Prioritizing Your Budget – Part II

Last month’s newsletter ended with the question whether programs with their own funding source should be treated differently in the prioritization process. The best answer to that question is Yes and No.

Proposition. The prioritization process, discussed last month, is useful for the allocation of tax dollars to programs. If a program is TOTALLY financed by fees or grants, then it gets no tax dollars and should be excluded from the prioritization process. However, to the extent that it is subsidized by taxes, it should be included.

If governments were to adopt this approach, it would have the following effects:

1. The budget process would be simpler as fewer programs would require review.

2. A simpler budget process would allow for more analysis of the tax programs.

3. Departments would see an advantage in reducing their dependence on taxes by instituting fees for services.

4. Departments would have a greater incentive to match their staffing with the projected workload.

If we accept the fact that the budget process is a game, then this last point should suggest an amendment to our Proposition: Projecting that your operation is going to be 100% financed from fees is nice but actually having your operation 100% financed from fees should be the criteria. The only way this can practically happen, is to account for fee-supported operations in a special revenue or enterprise fund where the annual profits and loses can balance each other over time. This amendment addresses the It’s Free budget game identified by Chris Argyris in his book,

Overcoming Organizational Defenses.

Is there a risk that customers will be gouged by government fees under this proposition? In my experience, departments typically undercharge for services because they have to deal directly with the customer and, therefore, are the most sensitive to complaints. The private sector has the marketplace for pricing discipline. The surrogate in governments is the tension created when the department has the legislative pressure to charge full-cost on one side and the customer complaining about high fees on the other side.

To make this approach work, the free programs need the Costing Process to insure that they are truly free.

Okay – we’ve taken care of fee and grant programs and can now focus exclusively on tax programs.

Prioritizing Tax Programs. Given that the budget process is a game, prioritizing programs requires more information than just the name of the program. Last month’s newsletter mentioned that a Costing Process is necessary to provide the data for prioritizing; and, the first step in the Costing Process is to define the level of detail you want to provide for various services. For example: park maintenance. What do we need to know in order to prioritize this program? I suggest the following would be a good start:

1. How often are the parks mowed?

2. What grass height are they mowed to?

3. How many acres can be mowed by one worker in a day?

4. Would the of acres mowed in a day increase with a different mower?

5. (and my favorite) What would be the consequence of not mowing?

We’ve just raised the issues of: (1) maintenance standards, and (2) productivity. In my opinion, it would be hard to prioritize park maintenance without knowing the answer to the above questions. And, once the answers are known, there might be multiple cost options for park maintenance which would lead to multiple priority options.

By taking our costing process down to the lowest level possible, we are also addressing Chris Argyris’ the Hidden Ball game where an unattractive program is concealed within an attractive one; and we’re also dealing with the It Can’t Be Measured game by showing that the program really can be measured.

In summary, the Costing Process can help simplify the budget process by focusing effort on the allocation of tax dollars and is essential in the prioritization process to thwart the game players in the budget process.