STATE BUDGET REFORM TOOLKIT

STATE BUDGET REFORM TOOLKIT
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All rights reserved. Except as permitted under the United States C o p y r i g h A c t o f 1 9 7 6 ,n o p a r t o f t h i s p u b l i c a t i o n a y b e r e p r o d u c e d t m o r d i s t r i b u t e di n a n y f o r m o r b y a n y m e a n s ,o r s t o r e d i n a d a t a b a s e o r r e t r i e v a ls y s t e m w i t h o u t t h e p r i o r p e r m i s s i o no f t h e p u b l i s h e r .

Managing Editors:

About the AmericanLegislative Exchange Council
The StateBudgetReformToolkithas been published by the AmericanLegislative Exchange (ALEC) part Council as

Leonard Gilroy
Director Government of Reform, Reason Foundation

Jonathan Williams
Director, and Fiscal Tax Policy TaskForce,

Exchange Council o f i t s m i s s i o no d i s c u s s ,e v e l o pa n dd i s s e m i n a tp u b l i c AmericanLegislative t d , e p o l i c i e sw h i c he x p a n d r e e m a r l < e t s ,r o m o t ee c o n o m i c , f p

Contributing Authors:

Culling vidual liberty.ALEC the nation'slargestnon-partisan, Josh is StateGovernment AffairsManager, Americans TaxReform for voluntarymembershiporganization state legislators, of with 2,000membersacross nation.ALEC governeo LeonardGilroy the is
by a Boardof Directors state legislators, of which is advised by a PrivateEnterprise Board,representing major corporateand foundationsponsors. ALEC classified is by
Director Government of Reform, Reason Foundation

g r o w t h ,l i m i t t h e s i z eo f g o v e r n m e n ta n d p r e s e r v en d i _ , i

Amber Gunn
Director the Economic of Policy Center, Evergreen Freedom Foundation

t h e l n t e r n a lR e v e n u e e r v i c e s a 5 0 L ( c ) ( 3 n o n p r o f i t , S a ) p u b l i cp o l i c ya n d e d u c a t i o n ao r g a n i z a t i o nn d i v i d u a l s , JasonMercier l I. p h i l a n t h r o p ifc u n d a t i o n sc o r p o r a t i o n s ,o m p a n i e so r o , c , a s s o c i a t i o n s e e l i g i b l eo s u p p o r t L E C 'w o r k t h r o u g h ar t A s tax-deductible gifts.

Director the Centerfor Government of Reform, Washington Policy Center

Matthew Mitchell,Ph.D.
Research Fellow, The Mercatus Center

BarryPoulson, Ph.D.

policy About ALEC's and Fiscal Tax TaskForce
policyTaskForceis The missionof ALEC's and Fiscal Tax policysolutions to explore that reduceexcessive governtransparency governmentoperations, of and promote free-market scaloolicies. fi P u b l i c e c t o r h a i r m a nI:n d i a n a e n . i m B u c k S C S J P r i v a t e e c t o r h a i r m a nB o bW i l l i a m s S C : T a s k o r c e i r e c t o rJ o n a t h a n i l l i a m s F D : W

Professor Emeritus, Universitv Colorado of

Bob Williams
President, StateBudgetSolutions Founder and SeniorFellow, Evergreen FreedomFoundation

Jonathan Williams Director, and Fiscal Tax Policy TaskForce, m e n t s p e n d i n gl,o w e r t h e o v e r a l t a x b u r d e n ,e n h a n c e AmericanLegislative l Exchange Council P u b l i s h eb v d AmericanLegislative Exchange Council 1101" VermontAve.,NW,11th Floor Washington, D.C. 20005 Phone:(202)466-3800 Fax:(202)456-3801 www.alec.org

WWW.ALEC.ORG

Jonathan Williams
J o n a t h a n i l l i a m ss t h e d i r e c t o r f t h e W i o Taxand Fiscal Policy TaskForcefor the A m e r i c a nL e g i s l a t i vE x c h a n g C o u n c i l e e (ALEC), where he workswith statelegislatorsand the privatesectorto develop free-market fiscalpolicysolutions the in s t a t e s . r i o rt o j o i n i n gA L E CJ o n a t h a n P , servedas staff economist the non-partisan Foun_ at Tax d a t i o n , u t h o r i n g u m e r o u sa x p o l i c y t u d i e s . a n t s H i s w o r k h a s b e e n f e a t u r e di n m a n y p u b l i c a t i o n i n _ s cluding The Wall StreetJournol, The LosAngeles Times, Forbes and lnvestor's Business Daily.WithDr.Arthur Laf-

Leonard Gilroy
G i l r o y i s t h e D i r e c t o ro f G o v e r n m e n t Reformat ReasonFoundation, nona p r o f i t t h i n k t a n l < d v a n c i n gr e e m i n d s a f and free markets. Gilroy, a certified u r b a np l a n n e r A I C P )r,e s e a r c h ep r i v a ( s tization,governmentreform,transportation, infrastructure, and urban policy

i s s u e sG i l r o yh a s a d i v e r s i f i e d a c k g r o u n i n p o l i c yr e _ . b d s e a r c ha n d i m p l e m e n t a t i o n , i t h p a r t i c u l a r m p n a s e s fer and SteveMoore, Williams w e co-authoredRichStotes, o n p u b l i c - p r i v a t e a r t n e r s h i p sc o m p e t i t i o n ,g o v e r n - Poor Stotes:ALEC-Laffer p , EconomicCompetitiveness ln_ ment efficiency, transparency, accountability, and gov- d e x . o n a t h a n a sb e e na c o n t r i b u t i n a u t h o rt o t h e R e a J h g e r n m e n tp e r f o r m a n c e . son Foundation's Annual PrivatizationReportand has written for the Ash lnstitute at the KennedySchoolof Gilroyis the editor of the world'smost respected news- G o v e r n m e na t H a r v a r dI.n a d d i t i o n , i l l i a m s s a c o n _ t W i letter on privatization,PrivatizqtionWatch, and is the tributing author to "ln Defense of Copitatrsrn,, (Northeditor of the widely-read Annuql privotization Report, w o o d U n i v e r s i t y r e s s 2 0 1 0 ) .H e i s a l s o a c o n t r i b u t o r P , w h i c h e x a m i n e sr e n d sa n d c h r o n i c l etsh e e x p e r i e n c e s to The Examiner(Washington, t D.C.)and servesas an o f l o c a l s t a t e , n d f e d e r a g o v e r n m e n tis b r i n g i n g o m - a d j u n c t i s c a p o l i c y e l l o wa t t h e K a n s a p o l i c v , a l n c f l f s Institute. petitionto publicservices. Gilroyalsoedits Reason,s annual lnnovotorsin Action reoort. In additionto testifying beforenumerouslegislative bodP r i o rt o j o i n i n gR e a s o nG i l r o y a s a s e n i o rp l a n n e r t a , w a L o u i s i a n a - b a su r b a np l a n n i n g o n s u l t i n f i r m . H e a l s o ed c g worked as a research assistant the Virginia at Centerfor C o a la n d E n e r g y e s e a r ca t V i r g i n i a e c h G i l r o y a r n e d R h T . e a B . A .a n d M . A . i n u r b a na n d r e g i o n ap l a n n i n gr o m V i r l f g i n i aT e c h . A M i d - M i c h i g a n a t i v e W i l l i a m s r a d u a t e d a g n ac u m , g m l a u d e f r o m N o r t h w o o dU n i v e r s i t y n M i d l a n d , M i c h . , i m a j o r i n gi n e c o n o m i c sb a n k i n g / f i n a n c e ,n d b u s i n e s s , a m a n a g e m e n W h i l ea t N o r t h w o o dh e w a st h e r e c i p i e n t t. , of the prestigious Ludwig von MisesAward in Economics. i e sa n d s p e a k i n go a u d i e n c e a c r o s s m e r i c aW i l l i a m s t s A , p o p u l a r u e s to n t a l k r a d i os h o w sa n d h a sa p p e a r e d g isa o n n u m e r o u st e l e v i s i o n u t l e t s , i n c l u d i n g h e G l e n n o T B e c kP r o g r a m n d F o xB u s i n e sN e w s . a s

W e w i s ht o t h a n k the followingparties f o r m a k i n gh i s t publicatiopossible: n

First, our sincere thanksgo to The Lyndeand HarryBradley Foundation their for g e n e r o u s u p p o r t o m a k et h i s r e s e a r c h o s s i b l eN e x t ,w e w o u l d l i k et o t h a n k p . RonScheberle, MichaelBowman,ChazCirame, KatiSiconolfi, Ben lwen, Justine Fink,LauraElliott,HarrisKenny, and the professional staff membersat ALEC and the Reason Foundation their valuable for assistance this project. with

STATEBUDGETREFORMTOOLK IT

Tableof Contents
l. lntroduction A. Problem: The CurrentBudgetSystem B. Solution:Priority-Based Budgeting ll. Toolsto ModernizeStateBudgeting A. DefineCoreGoverning Principles C. Pass Strong,Balanced a BudgetRequirement D. Adopt an Effective StateSpending Limit E. Require Preparation AgencyMissionStatements of F .A d o p tP e r f o r m a n cA s s e s s m e n tn d M a n a g e m e n.r . . . . . . . . . . . e a . G . B u d g e t i nfg r O u t c o m e s . . . . . . . . . . . . . . . . o H .T h el t e m - R e d u c t i V n t o . . . . . . . . . . . oe lll. Toolsto lmprove BudgetTransparency A . C r e a t e T r a n s p a r e n tu d g e W e bs i t e a B t B .A d o p ta 7 Z - H o u rB u d g e T i m e o u t t C .R e q u i r F i s c a l o t e s e f o r e c t i o n n S p e n d i nB i | | s . . . . . . . . . . . . e N B A o g lV. Toolsto Control Costsand lmprove Government Efficiency A. Adopt a StateHiringFreeze B .R e f o r m t a t e e n s i o n s . . . . . . . . . . . . . . . . S P C . R e s t r u c t u rS t a t eR e t i r e e e a l t h a r eP l a n s. . . . . . . . . e H C . D . E l i m i n a t e o s i t i o nV a c a n M o r eT h a nS i xM o n t h s P s t E .D e l a y u t o m a t i P a yI n c r e a s e s A c 23 . . . . . . . . . . . . . . 2.3 . 24 25 . . . . . . . . . . . . . . . . . . . 2.6 . ............ 20 2! . . . . . . . . . . . . . . .2 2 . vi. vii.

8 10 10 tt 12 t4 18

B . R e q u i r e o n - P a r t i s a ne v e n u e o r e c a s t sn d I n d e p e n d e n t e r t i f i c a t i oo f 8 u d g e t s . . . . . . . . . . . . . . . . . . . . . . 9 N R F a C n .

F .A d o p tA c t i v i t y - B a s e d s t i n g Co ...... 26 G .A d o p ta S u n s eR e v i e w r o c e s s r S t a t e g e n c i e s ,o a r d s , n dC o m m i s s i o n s . . . . . . . . . . . . . . . . . . . . . . . .2 . . . . . . t P fo B a .7 A H.AllowtheStateAuditortoConductPerformanceAudits......... J . E m b r a c eh e E x p a n d e U s eo f P r i v a t i z a t i o n d C o m p e t i t i v C o n t r a c t i n g d t an e K . E s t a b l i sa S t a t eP r i v a t i z a t i o n d E f f i c i e n cC o u n c i l h an y L. Create Statewide a RealPropertyInventory and Search the B a l a n cS h e e f o r A s s e S a l e n d L e a s e p p o r t u n i t i e s . . . . . . . . . . . . . . . . e t t a O M . A c h i e v S a v i n gT h r o u g h m p l o y eIe c e n t i vP r o g r a m s . . . . . e s E n e V .C o n c l u s i o.n . . . . . . . . . . . . . ; . . V l .A p p e n d i x Index f Recommendations........... o lndexof ALEC Model Legislation .............. 4 3 . . . . . . . . . . . . . . . . . . .7 3 ..... 38 ...... 39 . . . . . . . . . . . . . . 3.9 . .. 41, ..............29 .................... 9 2 ........... 32 l . E s t a b l i sa S y s t e m f l n d e p e n d e nR e c o v e rA u d i t sf o r l m p r o p e r a y m e n to f T a x p a y eF u n d s . . . . . . . . 2 8 h t o y P s r

LEC's State Budget ReformToolkitwill aovancea set of budget and procurementbest practices to guide state policymakers they work to solvethe curas ,[ A rent budgetshortfalls. toolkit will assist The legislators in prioritizing and more efficiently delivering core govern-

left to raid, statesthat did not take real action to solve their budgetary shortfalls will face even greaterbudget poor Stotes defecits. Additionally, ALEC's as RichStates, publication aptly pointsout, tax increases so come at a

very high cost:the erosionof state economiccompetiment services through advancing principles t i v e n e s sI.n t h e w o r d so f P r e s i d e n to h nF .K e n n e d y,:A n Jeffersonian J of free markets, limitedgovernment, federalism, and in- economyconstrained high tax rates will never proby d i v i d u alli b e r t y . d u c e e n o u g hr e v e n u e o b a l a n c e h e b u d g e t , u s t a s i t t j t j w i l l n e v e rc r e a t ee n o u g h o b s . " Today, states face structural deficits created oy overspending.Most of the legislative "fixes" over the past few yearsfor state budgetgapshavemerelypostponed o r o b s c u r e dh e p r o b l e m s a t h e rt h a n a d d r e s s i ntg e m t r h directly. A contributingfactor to state budget gaps is the expirationof the federal stimulusfunds providedby the American Recovery and Reinvestment Act (ARRA). Although thesefederalfunds temporarily supportedstate budgets, moneywill not lastforever. the When it is gone, states will be facedwith gapingholesin their budgets, as policymakers many stateshaveimprudently in opted to rely on these temporaryfederalfunds in order to avoid makingdifficult,but necessary, budgetreformsto align expenses with revenues.

