blank.gif (51 bytes) Bureaucracy

Zero-Baloney Budgeting

by Randall D. Lloyd

national study of government spending recently found Nevada among the states with the fastest-growing public sectors. At first this finding appears to be explainable by reference to the state’s population growth—except that it turns out the growth of government has outpaced the growth in private sector employment.

The fact is, government here in Nevada has been growing significantly faster than needed to keep up with population changes.

During times of rapid growth, those who favor more government have an opportunity to slip new programs—and thus, new bureaucrats—into place. Vigilance is required to ensure that government remains efficient and responsive. Yet a focus on government growth alone is not enough to ensure efficiency and responsiveness. Existing programs also need to be examined, since many have been around for years without undergoing any evaluation of current needs and program efficiencies. Much of what exists was put into place in a piece-meal process that lacked a coherent view of what government should do. Frequently, programs are merely emotional reactions to events or special circumstances. The result is a hodge-podge of regulation and social programs.

It’s Got Jimmy’s Endorsement

There is a widespread sense here in Nevada that few people really know what programs exist—or, if the programs are known, which of them are necessary. Because Nevada has a legislature that meets for a few months every other year, expertise and oversight cannot be as thorough as might be desired. Instead, bureaucrats often determine what they want or need and simply inform the legislature. Alternatively, lobbyists advise legislators about what government programs are needed. Neither group should be trusted to shape government, since both have interests that may differ significantly from the people’s interests and from good government practice.

A governor is more likely to have expert staff in areas of programs, but a governor and staff who are in favor of an expansive role for government are not likely to be the needed watchdogs. This last session, even with the presence of a new GOP governor, saw new programs appearing. The 1999 Legislature created the new cabinet-level Office of Consumer Health Assistance to answer questions about health insurance and insurers. It also directed millions of dollars into teacher training, the School-to-Careers program, an early childhood development program, a statewide student database, a new Division of Internal Audit and placement of computers in every classroom.

If the values of efficiency and limited government are to honored at all, what already exists needs to undergo some kind of serious review. Governor Kenny Guinn has proposed the use of zero-based budgeting (ZBB) to better control spending. While the goal of spending restraint is a welcome change in state government, the mechanism being offered is almost certainly doomed to failure.

Zero-based budgeting has had a checkered past. Its theory makes it look attractive, but the process is actually generally useless in practice. Let’s not forget that Jimmy Carter was an early advocate of ZBB.

As its basic premise, zero-based budgeting demands and assumes that agency managers will constantly have to justify anew every dollar they spend. Even here some confusion exists in Nevada. Does Governor Guinn intend to evaluate programs continuously or just once?

Zero-based budgeting entails prioritizing programs, evaluating past performance and planning for future needs. It all looks appealing. Managers are asked to identify what they can live without as part of the priority-setting process. The legislature is then expected to oblige with cuts in funding to these programs. In reality, however, this merely begins a charade, since few administrators want to see their budgets undergo any significant cuts.

The most common method of budgeting is to make an incremental change to a past budget, adding a percentage increase regardless of proven need or adjusting for expected changes. In actuality, the changes are almost always toward greater funding rather than lesser, and the bureaucracies inflate their requests with the expectation of legislative cuts. This common approach seems entirely inadequate, as the resulting budget is likely to be less related to actual needs than change for the sake of political appearances.

ZBB theorists believe that by requiring a new start each budget cycle, their process will weed out inefficiency and spending on unproductive programs, while identifying discontinued or significantly changed ways of providing services. Given the continuing struggle between bureaucrats and taxpayers, of course, this is a laudable goal. Unfortunately, bureaucrats have come up with many clever ways to get whatever they want, regardless of need.

Extortion by Any Other Name

Administrators have found that when asked to justify their agencies and programs they can respond with offers to cut or eliminate politically popular programs. This usually ends any attempt to cut funding to their agencies. Because the bureaucrats are allowed to pose as the experts regarding what is necessary and what is of priority, politicians find themselves faced with a dilemma: They can follow these suggestions at their own political peril, or they can abandon the process of seeking genuine expenditure accountability.

