A how-to guide for budget reform: Part 1

Geoffrey Lawrence

IKEA shoppers know that assembling a kitchen table with the instruction guide for a dresser is nearly impossible.

Yet, Nevada lawmakers facing severe state financial constraints regularly seek to assemble state budgets using an instruction manual entirely wrong for the task.

The "baseline budgeting" process that the state currently uses is completely inadequate for the task that will face lawmakers in the 2011 session. To meet current fiscal challenges while maintaining the quality of essential services, lawmakers will need a new budgeting tool — one allowing them to allocate spending in the manner most efficient for meeting citizen needs.

If compelled in 2011 to once again operate within baseline-budgeting parameters, lawmakers will be largely helpless as they confront their need to set appropriate priorities. That's because baseline budgeting is essentially a cost-plus budgeting process that fails to evaluate existing programs for performance.

Absent this evaluation process, lawmakers often find themselves making across-the-board cuts when revenues are not sufficient to fund the baseline. This penalizes highly effective programs that provide essential services just as much as the non-performing programs that deserve more pruning back.

As Frank Partlow, executive director of the bipartisan Spending and Government Efficiency (SAGE) Commission, points out in his recent book, SAGE Nevada, "The existing process of inflating the previous biennium's budget to account for inflation and growth may have sufficed for a state whose revenues were growing each year, but it clearly will no longer work in what may become at best a flat revenue stream for many years to come."

Clearly, Nevada lawmakers need a new approach if they are to continue to fund essential services in the face of current fiscal challenges. Fortunately, they need not re-invent the wheel.

In response to faltering revenues in his state in 2002, then-Washington governor Gary Locke developed an approach he called Priorities of Government. Alternatively known today as "Budgeting for Outcomes" (BFO), Outcome-Based Budgeting or Priority-Based Budgeting, the approach met such success that it has since been adopted in Iowa, Michigan, South Carolina and Louisiana, as well as in local governments across the country.

The premise behind the BFO process is that lawmakers should prioritize the results that they want government to achieve for citizens. Then, after determining the most effective way of purchasing those results, available funds are allocated to do so. In Washington, as in other states where BFO has been implemented, this has implied a rethinking of the structure of government.

The central value of BFO is that the process forces Executive Branch officials to consider alternative strategies for delivering quality services at the least cost. Often, government agencies devote little discussion to how best to achieve the goals set by lawmakers. Too frequently the strategies taken to achieve those goals are the result of unilateral, intuitive reasoning by department heads — rather than a thorough vetting process that examines the relative efficiency of all reasonable alternatives.

Recognizing this dynamic, Florida in 2006 established a Council on Efficient Government tasked with reviewing the efficiency of agency operations by comparing existing practices to a range of alternatives available in the business sector. The Council's aim is to facilitate restructuring of state government akin to what large corporations might do in response to a change in revenues.

The BFO process includes a similar function but at a more specialized level. Most of the budgeting work is performed by "results teams" organized to determine the most cost-effective means through which government can provide the measurable results that the lawmakers want to purchase.

Such an approach would wield unlimited potential for helping Nevada out of its current fiscal woes.

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute. For more visit http://npri.org/.

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Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.