Government's Budget Myopia

Governors, mayors and budget directors need to update the budgeting process to ensure IT-enabled innovations.
April 14, 2010
Jerry Mechlin
By Jerry Mechling  |  Contributor
A consultant and former faculty member of the Harvard Kennedy School

Most of us know that budgeting is the premier policy process in government: a priority isn't a priority until it's funded.

We may also know that the biggest changes over the last several decades (and the biggest changes expected over the next several decades) come from innovations that are enabled by information technologies. This is the information age. We live in an extended era of adjustment to the explosively growing capabilities of digital data, processing and communications.

What far too many fail to realize, however, is that government budgeting is poorly structured when it comes to allocating resources for high-value IT initiatives. I'm a former budget director, and I love budgets. But we are myopic in dangerous ways about IT budgeting.

So, why and how is IT budgeting myopic?

The core problem is that budgeting, by historic design and necessity, looks first for how to balance next year's budget. It does this most naturally by looking one year at a time, one program at a time, with a search for increments up and down so the budget can be balanced.

But that's not where the high-value IT-enabled initiatives are to be found. If, as the age-old joke employed by my fellow columnist Babak Armajani goes, the foolish mullah insists on searching under the lamppost for keys lost some distance away "because the light is better," we'll continue to ignore the fundamentals. For high-value IT, budgeting must find and then fund:

Investments, not expenditures. When, for example, we create a way to deliver services over the net for "online, not in line" access, the infrastructure and standardization required will be used for many years, not just one.

Integration across programs, not just within program silos. Our critical problems now include "connecting the dots" in counterterrorism; sharing health information safely and efficiently across hospitals, laboratories, doctor's offices, patients, insurance companies and the government; and lifelong education that is fruitfully integrated with changing job markets and lifestyles.

Innovations, not just ups and downs within the old ways of working. Over time, progress comes from innovation, not simply from doing well what we've already learned to do. First agriculture, then industry, and now today's global, knowledge-based economies are all fruits of once risky innovations.

But budgeting myopia -- focusing too narrowly on single years, single programs and current activities -- has been the norm forever. What makes us think that now is the time to do something about it?

The answer is because the economy will dramatically change government budgets now, so our analysis and decisions are even more difficult and more important than before. Those too slow in making information age adjustments will lose their most interesting and important jobs to inherently better-supported and more efficient communities. Falling behind at this point is not just unfortunate; for many it will become a self-reinforcing death spiral. "Ghost towns" may no longer be a thing of the past.

And what can we do about it?

We can correct for our excessively single-year, single-program, up-or-down myopia:

Budget for multi-year investments and fund them as such. The budget process needs to seriously search for longer-term investments, such as broadband and wireless infrastructure, new opportunities for self-service (video-based driver training and easier-to-navigate interactive forms) and consolidated back-office support with shared-service economies of professionalism and scale. Such investments, as a rule, should be funded from capital rather than expense budgets, much as Massachusetts has done. While longer-term benefits are essential contributions to the net present value that justifies investments, it's also essential for the portfolio to include enough short-term results to mobilize and sustain political support. Fortunately, compared to a decade ago, we now have the tools for quick and modular construction of new systems; visible results can be delivered in a matter of months, not years.

Budget for cross-program initiatives, especially sharing data with communities of interest and the public. Standardized data can allow agencies and the public to report once for many purposes, rather than suffering under requirements for multiple and repeated "single purpose" reports. For example, corporate financial reporting in the Netherlands is now considerably more efficient and effective because firms make available real-time data feeds to replace a series of required reports. Closer to home, the D.C. data feeds and federal initiatives are releasing government data to encourage transparency and feedback for better productivity and civic trust. To find these cross-boundary opportunities, the budget process must search for them.

Budget for innovation including new partnerships with the public and private sector. To "protect our seed corn," budgets should make the innovation portfolio visible. Within this portfolio, funding and action need not come only from government. Sensible partnerships and competition can be arranged with corporations, non-profits and the public, so government mostly "steers" and only "rows" when it should. When citizens move to innovative online education, online licensing and online problem reporting (as with Boston's new Citizens Connect smartphone app), demands on government are reduced. If innovation is the only way we can adjust to the demographics and technologies of the information age, budgeting needs to face the innovation problem squarely.

Fundamentally, we've got to get our most important policy process better aligned with our most powerful tools for reaching policy goals, for example, IT-enabled innovations. With smarter budgeting, more intelligent budget directors and with better oversight by mayors, governors and others, now is the time to correct for budget myopia -- not because it would be nice, but because we must.