By Chris Fabian, Jon Johnson, and Kathie Novak
Chris Fabian, Jon Johnson, and Kathie Novak will serve as presenters and facilitators for the interactive Leadership Training Seminar, "Achieving Fiscal Health and Wellness" at the Congress of Cities and Exposition on November 29th in Boston, Massachusetts.
Revenue growth is slowing, expenses are increasing, fund balances are dwindling, and it's perceived that these conditions will persist for the foreseeable future. As David Osbourne and Peter Hutchinson proclaim in their 2004 book, The Price of Government, we are in an "age of permanent fiscal crisis!"(1) The National League of Cities(2) identifies "local fiscal conditions" as a top issue, while the U.S. Government Accountability Office anticipates "persistent fiscal challenges."(3)
But why do local government professionals believe that this is the crisis? What assumptions do we hold so firmly and that so calcify our thinking to convince us that changing fiscal conditions represent our crisis? Would higher revenues and lower expenses allow us to operate crisis free? Or does the true crisis exist when, despite our fiscal realities, we don't focus on those priorities and objectives that ensure the success of our communities?
THE CRISIS IS NOT FISCAL
In Reengineering the Corporation, Michael Hammer writes that organizations suffer from "inflexibility, unresponsiveness, the absence of customer focus, an obsession with activity rather than result, bureaucratic paralysis, lack of innovation, and high overhead." Why?
"If costs were high, they could be passed on to customers. If customers were dissatisfied, they had nowhere else to turn."(4) Should we in government only now be concerned with flexibility, responsiveness, customer focus, and results because we can no longer afford not to be?
Perhaps the biggest concern we face is not a fiscal crisis. Fiscal trends and conditions are by and large out of our control, and simply represent a reality with which we need to cope. The real crisis on our hands is whether our organizations have the capabilities to address current fiscal realities and still meet the objectives of government and the expectations of our constituents.
When facing declining growth in revenues, government leaders have approached the issue of balancing the budget in similar ways. A recent article describes California's approach to managing its fiscal reality:
The spokesman for the Governor said, "In our view, an across-the-board approach is designed to protect essential services, by spreading those reductions as evenly as possible so no single program gets singled out for severe reductions." In response the state legislative analyst wrote, "the governor's approach would be like a family deciding to cut its monthly mortgage payment, dining-out tab, and Netflix subscription each by 10 percent rather than eliminating the restaurant and DVD spending in order to keep up the house payments."(5)
The Price of Government describes more thoroughly the "7 Deadly Sins" or the seven most commonly implemented strategies that local governments use to manage their fiscal realities:(6)
1. Rob Peter to pay Paul.
2. Use accounting tricks.
4. Sell assets.
5. Make something up.
6. Nickel and dime the employees.
7. Delay asset maintenance or replacement.
Although these strategies lead to balanced budgets, do they really assist us in reaching our greater objective- that of achieving results and meeting citizens' demands? Don't they ultimately lead to cost cutting that impacts highly desired services at the same level as services that are relatively unimportant to citizens?
Don't they endanger government's ability to provide statutorily mandated services while preserving those services that are simply nice to have? And furthermore, what does this say about the strategies that governments would use to allocate resources when more revenue was available?
The true crisis governments face is hardly fiscal; it's a crisis of priorities. How strategic are we, as local government professionals, about understanding what we do, why we do it, and (in times of scarcity as well as abundance) how we should invest our resources to achieve the results our communities need? While focusing on priorities sometimes takes a back seat to other issues during times of fiscal stress, it is actually even more critical to make prioritization a top priority.
PRIORITIZATION, A BETTER WAY TO DEAL WITH THE CRISIS
Prioritization is a way to provide clarity about how a government should invest resources in order to meet its stated objectives, and about what services could be funded at a reduced level without impacting those objectives.
Prioritization as a process helps us better articulate why the programs we offer exist, what value they offer to citizens, how they benefit the community, what price we pay for them, and what objectives and citizen demands are they achieving.
The objectives of implementing a successful prioritization initiative allow us to:
• Evaluate the services we provide, one versus another.
• Better understand our services in the context of the cause-and-effect relationship they have on the organization's priorities.
• Provide a higher degree of understanding among decision makers as they engage in a process to rank services based on priorities.
• Articulate to people in the organization and to the public how we value our services, how we invest in our priorities, and how we divest ourselves of lower-priority services.
