Good Tool, but Not Magic

The government reorganization plan being studied by Gov. Arnold Schwarzenegger’s administration puts a lot of stock in a corporate-style reform: performance-based budgeting. The idea is to set goals and then allocate the money needed to meet them instead of starting from last year’s budget and then adding or subtracting. One goal might be, for instance, that no one should wait more than 10 minutes in line at the Department of Motor Vehicles. The promise is to take government spending off automatic pilot and to weed out programs that have outlived their purpose.

Thirty-six states, with Florida and Texas among the leaders, have some measure of performance budgeting. Its pluses include getting state managers to plan ahead and to think beyond agency boundaries. Another is that it encourages officials to be alert for ways to improve functions. Florida discovered that its crime labs were not meeting quality standards because they were losing workers to private labs with better pay. So the state paid them better and retained them. Missouri saved millions by improving the delivery of school supplies, reducing duplicative maintenance forms, improving procedures in the state printing shop and streamlining Medicaid paperwork.

California’s current process isn’t terribly efficient. Departments submit a baseline budget that projects what the current year’s level of service will cost in the following year, depending on such things as client load and inflation. Of course, agencies rarely ask for less money.

From the outset, defining the state’s goals is a political process. To be successful, results-oriented budgeting requires close cooperation with the Legislature and constant auditing by independent sources to measure results. In the past, the Legislature as well as the governor’s office oversaw agencies and departments to make sure they were doing what they were supposed to. But lawmakers have shrugged off the job in recent years. Under term limits, they see little political gain in spending time on performance audits and often lack the experience to even ask the right questions. A new budgeting system won’t change such structural flaws.

There’s also an apples-and-oranges problem in carrying the analogy with private business too far. State and federal laws require state government to, for example, fund schools, which aren’t a corporate division that can be eliminated to boost profits. Corporate outcomes can be quite clear -- profit or loss, units made and sold, dividends paid or not. In government, some outcomes can be measured easily, such as DMV wait time. But that doesn’t say how well people were served. Judging the quality of healthcare or welfare agencies is even harder.

Government should always try to cut waste and be responsive to citizens. Performance budgeting will help, as long as budgeters understand that it’s a tool, not a magic wand for California’s fiscal problems.