Spence, What is your Platform? Part 2: Zero-Based Budgeting

Continuing on with this series, today we'll be discussing Zero-Based Budgeting.

Who this applies to: All State departments as well as State contractors


WHAT IS ZERO-BASED BUDGETING?

Zero-based budgeting is a complete 180-degree shift from standard budgeting practices used by the government. The current budgetary process requires responsible parties to only justify increases in their previous budget. As such, budgets can (and usually do) rise each and every year.

With a zero-based budgeting plan, every budget period (annually or bi-annually) starts from $0.00 and each line item in the budget must be justified. Each time the director of a department goes before the Legislature at budget time, he has to have a detailed reasoning for each and every item on his list.

This fiscal accountability is directly in line with what we need; the government is a steward of the citizenry's funds collected through taxation, and they MUST be good stewards.

Now, lets get into the details of Zero-Based budgeting.


WHAT ARE THE ADVANTAGES OF ZERO-BASED BUDGETING?

The largest and most beneficial benefit of Zero-Based Budgeting (ZBB) is identification and eradication of inflated budgets. Departments can no longer put in unidentified special project money or 'CYA' funding. Without this ability, departments and contractors will be forced to spend our money wisely. Wasteful or outdated projects can easily be identified and eliminated. Furthermore, this type of budgeting creates an opportunity to identify those departments/duties that can be outsourced to private companies for better cost control and efficiency.

There are numerous derivative benefits, as well. Increased communication between members of the department as well as inter-departmental interaction helps efficiency and productivity. The ability to inspire the staff to reduce waste and work smarter (buy-in) can tremendously help morale and output.

WHAT ARE THE CHALLENGES OF ZERO-BASED BUDGETING?

In my opinion, the benefits well outweigh the challenges. To be fair, however, I must list the speedbumps involved in such a plan.

First of all, ZBB is quite time-consuming on the part of all parties. Not only must the entities requesting funds spend large amounts of time on building their case, but then the issuing entity (in this case, the Legislature) must spend time reviewing the documentation and commencing the back-and-forth to find out the actual budget. I see this as a 'labor pain' challenge, however, since it will eventually become a stream-lined process as all parties become used to it, and the burden will lessen.

Another challenge would be honesty, which ties directly in to the above-mentioned challenge of time. If the submitting entities are not completely forthright in their budgeting requests, it may take longer periods of time to sort through the muck to get to the bottom line.

CAN THERE BE BONUSES FOR NOT USING ALL OF THE BUDGETED FUNDS?

One of the greatest things about ZBB is the ability to reward people for doing a good job. If a department meets or exceeds all goals and comes in under budget, there is potential there to issue the remaining finances as a bonus to those involved. This acts as an enticement to do work speedily, correctly (the first time), and happily. Employees who know they can receive a nice bonus if they can beat a deadline and still put out quality results will be eager to do so.

Lets use an example.

Lets say that the Department of Transportation is undertaking the renovation of Highway 123 between cities A and B. The ZBB allowed for $2million dollars and 6 months to complete the project. Upon completion and final inspection, any funds left unused from that project will be split amongst all employees (pro-rated by position and contribution).

Five months, two weeks after the project commenced, Highway 123 has been inspected and found to meet/exceed expectations. The entire project has come in at $1.78 million, leaving a $220,000 surplus. As such, that surplus is awarded to the employees as previously discussed.

What was the extra cost to the taxpayer? None. The ZBB verified that the project estimate of $2million is fair for the job being done. By being good stewards of their resources and working harder than they normally would have, the department (or contractors) were able to come in early and under-budget. As such, they are rewarded for their being good stewards without incurring any additional costs to the taxpayers.

CONCLUSION

As you can see, Zero-Based Budgeting can greatly increase the tax savings, productivity, and efficiency of government. While it is not a perfect system (no budgeting system is), it is much better than our current version of incremental budgeting.