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current Budget ffi3.'il'rhe

A budgetdrivesall policywithin a state.Forthis reason, debating, writing,and approving state budgetare the a primary tasks legislators mustaccomplish. However; when budgetsare built in the traditionalmannerof adjusting the current budgetfor inflationand caseload increases, legislators become"enablers" agencies for and programs that likelyhavefundamental design flawsor that may be providingservices that are ineffectiveat meeting legislative goals. Thistype of approach focuses almostentirelyon inputs(more money).Building budgets the conventional way virtuallyassures overspending sincethere is little,if any,focuson efficiency, effectiveness, outcomes. or

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T o s o l v et h i s p r o b l e m ,t h e t e m p t a t i o nw i l l b e t o u s e a Legislators often find that the baseline budget is higher " b u s i n e s s - a s - u s ua p" r o a c hr:a i s e a x e s r a i dn o n - g e n - than the estimated al p t , revenue forecast. Theythen focuson e r a l f u n d a c c o u n t sd e l a yf u n d i n go f s o m e l e g i s l a t i o n , a combination cuttingprograms, , of raisingtaxes,or us, a v o i df u l l y f u n d i n gp e n s i o n sa n d u s e f e d e r a ls t i m u l u s ing accounting gimmicks makegeneral to fund resources funds to postpone meaningfulbudget reforms.Some of these actions may give statesa temporary "patch" match forecastedrevenue.This approachignoresthe question whetherexisting of stateprograms efficient are i n t h e i r b u d g e t s h o r t f a l l , u t w h e n t h e f e d e r a lf u n d s or effective. b Rarelyare the questionsasked,"How can e x p i r e ,w h e n p e n s i o nt a b s f o r d e l a y e dc o n t r i b u t i o n s existing programs improved?" "How can we maxibe or come due, and when there are few off-budget accounts m i z et h e o u t c o m e f t h e t a x d o l l a r sh a t a r e c o l l e c t e d ? " o t

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AMERiCAN

LEGISLATIVE EXCHANGE COUNCIL

STATE BUDGET RE}-ORM TOOLKIT

SolutionPriority-Based :
Budgeting

from government. Thisincludes removingbarriers standing in the way of delivering results citizens. to

ThisStateBudgetReform Toolkitis designed helplegis- Without this approach, to statebudgetsresemble iceberg, an latorsaddress serious the financial crises the statesby with decades in worth of spending unseen and unexamined changing their budgetary systemfrom the conventional under the water, while the debate ragesyear after year input system,which is clearlya failed policy model, to overthe smallpart that sticksup out of the water.The lonone focused outcomes. on ger state lawmakers continueto use the cost-plus model, the more "hardwired"their deficitproblemswill become. This new budgetary systemis calledpriority-based budgeting. Priority-based budgeting means state officials In 2003,Washington stateactually priorityimplemented and citizensmust first determinethe core functionsof basedbudgeting closea budgetdeficitof $2.4 billion to g o v e r n m e n tW h i l e t h i s m a y s e e m l i k e a n e l e m e n t a r y without raising . taxes. Hadthe traditional cost-plus budgetstep,it is seldomtaken beforelegislative appropriations ing systembeen used,legislators would havestartedwith are made. Gainingcontrol of a state budget meansthe the baseline budgetand focusedon cuttingprograms or q f o l l o w i n g u e s f i o n s u s tb e a n s w e r e d : m general raising taxes untilthe fund matched forecasted the revenue. The state's economywas recognized both parby
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What is the role of government? What are the essential government services must provideto fulfill its purpose? H o w w i l l w e k n o w i f g o v e r n m e nits d o i n ga goodjob?

ties astoo weakto withstand tax hike.Instead, state a the prioritized services determined and what the most important thingsto buy or deliver werefor the dollars invested. In orderto facethe upcoming budgetcrisis, states should changetheir conventional budget systemto a prioritybasedbudgetsystem.Usingthis tool, legislators focan cus on delivering effective services taxpayers to instead programs. of fundingcostly,ineffecfive The first tool set

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W h a t s h o u l da l l o f t h i s c o s t ? W h e nc u t sm u s t b e m a d e ,h o w w i l l t h e y b e properly prioritized?

Only by carefully considering proper role of governthe

below describes stepsfor statesto follow to modernize ment can legislators job their budgeting and governors an effective do system fully. protecting individual rights, while providing essential services taxpayers an efficient, to in cost-effective manphilosophy; ner.Thisis not an "anti-government" rather it is ensuring that what government supposed do, it is to greatsavings be obtained will do well. Furthermore, can if legislators agencies not spendtime determining and do how a particularfunction can be performedbetter,faster, and cheaper it is not a corefunctionof government. if Priority-based budgeting viewsall of stategovernmentall of its agencies and functions*as a singleenterprise. It evaluates new proposals the contextof all that state in government does,and develops strategies achieving for priorityresults with an eyeon all available stateresources. Priority-based budgetinghelps to keep a citizen-focused perspective the budget. lt assumes can change on we the rules, necessary, maximize results canget if to the we

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tates need innovative strategies modernize to their

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philosophical Fierce battlesmust be wagedwith the end resultbeinga compromise that may please no one.

budgetingsystem.The first section of our State BudgetReformToolkitgivesstate policymakers stepa process implementpriority-based by-step to budgeting.

Tools in this section include: defining core governing Still,the ultimate responsibility lawmakers to look of is principles,requiring independentcertificationof the taxpayers the eye and honestlyreport to them that in budget,and passing strongbalancedbudget require- governmentis functioningexcellently a within its boundprocess ariesand its means.Starting the governing with ing an effective state spendinglimit, requiringagencies soundcoreprinciples a necessity. is However, developing to prepare missionstatements, adopting performance a meaningfulset of core governingprinciplesrequires management, and budgeting outcomes. for t i m e a n d c o u r a g eM a n y o f f i c i a l s i l l p u b l i c l y m b r a c e . w e the notion of developingbudgetsaround a model of more carefullyprioritizedspending,but most will also vigorously opposeor underminethat model in day-today operations. Some legislators may disagree with the already-defined m e n t .A d d i t i o n atlo o l si n t h i ss e c t i o n l s oi n c l u d ea d o p t a :

DefineCoreGoverning Principles
A first step in reformingstate budgetsis to determine the corefunctionsof stategovernment. Every statecon-

stitution, which lawmakersswear to uphold, contains core functions, may disagree or with the newly drafted l a n g u a g t h a t c a n n o tb e i g n o r e d h e n b u i l d i n g f r a m e - core functions.While absoluteconsensus not likely, e w a is work for fleshingout coregovernment functions. legislators should use the core functionsas a starting placeto develop the legislative agenda. Thiswould result When decidingthe core functionsof government,the q f o l l o w i n g u e s t i o n s h o u l db e a s k e d : r ls this a properfunctionof government, is it best or left to the individual(family)or charitable organization? o lf interventionis necessarv, it best left to local is government which is closerto the people? . Does it further increase taxes,regulations, the or sizeof government? so, is this justified? lf Many lawmakers re unwilling o determine he core a t t functionsof government because: o lt is hard work and may takeyearsto get right. in healthydebates aboutthe state's core responsibilities. ln some states, the legislature may not wish to wait for its governorto developa list of core functions.In other parties states, will be a joint endeavor it betweenpolitical of and the branches government. bipartisan A ratification core functionsshould be soughtwithin of agreed-upon the firstfew weeksof budget-writing sessions. would This increase the productivity standingcomdramatically of because everyone would knowthe terms mitteehearings and the budgetlimitations. Oncethe core functionsfor they will serveas a litthe state have been developed, of mus test for the hundreds currentlyfunded agencies,

AMERICAN LEGISLATIVE EXCHANGE COUNCIL

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boards, commissions, progrlrr. Agencies ,nd should be asked submit to theirbudgets based delivering or on one moreof the state's identified functions. core
Washington's functions detailed core are at: www.of m.wa.gov/budget/pog/default.asp

S T A T B U D G E TE F O RT O O L K I T E R M ffi
similar comptroller stateauditor) certifythe budget or to would help to ensurethat the budgetrelieson realistic revenue forecasts. Furtheri approach this creates politia cal incentive accurate for budgeting since the treasurer's professional (and potentialpolitical credibility future) is onthe line.

In Washington gives comptroller that state state,this approach considered Constitution revenue TheTexas the in f o r a l ls o u r c e ( n o t j u s t h e g e n e r a lu n d )a n da s s u m e n o the authorityto certifythe state's s f d budget.In advance of spending commitments were sacrosanct. legislature eachregular prepares The legislative session, comptroller the to chosewhich spending add to the budgetin order to and submits the governor to and legislature statement, a deliver corefunctions the and prioritized activities the financial within underoath,showing conditionof the state thosefunctions. Recommendafion:All existing programs should treasuryat the closeof the lastfiscalperiodand an estimate of the probablereceipts and disbursements for the currentfiscalyear.The statementalso contains an

revenuebasedon fit within one of the core functionsor they shouldbe itemizedestimateof the anticipated showing fund the abolished. Measurable outcomes eachcorefunction the lawsthen in effectfrom all sources, for a c c o u n tts b e c r e d i t e d u r i n g h e s u c c e e d i nb i e n n i u m . o t g prioritized. shouldbe identified and agency activities

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\Q Additio nal Resou rces: o The Evergreen Freedom Foundation, StewardThe ship Project,Olympia, WA,June2003.www.effwo. g/ pdfs/stewor dsh ip2003.p df or

Require Non-Partisan RevenueForecasts Indepenand dent Certification Budgets of
process Thecurrentbudgeting allows too muchroom far projections, for discretion revenue in creating opporthe Except the caseof emergency imperative in or necessitv vote in eachhouse,no appropriaand with a four-fifths projections serveas the founda- tion is considered validif it exceeds cashand anticitunity for unrealistic to the tion for statespending. Two interrelated reforms help patedrevenue the fundsfrom which suchappropriaof can (1) to address problem: havea non-partisan this an revenue tion is to be made.No bill containing appropriation quarterlyand publishes passed be sent to the governor forecast councilthat meets as or an can be considered officialstaterevenue forecast, until and unless and (2) havean indepen- for consideration the comptroller certiamountappropriated within the amount dent,third-party certification the budget. of fies that the is in funds. estimated be available the affected to Using non-partisanrevenue forecasts-which should account all taxes, for fees,and charges stategovern- @ ^"ro^^endotion'.State policymakers by shouldclose process adopting ment-can help eliminate by the bureaucratic tendency to the currentgap in their budgeting just to balance similarto Texas. Giving the state's chieffinanrelyon higher-end revenue estimates the provislons budgets from budget.However, statesshouldgo further by undertak- cialofficerthe abilityto preventunrealistic (or ingthe second reform.Requiring statetreasurer a being adopteduntil the budgetsmatch expectedrevethe

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nueswould be an importantsteptowards tightening and strengthening fiscalcontrolsystems keepthe priceof to government check. in /\Q Additional Resources: . Stateof Texas, Senate Research Center, Budget 1"0L: Guideto the StqteBudget Process Texos, A in Austin, TX,January 2005. www.senote.state.tx. s/ u p SRC/p df/ Buds et 101_2005. df . Texas StateConstitution, Article3,Sec.49a, Finoncial Stqtementand Estimate Comptrollerof Pubby lic Accounts;Limitqtion of Appropriations.www. statutes.Iegis.stote.tx. s/ Dacs/C / htm/C N.3.htm u N

@ ^"ro^-endation:Pass a balancedbudget requirement,mandating the expenditures that included the budin get for the nextfiscalyearshallnot exceed estimated rev-

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enues, and create protected a emergency reserve account. Additional Resources:

Washington PolicyCenter, Citizens Guideto SJR 8206, BudgetStabilizqtion Account,Olympia,WA. September2007. www.wqshingtonpoIicy.o rg/ -g uide-sjr-82 06-b udgetp ubIi cati ons/ notes/citi zens stabiIizati on-occount

(fi) orr, *odet Lesistation:
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Adopt an Effective State Spending Limit
Many states have attempted to curtail spending(or, growth)with mixedsuccess. more accurately, spending In fact,a majorityof states maintain somesort of spending limit or rainyday fund, but their effectiveness varies greatly.

Balanced Budget Certification Act lndependent Revenue Forecasting Act

Pass Strong, a Balanced BudgetRequirement
One major flaw in statespending that the legislature, is which is responsible draftingstate spending, for rarely produces balanced a budget.While most states have do balanced budget requirements, too often state legall islatorsalso tal<eadvantage accounting of maneuvers that push expenses into future budgets,for example i s s u i n gs p e c i o u sa n d u n s u s t a i n a b lb o n d p r o g r a m s . e The balanced budgetrequirement needsto be carefully structured includeall funds so legislators to don't use gimmicks pushthe operating accounting to deficitinto future budgets. ldeally, legislators shouldadoptthe "98-

2-50" approach. This meansthe stateshouldspendno more than 98 percentof forecasted revenueon previ- t h e b u s i n e sc y c l e n d a v o i dt h e d a n g e r o ub o o m - a n d s a s put ouslyidentifiedpriorities government, 2 percent bust cycleof budgeting. of The purposeof the spending awayin reserves requirea 60 percent and supermajority l i m i t i s t o p r o v i d e h e f i s c a d i s c i p l i n n e c e s s a rd u r i n g l t e y percentrule. to change 98 percent-2 the is The primary benefit of this policy recommendation that it would allow statesto "stopthe bleeding." There that will taketime to are manybudgetary repercussions solve,Firstand foremost,incumbentofficialsmust be able to guarantee votersthat reckless to spending a is thing of the past. growth,to not overextend strongperiods revenue of the budget,and to avoidcreating structural a deficitcaused by overspending. two-prongedpolicywould make This statebudgets more resilient the faceof unanticipated in expenses. The inaccessibility the emergency of funds would mandatebipartisan effort to solve problemsinsteadof relying tenuousparty-line on votes.

T h e i m p o r t a n c e f u s i n gb o t h a s p e n d i n g i m i t a n d a o l rainyday fund is to help smoothout expenditures over

10

AMERICAN LEGISLATIVE EXCHANGE COUNCIL

S T A T E U D G ER E F O R T O O L K I T B T M ffi
W h e n p r o p e r l y e s i g n e d n d i m p l e m e n t e d ,a xa n d E x d a T penditureLimits(TELs) have provento be effectivein c o n s t r a i n i ntg e g r o w t h o f g o v e r n m e ns p e n d i n ga n d h t , stabilizing government budgets overthe business cycle. ALEC's modellegislation incorporates features that make TELs effective and successful: @ Incorporate TELs into stateconstitutions, ratherthan in easily vaded r ignored tatutes. e o s When taxpayer approvalis requiredon ballot measures,taxpayers-not elected officials-will deter_ m i n eh o w m u c hg o v e r n m e n tp e n d i n t h e yw a n ta n d s g arewillingto payfor.

^"ro**endotions:States should adopta consh-

t u t i o n a lr e v e n u e r s p e n d i n gi m i t .S u c ha l i m i t w o u l d o l i m p o s em u c h n e e d e d i s c i p l i n o n p r o f l i g a t e p e n d i n g d e s oatterns.

