A how-to guide for budget reform: Part IV

‘Charter agencies’ can produce quality services at lower cost

By Geoffrey Lawrence
  • Wednesday, April 28, 2010

As Nevada lawmakers and Executive Branch officials confront the state’s mounting fiscal challenges before the 2011 Legislature, they should begin availing themselves of strategies that other states have used successfully to reduce costs without sacrificing the quality of state services.

First on this list is reforming the state budget process by moving from the current “baseline budgeting” approach to a results-based procedure, such as Budgeting for Outcomes (BFO).


An inevitable obstacle to this approach, however, will be the resistance to change that inheres within bureaucratic cultures.  To transition Nevada’s agencies from a rigid focus on process to a focus on producing meaningful, cost-effective results, something more will be needed — something that can positively impact the culture within government.

Former Iowa governor Tom Vilsack developed a method for accomplishing this very task. He established voluntary “charter agencies,” under a concept similar to the empowerment model for public schools. Program directors could have more flexibility and control over available resources, but at the price of increased accountability.

Vilsack’s budget staff offered individual state agencies the option of volunteering as charter agencies.  Participating agencies agreed to receive fewer General Fund dollars but, in exchange, agency directors were granted all the finance powers that previously resided in the departments of Information Technology, Personnel and Purchasing. 

Thus, charter-agency directors received direct control over agency resources and were freed to allocate those resources toward what they saw as their best use. No longer did they first have to gain other agencies’ approval — a process that can severely hamstring a director’s ability to respond to changing circumstances.  The charter-agencies directors gained the freedom to add or reduce personnel, negotiate wages, and purchase new software programs, vehicles or other goods and services at will.

 The price of this extra freedom, however, is increased accountability.  Charter agencies are expected to produce quantifiable results.  In Iowa, charter agency directors are required to meet with the governor at the outset of each fiscal year to develop an “annual performance agreement.”  The agreement outlines “measurable organization and individual goals for the director in key operational areas” and defines the metrics used to evaluate performance.  In order for the director to retain charter agency powers, the agency must achieve the goals outlined in the performance agreement. 

 In Iowa, charter agencies have vastly outperformed their previous track records as non-charter agencies.  The Department of Natural Resources reduced the average turnaround time for permit applications from 187 days to 30 days.  The Department of Corrections reduced the probation failure rate by 17 percent.  The Veterans Home, a long-term care facility, reduced the fraction of patients experiencing moderate to severe pain by half.  The Department of Revenue increased the number of personal income tax filings completed within 45 days from 75 percent to 94 percent.

 All of this occurred as the state realized General Fund savings through the charter agency initiative.  The central theme of this initiative has been transforming the culture within charter agencies away from strict adherence to bureaucratic process and toward producing results.  Indeed, the Iowa Department of Management has proclaimed that “getting things done is more important than not doing anything wrong.”

 Charter agencies also enjoy additional benefits relative to non-charter agencies.  In exchange for accepting fewer General Fund dollars to begin with, charter agencies become contractually immune from any potential across-the-board budget cuts. 

 In addition, at the conclusion of the fiscal year, charter agencies are able to retain one-half of all funds remaining in the agency account — in lieu of that money reverting to the state General Fund.  This money can be used, for example, to provide bonuses to highly productive workers.  It provides an incentive for agency thrift, while still yielding savings to the state General Fund.

The charter agency initiative can and should be combined with a fundamental reform of Nevada’s budgeting process that moves this state to a BFO approach.  Charter agencies have been recognized with an Innovations in American Government Award from Harvard University’s Kennedy School of Government because they allow directors the flexibility they need to deliver quality services at the lowest cost.

These reforms have enjoyed broad, bi-partisan support in states where they have been implemented. They should do so in Nevada, as well. 

There is no real counter-argument against the proposition that Silver State government should maximize its return on spending. The way forward, therefore, must include both the charter-agency initiative and its associate, budgeting for outcomes.

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute.

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