Testimony to Senate Finance Committee, April 11
Below is my testimony this morning regarding SB 272, which would eliminate the current statutory requirement for baseline budgeting:
My name, for the record, is Geoffrey Lawrence and I am deputy director of policy at the Nevada Policy Research Institute. I'm happy to speak to you today regarding the key policy concepts contained in Senate Bill 272. As you may be aware, NPRI is a 501(c)(3) organization and, as such, does not advocate for or against specific legislation. However, I believe the main policy idea embodied in Senate Bill 272 has merit.
The bill's language does nothing more than to confer greater flexibility to the state budget director to adopt alternative methodologies for constructing the Executive Budget proposal. The budget director is currently compelled by statute to use the "baseline" budgeting method, which continuously carries over spending on all programs while adding in new spending to account for inflation, caseload adjustment and automatic, across-the-board, annual employee pay raises.
These so-called "roll-up" costs are substantial. For the 2011-2013 budget cycle, they would increase General Fund spending by $1.93 billion or 30.1 percent over the $6.42 billion spent in the 2009-2011 budget cycle. In fact, the terms "base" or "baseline" really are misnomers because the line is continually moving upward.
The statutory requirement for baseline budgeting hampers the administration's ability to adapt its budget proposal to the changing needs and resources of the state.
Further, the base budget figure creates a perpetual justification for burdening Nevada families with new or higher taxes. Even when tax revenues are growing, the baseline budgeting process motivates lawmakers to impose new or higher taxes when the growth in revenues does not keep pace with agencies' desired growth in spending. As I said, the base budget figure for the upcoming budget cycle represents a 30.1 percent increase over the current budget cycle. It is rarely the case that revenues grow at an equal rate and so, even if Nevada were in a period of sustained economic growth, it is likely that agencies' base budget requests would still outpace citizens' ability to finance that spending.
Perhaps the most glaring weakness of the baseline budgeting technique, however, is that it fails to impose meaningful accountability over the use of public funds. A baseline budget effectively means that all state programs receive a free ride into the next budget proposal, regardless of performance. In other words, the technique can be used to protect workers who are not doing their job.
While the administration and/or lawmakers can perform ad hoc reviews of the effectiveness of particular programs, a base budget does not systematically require state offices to justify their existence. Yet, every state office should constantly be reviewed to determine whether they are accomplishing the policy objectives outlined for them by lawmakers and, indeed, whether those objectives remain high priorities for the state and its people.
This is why the Nevada Policy Research Institute supports the concept of performance-based budgeting, known alternatively as "Results-Based Budgeting" and "Budgeting for Outcomes." Performance-based budgeting imposes systematic accountability over the use of tax dollars by more closely aligning spending with results.
Many state offices do not have clearly articulated goals and, as such, it is impossible to measure performance toward those goals. Others have performance metrics ill-suited to measure progress toward the supposed policy objective. For instance, the performance indicators currently used to evaluate Nevada Check-Up include:
1. Average monthly enrollment.
2. Average eligibility processing time in days.
3. Customer service phone call abandonment rate.
These metrics do nothing more than trumpet how many people have signed up for the program; they say nothing about whether or not its participants have benefitted. More befitting metrics might detail how the program has impacted the health insurance coverage rates of children or, even more significantly, how the program has impacted health outcomes for children.
Research nationwide shows that the majority of new enrollees in State Children's Health Insurance Programs, like Nevada Check-Up, held private health insurance policies prior to enrollment - indicating that most SCHIP programs have done a poor job at targeting families that really needed help. As such, it makes little sense to use performance metrics that trumpet high enrollment numbers and fail to measure progress toward the program's more fundamental purpose.
I don't mean to pick on Nevada Check-Up specifically. The performance indicators used for Nevada's Medicaid programs also focus on the number of enrollees and say nothing regarding health outcomes. Likewise, the performance indicators used for most K-12 educational programs focus on enrollment and not test scores or graduation rates. If the focus were shifted to providing the greatest benefit to program beneficiaries, then tax dollars would likely be used much more effectively.
The performance-based budgeting technique allows policymakers to outline their highest-priority policy goals while ensuring that limited state resources are used for the cost-effective realization of those goals. Programs that are not justified within the framework of policymakers' highest-priority goals - meaning those that have become irrelevant to the state's needs - are systematically eliminated as every dollar spent must be justified in terms of how it helps to meet one or more of those goals.
In its highest form, performance-based budgeting means that lawmakers grant greater autonomy to agency directors regarding the means with which they accomplish the policy objectives outlined by lawmakers. The expertise of state personnel often extends far beyond lawmakers' understanding of highly technical fields. As such, an efficient model of governance would see lawmakers establishing clear policy objectives and relying on the expertise of state personnel to determine how best to realize those objectives instead of debating highly specific budget line items. SAGE Commission Executive Director Frank Partlow has called this "the proper business of legislators."
Of course, with greater autonomy should come greater accountability. In Iowa, where performance-based budgeting has been pursued aggressively, the governor signs performance contracts with agency directors who agree to deliver quantifiable progress toward lawmakers' highest policy objectives. Failure to achieve the performance goals can result in disciplinary action, including dismissal. However, performance contracts are also structured to reward excellence. State agencies in Iowa that meet or exceed performance metrics and do so under budget are able to keep half of the savings, which can be used to provide bonuses to highly effective employees or to invest in capital equipment. The remaining half reverts to the state general fund, benefitting taxpayers.
Performance-based budgeting is simply about achieving the maximum return on tax dollars. As such, the approach has received bipartisan support in states where it has been instituted. In Nevada, former assembly speaker Barbara Buckley introduced a performance-based budgeting bill in 2009, which has been re-introduced by Assemblywoman Debbie Smith this session. Governor Sandoval has also indicated his support for a performance-based budgeting technique and has assembled a performance-based budget document.
NPRI has produced a blueprint for adopting performance-based budgeting in Nevada called "Better Budgeting for Better Results," and I believe a copy has been supplied to every lawmaker. I can make additional copies available to anyone who is interested.
Senate Bill 272 would remove the most prominent obstacle to an effective performance-based budgeting approach by eliminating the requirement to adhere to the baseline approach. It should be noted, that Senate Bill 272 would not preclude the state budget director from creating a base budget, or from adopting any other budgeting methodology; it simply allows the budget director to choose whatever method is deemed most appropriate.
