Why do taxes, debt and government spending continue to skyrocket while public and elected officials claim they are making significant cuts? It’s a numbers game. A lack of fiscal savvy on the part elected officials often plays a contributing factor, as do those with a ‘kid in a candy store’ mentality. Either way, the solution is derailing the gravy train.
The principles I outlined for getting yourself out from under debt in Debt Makes Slaves of Those Who Owe and in Roadmap to Financial Freedom are equally as valid whether you own a business, are the CEO of a large corporation or an elected official representing your constituents at the federal, state or local levels… yes, even those we elect to our school boards. Debt is debt… and just like the law of gravity, the key for gaining financial freedom is the same at home, work and even for government. There shouldn’t be a difference between how a person responsibly manages their personal finances and how they would manage public finances, if elected to office. The common sense principle of living within our means is as true as the laws of nature… that the sun rises in the east and sets in the west.
Government entities have a difficult time comprehending this fact because they are addicted to spending. After all, it isn’t their money they are spending. No, they’re spending other people’s money… the taxpayers’ money…. your money.
“Are you entitled to the fruits of your labor or does government have some presumptive right to spend and spend and spend?”–President Ronald Reagan
Most government programs related to public education are out-and-out failures. Most government efforts at so-called educational reform are misnomers. In most cases, government programs do nothing to actually “reform” or improve student learning and typically, the interference makes things worse. Think about it. Kids in the Wisconsin Northwoods have different educational needs than kids in the inner cities or those living along the southern border of the US… or anywhere else, for that matter. Even within our own state there are different student needs from school district to school district. It doesn’t make sense for the state or federal government to try and impose on local school districts a one-size-fits-all approach to education, but that is often the case. The problem with the big government blanket approach is it doesn’t effectively target resources. Instead, it is your local school board, administrators and teachers who know best how to educate and meet each of their students’ unique needs.
So why doesn’t the state and federal government just get out of the way and let the local experts do it?
President Reagan said it best:
“We developed at the local school district level probably the best public school system in the world. Or it was until the Federal government added Federal interference to Federal financial aid and eroded educational quality in the process.”
It’s all about control, bureaucracy, politics and money. This is the root of the problem.
Government programs are never really intended to actually improve student learning, but if you read the small print, it becomes crystal clear the true purpose of these programs is to consolidate more authority and power over local public education at the state or federal level.
You see, unlike other areas of government… say the court system… where first a case is tried at the county level, then it can be appealed and work it’s way up the ladder to state or district courts before finally reaching the U.S. Supreme Court, which is the highest in the land and final decision, in the case of your local school board, they hold the decision-making power in your local school district. It’s only when they take the carrot on the stick… when they sign on the dotted line to become involved in various government programs, usually in exchange for funding, which rarely, if ever, covers all of the costs… that they are actually selling out the local taxpayers, parents and students… and something which is priceless: local control.
This is what’s meant when you hear school administrators, board members or other local officials complain about “unfunded mandates”… it’s really the proverbial strings attached to these various government programs and the realization the funding provided by the government as an incentive to participate was not nearly enough to actually cover the costs associated with it.
There are some government programs such as the controversial and infamous No Child Left Behind (NCLB), among others, which local school boards have no choice in the matter but to participate because these programs have been written into law as mandates. But there are many, many other state and federal programs where school boards do have full authority to decide whether to participate or not. School boards need to approach these programs, cautiously, to ensure they are truly needed and determine if they are a wise use of funds.
Government and public schools financing is not an easy topic to tackle. However, a fundamental understanding of the process and pitfalls is necessary if we are to get off the hamster wheel and actually fix it… so listen up.
One of the most glaring problems I see is the budget practice of Line-Item Budgeting and Traditional Incremental Budgeting which is a budget process utilizing Baseline Budgeting, a common practice at many levels of government, and is especially popular in school districts across the country. Line-Item Budgeting is akin to “accountant-speak” because unless you are an accountant, it can be extremely vague and confusing for the average person to understand exactly where or how the money is being spent.
An easy way to understand what Incremental or Baseline Budgeting is would be to think of it as if you were to apply this method to your personal finances:
Hypothetically, let’s say you spend $100 a week on groceries, which totals $5,200 in a year. If you were setting up your budget for the coming year, using the baseline method, you would automatically add to that total an anticipated increase in cost for food of $600 over the year, bringing your total up to $5,800.
