What a novel concept!
Sadly, not enough people even know what this really means.
Let’s put it into terms of your own home budget, if you have one. Assume you make $75,000 a year. You are married (wife or husband doesn’t draw a paycheck), two kids, two cars, a home (with mortgage) and a myriad of other expenses.
That being the case, you have FIXED expenses throughout the year, mortgage payments, car payments, utility bills and other fixed expenditures ad infinitum, and don’t forget TAXES!
When you try and figure out what amount of disposable income you might have for the year, time to add up everything absolutely NEEDED. Forget the “wants” right now.
When you have finally decided your fixed expenditures, subtracted that from your income, you have what we euphemistically call “disposable income”. RIGHT?? WRONG!!!
Murphy’s Law will always come into play at this moment. Something will always happen to eat up some or all of the balance. We have to zero-base our budgets all the time or risk putting ourselves in a hole we cannot climb out of.
Here now comes the rub. If our families have to budget this way, why isn’t the government required to budget this way? “But the government uses a budget, don’t they?” The government uses what I call a “cost plus” budget. They don’t start out with a blank sheet each year and put the basic absolute needs in place, they start out with last year’s budget and add on. They add on, even if some programs are over they continue to be funded. It was brought to my attention that there was funding for pond maintenance, but the pond was cemented over, no longer needing maintenance, yet the fund was continued and therefore, so was the budget entry.
Here in O’Fallon, Missouri we use “zero based” budgeting, every year. The Departments start from scratch, establish the ongoing NEEDS, operational cost(s) and then, if anything is left over, they put in their wants and also put away some in reserves to build a kitty for any future improvements or costly equipment.
We currently enjoy an unrestricted reserve that would make a lot of cities jealous. As a result, taxes and fees are kept low, we have an aggressive capital improvements program for the future AND all without taxing and spending what we don’t have.
Novel? Maybe.
Conservative? Absolutely!
Common Sense? What else but a resounding YES!
Jim Pepper is currently a Councilman in O’Fallon, MO, a city of approx. 80,000, he was just re-elected this month to a second term. Jim is a former Mayor and City Councilman in St. Louis County, MO. Jim also spent 35 years in the corporate world of Xerox.
If I am reading your article correctly, you indicate that each department within the city performs its own evaluation of what is absolutely “needed”? Isn’t that essentially allowing those who would be most impacted by the elimination or cuts in some programs to determine the importance of those programs? Wouldn’t those people fight to protect their own “turf” as most bureaucracies do?
How do you get a true buy in from everyone — it seems like without this there is no real point — and what methods have you found to be most effective in bringing this about? Is this a yearly practice? I would also be curious to hear your opinion on the method Oklahoma has adopted — in which a department will undergo zero based budgeting, but then not be up to do it again for another eight years.
Richard,
Thank you for your questions, they give an insight into some one who cares.
Actually, our process is somewhat lengthy by some standards but necessary (as will be this explanation).
We start our budgeting process in August for a budget to be adopted by 12/31 of the year. Yes, we do this yearly.
There are multiple “budget only” meetings of the Council, guess you might classify them as ‘hearings’.
Some of our departments are considered “Enterprise” depts., limited by either a special sales tax (Parks and Rec) or user fees (Water / sewer). These are self limiting by their construction. What is really the meat of the discussions is the use of unencumbered funds and unencumbered reserves and Capital Improvements.
Each department comes before the Council INDIVIDUALLY. When they do, the Council sees, by means of a spreadsheet, full line item breakdown of all income/expenses, last years budget vs. actual, proposed budget vs projected income (conservative).
The departments undergo, in some cases, an “inquisition” to justify continuation or addition of expenses. In other words, determining absolute needs, new programs (improving efficiencies) and ‘nice to have’ expenses. Yes, we do have departments that strive to “protect their turf” but that attitude doesn’t fly here.
The buy in comes from the Council, as it should. Now, as far as the Oklahoma practice, I find it very disturbing that the possibility of abuse of taxpayer monies could manifest itself under that formula.