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Time to Revisit Zero-Based Budgeting?

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

By Stephen R. Rolandi
March 8, 2020

When I was in graduate school at New York University studying for my MPA degree in the late 1970s, a new budget methodology was gaining popularity in the Federal Government: Zero-Based Budgeting, popularly known as, “ZBB.”

Introduced into the Federal Government by then President Jimmy Carter, this was hailed as a revolutionary approach to budgeting in government, which traditionally has utilized the line-item, or incremental, budgeting format. A late colleague of mine who had worked in several Federal agencies when ZBB was prevalent would tell me horror stories about officials’ experience with this budget technique (he used to refer to it as, “Zip, Boom, Bang!”). ZBB subsequently suffered a demise and has not been used in the Federal government for nearly 40 years.

I introduce students to ZBB budgeting techniques in my graduate MPA classes in public finance and fiscal management, and students show a good deal of interest in this methodology as a way to keep administrative overhead expenses and program costs under control.

During the 2016 election campaign, former Hewlitt Packard CEO and business executive Carly Fiorina sought the Republican Presidential nomination (and for a brief time was Senator Ted Cruz’s running mate for Vice President in his unsuccessful campaign). Ms. Fiorina advocated bringing back ZBB into the Federal government.

In the last several years, there has been renewed interest in ZBB among executives and financial managers in local governments, hospitals, businesses and other enterprises.

This article explains the basic philosophy behind ZBB and how it was employed during the Carter years and assess its prospects for a revival.    

The genesis of ZBB can be traced to the writings of Peter Pyhrr, who was a manager at the Dallas, Texas-based firm of Texas Instruments, which used ZBB successfully in the 1960s. When Jimmy Carter was Governor of Georgia in the early 1970s, he was impressed by Pyhrr’s work and contracted with him to develop a ZBB system for the State of Georgia. Carter was able to streamline much of the Georgia state government and upon his becoming POTUS in 1977, he introduced ZBB into the Federal government for use at the executive, Congressional and agency levels.

ZBB does not follow an incremental approach to budgeting; rather, the basic theory of ZBB is that organization’s budgets utilize a priority concept as follows:

  • Are current organizational activities efficient and effective?
  • Should current activities be eliminated or reduced to fund higher priority level new programs? Or reduce the current budget allocation?

During the Carter years, some agency officials and budget managers believed that ZBB implied starting budget allocations from a zero baseline; in reality, it called for:

  • Decision Unit (decision packages) determination in formulating a budget structure;
  • Decision Package formulation when preparing budget requests;
  • Ranking by agency managers to prioritize decision packages laid out for them as part of their submission into an executive budget.
  • In practice, this resulted in about 70% of ranked-order requests being approved for inclusion into the President’s executive budget proposal sent to Congress for its consideration and approval.

There were several problems with ZBB’s implementation; for one, many managers found the process cumbersome involving too many forms, paperwork, and procedures. Likewise, there was confusion as to what was the appropriate cut-off point to the zero-baseline (50% or 70% or 80%, etc.). ZBB was also perceptible to political factors unless there was unified political support between Congress and the Executive branch. With the onset of the Reagan administration in 1981, ZBB was no longer operative at the Federal government level.

However, ZBB can be quite useful in many situations or areas; for example, it is quite useful for budgeting for start-up organizations and companies, or when senior management is undertaking a re-organization. It can also be useful in controlling the cost of large scale procurements.

 The fact that ZBB was considered cumbersome in the 1970s was before the era of spreadsheet and cloud technology and the introduction of cloud-based digital budgeting products. ZBB also requires the committed leadership of senior management and they must want to inculcate a cost culture that involves more than just budgeting from zero.

In an era of trillion dollar budget deficits and mounting debt, it is time to seriously consider bringing back ZBB, particularly for the Federal government. Hopefully, elected officials will begin to follow the private and not-for-profit sector’s lead in this area, if they are serious about curtailing spiraling costs. Time will tell.

Author: Stephen R. Rolandi retired in 2015 after serving with the State and City of New York. He holds BA and MPA degrees from New York University, and studied at Brooklyn Law School. He teaches public finance and management as an Adjunct Professor of public administration at John Jay College of Criminal Justice (CUNY) and Pace University. He is Past President of ASPA’s New York Metropolitan Chapter and served four terms on ASPA’s National Council, as well as serving on many association and civic boards. You can reach him at: [email protected] or [email protected].

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