Introduction
Over the last two decades, considerable amount of reform and changes have occurred in the public budgeting of many states and counties. The beginning of 1990s saw more attention being redirected towards what is popularly known as performance budgeting or entrepreneurial budgeting (Tyer & Willand, 1997). However, it must be noted that these ideas and concepts did not just sprung up out of nowhere, but were invoked by the need to balance the fiscal constraints and, to offer adequate services to the public. The first major factor that controlled the criteria for performance budgeting is the need to create more employment. This emerged as public expected more from the resources in the state government and local government. In other words, the fact that government had the ability to control the private sector and increase the entrepreneurship spirit was enough to convince people that they were able to solve the increasing unemployment rate with the support of the state.
The second factor that encouraged reform was the need to balance trade. The simple purchase of goods and services was seen as one aspect that interlinked economies across the states and the world as a whole. This determined the amount of money allocated to increase the competitive advantage of various states.
The Reform Agenda: New Performance Budgeting in the 90s
The entrepreneurial or performance agenda was introduced in many states within the local budgeting systems as one strategy to solve increasing employment problems that had started emerging within the shrinking American economy. Many scholars used the term ‘new performance budgeting’ to signify the needed reform to increase the public participation in the building of stronger economy to support the increased service demands, among many other issues.
In 1992, David Osborne and Ted Gaebler published a book “Reinventing Government, How the Entrepreneurial Spirit Is Transforming the Public Sector” (Tyer& Willand, 1997). Their overall conclusion was that Americans do not have faith in the government as far as the general service provisions were concerned. To solve the cynicism, their proposal was the formation of a result-oriented budgetary system that would assist the public in holding the government accountable for the outcome of the budget implementation rather than the input as traditionally done previously. With this strategy, the government would focus on matters that would boost cost-cutting strategies and develop entrepreneurial spirit among the population, for direct and indirect job creation. They highlighted the Sunnyvale, State of California, which was considered a leader in their focus on the outcome rather than input.
Even before these reform changes took effect, several states had developed strategies to improve performance of the public sector in an attempt to spur performance improvement and subsequently strengthen the economy. For instance, about 23 federal governments had adopted the Chief Financial Officer Act of 1990, with the aim of developing and systematic reporting of performance measurements (Tyer & Willand, 1997). The local government entities also managed to adopt the government accounting standards through their respective boards, which were tasked with the responsibility of examining the service efforts as well as quality and outcome (Tyer & Willand, 1997). Their reports were reviewed and later incorporated in the reform agenda from 1992 onwards.
Federal Reforms
In an attempt to reinvent the government states and local governments through result oriented budget, more attention was turned to politicians who were facing public pressure to adopt systems that would encourage more investments, hence creation of more job opportunities. This saw the creation of “Government Performance and Results Act of 1993” (Tyer & Willand, 1997). This act was a follow up to the previous proposals by the previous Reagan government and the subsequent ones from senate, mainly focusing on the performance and results of the budgeting process. It specifically needed the federal governments to develop strategic plans and annual performance plans by 1997 and 1999 respectively (Tyer & Willand, 1997).
State Reforms
The performance budgeting took effect within many states in the 1990s. The National Governors’ Association (NGA) made an attempt to publish an “Action Agenda to Redesign State Government” in the 1993. Its aim was to create a performance based state governments, complete with goals that could be measured like benchmarks and performance measures so as to redirect it to performance budgeting for each state. Some studies conducted in a number of states revealed that many of these states such as Minnesota, Oregon, Montana, Virginia, and Texas had started adopting the performance budgeting (Lee, Johnson & Phillip, 2008). The first study by Cope (1995) found that although performance measures as well as budgeting had not yet reached the level in which it could influence the decision to allocate the budget due to lack of appropriate and reliable data and limited time span for implementation, thhe views of the public showed that many people approved of the need to continue with performance budgeting. The internal opinions also indicated that it was seen as a useful concept for internal agency management. This is because it was viewed as the only way the governments could create an environment for job opportunities through public-private collaboration.
In fact, the need to develop a continuously rewarding budget, which would make resource allocation decisions geared towards public programs to create more opportunities for the people, was the norm, and states which did not embrace the trend found themselves facing a lot of pressure from their citizens.
Budgetary Reforms and Balance of Trade
The local reforms in the 1990s were also meant to solve the problem of unbalanced terms of trade between the party states, through the new entrepreneurial approach. For example, Sunnyvale, California had attracted a lot of attention from the neighboring states for its government inspired performance results initiatives.
