By Larry Jones
July 12, 2004

During the June 28 Luncheon, David Osborne, coauthor of the "Price of Government" and a senior partner with the Public Strategies Group in Essex, Massachusetts, discussed his latest publication with mayors. The book provides a radically different approach to budgeting which he calls "budgeting for outcomes." It focuses on buying results for citizens rather than cutting or adding to last year's spending programs. It provides detailed advice to government leaders at all levels on how they can use consolidation, competition, customer choice, and a relentless focus on results to achieve millions in savings while improving public services.

He started his discussion by reminding mayors that governments at all levels are facing the worst fiscal crisis since World War II and that the crisis "is going to be relatively permanent." He points out there are two forces driving this permanent crisis: (1) the cost of health care, which he said has been increasing on average by 10 percent per year for the last 35 years, and he predicts it will continue to increase by 10 percent over the next 35 years; and (2) the aging population, which he points out "the average age in this country is now pushing 80, which means that lots of people are living to be 85 and 90." By living longer, people will collect pensions and Social Security for a much longer time, and consume an enormous amount of health care. These costs are "eating your budgets alive," he said.

Osborne cited a study released by the Congressional Budget Office last December which projected, based on current trends in spending, that within the next 25 years the federal government would only be able to afford four things: Medicare, Medicaid, Social Security and Interest on the federal debt. As the fiscal crisis worsens, Osborne told mayors they should expect less money from the federal and state levels of government. "That's the bad news. For most of you money is going to be tight as long as you-re mayor. But there is good news as well because every crisis brings opportunity. And there is tremendous opportunity here to reinvent our public institutions to deliver far more value and far better results for less money."

To address the fiscal crisis, Osborne told mayors his book provides government leaders practical advice in five major areas: smarter budgeting, smarter sizing, smarter spending, smarter management and smarter leadership. But he focused most of his discussion on budgeting "because," as he states "budgeting is the powerful driver of behavior in any organization."

He first pointed out that most government agencies approach budgeting by putting together "last year's costs, add inflation, add any case load increases, add anything new they want to do and they add a little padding because they know you-re going to cut them." While agency directors add padding and do all they can to make it hard to cut their budgets, budget analysts spend their time looking for the padding. "But the worst place to sit is where you sit because you folks [mayors] get to cut spending, raise taxes and get the blame." In this process, Osborne said all of the energy focuses on cuts and tax increases or fee increases.

Budgeting for outcomes focuses energy on producing results citizens value at a price they are willing to pay. The key steps included in the process are: (1) setting the price of government or establishing up front how much people are willing to pay; (2) setting the priorities of government; (3) setting the price of each priority; (4) developing a purchasing plan for each priority; (5) soliciting offers from providers to deliver the desired results; (6) buying the best and cutting the rest; and (7) negotiating performance agreements with the chosen providers.