It is bureaucrats’ nature to seek to extend their power, to get more funding and to swell the ranks of their agencies. A manager’s power can be counted in the number of employees who work in the agency and by the dollar amounts it receives. Power and prestige easily replace the desire to function effectively, and in order to increase their power and prestige, administrators always need more: more money, more employees and more clients. Sometimes it is genuinely believed that social programs, for example, should be expanded to help the needy, more of whom enter the state every year. Or a need is honestly seen for more regulatory programs to safeguard people from dangers that may exist. The result, however, is likely to be the same regardless of motive.

Even for top administrators who might like to create efficiencies, there are problems. Few of these government executives at the top level have full control of their agencies, and without that control, they have no realistic chance of controlling efficiencies.

The Headless Monster

The reason? Most state and local employees are civil servants, while most agency heads are at-will employees. In other words, the administrator can be fired in a heartbeat, while those lower down the employment pyramid have tremendous protections against termination—even with cause. Further, the existence of employee associations or unions frequently trumps any administrator’s attempt to replace an inefficient worker. Tales abound in Carson City of workers who take extra long lunches, leave early and do crossword puzzles at work. Agency heads, however, are well aware that it’s their jobs that are in danger should they attempt to do anything about such sluggards. Too easily a "popular" uprising can occur, led by an employee association. And too often a governor—with little resolve to support efficiency efforts against the might of the associations—does not help.

Interest groups too can easily defeat zero-based budgeting. Even if Governor Guinn were to seek some variation in the process—say a rotating ZBB where some programs and agencies are subject to staggered review—lobbying interest groups could prevent big cuts to their favored programs. Say a third of all programs were to be checked on a rotating three-biennium schedule. Because only certain areas would be considered each session, the lobbying interests will be able to shift their efforts away from defending the already existing programs they favor that are not under scrutiny. They can instead focus on creating brand new programs.

Evaluation of existing programs is necessary, but ZBB is not the way to do it. Instead, a standard must be set by agreement over what the role of government should be. Then programs need to be considered against that standard.

In some quarters today the view of government is that it should solve essentially all problems—or even that only government can solve problems. This view eventually leads to government constituted as a gigantic would-be guardian, out to ensure that no one is ever hurt. Policies enacted to ensure that no one is hurt take away freedom to choose, to fail and therefore to succeed. A government strong enough to attack all problems and authorized to do so is likely to become totalitarian—and thus a clear and present danger to every kind of human freedom.

Nevada has had many years of governors who believe that the only solution to a problem is a government program. What the state needs now is for this governor to fulfill his promise to reevaluate each state agency and program. To accomplish real change, he should not ask bureaucrats to decide how much power and prestige they want to lose. Rather he needs to ask, "Is there a better private solution to this problem?" Or, "Is this something that government should even be doing in the first place?"

The governor himself needs to craft an overall picture of what Nevada should do, and then ask, "Does this program fit with the overall direction we’ve decided on?"

This approach, of course, requires some coherent philosophy, plus an idea of what Nevadans really want. Programs evaluated within an isolated context of what would be "nice"—say, programs for the poor, the elderly and children—can play on the emotions, of course. But by what standard is a constitutionally limited government responsible for accomplishing all nice things? And do we really need a cabinet-level office to answer questions about health insurance?

A coherent plan regarding what government should do is an approach that would allow programs to be evaluated by elected policymakers rather than by unelected and self-interested bureaucrats. Achieving such a plan at the top of state government will require addressing broad questions regarding the desired scope and size of government. No longer should programs be allowed to pop up and grow incrementally without reference to the larger questions. Governor Guinn has two years to answer these questions. If he does, every Nevadan could benefit. NJ

Randall D. Lloyd is a senior research fellow with NPRI and an adjunct professor in political science at the University of Nevada, Reno. He can be reached at lloydr@asme.org.


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