The pain of the Great Recession will live with us far longer than we’d like. Even as the economy recovers (and as Governor Patrick says, Massachusetts is coming out of recession stronger than many states) our state government will be dealing with the fiscal hangover for years to come, particular as federal stimulus funds are withdrawn next year.
We are of course not alone. From the deserts of the southwest to the leafy woodlands of our own New England, states have been making hard choices about priorities to cope. Every approach is a bit different, combining a mix of taxes, cuts and reforms. From each there are lessons learned. So today I look to the Green Mountain State and the comprehensive reform process they have just undertaken to reduce spending and change the way they set their budgets.
What did Vermont do? They looked at making fundamental reform in policy and process as opposed to piecemeal change. At the beginning of the year, the legislature passed a Challenges for Change bill that required the eleven major agencies of Vermont’s executive to meet a series of outcomes with a set level of spending, $38 million less than the funding provided the year before. This level of ambition for savings was agreed between the Democratic legislature and Republican Governor, as were the goals government was commissioned to achieve. From there, the Governor was required to report back with how each of his agencies could meet the outcomes and make the savings.
The legislature was in essence giving state government a new beginning as opposed to just some money against a series of line-items based on last year’s totals. They had initially hired an outside public services consultancy (who had done something similar in Iowa) to run the process. In doing so, they turned the budget process on its head.
The State’s Chief Recovery Officer, Tom Evslin, who led this effort for the administration, wrote this on his blog about what Challenges was all about.
Although the initial impetus for the Challenges was a need for constructive ways to address part of our anticipated $154 million fiscal year 2011 budget gap, this is not a traditional cost-cutting exercise. In cutting, one starts with the way we do things today and asks: How can we reduce the cost? There is usually no consideration of the outcomes involved. The focus is on trimming inputs, e.g., the number of people involved, office equipment, travel, or other such expenses.
By contrast, this reform package starts with the desired outcomes and the amount of money Vermont can afford to spend and then asks: If we rethink how we do things, how could we improve our outcomes with this amount of money?
In fact, the appropriations decision for Challenges has already been made with the passage of the initial Challenges bill in February. In FY2011, agencies and programs under the Challenges umbrella must deliver desired outcomes for $38 million less in general funds, as well as relieving $11 million of property tax pressure. These endeavors pave the way to $72 million less in general funds and $26 million of property tax relief in FY2012.
Of course many of the ideas that came out of this were controversial. Republican Governor Douglas proposed consolidating: school districts, getting rid of many local rural schools; streamlining environmental regulation, which raised the ire of state environmentalists; consolidating regional planning and economic development agencies, which upset legislators in more deprived communities; and reducing funding for certain vulnerable populations, which could have undermined care. The rubber always meets the road.
The legislature rejected many of these changes but they did debate them and hold hearings on them. In an interesting procedural twist, when the Challenges’ proposals were made, they were quickly (and literally from what it sounds like) placed in issues buckets that relevant legislative committees considered and acted on within weeks, pulling the measures back into a consolidated bill for final passage. As opposed to one committee (Ways and Means) dominating the process as it does here, this seems more open and engaging a way to make budgets.
So what can we learn from this? As many (Rahm Emmanuel is one who springs to mind) have said about the economic and fiscal times we live in, “a good crisis is a terrible thing to waste.” Often its in periods of crisis, when the pressure to make change is greatest, that fundamentally different ways of doing business can be found. Nothing like a crisis to bring out the Schumpeterian (of “creative destruction” fame) in all of us.
Vermont could have just muddled through and made piecemeal reforms, raised taxes and cut spending the old fashioned way. In fact, the year before that the legislature had done just that, overriding the Governor’s veto (something I have heard had rarely been done there) to enact tax hikes and preserve spending. They didn’t want to do that again so instead looked to make far-reaching reform: setting out what government was all about and what funding was available in advance.
I’d like to see Massachusetts consider some of these ideas in reforming our own budget process and performance management system. Say every two-years the Governor filed an outcomes proposition (with an overall two-year projected level of spending attached) for his/her government setting out what its goals were and what each agency was expected to contribute to those goals. This could then go out to public consultation and before the legislature for hearings and then would be enshrined in law. This law would set the framework for the two annual budgets to be passed in the legislative term.
Toward the end of each year, the State Auditor would be asked to report on performance against these specified outcomes and the legislature’s Post Audit and Oversight Committees (and/or issue-based committees) would hold joint hearings on that performance appraisal and make recommendations. The administration would then file a response to the recommendations as part of its following year budget proposal. I think such a process would be more empowering for the public and legislature, would make state government more accountable and transparent and would place a greater emphasis on the things state government wants to achieve for people versus the money it spends – outcomes versus inputs.
Governor Patrick has started along this course with his MassGOALS proposition, but it should become a shared process with the legislature and the Auditor, who can function as an independent State Performance Officer in evaluating how state government is performing against its objectives.
In any event, as campaign 2010 ramps up, I expect more transformational reforms of the way Beacon Hill works to enter the debate. We’re not out of the fiscal woods by a long shot and fundamental change is called for.