Let’s say you want to add new spending in the form of hosting a huge party, once a month, which will cost an extra $200 per party or $2,400 over the course of the year. Now you’re up to $8,200. This amount becomes your baseline.
So, maybe you decide to “cut back” and only host a huge party twice during the year bringing your annual food budget down to $6,200… that becomes a “savings” of $2,000 out of your budget even though you are, in reality, adding $1,000 for two new parties plus estimated cost increases.
The other part of this is looking at the estimated $600 increase for food. Maybe costs won’t increase at that level and come the end of the year, the actual increase was only $100. You have $500 extra. Since you are using Baseline Budgeting and want to be sure to get as much or more money to spend the following year, you have to quick spend that $500… so it’s generally wasted, keeping your baseline going forward at $6,200… an $1,000 increase over the previous year.
This is a simple illustration of how government spends your tax dollars. It is, particularly in school districts, why, as the end of their fiscal year draws night there is a rush to spend every last cent remaining in the budget. By reporting any end of the fiscal year surplus, they will not get an increase in their funding. Many, if not most, public school districts, other local government entities and government agencies all tend to operate under this system, which, in reality, encourages wasteful spending and fiscal irresponsibility.
Governor Scott Walker's budget gives local governments tools to rein in spending
It also partially explains why school districts can claim they are making substantial cuts to their budgets, yet, year-by-year spending continues to increase. In Wisconsin, public schools operate under a funding cap, which normally includes a built-in annual increase. The current year, however, is an exception due to significant changes made at the state level in Governor Scott Walker’s biennial budget passed into law earlier this year.
It is thanks to Scott Walker’s changes to the collective bargaining law which has provided public school districts, towns, cities and counties across Wisconsin with the needed tools to rein in employee benefits costs while giving taxpayers a break. It’s a valuable opportunity, especially for school districts facing structural deficits which could very well cause them to go bankrupt, to right the ship and return to a course of fiscal stability. The question is, though, will public schools and local governments use this opportunity to effect long term solutions, heading off disaster… or squander it?
Well, that depends on whether or not those governing the purse strings have the strength and will to insist on rooting out waste and making fundamental changes to the budget process, itself.
The combination of using Line-Item Budgeting and Baseline Budgeting serves to obscure how a school district truly spends its funds. There is nothing “transparent” about it and basically, a person just about has to be an accountant to understand where the money is going. I believe a school budget, and particularly it’s annual report, should be written in plain language the common person can comprehend and understand… and all documents should be readily available for public scrutiny. Some public school districts are very open about their budgets. Many schools are actually posting their budget, broken down into easily understandable categories, along with supporting documentation, right on their websites. This is transparency. Anything less is not.
Even though the lion’s share of a public school district’s budget goes to paying employee salaries and benefits, out-of-control spending and budget bloat cannot be blamed entirely on the number of employees, alone. School boards must also take a critical look at the entire budget, ask questions and get answers, for instance: How much money is being spent on Professional Development? What is the total amount spent on travel, both in-state and out-of-state? What is being spent on non-sick day substitutes who are used so teachers can attend meetings during the school day? What is being spent on food and beverages for meetings? How much money is being spent on mileage reimbursements to staff and administrators? Is the district paying for employee cell phone bills?
These are all examples of common costs which siphon money out of the classroom in favor of creating perks for administrators and staff. It’s one of the reasons why many school districts are on a continual treadmill of decrying budget shortfalls and touting their perennial “cuts” to supposedly “balance their budget”… yet, before the ink is dry on one year’s budget, they are right back to talking about having to cut as much or more from the upcoming year’s budget. It’s also a tactic some districts employ in an effort to wear down their taxpayers and pressure the public to approve a referendum to raise taxes while claiming “it’s for the kids”.
It’s time for perks to go the way of the dinosaur.
It’s not only the status quo in public school districts, but also at each step of government all the way to the top. This is why we have Government Gone Wild and taxes up through the roof.
There is nothing balanced nor fiscally responsible on the part of elected officials who allow this sort of smoke-and-mirrors financial mismanagement to continue, year after year… always on the trajectory of financial bankruptcy and ruin, just around the corner. “Cut” only what’s absolutely necessary to get the numbers to appear balanced, all the while continuing to spend and spend… and waste money like there’s no tomorrow. In reality, it is doing nothing more than paying lip-service to fiscal responsibility. Tell the public what they want to hear so no one will look too closely at how tax dollars are being spent or ask any questions… so the Gravy Train can keep on rolling.