UseTELs limit the rateof growthof revenue to and/or Q expenditures the sum of inflationplus population to . growth. Do not link TELs some measure aggregate to of economicactivity, suchas personal income. Thistype of limit is less effectivein constraining growth of the s p e n d i n g n ds t a b i l i z i ntg e b u d g e t . a h A p p l yT E L s o a b r o a d m e a s u r e f r e v e n u e n d / o r t o a expenditure, exempting only federally fundedexpenditures. UseTELs provide the disposition surplus to for of reve n u ea b o v e h e T E L i m i t . t l ' A p o r t i o no f s u r p l u s e v e n u e h o u l db e p l a c e d n r s i an emergency reserve fund. use of this emergency r e s e r v eu n ds h o u l d e l i m i t e d o n a t u r ad i s a s t e r s . f b t l as opposed revenue to shortfalls. " With an emergency reserve fund in place, portion a o f s u r p l u s e v e n u e h o u l d e a l l o c a t etd a b u d g e t r s b o stabilization fund. The budget stabilization fund shouldonly be usedto offsetrevenue shortfalls in periods recession. of " A portionof the surplus revenue should allocated be to tax cutsor tax rebates constrain growthof to the spending. cutsand tax rebates Tax reveal taxpayto ersthe opportunity government costof allowing to s p e n d h e s u r p l u se v e n u e . t r

/a

Additionol Resources: Poulson, BarryW., Colorodo's Toxpoyer of Bill Rights(TABOR) Amendment: Experiment An in DirectDemocrocy, Americans prosperityFounfor

dation,Washington, 2009.www.voteontoxes. DC, com/i m oges/CoIorodo_s_to p ayer_b i It_of_ri gh ts_ x tob or_an_exp eri em ent_in_d ir ect_dem ocrocy.doc o Poulson, BarryW, What is at Stake the Cur, in rent Bottle over Colorado'sTaxond Spending Limits?,The Independence Institute, Lakewooo, CO.,M arch 2O09.www.oId.i2i.org/ m ai n/ o uthor. p hp ?author_id=90&cycle=202-3 L . Segal, Geoffrey and AdamB. Summers, F. Ihe Sky lsn't Folling: ProvenStrategiesfor Budget Reco Iiation, America for prospe Fou nci ns rity noation and Reason Foundation, Washington, D.C., October2005.www.reason.org/fi Ies/d54cdb9 ddca2ffif d6dffd 894 005 e25c.p df r Laffe4 Arthur;Stephen Moore,and Jonathan Williams,RlchStotes, Poor Stotes: ALEC-Laffer State Economic Competitiveness lndex,AmericanLegislativeExchange Council, Washington, D.C., 2010. p w ww.oIec.org/A M/ PDF/tox/ 1.0 pS/RS S2010RS Final,pdf

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orr, *odet Legistotion:

. Taxand Expenditure Limitation Act

Require Preparation of Agency Mission Statements
U n b e l i e v a b lo n l y h a l fo f t h e s t a t e s e q u i r e h e i r a g e n y, r t c i e s t o d e v e l o pm i s s i o ns t a t e m e n t s M a n y p r o b l e m s .

The most effectiveTELsrequire voter approvalto a r i s ew h e n a g e n c i e s o n o t h a v ec l e a r g o a l sa n d o b d increase taxes,issue debt, or spendsurplus revenue. jectives.Requiring agencies preparemissionstateto

WWW.ALEC.ORG

a h m e n t s - w i t h g o a l s n d o b j e c t i v ets a t l i n k b a c kd i r e c t l y t o c o r ef u n c t i o n s f g o v e r n m e n t s - w o u l d e l ps o l v e o h p . t h e b u s i n e s s - a s - u s u a ld g e t i n g r o b l e m A g e n c y i s bu m

Adopt Performance Assessmentand Management

sion statements describe the agency's reason exist- O n c et h e b u d g e ti s b u i l t ,p o l i c y m a k e r s d a d m i n i s t r a for an i n g i n g e n e r atle r m st h a t c a p t u r et s u n i q u e u r p o s e n d t o r s s h o u l d c o m p a r et h o s e e x p e n d i t u r e a g a i n s t h e p i a s functions. expected performanceoutcomes, using the lessons learned makenecessary to adjustments buildthe next to goalsshouldbe broad,high-level, Agency issue-oriented b u d g e tA l l a g e n c i es h o u l d a v ec l e a rp e r f o r m a n cie d i . s h n statements an organization's of desired future direction catorsso that policymakers voterscan easilymoniand or the outcomes that theVstriveto achieve. Goals elabo- tor their efficiency. there is no performance lf monitorrateon the organization's mission statement, articulating i n g ,s e v e r ap r o b l e m s a ya r i s e . l m the overallexpectations and intentions the agency. for T h e ys h o u l d i t w e l l w i t h t h e m i s s i o n t a t e m e na n d a n - L e g i s l a t o r s c e a S a m a r i t a n 'd i l e m m ai n t h a t f a i l i n g f s t fa s swerthe question: What do we needto achieve carry agenciesreceive increasesin funding despite being to out our mission? Objectives breakdown the goalsinto p o o r l yr u n , w h e n p r o p e r l y u n a g e n c i ets a t a r e u n d e r r h duressshould receiveadditionalfunding. Conversely, a n a g e n c ys e x p e c t e d agencies d e s c r i b eh e m e a s u r a b lr e s u l t s t e i may be facinga decreased workload,but ret o a c c o m p l i sw i t h i na g i v e n i m e p e r i o d . h t c e i v et h e s a m e a m o u n t ( o r e v e n a d d i t i o n a lf)u n d i n g when a reduction fundingis pertinent. of shouldhaveat leastone performance Agencies outcome measure each major activityin their activityinvenfor shouldbe eliminated. effectory-if not, the activity An measure: tive activityperformance whetherthe activityis achieving purIndicates its poseor is contributing statewide to results. lmmediate and intermediate outcomesare preferable, although somecases, in output and efficiency meaare The benefitsof this recommendation clear: with well-defined roles,localand stategovernment work can "Redtape" and burdenin concertto provideservices. of Taxpayers some,overlapping rolescan be eliminated. whichagencies go to to exactly benefitin understanding benefit because themselves for services. The agencies additionalresponthey avoid being forced to assume face budgetcuts,or are when other agencies sibilities policymakers Lastly, benefitbecause entirely. eliminated s a w i t w i l l b e c l e a rt o s e ee x a c t l y h i c ha g e n c i er e q u i r e n i) i n c r e a s ( o r d e c r e a s en f u n d i n g . e sureshelptell the story.
a a

pieces.They smaller,more specificoutcome-oriented

l s r e l i a b l e , c c u r a t e ,n dv e r i f i a b l e . a a and relevant to citizensand ls understandable

who may havelittle or no knowledge stakeholders of agency operations. r ls stated in positiveterms (or in terms of the
a a

outcomes). desired yet ls connected challenging, achievable, to targets. C a nb e o b t a i n e d t r e a s o n a b lc o s ta n df o r r e a s o n a e ableeffort.

perforhigh-level To helpimprovebudgetaccountability, i d should require m a n c eo u t c o m em e a s u r e s h o u l db e p l a c e d i r e c t l y n @ ^"ro^*endqtion;The legislature and citizens can with goalsand the budget.By doingso, stateofficials statement to eachagency havea mission goals whetherperformance havebeen determine corefunctions govern- quickly of linkedto the state's objectives ment. purchased of the effectiveness activities met, evaluate

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AMERICAN LEGISLATIVEEXCHANGECOUNCIL

STATE BUDGET REFORM TOOLKIT

i n t h e b u d g e t , n d g a u g ew h e t h e rt h e i n v e s t m e nh a s enjoyed a t only limitedsuccess convincing legislature in the provenits worth versusthe cost (seediscussion under to eliminateor reducefunding for poorly performing SectionIl.G:Budgeting Outcomes\. for programs.However, over the life of pART, high perform_ ing programs havegenerally received largerfundingin_ Manygovernments havetakensteps require to agencies creases than thosethat did not performwell. to start monitoring their performance, this concept but canbe takenmuchfurtherby instituting process reg_ a to ularly reviewall state programs performance, for rete_ vance, and efficiency. Whilethe benefits performance of measurementmay seem obvious, merely measuring agency and program performance insufficient itself. is by Without a corresponding mechanism oversight-a for process designed ensureperformance an ongoing to on b a s i s c r o s s l l a g e n c i e s - n o t h i nw i l l c h a n g e . a a g In this process, eachagency shouldbe required reguto larlydemonstrate how eachactivityit performs directly relatesto achieving core mission. its This process can I n d i a n a o v e r n o r i t c h D a n i e l s a s a d o p t e da s i m i l a r G M h identifyimmediateopportunities streamlining, for con_ processin Indiana,launching aggressive an review of solidation, and alternative delivery. Ultimately, pro- the size,scope,functions, the and budgetof each agency, cessshouldintegrate into the largerbudgeting process, d u b b e d P R O B EP r o g r a m e s u l t sa n O u t c o m eB a s e d ( R : fully fundingperformingand effective programs, while Evaluation). PROBE reviewseach state programto jus_ reducingor eliminatingfunding to ineffective, redun_ tify its work and demonstrate results,and is concep_ dant,or poorlyperforming programs. reviewshould t u a l l y s i m i l a rt o t h e f e d e r a lP A R T n a l y s i s The a established include, not be limitedto, makingrecommendations under Daniels' but leadership federalOMB director. as The for elimination alternative or delivery systems. findingsof the first PROBE reports revealed that over half of the 420 state programs examined did not have The Bush administration developeda robust process measures that sufficiently reportedon the performance modelat the federallevelthat can serveas a template. o f t h e p r o g r a mF o l l o w i ntg e p u b l i c a t i o n . h of the PROBE TheOffice Management Budget of and (OMB) developed report,agencies were requested developappropriate to the Program Assessment Rating Tool (pART) 2002 to programmeasures, in which will feed into a largerperforevaluateprogramsbased on their purpose,strategic mance-based budgeting process within GovernorDand e s i g nm a n a g e m e n a,n d r e s u l t sO M Bt a k e st h e s ea s - iels'Officeof Management Budget. , t . and sessments into accountwhile reviewing agencybudget requests, the results reportedin the president,s and are that all agencies @ ^"ro^.endqtion:After requiring budget submissionto Congress. Between 2002 and createa traceable monitorof their performance, sepa_ a 2008,the administration evaluated the performance of rate process shouldbe instituted the enterprise at level over 1,000programs constituting percent all feder_ to regularly 96 of assess their performance. al programs. During that time, program ratings increased A across board,and programs the whoseresults couldnot \ll Additionol Resources: be demonstrated due to a lack of relevantinformation o PewCenteron the States policyFrameworkto , declined from a whopping50 percent 19 percent. to plonning,Budgeting,ond StrengthenGovernment Acco ntobi Iity, Government performance project, u Congress beenslowto usepART has information make to Washington, D.C., March2OIO. www.pewcenbudgetallocation decisions, the administration and has teronthestat es.org/ rep ort_d etoi l,ospx?i d=5 7708

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Osborne, Davidand PeterHutchinson,The Price of Government: Gettingthe Results Needin an We Age of PermonentFiscol Crisls, BasicBooks,New York, NY 2004. w w w.psg.us/ reinventi on/ pogbfor einvent.html Segal, Geoffrey and AdamB. Summers, F. Ihe Sky lsn't Folling: ProvenStrotegies Budget for Re ciIiation, America for Prosperity ndacon ns Fou tion and Reason Foundation, Washington, D.C., October 2005. www.reason. org/fi Ies/d54cdb9 ddca2ffifd 6dff d894005 e25c.p df The Evergreen Freedom Foundation, StewardThe ship Project,Olympia,WA,June 2003.www.effwa, p or g/ p dfs/stewo rdship 2003. df Govern ment Management Accounta ity and Perbil forma nce, PubIicIy M eosuri ng Pe rm ance, State rfo of Washington, November 2010.www.occountabiIity.wa.gov/d efou lt.asp

they did last year plus an increase accountfor inflato tion and populationincreases. simply,this moves Put t h e d i s c u s s i otn t h e m a r g i n s f s p e n d i n g - t h ea n n u a l o o spending increase requests from agencies. Unfortunately,the other 90 to 95 percentof spending left out of is the debateand is seldomanalyzed relativemerits. for In fact, it is generally assumed that the activities should continueto receivefunding.The traditionalbudgeting processeffectively establishes default positionthat a stategovernment willjust continue expand to overtime, representing unsustainable an approachto state fiscal management.

(fi,
a a

orr, *odet Legistotion:
Council Efficient on Government Act

Several states(and also citiesand counties) are changing their views about governmentbudgeting,Priority

An Act Relating Performance to Auditsof Govern- o r o u t c o m e - b a s e d e n d i n gr e a t ss p e n d i n g s a n i n sp t a mentalEntities vestment-the type and amount of investment should changeyearly as revenue,results,performance, and needschange.Budgeting this way shifts the focus on the investments and what can be accomplished with available resources-whenresources out, spending run

Budgeting Outcomes for

The adoptionof a priorityor outcome-based budgeting stops.Using this model,deficits nearlyimpossible. are systemwould help state policymakers more easily to identifythe governmental activities most importantto States needto followthe leadof Washington state,lowa, citizens, well as to makedifficulttrade-offand cost- and others(seeTable on the followingpage) as 2 and begin benefitdecisions more easily. would alsoresultin the shiftingto an outcome-based lt budgetingsystem-also provision better;more efficient of stategovernment (BFO)-in which poliser- knownas Budgeting Outcomes for vices,while protecting publiccollaboratively taxpayers and maintaining fiscal cymakers and the rank programs. responsibility. It helps leadersrank programs according how costto effective they are at achieving resultscitizens the want. The stategovernment then goesdown the list,funding the most importantprograms first, "buyingdown" with

I
I

Surely, stategovernments stop providing can somefuncprotions, but unfortunately, traditionalbudgeting the

cessfailsto facilitate this sort of downsizing. revenues Tradition' available until it runs out of money.This enally,state budgeting focuses only on the increase a suresthat vital services to are being funded before lessbasebudget,and rarelyare the "big picture"questions critical ones,and services deemedof the highest not imasked-in essence, the budget is on "autopilot."The port are reduced eliminated. or Kitchen table budgeting logicof autopilotbudgeting simple-in orderto mainis tain currentservice levels, needto spendwhat agencies worksthis way,andthere'sno reason stateshouldn't the do the same.

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AMERICAN LEGiSLATIVE EXCHANGE COUNCiL

Washngton State- priorities i of Government Budgeting Model

The Public Strategies Group,led by reformexpertDavid Osborne, developed the POGapproach with the Locl<e administration a centralmeansof closing as the budget deficit.The administration identified set of ten kev rea

Budgeting Outcomes for was first employedby Gover_ sultsthat citizens expectfrom government: nor Gary Lockein Washington state in 2002 and was c a l l e d h e P r i o r i t i eo f G o v e r n m e n tp O G ) o d e l A t t h e t s ( m . l m p r o v e t u d e n t c h i e v e m e nn e l e m e n t a r y , i d _ s a it m time, Washington faced a potentialS2.4billion budget d l e ,a n d h i g hs c h o o l s . shortfall(approximately 10-15 percentof the size of lmprovethe qualityand productivitv our workof the general fund operating budget). Significant changes force. were neededto plugthe hole in the budget.In an effort a lmprove the valueof postsecondary learning. to makethe most of limited resources o and ensurethat lmprovethe healthof Washington citizens. the most importantgovernmental a functions were proplmprovethe securityof Washington's vulnerable erly funded,the Lockeadministration calledfor a topc h i l d r e n n da d u l t s . a to-bottomevaluation what services government of the provides and how. lmprove the economic vitalityof business indiand viduals.

