A how-to guide for budget reform: Part III

Geoffrey Lawrence

Recognition is spreading that Nevada needs to fundamentally reform its budgeting process. And across the country the Budgeting for Outcomes (BFO) approach has repeatedly demonstrated its success.

Here in Nevada, Governor Jim Gibbons in his first two budget cycles did not pursue the BFO approach. As the state waded through significant financial strife, Gibbons and his staff continued with the state's traditional — but broken — baseline-budgeting process.

Recently, however, the administration announced that a Nevada Priorities of Government Working Group has been assembled to begin transitioning toward a BFO process. However, state budgeting laws, which still assume a baseline process, could easily undermine the group's work.

Because baseline budgeting focuses on funding for programs rather than results, it discourages efficiency. Gibbons' proposed 2009-2011 budget received much criticism for "under-funding" programs, inasmuch as some would not have received as much as under the cost-plus, baseline scenario. However, any budget process that blindly funds ongoing programs will, during a period of stagnating revenues, be subject to such criticism — putting fiscally responsible leaders at a political disadvantage even when the "cuts" only amount to reductions in desired spending increases.

A BFO approach turns this dynamic on its head, shifting the debate away from what can't be done with state dollars to what can be done. In states where the BFO approach has been implemented, this has found a decidedly positive reception.

In Washington state, for instance, Governor Gary Locke's first budget using the BFO process reduced state spending by $2 billion over the previous baseline approach while spending that state's money much more effectively. As a result, the Seattle Times hailed Locke's budget as "a big step forward for Washington."

In fact, media outlets have routinely praised budgets produced through the BFO process because of their rational structure and simplicity of presentation. One need not be a professional budget analyst in order to read a budget produced in this manner.

Budgets crafted through the BFO process can be easily presented on a single page for each policy priority. The page lists individual programs ranked in order of cost-effectiveness, includes the cost to the state of implementing each program through competitive sourcing, and shows where the budget line falls. Programs above the line receive funding while those below the line do not warrant funding under legislatively-determined priorities. This transparency and simplicity makes it easy to understand where the priorities of government fall.

Despite the obvious advantages of the BFO process, however, changes to NRS 353.230(3) will most likely be required for a BFO approach to be adopted on a continuing basis.

Hence, heading into the 2011 regular legislative session, the Executive Budget is likely to once again include the calculation of a budgetary baseline. Advocates of government spending will cast the baseline number as an entitlement and place at a political disadvantage those who believe state government should be restructured according to priorities of what the state can realistically afford.

Lawmakers approaching the 2011 session should look to immediately enact the necessary statutory changes that would require a BFO approach. While the governor is legally obligated to introduce the executive budget 14 days before the session begins, an immediate statutory revision of the state budgeting process could allow an alternative budget using the BFO approach before the end of the session.

Another alternative would be for lawmakers to directly commission a BFO approach to be conducted independently of the executive budget proposal. In either case, Nevada's best hope for realistically meeting its current fiscal challenges is through a BFO process.

Legislative leaders may contend that the current Nevada Vision Stakeholder Group already constitutes a BFO process. However, none of the discussion from the stakeholder group has incorporated the key elements of the BFO process — which develops the most cost-effective service delivery plans possible by incorporating the principles of zero-based budgeting, competitive sourcing and performance contracting.

The Nevada Vision Stakeholder Group's agenda has nothing to do with purchasing quantifiable results through innovative means. It has instead been about using large tax increases to continue funding programs through the broken baseline budgeting process.

Taxpayers in Nevada deserve better and lawmakers have a fiduciary responsibility to use tax dollars as cost-effectively as possible. The BFO process is the means for accomplishing that task.

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

Read more:

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.