The Price of Government opens with an argument that the public sector has entered an era of “perpetual fiscal crisis.” Quoting National Governors Association Executive Director Ray Scheppach, government is facing a “perfect storm” scenario resulting from the convergence of a number of forces including “a colossally irresponsible president and Congress, an obsolete tax structure, an aging population, an ineluctable rise in the cost of health care, and continuing resistance to major tax increases. Economic recovery will ease the pain, but it will not eliminate it” (Osborne and Hutchinson, 2004, p. 2).

The typical responses to fiscal stress—creative accounting, borrowing against future revenue to pay current costs, shortsighted use of tobacco settlement revenue, across-the-board cuts, and reductions in services to those with the least political clout—have only served to weaken the entire enterprise.

While acknowledging that some conservatives are happy with this situation since “they don’t mind beggaring government,” the authors argue that it is time for a more common sense solution to the fiscal crisis by addressing the issue of how citizens can get the most value for the taxes they pay.

The Washington State Budget Process: Budgeting for Outcomes
Against this backdrop, the authors outline a radically new approach to budgeting that their consulting firm, Public Strategies Group, developed for the State of Washington at the request of Governor Gary Locke. The process started by seeking answers to five key questions.

• Is the problem short or long term?
• How much are citizens willing to spend?
• What results do citizens want for their money?
• How much will the state spend to produce these results?
• How best can that money be spent to achieve these results?

Addressing these questions led to five key challenges.

1. Get a grip on the problem. In Washington, the fiscal staff defined their problem as a “convergence of three forces: a deep revenue recession that slashed revenues; permanent limits on revenue and spending growth imposed by antitax activists… ; and, rising costs for the core activities of the state—education, medication, and incarceration” (Osborne and Hutchinson, 2004, p. 7).

2. Set the price of government. Washington set up a Guidance Team of senior policy staff and leaders from business and private think tanks to build a budget based on existing revenues.

3. Set the priorities of government. The Guidance Team, with the assistance of a Staff Team composed of senior staff from Washington’s Office of Financial Management, worked to define the “key results” they believed the state’s citizens wanted from government. They identified ten priorities including improvements in:

• Student achievement;
• Quality and productivity of the workforce;
• The value of a state college or university education;
• The health of Washington’s citizens;
• The security of Washington’s vulnerable children and adults;
• The vitality of businesses and individuals;
• Statewide mobility of people, goods, information and energy;
• The safety of people and property;
• The quality of Washington’s natural resources; and,
• Cultural and recreational opportunities.

4. Allocate available resources across the priorities of government. The Staff Team and the Guidance Team met to decide how to allocate the available resources. In doing so they were to take a “citizen’s point of view” rather than simply looking at past practices.

5. Develop a purchasing plan for each result. The Staff Team put together a Results Team for each of the ten priorities. These teams were made up of staff from the agencies involved in that policy area. Again they were challenged to think like citizens rather than as advocates for their agencies as they looked at how to spend best the money allocated to their respective results area. The teams identified three indicators (performance measures) they would use to track progress toward their outcome. Then they developed a “strategy map” or cause and effect diagram to help them determine the best ways to achieve the desired outcome. Next they selected five or six key strategies they would use to produce that outcome.

Following this, the Results Teams were given a subset of the 1,300 state activities funded in the traditional budget. Their task was to review the list and put together a detailed purchasing plan that indicated:

• What they would buy, including existing and new activities.
• What else they would buy if they had more resources.
• What they would eliminate first if they had less resources.
• What they would not buy.

Results Teams also had the opportunity to buy activities from each other if those activities would contribute to the achievement of their outcomes. For example, the Results Team working on improving the value of a state college or university education might buy (fund) activities from the Results Team working on student achievement.

This process resulted in a prioritized ranking of all the existing activities of government. Taken together with similar rankings provided by the state agencies, final recommendations were made to Governor Locke. The ultimate product was ten strategic goals for state government which included performance indicators, strategies and purchase plans which the governor used in the development of his executive budget.
Governor Locke’s budget, while based on priorities set from a “citizen’s” perspective, was still draconian.

It proposed to eliminate health insurance for nearly 60,000 of the working poor; dental, hearing, and optometric coverage for poor adults on Medicaid; and 2,500 state jobs. If passed it would eliminate cost-of-living increases for state employees, and suspend teacher pay increases and a $221 million class-size-reduction effort both mandated by citizen initiatives. University tuition would rise by 9 percent a year for two years; 1,200 low-risk felons would leave prison early; and a series of smaller programs would be shut down. (Osborne and Hutchinson, 2004, p.10).

In spite of this, the media, the voters, and the legislature reportedly approved of this new approach to budgeting even if they didn’t support all of the governor’s recommendations.

(Note to the reader. The State of Washington has an excellent Website that provides much more in-depth information about the budget process than is included in the book. This can be found at http://www.ofm.wa.gov/budget/pog/default.htm).

Approaches to a “Smarter Government”
The remainder of the book provides an overview of ten approaches that can help government insure that it buys the best results possible for citizens with the resources it has available. The approaches include:

1. Ongoing strategic reviews of government programs.
2. Consolidation of funding streams and “steering” authority.
3. Rightsizing organizations.
4. Buying services competitively.
5. Rewards for performance.
6. Increased customer choice in how and where they get services.
7. Elimination of excessive oversight rules and regulations within government.
8. Giving agencies increased flexibility in return for greater accountability.
9. Streamlining administrative support systems.
10. Streamlining work processes.

Using examples and case studies from a variety of states, these chapters are, for the most part, the most interesting and useful part of the book. For the reader wanting a basic overview of these management practices, these chapters serve as both a good primer and an inspiration. For the reader already familiar with these topics, the book may be too basic. Indeed the authors make frequent references to other books they have written as the source for more detailed information about how to implement these practices.

As for the Washington State budget process, it may be too early to judge its value or practicality. There would appear to be a number of weaknesses in the process as implemented, not the least of which are the short time frame allotted to the process and the apparent lack of broad citizen input. It may be asking too much of state agency officials to “think like citizens” rather than as the technical experts and bureaucrats that they are in what is, fundamentally, a political process in which there will be winners and losers.

Still, this approach to budget development is quite intriguing and may in fact be very useful and effective if implemented in phases. Having identified its critical strategic goals, a state could embark on a more in-depth, longer term process that would study each goal area in turn. Such a process could be ongoing and outside of the budget process itself. This would provide more time for thoughtful input and analysis by a balanced and inclusive group of stakeholders. Such an approach could feed the budget process as well as prompting continuous improvement in the way in which the state does business.

References
Osborne, D. and Hutchinson, P. (2004). The price of government: Getting the results we need in an age of permanent fiscal crisis. New York, NY: Basic Books.

Priorities of Government Website, State of Washington Office of Financial Management. Retrieved October 25, 2004 from http://www.ofm.wa.gov/budget/pog/default.htm.

About the Author
Edwin C. Thomas, B.S., M.Ed., M.P.A. is the director of the Governmental Research and Service unit at the University of South Carolina’s Institute for Public Service and Policy Research. Mr. Thomas received his Bachelor of Science, Master of Education, and Master of Public Administration degrees from the University of South Carolina. He can be reached at ed-thomas@sc.edu.