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goods, lmprovestatewide mobilityof people, information,and energy.
a a

lmprovethe safetyof peopleand property. lmprove the quality of Washington'snatural resources. lmprove cultural and recreational opportunities throughoutthe state.

governmentacResultteams were formed to analyze tivities in each of the ten resultareas.In Washington, result teams were comprisedof six to eight subjectand matterexperts from stateagencies, were led by the Theseteamsanalyzed Officeof Financial Management. government activities according how well and ranked to as they achieved the desiredoutcomes outlinedin the goals. ten governmental The resultteamswere aidedby "guidance team" comprised leaders of of a L0-member The guidance the public,private,and nonprofitsectors. prothe team was taskedwith overseeing prioritization the cessand reviewing work of the resultteams. process, result In order to aid in the decision-making to teamswere eachgivena dollarallocation serveas an e . u p p e rs p e n d i n gi m i tf o r t h e i r p u r c h a s p l a n sW a s h i n g l regarding allocaseveral conclusions key the ton reached tion limit: process oftenmore meaningful is The prioritization is when the allocafion lessthan the amount currentlyspentin that area. creativity,keeps A dollar constraintencourages proposals groundedin financial reality, and forces priorities peopleto articulate and choices. by The priority rankingsestablished the result teams biennial executo developthe 2003-05 were then used were funded from the Activities tive budget proposal. limit wasreached. top of the listdown untilthe spending exampleof some of the Figure1 offers an illustrative priorities that were established. spending Washington state still usesthe POGmodel under the the demonstrating longevityof current administration, to in and its resilience changes leadership. the approach

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AMERICAN LEGISLATIVE EXCHANGE COUNCIL

STATE BUDGET REFORM TOOLKIT

Why Budgeting for Outcomes Works
Across-the-board cuts are generallyill-advised-they treat and affect the highestperformingand most importantservices equally with the lowestperforming and

reducewaste by identifying ineffective and duplicativeprograms services. and r Helps identify statutory limitationsthat obstruct more effectiveservicedeliverv.

@ ^"ro^^endqtion:States shouldadopt a BFo apleast important services. focusingon performance proachto bring sanity and fiscalsustainability the By to policymakers target their cuts-rid- statebudgetprocess. and priorities, can BFOintegrates planning, strategic ding taxpayers poor performing, of non-essential, and zero-based budgeting, and performance-based budgetnon-core services. ing into a workable,common-sense system that has been replicatedin numerousstate and local governpoliticians, Since special interests, bureaucrats and often ments.Statepolicymakers would be well-advised beto focuson narrowinterests priorities, and spending ignor- gin implementing similartransformation their buda in ing the largerpictureand the sacrifices necessary ac- gefingprocess ensure to to that taxpayer dollarsare spent commodatethose desires-perhaps the greatestben(BFO) efit of the Budgeting Outcomes for approach-is with maximum effectiveness and that the trade-offs differentcategories spending-especially a among of in

priorityandtrade-off simplymakingbudgetary decisions b u d g e t r i s i s - a r em a d ec l e a ra n de x p l i c i t . c clear to all. As a 2005 U.S.Government Accountability Office (GAO)report of innovativestate performance Additional Resources: budgeting effortsnoted: Qne Washingtonlegislator said thot IBFO]provided decision mqkers with proposed priorities in a clear and easilyunderstood conformat that encouraged structive debate. . . Legislotiveofficialssoid thotthe greotest contribution of [BFO]was thot it provides o strong, clear means of communicoting budgetory trode-offs to both decisionmakersand the public. The BFOapproachto budgeting has severalother advantagesover the traditional incremental"line-item" approach: o Focuses achieving on results and developing statewide strategies realizing goals, for instead focusof ing narrowlyon agency "silos." o lllustrates not only which programsare cut, but which programs funded. are . Presents trade-offs and cost-benefit decisions a in way that is clearand easyfor decision makers and

o

Osborne,David,TheNextCalifornia Budget:Buyq Price TheyAre Willing Results CitizensWant at

ing to Pay,Reason Foundation, Angeles, Los CA, qson.org/fi Ies/caIifornia_budApril 2010. www.re get_davi d_osborne.p df Osborne, Davidand PeterHutchinson, Price The of Government:Getting the Results Need in on We Age of Permanent FiscalCnsls, BasicBool<s, New York, Nl 2O04.w w w.psg.us/r ei nvention/ p og bforeinvent.html Officeof Financial Management, Prioritiesof Governmenthomepage, Washington State, Olympia, WA, November2010.www.ofm.wa.gov/budget/ pos/ U.S. Government Accountabi Office, rforIity Pe mance Budgeting: Stotes'Experiences Can Inform Efforts,ReportNo. GAO-05-21"5, L4, p. Federol Washington, D.C., February 2005.www.gao.gov/ new.items/d05215.pdf Evergreen FreedomFoundation,Next stepin priority-basedbudgeting,Olympia,WA, November18, 2003. www.effwo.arg/m ain/o rti cle.php?a rticle_ id=240&number=51

citizens aliketo understand. r Makes performanceinformation more relevant and usefulto budgetdecisions. . Allows decisionmal<ers reward programsand to activitiesthat best serve state goals and helps

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Thereis a widespread belief in the publicsector-and The item-reduction veto is similarto the line-item veto amongmanypolicymakers-that the statepopulation but it permitsthe governora further power: lt allows as i n c r e a s e sn di n c o m e si s e g o v e r n m e n tp e n d i n s h o u l d him or her to reducethe amount budgetedfor a para r , s g (it increase a roughlyequivalent at rate. This assumption ticularitem without striking the item altogether does privatesectormanag- not, however, governor increase amount). reveals key difference between allowa a to the ers and government managers. While it is true that the The power givesgovernors superioragenda-setfing augrowsasthe population burdenon stategovernment inthority. More importantly, has been an effective it tool creases and the economy fluctuates, is alsovital that to combatexcessive it spending. policymakers private learnfrom the sector, and continuthroughinnoallywork to reducetaxesand regulations govern vativeand entrepreneurial ment reform. In the privatesector,the cost of producing product a continually reduces over time because competition enefficiency their delivin courages companies increase to go costs down andconsumers ery of services. a result, As get bettervaluefor their tax dollars. The following tools will give legislators valuableideasto controlcostsand effi improvegovernment ciency.

uctionVeto The ltem-Red
observations from 47 states overa periodof nearly Using Mark Craincompared the potency 30 years,economist that can affect state spending. From 1950 to 2009, U.S.state and local government of various institutions grew 33 percentfasterthan the private for Crain factors, spending sector. After controlling variousdemographic veto.Among the from 2000to 2009,stateand localspend- examined impactof the item-reduction More recently, on the controls spending, item-reduction sectorby nearly90 per- all institutional the private inggrowthoutpaced governments veto stoodout. lts abilityto limit per capitaspending is Stateandlocal cent.Thisis not sustainable. fivetimesasgreatasthat of the other institutions. sectorfor their resources nearly dependentirelyon the private the secoutpace wealth-creating and cannotcontinually s h a a looking ways S t a t e n d l o c a l p e n d i n g a sb e e ng r o w i n g t a n u n s u s for Statepolicymakers tor of the economy. According the GAO,"state to spending havea numberof options. tainablepacefor decades. to limit government long-termfiscal position will means limitingspend- and local governments' of One potentand little-discussed veto." ing is the "item-reduction steadilydeclinethrough 2060 absent policy changes." that might helpstatesavertfiscalcriOne policychange

reduction veto. Likethe president,every governorin the nation pos- sisis a line-item Unlike the power to veto piecesof legislation. sesses veto Recommendqtion: Adopt a item-reduction in the president, howeve; governors all but four states policy. possess line-itemveto, allowingthem to reject cera the entire pieceof of tain sections billswithout striking just twelve states, however, governor the In legislation. veto power:the itempossesses even more-potent an veto. reduction

O

Additional Resources:

Stotes.' lnstitutions, Policy, Crain,Mark, Volatile ond the Performanceof Americon Stote EconoPress, of rnies, Ann Arbor,Ml: University Michigan

1B

AMERICAN LEGISLATIVE EXCHANGE COUNCIL

S T A T EB U D G E T E F O R M O O L K I T q R T

2003. www.p ress. mi ch.edu/pdf/1a7 2 t L303 u 8_fm. pdf Crain, Mark andJames Miller lll, Budgetpro_ C. cessond Spending Growth,William and Mary Law Review no. 4, pages1021.-46, 31, Williamsburg, VA, 1990.http://sch olarship.Iow.wm.edu/cgi/ vi ewcontent. cgi ?orticl e= L9g &co ntext=w Ir 3 m Government Accoun[ability Offlce, |rurc and Local Governments:FiscalpressuresCouldHove tmplico_ tionsfor Future Deliveryof lntergovernmentqlpro_ grams,"Washington, D.C., 2010,www.goo.gov/ new.items/d10899.pdf

Mitchell,Matthew, Stote SpendingRestroint: An Analysis the Poth Not Token, of MercatusCenterar George paper, 4g, MasonUniversity Worl<ing no. Arlington, VA.,August 20L0.w ww.mercotus.o rg / p ubIicoti on/sto te-s en di ng-restr oint p New,Michael proposition73 ond StoteBudget , Limitqtions: PosfSuccesses Future Options, and cato Institute, washington, D.c.,2003.www.cato. or g/ p ubs/b ri efs/ bp 83.p df

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r ltem-Reduction VetoConstitutional Amendmenr

i9

"Wemight hopeto seethefinances the (Jnionas clear and intelligibleas a merchant's of books, so that every memberof Congress and every man of any mind in the Union should be able to comprehend them,to investigateabuses,and consequently, control them." to - ThomasJefferson

Createa Transparent BudgetWeb site
At some point most citizens wonde[ "Justhow when, and where does governmentspend our tax dollars? What do our elected representatives to accomplish want when they spendpublicmoney, and what results acare t u a l l ya c h i e v e d ? " C o n s i d e r i ns t a t e l a w m a k e r s i l l s p e n d b i l l i o n se a c h g w questions whichanytaxbudgetcycle, theseare basic to payershouldbe able to get answers quicklyand conveniently. This is especially true sincemoderntechnology

citizens where their tax dollarsare spent and for what purpose.Among the types of informationtypicallyinc l u d e d n s u c hs i t e s r e : o a r Stateexpenditures fund or account. by . Expenditures agency, program, subprogram. by and . Staterevenues source. by . State expenditures budget by objectandsub-object. r State agencyworkloads,caseloads, and performance easurements. m o Historical information statespending well as on as access stateservice to contracts.

makesaccessing large amounts of informationeasier States easily can implement transparent budget Websites than ever. cost. Thestateof Nebraska placed expendiat minimal its Since adopting modellanguage promotebudget to transparencyin 2007,ALEC has witnessed dozensof states cy at minimal costto taxpayers. According the sponsor to pass comprehensive legislation improve transpar- of the legislation, software buildthe Web siteonly to the to turesonlinefor 537,000, down from a previous 51.3millionprice tag.Oklahoma implemented budget transparen-

ency and accountability establishing by central, search- cost58,000. The costof suchWeb sitesis minimal,andalabledatabases government of expenditures. These Web mostolwoysoverstated.Inflated estimates cost occurfora siteshavestreamlined the process budgetresearch, few reasons, of mostcommonly, lackof information a a and reduced burdenof paperwork stateagencies, the on to "business-as-usual." and desire killthe project it threatens as generated millionsof hits,demonstrating publicinreal terestin suchan effort. Transparent budgetWeb sitesare also an assetto policymakers and agencies because they identifyand elimi"Taxpayer purposeof ALEC's The Transparency nate wasteand inefficiencies their expenditures. model in For Texas Act" is to providea searchable budgetWeb siteto show example, Comptroller Susan Combs identified $8.6

AMERICAN LEGISLATIVE EXCHANGE COUNCIL

STATE BUDGET REFORM TOOLKIT

million in savings a direct resultof the implementaas tion of Open BookTexas, database a similarto the one calledfor in ALEC's Taxpayer Transparency StreamAct. g t l i n i n g o v e r n m e na n d e l i m i n a t i n w a s t e f us p e n d i n gs g l i much easierwhen financial data is provided a convein n i e n ta n d u s e a b l eo r m a t . f It is importantfor taxpayers havedetailed to information about how their moneyis spent.ALEC's modelTaxpayer Transparency codifies fundamental Act this right,making t h e d a t as e a r c h a b la n d e a s i l y v a i l a b lte a n yt a x p a y e r e a o w i t h a n l n t e r n e t o n n e c t i o n .h i sm e a n s h a t t h e s i t ea l c T t lowsusers downloaddatafrom the site,and sort the to figures they seefit, free of cost.lt is imperative atas to low taxpayers quicklyand easilynavigate masstve to a a m o u n to f c o m p l e x x p e n d i t u ra n d r e v e n u e a t a .T h e e e d

costefficiencies, students get morebangfor their can parents' buck, ushering a neweraof accountabilitv in in education budgets. @ ^"ro^rendation:States should develop searcn-

ableonlinebudgettransparency toolsfor stateand local budgets. -l Q Additional Resources: o TheSutherland lnstitute,Tronsporency in Government, Salt LakeCity,UT,2008.www.sutherlqndinstit ute.org/ up Ioqds/tra nspqr encying over nment.p df . www.konsasopengov.org . www.fiscalaccountobiIity.org . www.SunshineReview.com . www.buckeyeinstitute.org

movetowardstransparency governance inevitable, ^ in is and the soonerstatesdecideto embraceit, the better Uit ALEC Model Legisldtion: off thev will be. . Taxpayer Transparency Act r P u b l i c c h o oF i n a n c i a lr a n s p a r e n AV t S l T cc PublicSchoolDistrict o Transparency Government and Accountabilitv Act

