livegreen

    To my knowledge, Frank Castro, an NCPC chair and I are the only active supporters. But the organization is absolutely not taking a side on this. MOBN is primarily oriented toward broad systemic change. The injunction is a relatively small scope issue.

    I’m headed down to city hall now. Please join us.

  13. len raphael

    i missed the finance meeting this morning, but did chat with a couple of union members outside the meeting room.

    one of the persons clearly knew the pfrs situation and clearly knew we were in deep doodoo, even though he was presenting the stop gap measure of “pressuring” the bond underwriters to let us out of the financial instrument for a reduced fee, 18milll instead of 40 mill or some such. He conceded that would help once and then we were screwed.

    He’s counting on state universal health coverage to reduce the unfunded med retirement problem. I asked him why he thought voters who wouldn’t qualify till age 65 would agree to pay for city workers getting coverage at age 55. Answer came there none.

    The other guy was from of the professional departments. it was clear that he had not realized how broke the city was until today at the pfrs hearing.

    He made the valid point that even if his comrades had not gotten the raises they had gotten over the past ten years, the city would only have spent it on something else instead of funding retirement benefits.

    Yes he did remember getting a retroactive pension raise, but admits that in hindsight that was incredibly costly to the city.

    -len

  14. Dax

    Len,

    “Yes he did remember getting a retroactive pension raise, but admits that in hindsight that was incredibly costly to the city.”

    Yet at the same time our fabulous City Council members and our mayor have no sense of urgency to fix the pension system going forward.

    Any employee hired over the past year or this year will get grandfathered into the current pension system and remain there for the next 35 years.
    No new employees should be hired until the pension system is returned to its prior sane position.

    EVERYONE agrees the 2004 increases were insane, yet Quan and Company are walking along without urgency.

    BTW, did you hear Mayor Quan in the news on Monday or Tuesday saying that we may have to put a “small” tax measure on the ballot.

    What, does she have rocks in her ears?
    We raise our taxes so city employees can retire at 55 …….while we work until 66 to pay for them AND for their extended health care from retirement onward.

    Sick…sick City Hall thinking.

  15. livegreen

    Any idea why the OEA has decided to support the Gang Injunction? Are they broadening their expertise to include City politics and safety? Or is Betty Olsen planning on running for public office?

  16. Livegreen

    Thanks for the correction BIO. I meant (let me rephrase): Any idea why the OEA has decided to oppose the Gang Injunction? Are they broadening their expertise to include City politics and safety?