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The Budget’s New Clothes…Again

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Scott Lazenby
July 24, 2019

In 1971 Leonard Merewitz published Budget’s New Clothes. It was a critique of the Planning, Programming & Budgeting (PPB) system that was the budgeting fad of the moment for the national government. A similar critique could made of a new fad making the rounds of cities, Priority Based Budgeting (PBB).

The basic premise of Priority Based Budgeting seems reasonable. Government financial resources should be focused on services that are high priorities for the community, and that are most effective. It also borrows from Zero Based Budgeting (ZBB) by attempting to avoid incrementalism. But in practice, its effect on actual budget decisions must be very limited, for these reasons:

  • It would be a waste of time to use PBB for self-balancing funds such as water and sewer enterprise funds. With strong pressure to keep rates down, cities already stretch the dollars as far as they can in these areas.
  • Many general fund programs and services will, as a practical matter, not be changed by a PBB process. These may vary from city to city, but they include programs that have a powerful constituency (e.g., fire, police patrol, senior center), those supported by the city council regardless of a civic engagement process, those that are primarily grant-funded, and those that are required by state or federal law (e.g., municipal court, NPDES compliance).
  • If the focus of PBB is on setting priorities based on performance measures, then programs should also be exempted where performance, as a practical matter, is impossible to measure. These would include programs such economic development activities, and fire and crime prevention.
  • After exempting these programs and services, few will be left for a PBB exercise. Even so, a thorough program analysis can require a huge investment of staff time. For example, an after-school program for at-risk teenagers may have as its goal keeping the teens out of trouble, and thereby making them more successful as adults. To measure effectiveness, one would need to complete a longitudinal study, over many years, comparing the success of teens in the program with those not in it (and correcting for all socio-economic factors). Therefore, it would be unreasonable to attempt more than one or two such analyses per year.
  • There is a human downside to attempting to rank order (by “priority”) general fund programs or services. There is no meaningful way to compare the relative importance of, say, the library reference program and mowing grass in parks. And doing so demoralizes staff. In a city that did this, a program manager lamented, “I hate always being referred to as the low-hanging fruit.”

A more fundamental problem is that setting priorities provides no guidance whatsoever on deciding what the budget should be. If a program is ranked as having a specified priority, we still don’t know whether the budget should be increased or decreased. This is why:

  • A high-priority program may be very inefficient. If so, the budget should be reduced and the program manager expected to continue to produce high performance.
  • A high-priority program may be operated efficiently, and may have potential for even greater results. In this case, it might be reasonable to increase the budget.
  • A high-priority program may have unrealized potential to produce revenue from user fees. This would not reduce the budget, but would reduce the amount needed from general taxes.
  • High-priority services may actually be cheap to provide. In many states, raw water (from a river, lake, or well) is free. No one would question that having pure drinking water is a high priority. But our customers expect it to be cheap. In short, just because it is a high priority, there is no reason to increase spending.
  • A poor-performing program (with a correspondingly low priority) may be this way simply due to a lack of resources. If so, the budget should be increased. Or performance may be low due to factors outside the city’s control. In this case, increasing (or decreasing) the budget will have no effect on performance.

Small cities have relatively uncomplicated budgets and don’t need to go through the rigmarole of a PBB exercise. I have a hard time believing that larger cities don’t already know what their various programs cost, how well they’re actually performing, and where there might be community acceptance for eliminating a specific activity, service or program. But maybe there are some, and doing a flurry of activity under the label of Priority Based Budget is the price they need to pay to do their job.

Author: Scott Lazenby recently retired after a forty-year career in city management. Email [email protected].

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