Friday, August 21, 2009

Desiging A Budget

LANSING, MI - MARCH 17: The Michigan State Cap...Image by Getty Images via Daylife

I've been thinking about budgeting lately, because the Michigan legislature can't seem to figure out a good way to do it. Every year, they think they have to argue about what to cut, but I think there's a better way.

People and dollars are leaving Michigan, so obviously revenue is shrinking as well. This means that we have to spend less money. It's not partisanship, it's not politics - it's math. I won't even factor in the growing structural deficit that haunts Michigan (it's going to come back to bite us soon).

Yet there seems to be no political will to cut anything. You hear the same line, over and over again: "we've already made sacrifices." Even so, you can't really blame them for being upset. Everyone has their own corner of the universe, and they are more concerned about that than the bigger picture. It's hard to trust someone who is taking away resources from you that "it's really in your best interest." If you add legislators and politicians who have little courage into the mix, you have a recipe for gridlock.

I'm not sure what the solution is, but I think we're going to have to reinvent the way Michigan budgets. There are other states who have solutions that we should at least be discussing and experimenting with.

One good example is Washington. They have an initiative called "priorities of government" that I think is a pretty innovative way to move towards a more common-sense budgeting process. Instead of taking years past and specific departments of the bureaucracy as a given, they simply start with the priority outcomes that the government is expected to produce.

The process goes something like this:
  • Determine what the priorities are
  • Figure out how much money you have to work with
  • Assemble a team of experts, citizens, and government staff for each priority area
  • Give each team a certain amount of money to spend to achieve their priority
  • Have an open market of people who make offers to solve part of each priority area
  • The teams choose the most effective way to spend money
I should point out that this isn't how Washington makes the real budget. They just use this exercise as a way to give out recommendations that eventually make their way into the real budget.

I would be interested to see what a state could achieve if it actually switched to pure outcomes based budgeting.
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