While we are not advocating that public sector organizations mimic our colleagues in the private sector, we find context in an unusual and unique private sector perspective from Jack Welch, famed chief executive officer of GE: Every company has strong business or product lines and weak ones and some in between. Differentiation requires managers to know which is which and invest accordingly . . . [T]o do that you have to have a clear-cut definition of "strong." At GE, "strong" meant a business was No. 1 or No. 2 in its market. If it wasn't, the managers had to fix it, sell it, or close it . . . differentiation among your businesses requires a transparent framework that everyone in the company understands.(7)
To meet our real crisis, a comparable approach should be applied by government leaders whereby our programs are prioritized, which in turn encourages decision makers to recognize high-priority resource allocations and differentiate them from those of low priority.
THE PROCESS OF PRIORITIZATION
The logic behind prioritization is that effective resource allocation decisions are transparent then the results of an organization can be identified and defined, when programs and services can be distinctly (and quantitatively) evaluated as to their influence on any of the results, and when programs can be valued relative to one another and ultimately prioritized on the basis of their impact on results.
Successful execution of prioritization depends on three factors:
• The Right Results: Accurate prioritization of programs depends on the comprehensive identification of the results we are in business to achieve.
• The Right Definitions: Precision in prioritization results from the articulation of the cause-and-effect relationship between a program and a result. With clearly defined causality and an understanding of the influences on results, we can minimize subjectivity in linking programs with results.
• The Right Valuation: With the right results and with clear definitions we can accurately value our programs relative to their influence on achieving results.
SUMMARIZING PRIORITIZATION: PUTTING IT ALL TOGETHER
The final steps in the prioritization process involve weighting the results, calculating program scores, and developing a top to bottom summary of all programs, in approximate order of priority. It is critical that this process be completed before making any budget decisions.
This is a significant deviation from the budgeting for outcomes process because with the premise outlined in this article, prioritization is the beginning of any resource allocation discussion. As in GE's differentiation process, using prioritization assumes that regardless of the amount of revenue an organization generates, regardless of a reasonably calculated price of government, and regardless of what amount of funding a board, council, or citizenry feels a particular result should receive, it is only when confronted with the end product of prioritization that resource allocation discussions can begin.
The biggest challenge we face in government is not the ever-changing fiscal conditions. Instead, the issue most often is a crisis of strategy. Recognizing this, we believe that implementing prioritization is an effective way to combat crises. All organizations, especially those that are stewards of public resources, establish values and objectives to meet the expectations of those for whom they exist to serve.
Resources contributed by the community or other constituencies are dedicated to achieve those established objectives, regardless of the current fiscal condition. As we evaluate the inventories of all programs and services offered, we would find it implausible to believe that each achieves those objectives to an equal extent.
Prioritization offers an objective process that allows those responsible for resource allocation decisions to ensure that those programs of higher value to citizens, those programs that achieve the organization's objectives most visibly and effectively, can be sustained through adequate funding levels regardless of the fiscal crisis du jour.
Whether there are more resources to distribute or fewer to allocate, prioritization guides that allocation toward those programs most highly valued by the organization and, most important, by the citizens who depend on those programs for their well-being, their comfort, and their expected quality of life.
Chris Fabian and Jon Johnson are Co-Founders of the Center for Priority Based Budgeting, and Kathie Novak is a Senior Advisor to the Center for Priority Based Budgeting and NLC Past President.
Details: Learn more about this and the full set of Leadership Training Seminars being offered at the upcoming Congress of Cities and Exposition. For questions, contact Laura Lanford.
(1)David Osborne and Peter Hutchinson, The Price of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis (New York: Basic Books, 2004).
(2)Christine Becker, "Local Fiscal Conditions, Public Infrastructure Important Issues to NLC Members," Nation's Cities Weekly, December 3, 2007.
(3)"State and Local Governments: Persistent Fiscal Challenges Will Likely Emerge within the Next Decade," Report no. GAO-07-1080SP (Washington, D.C.: U.S. Government Accountability Office, July 18, 2007).
(4)Michael Hammer and James Champy, Reengineering the Corporation: A Manifesto for Business Revolution (New York: Harper-Business, 1993).
(5)Mike Zapler, "Governor's Depiction of Finances Accurate, Solution Falls Short," Mercury News, Sacramento Bureau, January 15, 2008.
(6)Osborne and Hutchinson, The Price of Government.
(7)Jack Welch, Winning, with Suzy Welch (New York: Harper Business Publishers, 2005).