Transparency

Adopt a72-HourBudget
Not only do educationbudgetsconstitutea masstve Timeout a n n u a le x p e n d i t u r f o r a l l s t a t e s b u t t h e y a l s op l a ya n e , importantrole in shaping the next generation Ameri- A detailedreviewof budgetpriorities, partiesother of by cans.Parents, voters,and taxpayers have a vestedin- than just the budget-writers, improves transparency the terest in specificinformationabout how publicdollars and accountability state government, of and may also are spent educating the state'schildren. ALEC's model improve the qualityof proposed legislation. P u b l i c c h o oF i n a n c i a lr a n s p a r e n Ay t m a n d a t e t h a t S l T cc s p a l l s c h o o d i s t r i c t s u t t h e i r e x p e n d i t u r e sn d r e v e n u e s To help facilitatepublicinvolvement, l a legislators should o n l i n ei n a s e a r c h a b ld a t a b a s a v a i l a b lfe e eo f c h a r g e , adopt a 72-hourtimeout periodonce a tax or spending e e r increasing accountability the state'seducation in fund- bill is introducedor amended,and before hearings or jump forwardfor legislative ing system. This represents massive a votesoccu r. transparency and accountability, sorting electronic as datais infinitely more user-friendly than sorting through Consider fact that.a state's the combinedbudget(opert h o u s a n do f p a g e s f b u d g e t o c u m e n t s . s o d Thebill alsocontains privacy protections specific with reating, capital,and transportation) can be hundredsof pageslong.Despite the lengthand complexity these of

d o c u m e n t s , e a r i n g a r e u s u a l l y e l dt h e s a m ed a yt h e h s h spectto what datais allowedto be displayed the site. b u d g e ti s i n t r o d u c e da n d t h e b i l l i s a m e n d e da n d e n on , The site is to containdata that is alreadypubliclyavail- a c t e dw i t h i n a d e q u a ttem e f o r m e a n i n g f u l u b l i ci n p u t . p i able under the state'sfreedom of informationlaws.lt Allowing an opportunityfor a detailed review by the simplymakes that information easier obtain,stream- publicprior to hearings votes on budget billswould to or liningthe process parents for and taxpayers without any h e l p i n c r e a s e u b l i ct r u s t i n g o v e r n m e na n d e n n a n c e p t violations privacy. empowering of By officials identifv to a c c o u n t a b i l ifto r t h e s p e n d i n g e c i s i o nb e i n gm a d e . y d s

WWW.ALEC.ORG

This would allow lawmakers and the public at least a three-day periodto reviewand calmlyconsider prothe posedbudget,new taxes, new spending or beforehearingsor final votingoccurs. Too often, state government has approved wasteful spending big spenders as exploitits opaqueness. enBy suringproperconsideration legislation of beforepassage, it helpsto increase the publictrust in government and enhances respect the legislature ensuring the for by that its operation conducted is with the openness, order;and dignity befitting the state. This "good government,,bill nudgesthe state in the right directionby fosteringpuolic participation the legislative process in and allowsthe

Timeout, Janua 2009. www.effw a.org/ moin/ ry orti cIe.p hp?arti cIe_id=2 644

E,
Ut, ALECModel Legislotion: r The 72-HourBudgetReview Act

Require Fiscal NotesBefore Actionon Spending Bills
Fiscal notes providevaluefor legislators the public and by forecasting revenuechanges proposedlegislation in However, manytimes billsare introduced and voted on beforethe data on fiscalrepercussions made availare ableto thosevotingon the bills.Stateofficials can eas-

opportunityfor detailedreviewby interested parties. Citi- ily feign surpriseat the state of the budgetyhen it is zensdeserve legislators havethe time for a detailed obvious who that the long-term budgetforecasts haveeither reviewpriorto hearings voteson legislation. or beenunseen utterlydisregarded. or Stateofficials the publicshouldknow the full impact and proposal of a spending beforeany action is taken.Bills proposing increased spending should not receivehearingsor votesuntil a completed fiscalnote is available. The purposeof this recommendation clear-profliis T h e b i l l s s h o u l db e m a d e p u b l i c l y v a i l a b l em e a n i n g gatespending a , billscannotbe pushed throughlegislative that the billswill be postedon the legislature's site bodieswithout the full fiscalconsequences Web beingmade and publishedin a bill report, committeereport, and/ knownto legislators. is in linewith several This other recor conference report.The 72-hourtime periodexcludes ommendations that in totality demand more accountSaturdays, Sundays, and holidays, exceptwhen the leg- abilityfrom officials both sides the aisle. on of islature in session sucha day.Amendments is on offered t o t h e b i l l sw i l l n o t b e c o n s i d e r eu n l e s sh e y a r e m a d e Washington d t stateis moving towardrequired fiscalnotes. publiclyavailable hours prior to any vote (excluding Forthe time being,fiscalnotesonly haveto be created 24 Saturdays, Sundays, and holidays). Because a built-in when requested of and they are not alwayspreparedby exemption "emergency" for legislation, there is no cred- the time a hearing vote is held.Thisgradually or evolving ible argumentagainstthe "72-HourBudgetTimeout." access the fiscalimpactof legislative to acfionis unprecpublicfunds,those e d e n t e d n d c o m m e n d a b l e . lf a lawmaker wantsto appropriate a footingthe cost haveeveryrightto a detailed, deliberative reviewby their electedofficials. should adopt a 72@ *"ro**endqtion: Legislators hour timeout periodfor all future budgetand tax bills. .A @ . Additional Resources: Gunn,Amber,Evergreen Freedom Foundation, Olympia,WA, Lawmakers Needa 72 Hour Budget Recommendqtion.' Requirecomoletedfiscalnotes beforebillscan be actedon.

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r Fiscal NoteAct

22

AMERICAN LEGISLATiVE EXCHANGE COUNCIL

Adopta State Hiring Freeze

C o m m o n w e a l to f V i r g i n i a v e r $ 5 0 0 m i l l i o na y e a r h o o r m o r e t h a n 5 1 b i l l i o nd u r i n gt h e t w o - y e a rb u d g e t .

During a budget crisis,all state agencies will argue their servicesare essential. These cries will become F o r m e A r i z o n a o v e r n oJ a n e t a p o l i t a nto o ka s i m i l a r r G r N o even louder if layoffsare discussed. Unionsand other actionin February 2008, freezing statepositions all except special interests lineup against will layoffs and cry loudly those directly involvedin public health and safety or against disrupting statusquo.Thiscanbe avoided the by collecting and investing staterevenues. that time, the At i m p l e m e n t i na h i r i n g r e e z e n d a n a l y z i nw h i c hn e e d s workforce g f a g affected the freezenumbered38,954fullby time employees. that September, By Gov.Napolitano's office reportedthat the hiringfreezehad resultedin a Adoptinga flexiblefreezeon state hiringwould reduce 5.3 percentreduction the numberof jobs coveredby in state employment growth while allowing agency the freeze, and a reduction ofthe overall stateworkforce managers maintain to existing staffi levels- prioritizing of 2.8 percent. ng n e w h i r i n g w h e r e i t i s m o s t n e e d e d ,w h i l e e n s u r i n g the overallsizeof stategovernment doesn'tgrow.This @ ^"ro^^endqtion:Adopt a state hiring freeze approach maintains the flexibilitynecessary agency e n c o m p a s s i n gl d e p a r t m e n t s . for al managers focuson the most importantprograms to and maintain adequate service levels. Duringa temporaryfreeze, the stateshouldconductan audit assessing the need for the budgetedpositions. Statesshould considerfreezingall positions,not just those unfilled today. These are "vacancysavings," in other words,jobs havegone unfilled. Therehavebeen arethe most pressing.

(fi|

orrrrodet Lesistation

r Commission Economy on and Productivitv State in Government Act

ReformStatePensions

no layoffs. exception this couldbe if a department ln recentyears, An to stategovernments haveencountereo offers layoffexisting to employees be replaced new a f u n d i n g r i s i sn t h e i rp e n s i o n l a n s o r p u b l i c to by c i p f hiresthat are lesscostly. Substituting highercost labor employees. crisis the stateshasresulted This in from for lowercostlaborcouldsaveagencies moneyand have manyfactors, including: m i n i m a il m p a c to n t h e i ra b i l i t y o p r o v i d e e r v i c e s . t s In 2008, the Thomas JeffersonInstitute and Reason Foundation foundthat simplynot fillingmorethan 7,600 positions(i.e.,not public-safety, non-critical university faculty,and management-related positions) budgeted, but unfilled,at the beginning 2008 would savethe of o Escalation healthcarecosts. in r Significant losses the stockmarket. in o Costly pension and health benefits provided in plans. defined-benefit r Public employees retiringearlierand livinglonger.

23

W W W . A L E C . O R G

Reduction and postponement empldyercontriof p b u t i o n so t h e p e n s i o n l a n s . t Many state pension plans are fundamentally flawed.

t

CaliforniaPensionsUnderfundedby 500Billion, Stanford University, Stanford, April j.I,2O1O. CA, www.si er rasun.com/o rticle/ 2010041" NEw s/ 100 1/ 4 19995/ 1" 66& Parent ProfiIe=705 1 0

Usingmore realistic assumptions regarding the rate of ^ return on assets, well as assumptions as regarding Model Legislation: the Ut, ALEC r ALEC's actuarial valueof liabilities, is highlyunlikely it that these Statement Principles Stateand Local of on planswill achieveactuarialbalance over the amortizaGovernment Pension and Other post Employment tion period.In fiscalyear2008,the stateshad a 1 trillion Benefit(OPEB) Plans gapin funding heir pension lans. urthermore, dollar p t F pension systems likely experience are to significant fundRestructure StateRetiree ing shortfalls future years, in evenif the economy recovHealthCarePlans ers and financial marketsstabilize. Thesefundingshortfallswill imposea heavyburdenon futuregenerations. Currentstate retireehealth care plansare also fiscally

unsustainable. Recent estimates suggest that the states Recommendations reform state pensionsinclude have5558 billionin unfundedretireehealthcareliabilito cappingoff the existingpensionsystemand forming a ties for current and future benefits,according the to defined-contribution system for all new employees. Center Stateand Local for Government Excellence. of As Statepolicymakers alsoconsider can capping pension fiscalyear 2008,the Pew Centeron the Statesreports off ballooning stateemployees' in finalyearsof service. Ad- that stateshad only funded 532 billion,or 5 percent, of policymakers also requireincreased ditionally, can em- the total costfundedfor retireehealthcareliabilities. ployeecontributions, limit retireeand rehirecosts,and raisethe retirementage for new employees. Utah also provides excellent an casestudyin successful statepension reform.

@

^"ro*^endqtion:Everything should on the tabe

ble,including changes benefits in and increased employee contributionrates,as well as employercontribution rates. Most importantly, states shouldconsider replacing State and local governmentOther Post Employment plans with defined-contribution Benefit(OPEB) plansfor publicemployees generally their defined-benefit are

o

(401(k) for style)plans new employees. Additionql Resources: Poulson, Barryand ArthurHall, StafePension

i n w o r s es h a p e h a n t h e i r p e n s i o n l a n s . o s t g o v e r n t p M mentscontinueto fund these OPEBplanson a pay-asyou-go basis. meet Governmental To Accounting Stangovernments dardsBoard(GASB) accounting standards,

p p FundsFallOff a Cliff,AmericanLegislative Exchange m u s tn o w s h o wt h e u n f u n d e d e n s i o n l a nl i a b i l i t i ea s s i n t h e i rf i n a n c i a lt a t e m e n t s .o rO P E B l a n sl,i a b i l i s p Council, Washington, D.C., January, 20LO. debt www. F aIec.org/A M/Temp Io te.cfm ?Section=Stote_Pnties only need to be recognized a footnote.Governin e sion_Funds_F II_Off_a_CIiff&Te p Iote=/ CM/C ono m mentsmust alsomeet the 3O-year time framefor elimitentDisp lay.cfm&Contentl D=72363 Unfunded TeacherPensionPlans:lt's WorseThon YouThink,The Foundation Educational for Choice Indianapolis,N, April L3, 2OIO. I www.edch ce. oi -Te cher-Penp or g/ Reseor ch/ Re orts/ Underf unded o u si on -PIon s--* s-Wo I rse-T an-Yo -Thi nk.aspx h natingunfundedliabilities pensionplans,though not in plans. in OPEB Fewstateand localjurisdictions meetare amortization ingthe 30-year standard eitherpension for plans. Many of thesestategovernments or OPEB would have to double their actual contributionratesto well of to over20 percent salaries meet this standard.

24

AMERICAN LEGISLATIVE EXCHANGE COUNCIL

STATE BUDGET REFORM TOOLKIT

It is likelythat unfundedliabilities stateand localgovin p e r n m e n p e n s i o n n dO P E B l a n s r eo v e r$ 2 t r i l l i o nT a x t a a . payers no longerwillingto bearthe increasing of are cost theseplansin the form of higheremployer contribution government ratesor decreased services. They are demanding reforms that will bringtheseplans into linewith pension andOPEB benefits offered the private in sector. States mayno longer ablefulfilltheirhealthcareprombe ises retirees to unless system restructured. the is Typically, statesfund stateemployee retireehealthcare plansby payingcurrentretirees' medical expenses they occur. as States that offergenerous healthcarebenefits maystruggleto affordthe massive pricetag in the nearfuture. Unlikepenslonreform,state lawmakers havea greater opportunity to successfully restructureretiree health carebenefits. Recommendations reformstateretiree to e h e a l t hc a r ep l a n s n c l u d e x a m i n i nw h a t p e r c e n t a go f i e g publicemployees eligible retirewithin the state's are to the next five years.Other recommendations reform for

Washington, D.C., July2009.www.slge.org . Stoteand LocalGovernment RetireeHealth Benefits-Liobilities Are LargelyUnfunded,but Some Governments Taking Are Action, GAO, Washington, D.C., November 2009.www.gao.gov/new. items/d1061.pdf r Barryand Arthur Hall,PublicEmployee Poulson, 'OtherPostEmployment Benefit'P/ons, American Legislative Exchange Council, Washinton, D.C., January20L!. www.alec.org

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G o v e r n m e n t e n s i o a n d O t h e rP o s tE m p l o v m e n r P n B e n e f i( O P E B ) l a n s t P

r ALEC's Statement Principles Stateand Locar of on

Eliminate Positions Vacant More ThanSixMonths

i n c l u d e i n c r e a s i n g m p l o y e ec o n t r i b u t i o n so h e a l t h e t governance oversight, careplans,improving and lower- S t a t ep u b l i ce m p l o y m e n lte v e l s r e m e a s u r e d s i n ga a u ing health care benefits, and increasing retirement number of differentmethods.One measure,typically the age.State lawmakers can also follow the reformsthat used by agency managerswhen requestingbudget l d a h oa n d I n d i a n a e c e n t l y a d e ,u s i n g h e s es u c c e s s e s increases, the number of positionsfor an agency r m t is as their guideto a more sustainable retireehealthcare to meet its desiredstaffinglevel. In many cases, this model. positions measurement includes that have beenvacant for a longtime. Typically, hundreds unfilledpositions of

Recommendqdon.' Freeze defined-benefitOPEB in stategovernment existon paper. plans, plans and replace them with defined-contribution parfor new employees. approach to offeroptional is One (HSA) stateworkin Accounts for ficipation Health Savings ers.Indiana's experience beenhighly has successful, with plans-with 70 percent stateworkers of choosing HSA the lf a positionremains openfor morethan six months,it is to the reasonable assume agency do itswork without can in By an employee that position. eliminating positions all for that havegone unfilled six months,the statecan cut payrollin areasnot criticalto publicsafetyor budgeted the basic operation stategovernment. of will This recommendation bring more accuratebudget informationand lower personnelcosts for providing for services the taxpayers. @ ^"ro-^endation;Create a trackingsystemwherethat is vacantfor more than six months by any position

o

Indiana's taxpayers millions the process. in saving Additional Resources:

