Viewpoint: Why Zero-based budgeting had Zero effect in Oklahoma
Reports on the zero-based budgeting measure adopted this week by the Ohio legislature have pointed to my state of Oklahoma as the one other in the union where this budgeting method is already widely practiced.
Oklahoma passed a zero-based budgeting law three years ago in an attempt to control government spending. Zero-based budgeting is mandated for the whole budget and every agency is covered by its requirements.
Zero-based budgeting requires that the existence of a government program be justified in each fiscal year, as opposed to simply basing budgeting decisions on a previous year’s funding level.
Sounds good doesn’t it? As a private practice Certified Public Accountant who served two years with the Oklahoma Office of State I discovered the reality was quite different.
Zero-based budgeting attempts to bring some accountability to government and is useful in telling taxpayers and their elected officials what the government agencies do and where they spend their money.
But what it does not do is tell taxpayers how well agencies do their job or how well they spend their resources. That is the fatal fundamental flaw in assuming that zero-based budgeting as a stand-alone program will work.
For example, in the first year of required zero based budgeting those of us who sat through appropriation hearings listening to the Oklahoma Department of Human Services (DHS) discuss their increases in child support collections were no doubt impressed with the program. Forcing deadbeat dads to help pay their children's expenses is something everyone supports, and the fact that more money is available for needy children certainly justifies the program.
What zero-based budgeting didn’t require DHS to report was that if Oklahoma's efficiency at collecting on these deadbeats would have merely matched the 50-state average, DHS would have collected 44 percent more for Oklahoma children. Instead of the $143 million in deadbeat dad collections in 2003, DHS would have secured $206 million, or an additional $63 million for Oklahoma children.
If it is portrayed in Ohio that zero-based budgeting contributes to reining in government spending, it should be noted that Oklahoma state appropriations rose by nearly 20 percent and $1 billion dollars in the three years since inception.
The flaw in the budgeting process that zero-based budgeting can not solve is in the nature of governmental accounting rules. Government accounting, unlike private sector accounting, is not structured to measure how well money is being spent. In the private sector there is a bottom line – net profit or loss – that is a continuing measure of the success or failure of the business. Government accounting is designed primarily to track the sources and uses of funds.
The element that needs to be present to make zero-based budgeting effective is to have every state agency and its programs benchmarked, using relevant performance measures, against other states’ agencies or against private industries performing the same task, or both.
When it was pointed out to Oklahoma politicians that zero-based budgeted needed performance measures to be truly effective, they instituted a requirement for agency performance measures but then allowed the agencies to design their own measures.
Predictably, agencies designed ‘performance’ measures that were at best measures of only inputs and outputs and at worst were a mockery of the concept. Oklahoma’s Energy Resources Board, for example, submitted a measure that required the Board to “increase the number of positive media stories”.[1] Accountability to performance standards was further undermined when our legislators failed to institute penalties for not performing up to even these questionable measures.
For zero-based budgeting to work it needs to be ‘part and parcel’ with relevant performance measures. These performance measures must have meaning not only in what is measured, but their effect on the program being measuredoutcomes whenever possible and incorporate consequences for the agencies being gauged if these outcomes are not met.
At a minimum these measures should act as "tripwires" to alert legislators and taxpayers to the need to overhaul or eliminate a program or agency just as net 'profit or loss' forces the same on business.
It is a good sign when politicians heed the taxpayers and espouse controlling government spending but based on our experience here in Oklahoma, they should not expect zero-based budgeting alone to perform that service.
Steven J. Anderson, CPA, MBA; is a research fellow at the Oklahoma Council of Public Affairs and served under former Gov. Frank Keating in the Oklahoma Office of State Finance.