Instead, why not actually FIX the problem? Wouldn’t that be the logical and common sense thing to do?
This is why, I believe, we must do away with Line-Item and Incremental or Baseline Budgeting practices in favor of the efficiency and transparency of Zero-Based Budgeting (ZBB), a methodology for conducting the budget process which was predominant throughout public education from the 1950s and 1960s through in to the 1980s, when it fell by the wayside. It is now seeing a resurgence as boards of education are returning to the time-tested, proven budgeting model for efficient and improved school operation. Zero-Based Budgeting is popping up in districts from Vermont… to Georgia… to Oregon and many, many other locations.
A recent article published in the Pittsburgh Post-Gazette reports how the Penn Hills School District’s finances have benefitted by changing to a Zero-Based Budgeting model:
“Using a zero-based budgeting approach, in which all departmental spending starts at zero and must be justified in detail, the district was able to eliminate inefficiencies, officials said. Mr. Liberto said departments lowered their operational budgets by about 10 percent, as he and superintendent Tom Washington had requested.
“Over the past three or four years, we’ve gotten into a rut where we might have gotten out of one program, not eliminated it, and started something new, so we were picking up double expenses,” Mr. Liberto said. “We’ve noticed a lot technology wise … programs and things that we’ve been operating for years that we no longer need and can streamline. So, the zero-based budget has helped quite a bit.”
So why do I favor Zero-Based Budgeting? Because it approaches the budgeting process with a clean slate as it bases the allocation of resources according to actual needs rather than simply adding across-the-board increases to previous spending levels. By forcing the justification of spending on a needs basis, it eliminates wasteful and obsolete spending practices, and avoids habitual spending while detecting inflated budgets. It puts an end to the end-on-the-fiscal-year “spend it or lose it” mentality. This sort of systematic review imposes fiscal discipline on the organization, improving operational efficiencies. It shines sunlight on the process and the end results. It increases transparency and accountability.
I believe, particularly given the country’s economic troubles, finding better ways to ensure good stewardship of tax dollars is more important than ever… and Zero-Based Budgeting is a valuable, common sense tool in accomplishing this goal.
Using a Zero-Based Budget, managers and administrators are forced to find cost effective solutions to improve operations while performing meaningful review. One of the inherent benefits of Zero-Based Budgeting is conducting analysis to critically evaluate program effectiveness on their merits as a part of the review process. It is the “big picture” which connects cost with results.
This is vitally important information as it can assist in improving the quality of elected board members’ decisions as they determine if or when a program should be sunset, based on facts. It also goes without saying, this process elevates board-level budget discussions to a more meaningful level and enables them to ultimately make better, more informed, intelligent decisions. Ultimately, this approach will have a positive impact in the classrooms as ineffective programs are eliminated in favor of methods which demonstrate proven success. It benefits both the children and the taxpayers… truly a “win-win” for everyone.
But Zero-Based Budgeting is not just for public school districts. Counties, towns and cities are rediscovering the benefits of Zero-Based Budgeting; from small towns like Wimberley, Texas and Nashua, New Hampshire… to major metropolitan giants like Phoenix and Chicago. Likewise, it’s winning favor in state legislatures, as well. Already eighteen states are using it, with legislation pending in many others. And it’s not just a growing trend, here, in the US as it’s catching on in Canada and the UK, too.
Mr Marc J. Lane, a Chicago business and tax attorney and a financial advisor recently wrote an Op-Ed published in Chicago Business entitled Zero-based budgeting holds much promise for Illinois’ fiscal future:
“An unheralded provision of last spring’s budget legislation adds Illinois to the growing roster of states committed to performance-driven budgeting. “Budgeting for outcomes” was introduced by former Washington Gov. Gary Locke in 2002, when he faced a $2.5-billion budget shortfall. Mr. Locke reformed the way state officials prioritized and spent taxpayer dollars and, by 2003, had closed a nearly 15% budget gap. Since then, state after state has followed Mr. Locke’s lead, demanding that budgets be designed from the ground up, a common-sense practice now mandated in Illinois for fiscal year 2012 and beyond.”