PewCenteron the States, Promises WithA Price, Washington, D.C., April 30, 2008.www.pewcenteronthe state org/u p IoadedfiIes/ Promises%20 s. with%20o%20Price.pdf

At o Crossroads: Financingand Futureof Heolth The

Benefits Stote and LocalGovernmentRetirees, for Government Excellence. i s e l i m i n a t e d . Center Stateand Local for

tR

WWW.ALEC.ORG

I-/l

Model Legislation Ult ALEC t e n m a n a g e r s i m p l yd o n o t h a v ea c c e s so t h e i n f o r _ t o Commission Economy on and productivity State m a t i o nt h e y n e e dt o m a k e i m p o r t a n t in decisions_such Government Act a s w h e t h e rt o p r o v i d e s e r v i c e n _ h o u s o r t h r o u g h a i e a

DelayAutomaticpay Increases
Duringan economic downturn,many peoplein the privatesector facea reduction payorthe loss in oftheirjobs, whilegovernment workers assured are emplovment with

contractor, whether the cost of a serviceoutweighs or ,,How the benefits. simply, question, Put the manystate e m p l o y e e s o e s i t t a k e t o c h a n g e l i g h t b u l b ,a n d a t d a what cost?" often cannot be accurately answeredin g o v e r n m e nb u r e a u c r a c i e s c a u s eh e y a r e n o t s e t t be t up to answert. i

regularraises and generous vacation, health,and retire_ The true cost of any activityin government is difficult, ment benefits. Thisis an unsustainable personnel policy if not impossible, accurately to measure because agency that virtually ensures steady, annual spending increases. budgetstypicallydo not capturethe full costsof con_ ductingthat activity. example, For some of an agency,s In times of deficit,policymakers shoulddelayautomatic overheadcostsmay be coveredby a separate general payincreases stateemployees for untilthe stateachieves services (e.g., agency printing, energy, informatron tech_ fiscal sustainability. This decisionwill certainlybe un- nology, payroll, humanresources, etc.). popular with the publicofficials that are having their pay increases delayed. However, duringa time of financial in_ Activity-based costingis a method of cost analysis de_ privatesectoremployees solvency, don,tget the benefit signedto describe the cost elernents a all of certainacof automatic pay increases either. the legislature lf wants tivity,not just the majorfactors labor; like fringebenefits, to avoidthis problem, must carefully it monitorthe bud_ supplies, depreciation. the privatesector, and In activity_ get to prevent this emergency stepfrom occurring. basedcosting accounts everyhour of work and each for p i e c e f e q u i p m e nitn v o l v e dn a p r o j e c t i,n c l u d i n c a p i _ o i g The budgetary benefits this decision clear. of are Howev_ tal, facility,and overheadcostsfor an organization, aler, attentivevoterswill noticeother benefits. opting l o w i n gm a n a g e rts By o m a k ei n f o r m e d e c i s i o na b o u tt h e d s to delaythe automatic payincreases, policymakers snow useof scarce resources. that both the publicsectorand the privatesectortake the budgetcrisisseriously. alsoshowsthat publicsec- Activity-based lt costingis not a novel,untested concepr. tor employees held accountable don,t brazenlv It hasproveneffective cities are and in and states across the na_ p l u n d e rh e p u b l i c u r s e . p t tion, saving moneytime and time againwithout forcing legislators compromise the qualityof service to on thev *"ro^.e ndstion:policyma shoulddelavauro- provide their constituenrs. kers @ for matic pay increases stateemployees for until the rising costs government broughtundercontrol. of are I n 1 9 9 2 , I n d i a n a p o l iM a y o r S t e v e nG o l d s m i t h m p l e _ s i ^ mentedactivity-based costing agencies in throughout the Utt ALECModel Legislation: city.Using new analysis the tool,cityworkers reduced the r Commission Economy on and productivitv State costof plowing in snowfrom SttZ per mileto S3gper mile Government Act and cut the costof sealing cracks alongthe highway from p S 1 , 2 0 0 e r l a n e - m i lte $ Z : Z p e r l a n e - m i l e . o

O

Adopt Acrivity-Based cosring

In another example, activity-based costinghelpedthe

lowa Department Transportation of generate5200,000 Agency managersconsistently face difficult decisions in new revenue 1996and reduced time needed in the to about the best way to administerstate services. Of- paintstripes statehighways. developing compre_ on By a

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AMERICAN

LEGISLATIVE

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COUNCIL

S T A T B U D G E TE F O RT O O L K I T E R M ffi
hensivecost analysis three major activities-cenrer The fiscal impact of of Commission,s recommendations l i n ea n d n o , p a s s i nm a r k se d g e - l i nm a r k i n g s ;n dc u r b , over time g ; e a has increased governmentefficiency. Since i s l a n d ,a n d m i s c e l l a n e o u s a r k i n g s - t h e D e p a r t m e n t the sunsetprocess m began 1979,5g stateagencies in have reduced unproductive down-timeand began performing b e e na b o l i s h e a n da n o t h e r 2 a g e n c i eh a v eb e e n d 1 s con_ work for other governments duringthe time they saved. solidated. Basedon reviewsconductedbetween 19g2 and 2009,the Commission estimates potential27_year a ^uro-^endotion..Lawmakers can improvetlie @ r e v e n u e a v i n go f a p p r o x i m a t e$y g 3 . 7 i l l i o n h r o u g h s s l7 m t performance stateagencies implementing of by activity_ the sunset process,compared with expenditures of basedcosting. 528.6millionfor the Commission. Hence, everydolfor lar spenton the sunsetprocess, Texas taxpayers havere_ Adopta Sunset Review ceivedS27in return.

Processfor State Agencies, Boards,and Commissions

Once created,governmentagencies programsare or rarely reevaluated see if circumstances-oragency efficiency to improvements, the like.Notably, Texas and the performanceitself-justify their continuedexistence. Legislature hasapproved largemajorityof the recoma Naturally, promotes this government "sprawl,, spiral- mendations the Sunset and of Commission over time. lf the i n gp u b l i c e c t o r o s t sI.n t h e a b s e n c o f a n ym e c h a n i s m Commission s c e recommends continuation an agency, of the to continually prune away at government, is typically Commission it must providedraft legislation the legis_ to far more difficultto shut down an agencyor program latureto continuefor up to L2 yearsand correctother than it is to createit in the first place. problems identified duringthe sunsetreview. Underthe Texas system, agency automatically an is abolishedunless passes continuation the legislature a bill. lf an agencyis abolished, state'sSunsetAct provides the for a one-year "wind-down"periodto concludeits operations and transferall propertyand records an ap_ to propriate stateagency. Other statesshouldcreatea similar; permanentsunset review commission recommendways the state can to cut costs, reducewaste,and improveefficiency and service levels. Thiscommission shouldreview20 percentof stateprograms eachyear, assess importance each the of agency's functions, and recommend the elimination or Luckily suchmechanisms exist,one of the more power- consolidation unneeded outdatedprograms. of or ful beingthe useof a "sunset reviewcommission.,,Texas offersa powerfulexample what a functional, of effective Not only coulda sunsetreviewcommission identifydus u n s e tc o m m i s s i o n a n a c h i e v eT h e T e x a s e g i s l a t u r e plicative c . L services and programs that haveoutlivedtheir e s t a b l i s h ea 1 2 - m e m b eS u n s e A d v i s o r y o m m i s s i o n purpose, could also help the legislature d r t C it identifylowin 1,977 conduct regularassessments more than priorityprograms to of that the statemaywishto fund during 150stateagencies determine: if eachagency still the luxuryof good economic to (a) is times,but that are not imn e e d e d a n d ( b ) i d e n t i f ya n d e l i m i n a t e a s t e ,d u p l i c a - perative-and thereforenot justified-in times , w of fiscal tion,and inefficiency stategovernment. in malaise. With manystates facingcurrentbudgetdeficits

Eachsunsetreviewmust includea recommendation to either abolishor continuethe agency, and it may in_ clude additionalrecommendations policy changes, for

,.]

WWW.AI,EC.ORG

, a d o p t e dp o l i c i e sa n d S 4 1 m i l l i o ni n a d d i t i o n a ln e a r , islatorsand the governorshouldtake this opportunity term elficiency improvements. Florida, auditof the In an to implementa strongsunsetreviewprocess reevalu_ budgetsystemhelpedthe legislature to and the governor ate the government's corefunctions and streamline the enact changes that will significantly improveefficiency. statebudget. performance In Texas, auditsover an eight-year period identified total savings 58.f billion. of *"ro^mendation:States shouldcreatea perma@ nent sunsetreviewcommission recommend to waysthe ^"ro^.endation:The stateauditor(or similarpo@ statecancut costs, reduce waste, and improve efficiency sition)shouldbe giventhe authorityto conductregular, and service levels. performance comprehensive auditsof stateagencies. Additional Resources: Texas Sunset Advisory Commission, Austin, TX, 2O'J.O. www.sunset.stote.tx.us/ Guideto the SunsetProcess, Texas Sunset Advisorv Commission, Austin, December TX, 2OA9. www. sunset.stote.tx.us/ g ui de.p df

and ongoing fiscalchallenges a sluggish in economy, leg-

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\Q Ad d itiono I Re u rces so : o Performance Audit Essentiols, Evergreen Freedom Foundation, Olympia, January 2003. WA, 20, www.effwo.org/ main/a rticle.php?orti d e d=260&number=5j. _i c Performance reviews(audits)top DLC priority,Ever. greenFreedom Foundation, Olympia, WA,August 4, 2004. ww w.efJw org/ main/ arti cIe.php ?a rticIe o. id=S24&number=5L
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orr,*odetLegistation:

o Legislative Budget Audit Commission Act

Allow the StateAuditorto Conduct Performance Audits
ln many states,legislative audit committees conducta limited number of performance audits; howeverithey typicallyaudit only specific programs directedby the as legislature, significantly restricting effectiveness. its Audit assignments also face conflictsof interestbecause committee staffmustscrutinize programs that legislators initially approved and wishto continue fund. to

Ull

ALEC Model Legislotion: . An Act Relating Performance to Auditsof GovernmentalEntities

Establish System a of Independent Recovery Audits for lmproperPayments of Taxpayer Funds
A contingency-based recovery audit is a powerfulman-

agement tool that helps control costs andreduce looming Performance auditsare a provenway to savetaxpayer deficits findingand recovering by publicfunds. misspent money.Performance auditsconsider the economy, effi- Therecovery audittypically analyzes pastthreeyears the ciency, and effectiveness ofthe program agency or being of expenditures. Contingency-based recovery auditsproa u d i t e d s o p p o s e d o t h e n o r m a lf i n a n c i ac o m p l i a n c e ducea positive, a t l no-risk outcomefor taxpayers, since the a u di t s . performed a contingency work is on basis with no upfront cost to the government, need for an approprlation. or The stateauditorshouldhavethe discretion conduct to performance comprehensive auditson a routinebasis to An independent recovery audit reviews accountpayall identifywaste and overlapping regulations, ensure ablesin order to identifyimproperpayments and and subthat taxpayers gettingthe bestvalue. are mitsthoseclaims the government its approval to for and collection. Onceclaimsare approved, recovery the audit In Colorado,performanceaudits completed in :une firm helpsthe clientcollect the improperpayments due. 2000 identifledover $12 million in savings from easily Private sectorretailers initiated contingency the recovery

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AMERICAN LEGISLATIVE EXCHANGECOUNCIL

STATE BUDGET ITEFORMTOOLI(IT

^ ModelLegislotion: audit process the 1"960s improveinternalcontrols Ull ALEC in to r AnActRelating Recovery process. To Audits GovernFor overthe payables With the advent computerof
ization, the process spreadto a greatmany private-sector firms. Especially times of budgetshortfalls, in state and localgovernments would be wise to initiaterecove r y a u d i t so r d e v e l o p e g i s l a t i otn r e q u i r e u c ha u d i t s . l o s

mentOverpaymentsTax Of Dollars

Embrace Expanded of the Use Privatization Competitive and Contracting
"lt is better for the public to procure at the mqrket whateverthe marketcan supply;becouse there it is by competition kept up in its quality, and reducedto its minimum price." -Thomas Jefferson, 1808 of Thoughthere are many causes states'currentfiscal factor is that governments all woes,one contributing at h i o a l e v e l s a v ee x p a n d e dn t o h u n d r e d s f c o m m e r c i a l c that service tivities. Manyof theseare supportfunctions most of these functionsare However, the bureaucracy. In not inherentor uniqueto government. fact,they can in be found in the YellowPages towns all over America.

those of us who believe that audit is committing Thistrend shouldconcern A stateoptingto initiatea recovery performingits core should be focusedon Stateshavebeen government to fixinga long-termbudgetproblem. well and shouldnot be in competition with its year through im- functions losinglargeamountsof money every functions. manyarIn to p r o p e rp a y m e n t sT h e s ea r e d o l l a r s h a t w i l l n e v e rb e own citizens performnon-core . t returnedto the state treasuryunlessaction is taken. Dollarslost more than three years ago are gone forservice delivery, eas of government stateand localgovcuttinginto the business busiof ernmentsare literally

ever, but by acting quickly,the state can recoup im- n e s s . proper paymentsand hopefullyset in placecorrective of of In fact,if the experience other statesholdstrue, then actions designedto reduce the future recurrence policymakers reasonably of can assume that thousands an A such losses. GAO report indicates improper payin are that are comment rate of 2.9 percentto 3.9 percenton all federal stateemployees engaged activities by mercialin natureand couldbe delivered privatesecS f s p e n d i n gC e n t e r s o r M e d i c a r e& M e d i c a i d e r v i c e s . lden(CMS)started testing recoveryauditsfor Medicarein tor firmsat a lowercostand higherlevelof quality. participated these auditswith find- tifyingareaswherethe privatesectorcan performgovin 2006.Six states and at a lower cost million. An independentrecovery ernmentfunctionsmore efficiently ings totaling SSOO p a y m e n t a n d h e l pc o l l e c t h e can be an importantpart of the budgetsolution. s a u d i tw i l l i n d e n t i f yh o s e t in the budgetprocess the short-run. funds,thus helping refers a broadarrayof stratto The term "privatization" governmentsincreasingly employ to take Statesshouldgive authorityto egies that Recommendatron: of of comprehensive advantage the capabilities the privatesectorand firms to conduct regular, independent thereby providebettervaluefor the public.lt coversa auditsof stateagencies. recovery contractfrom a simpleoutsourcing spectrumranging a firm to for example,contracting privatelandscaping

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mow the lawn aroundpublicbuildings-to sales govof joint public-private ernmentproperties and to complex, venturesto deliverassets(suchas toll roads,bridges, a n d p u b l i cb u i l d i n g st)h a t a r e g o v e r n m e n t - o w n e d t bu are financed,built, and operatedby the privatesector u n d e rl o n g - t e r me a s e s . l Policymakers and governmentadministrators turn to privatization achieve numberof different goals: a to

a few months a year.Contracting allowsgovernm e n t st o o b t a i na d d i t i o n ah e l pw h e n i t i s n e e d e d l so that services uninterrupted residents. are for c Timeliness: "Timeis money"if you area contractor footingthe bill,or if your contractwith the city or penalties delays. stateincludes for Contractors can recruitadditional workersor provideperformance b o n u s e so m e e t o r b e a t d e a d l i n e s , p t i o n st h a t t o often are unavailable in-house to staff.