The individual states had their people yearning for more benefits in the trade arrangements between them and the neighboring people from other states. The amount of money allocated for the trade projects were viewed by many people as the ultimate decider of the income generation initiatives and increase of wealth of the states as well as that of the people in general. Osborne and Gaebler cited Sunnyvale that was viewed as a typical reflector of how a state can manage its balance of trade through application of the performance measurements criteria.
Although Sunnyvale did not receive any extra financial support from the government different from other states, it worked its trade factors and generated enough strategies to ensure the people get adequate opportunity to express their entrepreneurial opportunity within and outside the territory. It was realized that managers of Sunnyvale, with its population of 120,000 people applied a unique management style. The local government’s budgeting was focused towards goals that would need between 5 and 20 years to accomplish, as they were comprised of seven elements and twenty sub-elements that set the city’s policies (Tyer & Willand, 1997). The city’s General plan was implemented in line with its Resource Allocation Plan backed by a ten-year budget. This ten-year-budget was focused on the performance of specific areas of the economy, notably trade with objectivity and productivity measures connected to the bigger plan. It is important to note that the Sunnyvale represent a typical contemporary city with performance budgeting as the main focus.
Rock Hill-South Carolina has also been hailed for its exemplary approach to budgeting and innovative management of their strategic plan for several years. This performance saw the state receive the Government Finance Officers Distinguished Budget Award in 1996 (Tyer & Willand, 1997). Facing competition from the neighboring centers such as Charlotte- North Carolina and the declining economic status of the people, Rock Hill resorted to prudent financial management and workable budget practices. The budget was referred to as ‘strategic budgeting’ due to the manner in which it was built and planned (Tyer & Willand, 1997). The guiding principle was the treatment of budget as “a policy guide, a financial plan, an operational guide, and a communications device with citizens and tax payers” (Tyer & Willand, 1997). Basically, this budget is comprised of detailed issues about the funds and addresses all the needs of the organization, with the help of goals and objectives that can be measured in certain circumstances. The time schedule for its implementation is normally more than one year.
A close examination of Rock Hill budget shows that they do not depend on any line-item in the budgeting process, but instead relies of the program goals and objectives from each department, where the end result is measured in terms of performance. This in essence is the shift of focus towards accountability and developing a result-oriented budget.
Interview with Mayor Carlos Alvarez, Miami-Dade County Council
Many county councils and states have struggled with the increased costs of operations and service provisions in the recent past. Some people have blamed poor budgeting as the cause of these unending deficits. One of such counties is the Miami-Dade, with its recent deficits forcing a lot of proposed changes to keep it running. Mayor Carlos Alvarez proposed several changes to the budget of financial year 2009-2010, a proposal that is expected to negatively impact on the job opportunities, reduce income per capita and create imbalanced trade between the county and its trading partners. The proposal is targeting reduction of workforce and introduces service cuts within the Miami-Dade County Council, in an attempt to make up for the budget shortfall of $427 million.
According to Mayor Carlos, the budget cut proposal for all county departments is critical to satisfying the citizens’ needs and at the same time keeping up with the increased cost of operations of the county council. “The proposed budget will retain the core services and public safety intact, since for quite long we have provided quality services at a reasonably lower cost” said Mayor Carlos. However, as noted the proposed budget cut would lead to over 1700 lay offs, in addition to low household income due to 5% cut in pay. This is despite the need to boost income of each household in the Miami- Dado. Mayor Carlos defended the proposal over job loss claims by stating that they are intending to do less in an attempt to shift more services to the private sector that would be able to focus more on strategic planning and management. His conviction is that service provisions handed over to private sector would present more efficiency than the county could offer.
It is critical to note that community may not be willing to pay more for the services that have been privatized, hence the likelihood of development of conflict of interest. This is further perpetuated by the increased demand for low cost services due to reduced income per capita of the citizens. Mayor Carlos admits that even though cost for services is likely to go up, he is optimistic that the people’s income would be boosted by the increased job opportunities from the private sector units. Furthermore, he believes that many companies would emerge to offer services formerly offered by the council, a phenomenon likely to create competition and subsequently reducing the cost to the citizens’ advantage.
