Budgeting for Outcomes

Budget and calculator
Budget and calculator

More and more states are now contending with budgetary shortfalls: Illinois, New Jersey and Oklahoma are just a few examples. Deficits typically occur not when states tax too little, but rather when they spend too much. Why is it that state governments find it so hard to live within their means?

One possible reason is the budgeting system itself: legislators start with their current budget, account for new caseloads, add several new programs and then adjust for inflation. The result is called the new "baseline budget." Any spending below that new, higher baseline is deemed a "budget cut" - even if total government spending rises year over year.

Under this system of baseline budgeting, little attention is paid to how funds are spent, or whether in fact those expenditures are making a positive difference in the lives of state residents. Meanwhile, rising health care and retirement costs for state workers are crowding out rival funding priorities. Illinois, for instance, will soon have to spend more on teacher retirement benefits than on classrooms.

Given today's fiscal realities, state lawmakers would do well to consider fundamental reforms to how they write budgets. Instead of letting a baseline of spending rise year after year, legislators should instead budget for outcomes. This would entail identifying the most vital, core functions of government - then budgeting and measuring for results against those stated outcomes.

Instead of effectively leaving state budgets on "auto-renew," legislators must ensure that all government spending is aligned with a limited, manageable number of identified goals. This does not mean legislative micromanagement of state government. Rather, multi-agency "results teams" should be given wide latitude to find more effective ways of delivering services to constituents, as long as the state's goals are being met.

Programs that fail to deliver results should then be thoroughly reviewed. Often, competition and market forces can be harnessed and channeled, enhancing quality while reducing costs. Consolidation of various programs might also be warranted, resulting in the more efficient delivery of services.

Invariably, redundant or obsolete programs will be uncovered. If they are not in alignment with spending goals, they can and should be eliminated altogether, freeing up scarce resources for other, more vital services.

In 2003, budgeting for outcomes allowed Washington State to close a $2.4 billion deficit, without raising taxes. In today's era of revenue crunches and swelling pension costs, more states and localities should consider utilizing this powerful fiscal tool.

Bob Williams is a senior fellow at State Budget Solutions, a project of the ALEC Center for State Fiscal Reform. He served five terms in the Washington State legislature.