CostSovings: Reason A Foundation reviewof more A l l o f t h e s eg o a l sc a n b e b u n d l e du n d e rt h e b a n n e r f o found that costsav- "performance." than 100 privatization studies Usingprivatization achievea combito quality, ingsrangedbetween5 and 50 percent, depending nationof costsavings, speed,expertise, and inhigher performancein government upon the scopeand type of service; cost savings novationachieves privatization typically average 10 service through between delivery. and 25 percent.As perhapsthe most impressive level,Florida every state governmentuses privatization example the statewide at usedpriva- Because to sourcing morethan 130times some degree-and in myriad ways-comprehensive tizationcompetitive during the eight-year tenure of former Governor studiesof state-level use of privatization are difficult j e b B u s h , a v i n g o r et h a n 5 5 0 0m i l l i o ni n a c t u a l to produceand are rarelycompiled.The most recent, s m a d o l l a r sa n d p r e v e n t i n g n e s t i m a t e d L b i l l i o ni n S in additional costs(seediscussion nextsection). Access to Expertise: Contracting gives governments access expertisethey do not have into lt houseon an as-needed basis. is cheaper retain to state-levelprivatization comprehensive trend survey, C r e l e a s e d y t h e C o u n c io f S t a t eG o v e r n m e n t(s S Gi)n b l 2003,found that the amountof privatization largely re-

m a i n e d h e s a m eo r i n c r e a s es l i g h t l y c r o s sh e s t a t e s t d a t b e t w e e n 9 9 8a n d2 0 0 2 . h e na s k e d b o u tt h e p r i m a r y 1 W a on architects, engineers, lawyers an as-needed motivationsfor privatization, majority of state budget and a citedcostsavings, whileagency basis than to hire them as full-timeemployees. directors headsranked a lackof personnel expertise the numberone reason or as BetterQuality: Competitionbringsout the best in whether it is in sportsor in the busicompetitors, ness of providing public services.Biddershave for privatization. CSG The surveyalso notedthat privatizationtrendswill likelycontinuein stateagencies, with incentives offer the best possible combination nearlyhalf of surveyed officials to responding that privatiq t zationin their stateor agency was likelyto increase o f p r i c ea n ds e r v i c e u a l i t y o b e a tt h e i rr i v a l s . and t t h e o t h e rh a l fr e s p o n d i nig w o u l dr e m a i n h e s a m e . t While there are literallvdozensof state servlces and governmentactivities which privatization for could be

lmproved RiskManagernent: Contractors, rather for cost than the government,are responsible and other risks. overruns, strikes, delays, lnnovation: Competitionto win and retain con-

at tracts spurs the discoveryof new, cutting-edge applied,someof the most often-privatized the statesolutions.Without competition,even top-notch l e v e li n c l u d e : may stop lookingfor waysto improve employees needs. how they meet customers' Meeting Pesk Demand: The cost of providing a public servicecan be raisedconsiderably the by capitaland manpowerneededto satisfydemand may last eventhoughthose peaks at peakperiods, only for a few hoursa day,a few daysa week,or . H i g h w ad e s i g n n dm a i n t e n a n c e . y a e B u i l d i n ge p a i r n d m a i n t e n a n c e . a r o Vehicle fleet operations, maintenance, ownerand ship. r Informationtechnology.

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AMERICAN LEGISLATIVE EXCHANGE COUNCIL

S T A T EB U D G E T E F O R M O O L K I T R T @
Administrative support services (e.g.,HR, payroll, accounting, mail,printing, etc.). Risk management (e.g., claims processing, pre_ loss
a a a

developstrongoversight, monitoring, and assess_ ment protocols beforeenteringinto a contractro e n s u r ec o m p l i a n c e n d p e r f o r m a n c ea n d t h e n , a they shouldfollowthroughon full implementation. M o n i t o r i n g h o u l d o c u so n q u a n t i f i a b lm e a s u r e s s f e and achieving process. results, on not

ventionservices). Facilities financing, operations, maintenance. and Parkoperations and maintenance. Corrections and mental health(facility operations a n d m a n a g e m e n t ; e a l t hc a r e ,m e d i c a a n d f o o d h l services). Coreinfrastructure (roads/transit, water;etc.). Engineering rvices. se Welfare-to-workprogra ms. Childcare,childwelfare, and adoptionprograms Juvenilereha itation. bil E n v i r o n m e n tla lba n a l y s i s . a

a a a a a o

Recommendations privatization not self_imple_ for are menting.Privatization a disruptiveprocess that it is in requires transformational change-a changein thinking To help keep state budgetsin checkand promote effi_ a m o n gc a r e e r i v i ls e r v a n t a n d a m o n ga p p o i n t e ew h o clencyin government, is critical c s s it to eliminate wasteful, are mastering new responsibilities, peopleby nature non-essential and government functionsby continually chalresistchange. Change does not occur overnight, and it lenging stateentities identifyand focuson their core to often happensin fits and starts.Statescan reasonably functions privatization competi_ and competencies. and expectto see a mix of successes challenges, it tive contracting vital and and are toolsin this process that involve will take a sustained commitmentby policymakers ano looking everything at government agencies anddeterdo administrators ensure to that the full benefits will be re_ miningwhether privatefirms could do the samethings alized. more efficiently and effectively. Additionally, minimizing government competition with businesses helpstates will Thesuccess any privatization of initiative dependon retain(andgrow) privatesectorjobs and increase will state a varietyof factors, two standout: but revenueby shifting tax-exempt properties and activities to the taxable sector. @ ^"ro^.endation:lncrease the useof privatization spells out all of the responsibilities perfor- and competitive and contracting executetasksto lower to manceexpectations that the government partner costsand improve the qualityof service provided. will require the contractor. detailistoo small. of No Failure meet the performance to standards speciAdditiondl Resources: fied in the contract shouldexpose contractor the principles to Gilroy, Leonard AdrianMoore,Ten and of penalties, financial and in the worst-case scenario, Privatization, Legislative Principles Series 7, HeartNo. termination the contract. of landlnstitute, Chicago, July2010. lL, www.heortland. Strong controcting monitoring and oversight: org/custo /semod_p Iicybot/ pdf/27946.p df m o Governmentdoes not walk away after signinga Gilroy, Leonard, Strea Iining Government through m contract;in fact, in many ways,the process-and Privotization and Public-Private pdrtn ersh ips, Tesan ongoing partnership with the contractor-isjust privatization hmony beforethe NewJersey Task begin ning.Policyma and administrators ld kers shou Force, Trenton, April7,2010. NJ, Performance-based contractsiThe legal foundation of a privatization initiativeis a contractthat

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Savas, E.S., Privotizotion snd Public-Private Pqrtnerships, New York,NY Chatham HousePublishers,2000. Annual Privotizotion Report2009, Reason Foundafron, www.reason.org/o p 12009

signedan executive order in March 2004 directing the Department Management of Services createa "center to of excellence" authorized conducta statewide to evaluation of Florida's compefitive sourcing efforts.The new Center for EfficientGovernment(CEG)(subsequently codifiedby the legislature the Councilon Efficient as Government) empowered "identifyopportunities was to for additional[competition] initiatives, and oversee executionof future [competition] projects." The CEG's missionis "to promote fair and transparent practices government orderto foster bestbusiness in in

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orrcModet Lesistotion
Competitive Contracting Public of Services Act

Establisha State Privatization and Efficiency Council

As discussedin the previous section, policymakers accountability, competition, efficiencV and innovation in shouldembraceprivatization the competitive and con- the way stateagencies serveFlorida's citizens." serves lt tractingof government services driveservice to gateway best business delivery as the enterprise-wide pracfor improvements and better value for each taxpayerdol- ticesin competitive sourcing and standardizes how the lar spent.A key lessonlearnedfrom globalexperience state identifiesopportunities, conductscompetitions, in privatization that it works best when governments and awards and managescontractsfor government is d e v e l o pa c e n t r a l i z e di,n d e p e n d e n td e c i s i o n - m a k i n gservices. , Most importantly, the CEGpreparesbusiness privatization government proposed privatization bodyto manage and efficiency caseevaluations of initiatives beinitiatives. fore deciding whetheror not to proceed orderto help in rs m a n a g e ra n d p o l i c y m a k e t h o r o u g h l y v a l u a t e n i n i s e a

State policymakers should follow the lead of innova- tiative's meritsfrom the outset. tive stateslike Floridaby creating Council Efficient a on Government designed serveas the enterprise-wide to gateway best business practices competitive for in contracting and standardize how the state idenfifiesand (i.e.,a state "centerof conducts competitioninitiatives e x c e l l e n c en p r o c u r e m e n t ) . i" Florida's Councilon EfficientGovernmentwas developed in 2004duringformer Governor Bush's Jeb tenure and was a key componentof a strategy that ultimately projPriorto 2001-, Florida had a total of 16 outsourced From2001to 2006,the tition initiatives. When many other stateswere raising ectsreportedby stateagencies. helped Floridashed almost$20 state initiatedan average 37 projectsannually(see of taxes,these initiatives s Figure on the followingpage). 2 For FY2008, b i l l i o n n t a x e s u r i n gG o v e r o B u s h ' t e n u r e . i d r stateagencies identified551 projectscurrentlybeingoutsourced r M i d w a y h r o u g hh i st e r m ,s o m eo f G o v e r n oB u s h ' s a t m jor privatization became overshadowed the by successes with a lifetimevalueof over 58 billion.Notably, CEG the was initiallycreatedin 2004,which coincides with the ramp-upin stateprivatization. tremendous SinceBush's e o h e l p e dh i s a d m i n i s t r a t i orn a l i z e v e r S 5 5 0m i l l i o ni n privatization compecost savings throughover 1"30 and

projects that mediaspotlight a few majoroutsourcing on t, i a l in Recognizing d e p a r t u r e h e C E Gs s t i l lh u m m i n g l o n g . n 2 0 0 9a l o n e , experienced difficulties implementation. 23 evaluated new business cases potenfor and (b) the the Council the need to improve(a) stateprocurement projects with a cumulative value outsourcing Gov.Bush tial agency state'sability to monitor the procurements,

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AMERICAN LEGISLATIVEEXCHANGECOUNCIL

S T A T B U D G E TE F O RT O O L K I T E R M ffi

Number Outsourced of Proiects

n85

L995

1996

1997

1998

1999

2000

o f m o r e t h a n $ 2 2 5 m i l l i o n ,i d e n t i f y i n g o r e t h a n S 3 l m millionin projected savings the state. to Other statesshouid establish similarcentersof excell e n c e h a t a r eg i v e n h e r e s p o n s i b i l itto : t t y r Developa standardized, process enterprise-wide for identifying and implementing competitive sourcing. r Assist agencies developing in business cases any for proposedprivatization initiative-beforeprocurem e n t - t h a t c l e a r l y u t l i n e h e r a t i o n a lf o r t h e i n i o t e (costsavings, qualityimprovements, tiative service

r C o n d u c ta n a n n u a lo r b i a n n u a li n v e n t o r yo f a l l performed stategovernfunctions and activities by ment, distinguishing between inherentlygovernment and commercial activities. . Createa uniformcost accounting model to facilitate "apples-to-apples" comparisons cost between publicand privatesectorservice provision (critical playing to ensure levelpublic-private a field). . Reviewand take actjon on complaintsregarding governmentcompetitionwith the inappropriate privatesector.

changing ntiquatedbusi a nesspractices, ). etc. With widespread statefiscalcrises deepening across the r Developrules institutingperformance-based policymakers increasingly con- country,other state will lool< t r a c t i n g n db u s i n e sc a s e e v e l o p m e n tsr e q u i r e - to the example by Florida a s d a set and the other statesthat mentsfor stateprocurements, havepioneered this privatization "centerof excellence" o Disseminate lessons learnedand best practices in conceptas they struggle closelargebudget deficits. to competitive rcingacross sou stategovern ment. For example,in December2009 Louisiana's Commis-

JJ

WWW.ALEC.ORG

(established Gov. sion on Streamlining Government by

Recommendahon; legislation Pass creating Floria 'tenter BobbyJindal)released set of 238 government a down- da-style of excellence" privatization comon and sizingrecommendations-including recommendation petitivecontracting. a for a "center of excellence" privatization, well as in as privatization proposals-thatwere over a dozenspecific estimated saveover51 billion. to Similarly, New JerseyPrivatization the TaskForce-created by Gov.ChrisChristie under an earlyexecutive order-releaseda reportin July2010identifying specif40 ic privatization opportunities acrossstate government, with an estimated annualsavings over 5200 million. of Notably, NewJersey the Privatization Force Task alsorecommended throughprivate that findingefficiency sector policyfor all state competition shouldbecomestandard agencies. One of the key recommendations doingso for privatization involves establishment a centralized the of entity for the statethat would fulfillfunctions similarto Florida's Council Efficient on Government. H a v i n ga F l o r i d a - s t y l" c e n t e ro f e x c e l l e n c ei" p l a c e e n , w o u l d f a c i l i t a t e h e r e g u l a rw h o l e s a l e e v i e wo f s t a t e t r governmentactivitieswith an eye toward right-sizing govcrnmcntthroughcompctitionand privatization. But privatiat the same time, it recognizes that successful z a t i o nr e q u i r e s h i g hs t a n d a r d f d u e d i l i g e n c en c o n a o i p r o p o s e d o u n c i lw o u l d e s t a b l i s h c t r a c t i n g .H e n c et h e a s t a n d a r d i z e d e t h o d f o r p r o c u r i n ga n d m a n a g i n g m a i t c o n t r a c t s n o r d e r t o m a x i m i z e c c o u n t a b i l i t yr,a n s parency, competition, and to deliverthe bestvaluefor taxpayers. policyframeworkis essential A sound privatization to and valuefor moneyin the demaximizing cost savings

q

Additional Resources: Gilroy, Leonard AdrianMoore,Ten and Principles of Privotizotion, Legislative Principles Series 7, HeartNo. landlnstitute, Chicago, luly 2010. lL, www.heartland. org/custo /semod_poIicybot/p dfl 279 6.pdf m Gilroy, LeonardStote Competitive Government Com, 'Right-Sizing' mission: Tool A Kansas Government, for Reason Foundation testimony the Kansas to House Appropriations Committee, Topeka January KS, 27, 20t0. hfip:// reason.org/ news/show/stote-co petim tive-government-c "Look Garrigo, Henry, Before Leap You IntoPrivatization:Florida's Council Efficient on Government Sets a NewStandard Transparency, Diligence in Due in Privatization Contracting and Decisions,"novstors In in Action 2009, Reason Foundation, Washington, D.C., ://reason.org/new January 2010.http s/show/in novotors-in-oction-2009 Florida Council Efficlent on Government, Annuql Rcport 2009, Tallahasscc, 2009.dms.myflorido, FL, p com/i ndex. hp/co nte downlood/ 6397 / 27a570/ nt/ 3 po 2009. df p ve rsi n/ 1/fiIe/An uol+Re rt+ n o

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orr, *odet Lesistation:
Council on EfficientGovernment Act

Createa StatewideReal Property Inventory and Search the Balance Sheetfor Asset Sale and Lease Opportunities

from Florida, Experience Virginia, liveryof stateservices. do versions the How much landdo statesown and how manyassets of and Utah-who haveeachimplemented q t procurement "centerof excellence" T s concept-also sug- t h e yh o l di n t h e p u b l i c r u s t ? h e s e e e ml i k eb a s i c u e s but many states geststhat this approach the con- tions that would havesimpleanswers, has increased public's perceptions impropriety, and counties not havethe kind of basicpropertyand do of a fidenceand has mitigated b s la t concernwith any privatiza- a s s e d a t at h a t a w e l l - r u n u s i n e so r r e s p o n s i b f e m i l y common public perception its With millions acres of and unit manage relyon to manage finances. tion initiative. Furtherl havinga dedicated of assetsin governmentportfolios, officials scale ensures that the thousands on the process an enterprise-wide learned and bestpractices shared shouldtake stepsto identifywhat they own, determine are of benefits lessons or whether government privateownershipis the most a among gencies.

