The Problem of Government Spending and Zero Based Budgeting
by Bill Lynn, Fifth Ward Alderman

As an economist I’ve studied government finance for quite some time. We all agree government spends more than they need to complete their goals. We’ve all heard these stories for some years about the overspending. I believe local governments are as guilty of overspending as is the federal government. There are several reasons for this.

First, let me say that part of the expense of government comes from the openness that is required of us. For instance, there is a cost to holding public hearings. Private companies don’t need to do that, so it is cheaper for them to make decisions. I support the openness, and therefore accept this additional cost of government.

On the other hand, part of the problem is because we don’t have the same limitations as business. We’re not a profit making organization, and we’re not limited by our competition. In a private company you search for ways to increase profits. If that means cutting cost, you do it. In government we don’t have that motivation and our approach is often to just increase taxes and fees without searching for ways to cut cost.

There has been much written on the economics of government beauracracy. I’ve studied it and I’m familiar with the studies and theories. Davenport is a classic case. We see many of the same things happening here that we would see in any government. Since there’s no profit motivation, other motivations take center stage. Department heads gain power by adding to their budgets and staff. The larger a department, the more power they have and the more budget they can demand.

A major problem with this approach is that it’s not oriented to solving problems. We often do not define nor measure what we are trying to achieve. For instance, I’ve heard it said many times that we need more police. My response is that we need less crime. What I mean by this is that the result or outcome of hiring more police is not to hire more police, but to reduce the crime rate. I know most people assume this is the same, but it ignores what we’re really trying to accomplish, which is to reduce. We ignore the real goal long enough and eventually we believe the goal is to hire more police. If we’re going to hire more police, we need to measure what we are trying to accomplish and that is to reduce the crime rate. That is the goal.

For instance, the police union just came out with a position that we need to hire more police. I think they may be right. But if we hire more police, we want to be sure they get the result we want and that is to reduce crime. This is a particularly serious problem in my ward and the rest of the central city.

That leads me to a discussion of what we need to do. There’s a concept in accounting called zero-based budgeting. What it means is that you look at each department, determine what they’re trying to achieve, set goals, and then determine what resources are needed to achieve the goal. If our goal is to reduce crime by 20%, then we need to determine what resources are needed to do this.

On the other hand, the zero-based budget concept goes much deeper than this. It means we look at each department to see how we can restructure the department to use existing resources to achieve the desired result. So often in government we hire people and resources to do a job, then we continue to pay for these resources long after the desired result is achieved. When we make a budget we just assume that the existing resources are needed and then we add more money to achieve additional results. With zero-based budgeting you question the need for all resources to make sure you still need them. If you don’t need them, you can reallocate them to something else.

For instance I estimated the real cost of the storm water program at $300,000. I felt we could use people from forestry and roads to accomplish some of the desired results. A majority of council members disagreed with me and decided we needed over $2,000,000 for the desired outcome.

I must caution you that this will not be popular. It would be resisted in the city, because some employees would feel threatened. This can be overcome by offering the proper incentives. We can offer to retrain people for other jobs and guarantee they will not lose their jobs if they agree to retraining. In this way, we get more for our money and don’t threaten anyone.

It’s my belief that a large amount of money can be saved through this approach. Currently we’re ignoring the cost of existing programs and we’re not trying to obtain savings within departments.

I know one argument is that we have reduced our staff already. This is true, but this is common throughout our economy. Everywhere fewer people are doing more work because they have better technology. For instance, I asked for an estimate on how many police the red light cameras saved. It was the equivalent of almost 3 full time police. With these types of improvements we can get better service and use fewer people.