Notably, some units will not face the budget cut debacle as they are regarded as more sensitive and may scuttle the whole process if they faced similar fate. Such units are like the sworn police, fire and correction officers, believed to be very critical to the society than any other units. But a proposal of 10% cut on the budgets of County’s Executive Office, Attorney’s office, and the Board of County Commissioners are seen as a strategic approach to seek public approval on the entire process of changes made and the implementation process; a claim that Mayor Carlos disputes as not true. According to him, the entire budget cut proposal particularly that which involve executives pay cut, is aimed at reducing the overhead cost in the running of the county while maintaining service quality. His argument is hinged on the belief that privatization will mean reduced responsibility to the available staff and thus there is no point paying them huge sums of salaries and wages for less work. Further elimination of all the discretionary reserves is meant to limit the probability of wastage.
The budget cut proposal will see parks and other recreational facilities, culture and heritage services, and the social services get hugely affected. Other areas that are likely to be negatively affected are the community-based organizations, which the proposal suggests should b eliminated. The grants to the cultural organization will be eliminated; the libraries will be closed for 2 days per-week; the Park programs that are not able to run in a sustainable manner will end and the maintenance of the park will be reduced by approximately 25%. Well over 400,000 senior meals will not be offered to reduce the overhead costs of operations within the council. Finally, miles covered by the bus will be cut down by over 2.5 million after the restructuring of traveled routes within and around the city.
Questioned on the role of this budget cut on the overall trade balance for Miami-Dade County following these adverse changes, Mayor Carlos stated that “over the last one and a half decades, the cost of government has been comparatively flat and significantly reduced in the last three years, thus setting the precedent that such a reduction would create a better opportunities for the private investors to come in large numbers. He says, “Miami-Dade has managed to fill the budget gap of a whooping $400 million, and if this year is included in the arithmetic, it’ll add up to $800 million, a clear manifestation of how our strategies can work.
Across other states, there are completely different approaches to the declining revenue for the states and counties. Rock Hill developed a new approach where they tend to shift the focus towards accountability and make the outcome more result-oriented. In this way, they are responding to the revenue constraints and scarce resources, which required that they focus more into the strategic management of resource in both planning and implementation. The other city Sunnyvale, seen in the perspective of being more entrepreneurial in nature, are basing their strategy towards the development of strategic plans and more advanced towards boosting investments in the region in order to be more competitive. Moreover, some evidences have suggested that productivity and quality at the local levels generally have great impacts into the national economic status.
When asked about the main concern that the Miami-Dado council faced in relation to the their approach to managing the council affairs, Mayor Carlos stated that they were mainly interested in building a long term future plan to boost trade in the region and create more employment. This in effect is expected to eliminate the traditional aspect of budgeting in the past that focused mainly on the input rather than output. The scaling down of employees is in effect meant to increase efficiency in the overall strategy to eliminate extra cost and develop sustainable approach to employment and stable income for the people. He stated that it was no longer viable to continue burdening the county with many staff members whose services could not be accounted for in the end. Mayor Carlos’ idea is that the retrenched workers would need to use their send off packages to go into private business and develop the economy better than it is at present. He states, “One can make use of this opportunity and develop a business plan, invest and reap a lot of benefit more than he or she got from employment, in addition to adding value to the state.
Conclusion
The county council reforms in the last two decades emerged as a result of the continuously diminishing revenue and increased budget constraints. The reduced employment opportunities had set a scenario where citizens start to demand more from their counties, that is, creating an enabling environment where more job opportunities would be created. In essence, the increased entrepreneurial spirit was the needed fuel to kick-start the strategic budgeting. Secondly, the need to balance trade was seen as an aspect that would en courage more investors into the state.
Mayor Carlos’ idea is that Miami-Dade cannot afford to continue with the trend of doing everything by itself and instead strived to develop strategy through budget cut and relinquishing some of the services to the private sectors. Admittedly, the cost of implementing the program will see costs of services go up. Although the budget cut will significantly affect many departments such as social services, leisure and recreational services, and cultural services, some departments considered more sensitive will not be affected. Instead, they will be supported by the development of a strategic approach by revenue got from the executive’s pay cut. This is supported by further elimination of discretionary reserves, consequently reducing wastage and increasing efficiency through privatization.
Reference
Cope, G. H. (1995). Budgeting for Performance in Local Government. Washington, DC. International City Management Association, 42-52.
Lee, D.R., Johnson, R.W., & Phillip, G.J. (2008). Public Budgeting System. Pennsylvania. Jones & Bartlett Publishers.
Tyer, C., & Willand, J. (1997). Public budgeting in America: A Twentieth Century Retrospective. Journal of Public Budgeting, Accounting and Financial Management, Vol. 9, No. 2