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AMERICAN LEGISLATIVE EXCHANGE COUNCIL

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inventorymaintenance key,as the state will benefit is m o s t f r o m a d y n a m i c a t a b a s eh a t i t c a n a d d t o a n d d t subtractpropertydatafrom overtime. Upon completionof the assetinventory, the governor should commissiona review to categorize stateall owned property as: (1) property currently serving a criticalfunction(statecourthouses publicsafetyfaand

opportunities includepartnering with localprivate real estatebrokers. Additionally, rather than conductingits own liveauctions, statecan employ the readily available onlineauctionmarkets the disfor posalof property. Whereas live auctions requlrea physical presence and severely limit participation. o n l i n ea u c t i o n s r e g l o b a li n t h e i r r e a c ha n d p a r a ticipation.

c i l i t i e s o u l d b e e x a m p l e s )n d t h u s u n l i k e l yo r s a l eo r w a f (2) divestiture; real estatethat is unused, of underutilized, The recentexperiences stateand localgovernments the or not linkedto concreteprogramgoals;(3) revenue- demonstrates opportunities and potentialof asset generating initiatives. example, For assets that offer significant leaseopportuni- divestiture using technology and systems developed the vendorARCHIBUS by ties;or (4) non-critical assets that are not supporting to an analysis property, the state of Missourisaved53 inherentlygovernmental function (suchas public golf managestate courses) which both saleor lease viableoptions. for are propAfterthe commission categorizes state-owned all erty,the followingstepsshouldbe taken: milliondirectly throughthe consolidation statefaciliof t i e sa n d a n a d d i t i o n a l 1 0 m i l l i o n n a n n u a s a v i n gfs o m i l r $ improved billing, space utilization, work order,and lease management.

Assemblea procurementteam to prioritize asset Georgiaoffers another powerful exampleof this prosuccess. 2004,Georgia ln Governor SonnyPerdue leaseopportunities. Thisteam-appointed by the cess's governor policy, realized each state agencywas handlingits own space of financial, and composed budget, without cross-agency coordination, resulta and legal experts-wouldconduct rigorous assess- management facilityuse and little or no opportunity mentof potentialasset lease opportunities iden- ing in inefficient and management realestate of assets. He set to tify a recommended of top-tierassets advance for comprehensive partnerships. created "Governor's the Commission a New Georgia" for toward privatization public-private or order, one aspect whichwasto develop by executive of a landinventory. quickidentification lncentivize and disposal. State statewide to some officials shoulddevelopa system disburse portion of the proceeds from real property and When the state set out to inventory its property it provid- f o u n d m a n y c a s e s f g r o s sm i s m a n a g e m e n tf p u b l i c o o and departments, assetsalesto programs Usingits state "Building,Land & LeaseIning an incentive those departments partici- resources. for to ventorvof Property"(BLLIP), Georgia identifiedseveral properties that were not being put to their full use.In that operated one case, underused properties were consolidated the sales. For exa'mple, department projOne property(parks, etc.)shouldbe givena into the Douglasville StopShop,a collocation the surplus This project resultedin: prop- ect of three state agencies. "commission" helpingidentifyunneeded for pate in the divesture process. Agencies that idenshouldbenefitfrom those tify assets divestiture for erty-perhaps 10 percent of proceeds-which upgrades other capital or couldbe usedfor needed purposes. it stands, havefew incenAs departments tives to seek divestitureopportunitiesbecause of sales. none of the benefits surplus they receive Contract with the private sector to conduct a market-valuedisposal of surplus property. Such r A costsavings (maintetotalingS150,000 annually security, etc.). nance, . An additional feet of officespace. 18,000 square . 5 2 2 m i l l i o nr e v e n u eo t h e s t a t eb y s e l l i n g u r p l u s t s p r o p e r t y e a s i l yd e n t i f i a b lte r o u g hB L L I P ) . ( i h

36

AMERICAN LEGiSLATIVE EXCHANGE COUNCIL

S T A T B U D G E TE F O RT O O L K I T E R M ffi
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and S1.1million savedin 2006 through renegotiation highperformance, helpreduce costof running the government. and consolidation leases of that will savean esti- state Budget constraints, fractured, shortm a t e dS 2 0 . 5 i l l i o n h r o u g h2 0 1 2 . m t termplanning, strict service forma barrier and civil laws programs canimprove to incentive that workerperfor-

BLLIP alsoidentified two properties closeproximity in morale. of manceand boostflagging each other that could be consolidated, savingGeorgia time frame.The fiscalbenefits P o l i c y m a k e r s o u l dg e n e r a t ep e r s o n a l w n e r s h i p f sh 5102 millionin a 1O-year o o Georgiaattaineddid not come from passive for manage- savings publicemployees allowing by them to be rement but intentionalpursuitof efficiency. generated innovation. Other states wardedfor the savings by While w o u l ds i m i l a r l b e n e f i f r o m t a k i n g o m p r e h e n s i v ee p s this program may not be feasiblefor all government y t c st towardsbeinga bettersteward the landthey own and agencies, of thosethat effectively implementthe program streamlining efficienttransferof all unnecessary the significant savings, cost improveservice, or canachieve and under-used property. real Thiswouldimproveproperas- rewardworkers creative for thinking. s e tm a n a g e m e ne,n c o u r a ge c o n o m i g r o w t h , n dg e n t e c a erate-instead f consuming-tax ollars. o d Recommendotron: Statesshouldpreparecomprehensiveasset inventories-updatedcontinually an on o n g o i n gb a s i st o e n s u r ec u r r e n c y n d a c c u r a c y - a n d a commission reviewto categorize state-owned a propall erty and identifyassetdivestiture and realignment opportun ities. Additionql Resources:

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Randazzo, andJohnPalatiello, Anthony Knowing What YouOwn:An Efficient Government HowToGuide ManagingStateand LocalProperty for Forexample, Baltimore County, Maryland, implemented programthat encourages "gain-sharing" an innovative frontlineemployees recommend projto and implement ectsthat reduce costand improvecustomer service. Half that resultare distributed the employof any savings to p r o p o s aa n dt h e o t h e rh a l fi s l e e sw h o i m p l e m e n t etd e h t r e t u r n e d o t h e g e n e r afl u n d . I n o n e e x a m p l ee m p l o y , of ees in the DietaryDivision the Bureau Corrections of found waysto streamline and improvethe meal preparation system, savingthe county more than 5150,000. that designed As a result,the 13 employees and carried received one-timechecks morethan out the changes for

lnventories, Policy Study383,Reason Foundation, Washnton, D.C., une 2O1^Q. p :// reoson.or g/fi Ies/ i J htt how_to_manqge_or_seII_stote ocaI_prop erty.pdf *l Palatiello, John,Whot'sin the Government's Attic? Policv Brief33, Reason Foundation, Washinton, D.C., Decem r 2004.http:// reason.org ews/ be /n show/w hats-in-the-governments-ottic

AchieveSavings through EmployeeIncentivePrograms

e Privatebusinesses often develop innovativecompen- 5 5 , 0 0 0 a c h . sationtools to help.retainqualityworkersand reward Develop a program (or proRecommendahon: them for comingup with cost-saving ideas.Meanwhile, government for to agencies consistently struggle offer per- grams) stateemployees allowthem to be rewardto f o r m a n c e n c e n t i v etsh a t m a t c ht h o s ea v a i l a b l en t h e i i privatesector-programsthat increase morale,reward generated new innovations re-engied for savings by or practices. neering existing of business

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h" need reform to state budgetingmore is vitalthen Thoughdaunting, statebudgetproblems can be diligently addressed usingthese budgettools so lawmakers by are not unduly influenced emotionalpleasfor conby t i n u i n gf u n d i n gb a s e do n u n s u s t a i n a b ls p e n d i n g e e d cisionsof past years.lf lawmakers ultimatelyask state

everbefore. federal As stimulus fundsrecede, states will grapple with evenlargerbudgeting gaps. Clearly, the "business-as-usual" budgeting approach raidingnonof general fund accounts and usingtrickyaccounting tech-

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niqueswill no longerrescue states from a budgetcrisis. citizens pay highertaxesfor additional to spending, the Statesneed innovative budgeting strategies address publicwill know one of two things: Either,lawmakers to these new economicchallenges-withoutresorting to believethe state'slowest prioritiesare still worth pure c o n o m i c a l dy m a g i n t a x i n c r e a s e s . la g chasing evenin this tough economic climateand taxpayers need to sacrifice more; or taxpayers will know the prioritized lowerpriorities budgetis not properly and are beingpurchased first,resulting the request tax inin for creases fund higherpriorities. to Despite economic the difficulties facingthe states, there is a pathway budgetreform.By followingthe policies to suggested thisALEC in Budget Reform Toolkit, lawmarers c a n m a k ei n f o r m e d e c i s i o n a n d b u i l d a s o l i d b u d g e t d s focused delivering best results taxpayers on the for and users government of services.

How to access ALEC model legislation: ALEC members loginto www.olec.org viewall ALEC can to modellegislation. Non-members by Jonathan can requesta copyof ALEC Williams, directoro{ model legislation contacting jwillioms@alec.org the Taxand Fiscal Policy TaskForceat: (2OZ) 742-8533 or

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INDEX

of Recommendations

Tools ControlCostand to lmproveGovernment Efficiency
Adopt a state hiringfreezeenRecommendafion: c o m p a s s i na l l d e p a r t m e n t s . g shouldbe on the ta^""o-- endation:Everything Q and increased employin changes benefits ble,including Statesshould create a permaRecommendadon: waysthe to reviewcommission recommend nent sunset waste,and improveefficiency reduce statecancut costs, levels. service and

The Recommendufion: stateauditor(or similarpoee contributionrates,as well as employercontribution replacing sition)shouldbe giventhe authorityto conductregular, states shouldconsider Most importantly, rates. performance plans with defined-contribution comprehensive auditsof stateagencies. their defined-benefit (401kstyle)plansfor new employees. Statesshould give authority to Recommendofion: firms to conduct regular,comprehensive Recommendotion: Freezedefined-benefitOPEB independent plans recovery auditsof stateagencies. plans, them with defined-contribution and replace One approachis to otfer optional A for new employees. lncrease use of privatization the Recommendstion: (HSA) state p for Accounts participation HealthSavings in to contracting executetasksto lower and competitive has experience been highlysuccessworkers.Indiana's provided. the qualityof service and improve costs the HSA ful, with 70 percentof stateworkerschoosing savingmillionsin the taxpayers plans-with lndiana's orocess.

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a creating Florilegislation *"ro^^enddtion:Pass

and on "centerof excellence" privatization comda-style

,\ where- petitivecontracting. system Create lp) Recommendotion'. a tracking for that by anyposition isvacant morethansixmonths Statesshould preparecompreRecommendofi'on: iseliminated.
Recomm en dahbn : Policvmakers should d elayautountil the rising for matic pay increases stateemployees are of costs government broughtundercontrol. the can Lawmakers improve Recommendstron: activiby implementing performance stateagencies of tv-basedcosting.

hensiveasset inventories-updatedcontinuallyon an ongoing basisto ensure currencyand accuracy-and propall a commission reviewto categorize state-owned opand realignment erty and identifyassetdivestiture portunities. A p Recommendution:Develop a program (or proto grams) stateemployees allow them to be rewardfor or generated new innovations re-engiby ed for savings practices. business of neering existing

4o

AMERICAN LEGISLATIVE EXCHANGECOUNCIL

s r A r E B U D G ER E F o R Mo o L r ( r r T r Gt

Gt

IMEX

of ALECModelLegislation

r Balanced Budget Certification Act o Independent Revenue Forecasting Act

r An Act Relating Recovery To AuditsForGovern_ ment Overpayments TaxDollars Of . Competitive Contracting publicServices of Act

. Taxand Expenditure Limitation Act o Council Efficient on Government Act r An Act Relating Performance to Auditsof GovernmentalEntities ' ltem-Reduction Vetoconstitutional Amendment

r Council Efficient on Government Act r ALEC's Statement Principles Stateand Local of on pension Government and other post Employment B e n e f i( O P E B ) l a n s t P . Transparency Government and Accountabilitv Act

o Taxpayer Transparency Act o P u b l i c c h o oF i n a n c i a lr a n s p a r e n Av t S l T cc r The 72-HourBudgetReview Act ' Fiscal Note Act How to access ALEC model legislation: ALEC members can loginto www.alec.org view to a l l A L E C o d e ll e g i s l a t i o n .o n - m e m b e rc a n m N s request copyof ALEC a modellegislation conby tactingJonathan Williams, directorof the Taxand Fiscal Policy Tasl< Force at: (202) 7 42-8533or jwi IIi ams@alec.orq r Legislative Budget Audit Commission Act

r Commission Economy on and Productivity State in Government Act

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