COLUMN RIGHT/ LARRY McCARTHY : Time to Base State Budget on Results : Efficient departments could keep half the money they save for new programs.

Opportunity is at hand, even as California is confronted with a fourth straight year of multibillion-dollar budget imbalance. It is a great chance to junk an outdated, failed system of public finance and develop a new state spending plan.

Instead of the old caseload-plus-inflation method of budgeting, California should look beyond the obvious need to set priorities. It’s time to change course.

USC Professors John Kirlin and Jeffrey Chapman call it productivity budgeting. “Any public budget should start with the assumption that service levels can be maintained with lower expenditures than in the past because of increased productivity,” they write in the latest edition of “California Policy Choices.”

Ted Gaebler and David Osborne, co-authors of “Reinventing Government,” refer to “results-oriented government.” They cite governments that “measure outcomes and reward success.” They look to Sunnyvale, a Silicon Valley city of 120,000, where managers measure quantity, quality and cost of nearly every service provided.

In his proposed 1993-94 state budget, Gov. Pete Wilson applies the term “performance budgeting.” He wants to test performance budgeting, along with quality-improvement projects, in four departments. There will be annual budget contracts with incentives for performance and efficiency. For example, a department will be able to keep half the savings from operational efficiencies to use in discretionary programs.

The California Taxpayers’ Assn. has been urging the state to break out of the outdated, failed mold that has resulted in the state spending more than it receives in revenues more often than not in the past 15 years.

The old system failed because it is almost totally devoid of cost-effective evaluation. There are no incentives to evaluate programs because they are locked in place and assumed to be achieving goals. Those who knock the status quo tend to be knocked around by public-employee unions and others who have a direct stake in spending programs.

At last, there seems to be growing movement to satisfy taxpayers who are asking for value return for taxes paid. That’s what performance budgeting or productivity budgeting or results-oriented government are all about--value return on investment. Performance budgeting will enable legislators to make the kinds of decisions needed in this diverse state.

Now, they face impossible decisions: Either fund this program or not. There is no information on what kind of performance can be achieved on 60% to 70% of funding. They are not given information on alternatives.

Critics say the state’s needs--a growing number of welfare recipients and Medi-Cal patients, for example--are ignored under performance budgeting. But caseloads and needs must be better understood for performance budgeting to work. Policy-makers must know with greater precision who is being served, how that number will grow and what must be done to manage needs.

It is a dramatic shift in the paradigm for public-finance management. Do elected leaders have the will to implement this solution? There is little time to waste.

Will there be another current-services budget, placating special interests who demand more money for their programs even though there are significant questions over whether these programs are getting the job done?

Or will multibillion-dollar budget decisions be based on performance, productivity and results? Choosing this course will give taxpayers a reason to feel good about being taxpayers: Bang for their bucks!