High Price

September 16, 2005
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GRAND RAPIDS — A 10-year-old taught Peter Hutchinson everything he needed to know about being the superintendent of Minneapolis schools. When asked to define leadership, the young girl said, "A leader is someone who goes out and changes things to make things better." Therein lies Hutchinson's central belief about how governments should lead their people.

Years later, Hutchinson has applied that same common-sense-is-good-sense approach to solving the endless cycle of budget crises faced by governments across this country. At a Strategic Issues Series forum held last week at the Gerald R. Ford Museum, Hutchinson led a discussion about the theory behind a book he has written, and its application to Michigan. Joining Hutchinson at the podium were state Rep. Jerry Kooiman, R-Grand Rapids, and Jim Chrisinger from the Department of Management for the state of Iowa, which has implemented the book's approach. The theory in the book was attempted by the Michigan state House earlier this year — but rejected by the Senate.

The title of the book is, "The Price of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis," written along with governmental strategist David Osborne. It has proven to be a must-read for legislators in Lansing.

Hutchinson contends that the fundamental teachings of "The Price of Government" are few. In fact, most of them are summed up in the subtitle of the day's discussion: "Getting Citizens the Results They Want at the Price They Are Willing to Pay."

Hutchinson believes that governmental bodies should vow to live within their means. This, he said, is a fundamental shift in how to look at budgeting.

"It's not the math problem," he said. In other words, governments need to get out of the habit of looking at last year's budget, looking at this year's decreased revenue estimates and figuring out where cuts can be made. Instead of line items and cuts, Hutchinson spoke of "offers" and "outcomes." Essentially this involves a clean-slate ranking of the importance of the various services a government provides. With those rankings in place, the agencies and departments responsible for particular outcomes then make offers — proposals that detail the services they will provide and the "price" for those services they offer the decision-makers (or "buying teams" as Hutchinson calls them).

The decision-makers may choose to haggle over the price or the content of the offers. However, at the end of the budget-planning cycle, they will have agreed to all the appropriate offers from their component agencies and departments, setting a price on each and splitting the costs for them from the fixed revenue.

The overall price of government, as Hutchinson and Osborne define it, is equal to the sum of "all taxes, fees and charges paid by citizens for government services" as a percentage of the aggregate personal income within the government's jurisdiction. For example, Hutchinson showed that the combined price of state and local government in Michigan has remained relatively steady at 15 percent, which is in line with national averages. So instead of looking at state revenue estimates, legislators in Lansing can look at aggregate income figures, knowing that their bottom line for revenue will fall around 15 percent of that total—that is the amount Michiganders are willing to spend on government.

That is precisely what Kooiman and his colleagues in the House set out to do earlier this year when they became the nation's first legislature to attempt an outcomes-based budget plan. His fellow GOP representatives brought the idea to the table. The Republican majority set the tenor for the budget discussions, but allowed room for minority input. The process would be outcomes-based, but the Democrats would help choose the outcomes and sort out the offers in their respective subcommittees.

Kooiman said that the GOP plan to use the "Price of Government" budgeting method was met with resistance, but not nearly to the extent that his colleagues in the state Senate encountered. He said that Gov. Jennifer Granholm and both houses of the state legislature set out to craft the 2006 state budget using an outcomes-based method. That plan did not last very long for either Granholm or the Senate. Why? Kooiman suggested that the process championed in the book is simply too radically different for some of the state's lawmakers.

This, Hutchinson acknowledged, is the biggest challenge to the success of his brand of budgeting. He spent several minutes discussing the ways in which governments can undermine the outcomes-based budgeting process. In the end, he said, it comes down to strong leadership and an unwavering commitment to reforming the budget process.

Chrisinger showed how outcomes-based budgets have worked for the state of Iowa. The state is now in its third cycle of budgets based around the concepts detailed in "The Price of Government." While the process has met with its challenges, Chrisinger said that the commitment on the part of Gov. Tom Vilsack to initiate the process has resulted in some impressive reforms.

"It wasn't about a bunch of new money. It was about smarter spending of the money we had," said Chrisinger.

For example, the state has seen drastic changes in its corrections system. The desired outcome of the system, of course, is to reform criminals and ensure that they do not return to crime once they leave the correctional system. The administrators of the program found that was not happening. So, inspired by their call to create an outcomes-based budget, the department went through a major reinvention. Chrisinger emphasized that this was the heart of outcomes-based budgeting: It forces governments to rethink what they do and how they do it, not just how it is paid for. The state also reformed its early childhood health and education programs, as well as creating a program called "Great Places," which is akin to Michigan's Cool Cities initiative. All of these changes came as a direct result of the "Price of Government"-style budget, Chrisinger said.

Meanwhile in Lansing, Kooiman and his House GOP colleagues did not find quite the same level of success. Since the Senate had abandoned its outcomes-based budget, there were great discrepancies between its final product and that of the House. Kooiman said that the finished product kept some of the changes the House fought for, such as reforms in welfare and higher education funding. Some of their other recommendations were removed from the budget, but may move forward as independent bills.

The consolidated budget should be out of conference committee and on Granholm's desk by the end of the week. A great deal of the language offered by the House has been removed, but "the House's blueprint is all over it," Kooiman said. Although it is coming in $240 million over the House's budget, it is "hundreds of millions of dollars" lower than those proposed by either the governor or the Senate, he said.

Kooiman hopes for better luck in the future. He said that his GOP House colleagues are committed to continuing the outcomes-based budget in 2007 and beyond. The only way to bring the Senate around, however, might be term limits. Kooiman said that Senate Appropriations Committee Chair Shirley Johnson opposed outcomes-based budgeting and stated it would only happen over her dead body. He said she also scolded him never to use the words "The Price of Government" in her presence again.

Hutchinson is the first to admit that adopting his budgeting methods can be a slow, painful change. Finding the answers to make it work can be difficult, but governments must first ask the right questions.

"It's a question of: 'How much of the status quo are we willing to pay for?'" he said.    

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