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A note for our readers: the views reflected by the authors do not reflect the views of ASPA.
By Scott Lazenby
In a previous column, we discussed the games people play in traditional budget systems and ways to change the rules under a decentralized (“Theory Y”) budget system. Here are eleven more budget tricks and how to eliminate or reduce them.
11. Going to the well. A senior employee retires, yielding an unexpected windfall in salary savings that the department manager shifts somewhere else. But when the air conditioning system goes out, the manager asks the Board of Commissioners for a transfer from the general fund contingency account.
Theory X response: Assign the central budget analyst the task of reviewing the department’s budget to see if the air conditioner can be purchased out of savings, and to verify the accuracy of the department’s estimate of the cost of the air conditioner.
Theory Y solution: Departments carry their own contingency accounts, and within reason, must deal with unexpected budget challenges themselves. In unusual circumstances, the manager may need help (additional funds) to deal with a large shock to the budget. In this case, he or she will need to prove that the need is justified.
12. If it saves just one life. This simple phrase has been used to justify all sorts of dubious spending on equipment and personnel by fire departments and other public safety agencies.
Theory X response: When the fire chief says, “you can’t put a price on a life,” bring in an actuary to point out that, yes, you can.
Theory Y solution: Once the total fire budget target is set, the chief is responsible for setting priorities within the department and will be more resistant to unfounded justifications for equipment or programs. The governing boards of local governments may well set a higher priority for fire and police services (in comparison to services that benefit more citizens) than is necessary, but that is their prerogative.
13. The old switcheroo. The department manager argues hard (and successfully) for the expensive piece of equipment they must have to do the job properly. When the ink is dry on the final budget, the manager buys the cheaper item that he knew all along would work and spends the savings somewhere else.
Theory X response: Budget for the (expensive) equipment in a separate line item and prohibit any savings from being spent elsewhere.
Theory Y solution: Another game that is eliminated by the lack of a budget request process.
14. Look what we found. In a variation of #13, the department gets budget approval to replace the motor pool car. They discover that they can, in fact, keep the old car running another year and spend the appropriation elsewhere. Next year, they request funds to replace the pool car.
Theory X response: Keep careful notes during the budget process and discipline the department manager when this trick is used. The employee’s annual performance review, nine months later, would be a good time to do this.
Theory Y solution: See #13 above.
15. Poor me. The department makes a show of its rundown equipment and office furniture to show policy makers how underfunded it is.
Theory X response: Criticize the department for not taking better care of its equipment.
Theory Y solution: This tactic might still work. The chief executive officer or budget director will consider the overall financial condition of the department in setting budget targets. But due to the bottom-line focus, the department will need to be stretched thin in all areas to receive any sympathy. The tactic won’t work if the run down office furniture is occupied by more staff than is needed.
16. The nose under the tent. The manager budgets for a new position, starting in the last quarter of the fiscal year. The salary and fringe cost seems modest enough, but the full impact is hidden until the next fiscal year, at which time the program is up and running with a new group of clients.
Theory X response: This is just the cost of doing business.
Theory Y solution: It is the operating manager, not the central budget staff, who will have to deal with the future consequences of this kind of action. If he or she is confident that the cost can be absorbed, then the manager should be free to make staffing changes whenever necessary.
17. The gift that keeps on giving. The police chief argues successfully for a new officer. The budget includes recurring salary and operating costs and one-time costs for a car and radios. The one-time costs are magically rolled into the regular budget request the next year.
Theory X response: Keep careful notes during the budget process. Reduce next year’s budget by the cost of the car and radios.
Theory Y solution: Another trick eliminated by using bottom-line budget targets rather than a budget request carnival.
18. The accountants made me do it. Line items with obscure or unusual names are padded, knowing that the simple ones (travel, office supplies) are the only ones that will be attacked.
Theory X response: Hire central budget analysts to examine the use of these line items and challenge department’s budget estimates.
Theory Y solution: Line item estimates are used for planning purposes only (internal to the department). There is no incentive to pad or otherwise play games with these estimates.
19. Whoops, where did it go? A new program is proposed that will be supported by user fees. Near the end of the process, the manager “sacrifices” the program for a smaller expenditure (except that the smaller program generates no user fees).
Theory X response: Again, hire central budget analysts to keep on top of issues like this.
Theory Y solution: Controlling to the bottom line (expenditures less than or equal to revenues) eliminates this trick.
20. The long sunset. A five-year lease purchase payment ends. Strangely, the amount stays in the budget for several more years.
Theory X response: Maintain a large and detailed central tickler file to remind central budget managers when departmental budget items are no longer justified.
Theory Y solution: This gives the operating manager more flexibility or resources to provide services to citizens. How can this be a bad thing?
21. If it’s the private sector, it must be efficient. High salaries and expensive equipment are hidden in a lump sum private contract payment; no one can see the line items.
Theory X response: Insist on cost-plus contracts, where the agency must review and approve the line item expenses of the contractor.
Theory Y solution: See #18, above. Since these contract costs come out of the department’s bottom line, the operating manager will have a strong incentive to make sure they’re getting good value for the money.
Author: Scott Lazenby is the city manager for the City of Lake Oswego (Oregon) and is an adjunct associate professor at Portland State University. He can be reached at [email protected].