Bad-News Budgeting

When revenues dry up, states and localities tend to make cuts that leave them less able to deliver services effectively.

A few years ago, a good friend of ours told us about the sea slug, a slimy aquatic creature that our friend said subsists by eating algae. Eventually, it affixes itself to a rock with no algae available. It then nourishes itself by absorbing its own brain. Based on subsequent research, we discovered that story was kind of a sub-oceanic urban myth.

Still, when we started to think about the slowing economy--and what governments are going to do with their budgets--we couldn't get that apocryphal sea slug story out of our mind. Based on reasonably recent history, we're guessing that any number of cities, states and counties are even now beginning to make exactly the kinds of cuts that will eventually leave them less able to deliver services efficiently and effectively: cutting management analysis, employee training, IT budgets and the like.

Maybe we're wrong. We hope so. But if history is a guide, we're not. There was an epidemic of such cuts in the last recession.

The rationale is simple: When agencies are told to cut their budgets by 2 or 3 percent or more, the tendency is to try to do this without reducing or eliminating services or positions. As Jean-Baptiste Colbert, Louis XIV's minister of finance, observed in a slightly different context, the object is to "pluck the goose so as to obtain the largest amount of feathers with the least amount of hissing."

Almost every government agrees, for example, that it has grown more efficient through proper use of computers in recent years. But listen to Ann Eilbracht, director of human resources for Minneapolis. At a recent meeting where department heads had to come up with an additional $3 million in cuts for 2002, she found department heads saying that if they had to choose between people and PCs, they wouldn't buy more PCs. "The irony," Eilbracht says, "is that if the PCs are making you more efficient, they will enable you to save more money over time."

Or consider training. Ask almost any human resource official in the country what happens when money grows short and you'll get the same answer. In most places, "training has been considered dispensable," says Adrienne Trott, chief of human resources in Jacksonville, Florida. Trott notes that her city is committed to protecting its training budget through hard times. That's smart.

Training, in fact, is even more critical when money is short. "You can't hire new people, so you're stuck with people who have been in the system for a long time," says Sally Selden, associate professor of management at Lynchburg College in Virginia. "If you take away the training budgets, government becomes even less efficient than it's depicted as being. Governments that cut back on training will lose the progress they've made over the last 10 years."

Similarly, a number of agencies will likely decide that they hardly need a strong recruiting program when unemployment is high and there are plenty of applicants. But, Selden points out, "Just because there are more applicants doesn't mean they're not crummy. And when money is short, you need good recruiting efforts to make especially sure that the few hires you have are of high quality."

In the capital management realm, we'd be willing to bet that many cuts will come out of routine maintenance budgets. Nobody really notices when states or cities shortchange this area--until roofs start springing leaks or roads start to crumble. And when that happens, the costs are many times greater than they would have been had the routine maintenance been done on a timely basis.

Even in good times, this is such an easy area to cut that states such as Oklahoma, South Carolina and Tennessee have chronically underfunded it. While Oklahoma was moving forward on a $1 billion program for road construction last year, for example, maintenance funding was cut. So what do you think will happen in cities and states when money is really tight?

Actually, one of our biggest fears is that governments will cut back on their efforts in strategic planning, performance measurement and other evaluation. For years now, even as the movement to use these tools gathered steam, we've heard grumblings about cost. A couple of years ago, one Nevada official observed that these efforts could have value, but that "strategic planning--or any other management tool-- pulls state employees' valuable and limited time away from providing services to Nevada taxpayers."

We'd argue that performance measurement and good planning are even more important in hard times. If you've got all the money in the world, there's little need to set priorities; you can just throw more money at problems. But when money is short, knowing which programs work and which don't is of paramount importance.

Of course, nothing is easy when revenues slow dramatically. We're far happier writing about budget cutting than doing it. But there's one thing we're sure about: The easiest cuts aren't always the smartest ones. It may be better to let a few geese squawk.

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