Here’s how it works: The various departments of the particular government entity or building level, for public school districts, prepare and submit their budget proposals under the guidance and watchful eye of the Chief Financial Officer or Accounting Department. Within schools, this would include the input of teachers at the department level before presenting to to their building principals. This should include alternative levels of funding: with a Minimum Level below current spending, a Base Level reflecting current costs and an Improvement Level. The “Decision Package”, as it is called, is advanced to the administrator, if there is one, along with the elected officials, who sit down… to review these proposals. Then, the elected officials set priorities and make decisions as to what should be cut, changed or approved… just as we should all do with our own personal finances.
It’s not the job of a hired administrator, in my opinion, to decide on their own or with their hand-picked, small inner circle behind closed doors, what the spending priorities should be, because typically, they usually tend to be more concerned with implementing their own personal agenda, padding budgets, expanding costs and staffing – and, unfortunately, in some cases, how to enhance their own resume – rather than in what is best for the taxpayers and community.
But it’s not their job to care about the strain their spending places on taxpayers.
Think about it. When decisions as to how tax dollars are to be spent are made exclusively by paid administrators – and when they are operating within a system of Baseline Budgeting, it’s no wonder so many of our public schools and other levels of government are drowning in red ink.
I firmly believe it is the sworn duty of those whom the citizenry elects to represent them to have an active and participatory role in the budget process. This is what’s meant by having a representative form of government and is why our Constitution begins with the words: “We the People”. If it were otherwise and it was, in fact, the paid administrator’s exclusive right to make these budgetary decisions in a process which excluded those who sit on an elected board, I ask you, why even have elected officials at all? In such a situation you have taxation without representation… exactly what our ancestors fought against and died for during the American Revolution… and something which is a principle cornerstone of the founding of our nation.
A hired administrator’s job is limited to acting in an advisory capacity to the board – be it school, town or at county levels. You see, setting goals each year, establishing priorities, planning and making these kinds of decisions is the job of those we elect to represent us. Each of these components are vital to the creation of a successful budget and in operating an efficient, effective organization.
When a budget is written in a one-year vacuum, without considering its impact and ramifications going forward into subsequent years, it becomes simply a “placeholder”… or worse, like putting a band-aid over a life-threatening wound. At minimum, I believe public school districts should create a three-year balanced budget plan – and share it with their community in the interest of openness and transparency. It’s only by taking the time to map out a long-range view where we can solve these public schools and government’s dire financial problems… while actually working to avert any bankruptcies looming on the horizon so these organizations can become fiscally responsible.
Isn’t this what the voters and taxpayers expect?
Listen up… it’s not just all about money: Zero-Based Budgeting is very much tied to student performance and realistically improving both the school district’s cost-effectiveness, as well as the level of student learning. It’s about financial and educational accountability. Forget all the media and political hype about needing “educational reform”. Look at it this way, if you have educational accountability, you won’t need any “reform”.
Let me say it again. If you have educational accountability, you won’t need any “reform”.
In a nut shell, Zero-Based Budgeting pulls back on the reins, steering the organization onto the path leading to fiscal reality, soundness and sanity. In times of economic upheaval or even prosperity, it’s about living within our means – whatever that may be.
Critics claim it is too much work, but what they’re really afraid of is how Zero-Based Budgeting upsets the apple cart in that it exposes waste, inefficiencies and ineffective programs as it Derails the Gravy Train. Did you hear that? I’ll say it again: Zero-Based Budgeting exposes waste, inefficiencies and ineffective programs as it Derails the Gravy Train. It changes the paradigm as it eliminates the old status quo in favor of accountability and true transparency.
- Penn Hills School District cuts 44 jobs, contracts bussing to balance budget by Zak Koeske, Pittsburgh Post-Gazette (5/26/2011)
- North Hampton School Board pushes zero-based budget for 2009-10 by Tamara Le, Seacoast Online (11/25/2008)
- Zero-Based Budget Committee Page, Burlington School District (8/1/2011)
- Catskill looks at zero-based budget on March 1 by Paul Smart, WGXC Newsroom (2/25/2011)
- Plans for zero-based budgeting by Lynh Bul, The Arizona Republic (6/25/2011)
- Council adopts zero-based budgeting in preparation of future city budgets, The Hays County RoundUp (7/25/2011)
- OpEd: Zero-based budgeting holds much promise for Illinois’ fiscal future by Marc J. Lane, Chicago Business (1/10/2011)