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Counties erase deficits by ‘budgeting for outcomes’
Snohomish County, Wash. 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.
Also known as budgeting for outcomes, the process bases decisions to fund services or programs on their value to the community, not solely on their cost. Rather than cutting across the board to balance budgets - "thinning the soup," as several county budget officials termed it - programs that are determined to be of low value might not be funded at all.
"We had the luxury, because I had been through it once before at the state level - before I came here - to be able to put in place what I knew worked," Reardon explained recently. "And three years into this process, we’ve gone further than I believed we could."
The price of government
David Osborne wrote the book on outcome-based budgeting - The Price of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis - with coauthor Pete Hutchinson. In recent interview, Osborne explained, "Budgeting for outcomes doesn’t start with last year’s costs. It basically says to departments, ‘If you’re a department head now, each of your programs is going to put together an offer.’ And they’re supposed to give the best price they can and document the kind of results they’ll get."
In the book, Osborne and Hutchinson wrote, "The results-based approach clears away all the games and the preoccupations with departmental needs by employing a very simple progression," which includes:
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determining the priorities of government: the outcomes that matter most to citizens,
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deciding the price for each outcome, and
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deciding how best to deliver each outcome at the set price.
In Snohomish County, Reardon asked his employees to be more creative and innovative. "I didn’t want them to say we can cut back on travel, or cut back on pens and pencils," he recalled. "So I asked them to honestly identify efficiencies and improvements, to coordinate service delivery, to identify program outcomes and to work with other departments to achieve those outcomes."
"Outcome teams," often including rank-and-file employees (see related story), played a key role in the process, by ranking and recommending purchasing proposals.
Reardon recounted an experience in which front-line employees were reviewing priority packages developed by a cross-departmental team.
Employee Teams Help
Determine Budget Priorities
2006 marks the third year that Snohomish County, Wash. has used employee teams as an integral part of its budgeting process, reaching deep into the organization to solicit staff input.
For County Executive Aaron Reardon, it was a part of his priority-based budgeting process. Teams included department directors, as one might expect. But Reardon also went to his "third reports," employees two or three levels below his department heads.
"I have found that I received very candid and very straightforward constructive information on how to improve efficiencies and how to improve performance by talking to my rank-and-file, front-line employees," he said.
In Multnomah County, Ore., line-level employees were also involved in the county’s priority-based budget process, said Budget Director Karyne Dargan. "The criteria for outcome team member is you’ve got to be a good thinker, you’ve got to be able to think bigger," she said.
"Oftentimes, you find that the rank-and-file guys and the citizens at-large ask the best questions. We are reaching down. We have case managers, line staff, librarians, nurses - they make fabulous team members."
Reardon said he identified staff members who knew how programs worked at the level at which services are provided to citizens - to align budget outcomes with the things that citizens valued most. He looked for people who "could make an articulate judgment as to what would be beneficial or problematic."
The Washington State Association of Counties has offered training to its members on priority-based budgeting. Assistant Executive Director Eric Johnson said, "The (budget) implementation ultimately is going to be done by that rank and file, having them participate, having them understand the process and having them have ownership of the outcome is just absolutely imperative."
In summary, Reardon advised, "Talk to your employees at any level and ask them what do you like about the job, what don’t like about the job, how would you make the job better? That’s what this process does. And it allows them to constructively provide input on how to improve the process."
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"One of them came to me and said I’m not recommending that we fund any of these positions. I asked why, and the person told me because if we made these three changes, we could save money and we don’t need these people. That was three years ago, and they were right."
For Snohomish, another important part of the priority-based approach is getting community input; Reardon held 70 meetings in his first eight months on the job, asking citizens what they expected from their government. The county also conducted several focus groups and third-party polling.
Today, Snohomish’s 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. Last month, the Snohomish County Council adopted the county’s $203-million general fund budget for 2007 - the third consecutive spending plan using priority-based budgeting
Today, other localities facing deficits are taking a similar approach: Mesa County, Colo. and Multnomah County, Ore. are now using the outcome-based process. "I sing the praises of priority-based budgeting," says Karyne Dargan, Multnomah’s budget director, who’s been doing "budgeting work" for more than 20 years. She began using the process in 2005, when the county faced a potential $40-million cut to its general fund. "Our board was very clear that they didn’t want budgeting as usual."
Budgeting for outcomes is particularly useful in deficit situations because it dispenses with easy fixes such as cutting all programs across the board, focusing instead on the "price of government:" what services from county departments is the governing body willing to buy, and at what price - based on the services and programs that citizens value most and the county’s strategic plan. It forces each department, program or division to make hard choices on the front end.
Using a process that included citizen focus groups and a Web-based survey, Multnomah County established six priorities of government for its 2007 budget. Expressed in terms of "citizens’ expectations of government," they include: basic living needs, safety, accountability, thriving economy, education and vibrant communities.
‘A good fiscal crisis helps’
While most of the counties that have used budgeting for outcomes began doing so because of deficits, Osborne said it’s "extremely useful whatever fiscal condition you’re in."
Multnomah County’s Dargan agreed, admittedly tongue-in-cheek: "A good fiscal crisis helps," but that needn’t be the case. Increasingly, fiscally healthy governments are using the process. "Even if you’re not in a cut mode, wouldn’t you as much want to know where to add resources, and the bang you’re getting for your buck?"
Osborne added, "New innovations are generally adopted by people in crisis, because they have urgency." However, in Texas, the city of Dallas is budgeting for outcomes, not because of a fiscal crisis, but "because they had a new city manager who wanted to shake the city up, and push results and change the culture It’s extremely useful whatever fiscal condition you’re in."
Glenn Kuper is a spokesman for Washington state’s Office of Financial Management, which helped erase the state’s budget deficit. He said, "Priority-based budgeting is gaining in popularity because it is an effective tool for governments to figure out what is really important and worth funding. It also helps citizens understand how funding decisions are made by making it clear why some programs don’t make the cut."
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