The memo from Harriet Rangstrom, Zenith City's budget director, was unambiguous. Like every other city agency, your Department of Public Works will need to cut this fiscal year's expenditures by 5 percent and next year's by 15 percent. With revenues declining, the West Dakota legislature has reduced its support for the cities and counties in the state. Zenith City is stuck. And so are you.
Not that you are surprised. You read the newspapers. Last fall, you observed that the national economy was slowing down, that the state's economy was slowing down, that state and local revenues were slowing down, and thus that your department--like every other public agency in West Dakota--would soon be forced to cut expenditures.
You have held a variety of managerial positions in both Zenith City and West Dakota and, in the process, have learned to deal with budget cuts. Thus, last fall, you realized your need to dust off these old skills. You started to think ahead.
You did not, however, start by reducing expenditures. You anticipated, correctly, that when the order to reduce spending came, it would be an across-the-board cut. Politicians hate pain. They don't get elected by imposing pain. But if there has to be some, politicians always want to "share the pain." This, after all, is only "fair." Everyone, goes the political logic, "should bear an equal burden." Thus, Budget Director Rangstrom, in response to the clear desires of the mayor and the city council, is requiring every department in city government to reduce current-year expenditures by the identical 5 percent.
This, of course, isn't really "fair." It punishes the efficient who had managed to control expenditures by improving productivity and driving down costs. And it rewards the inefficient who have habitually requested (and, in good economic times won) larger and larger budgets. And from what baseline will the cuts be imposed? From the year's budget? Or from a straight-line projection of the year's expenditures?
Thus, in thinking ahead, you had decided not to reduce total expenditures below your monthly allotment. Instead, you had shifted some expenditures from current operations to the purchase of more materials and other items that your department would need. For example, while saving money by not filling vacant positions, you had accelerated the purchase of tires--any public works agency always needs tires--and stockpiled them in every spare corner you could find. Thus, whenever you were eventually ordered to reduce expenditures, you could cut expenditures for tires to zero without hurting operations.
But 5 percent! Starting April 1! Rangstrom's required cut is larger than you had anticipated. For several months, in the corridors before and after the mayor's bi-weekly cabinet meetings, you and your colleagues had speculated quietly about the prospects for some kind of expenditure constraint. If, however, someone had organized a pool on the size of the fiscal year's total cut, no one would have taken 5 percent.
For, in reality, this 5 percent cut in fiscal 2001 expenditures requires a whopping 20 percent cut in the last quarter's expenditures. That's why all of the department heads are in shock. Rangstrom delivered her memo on March 20, which hardly gave you time to get the cuts in place by April 1. But even if you had implemented all of your cuts on the day the memo came down, you would still have needed to cut the last quarter's expenditures by a full 20 percent to reduce total expenditures for the fiscal year (which ends June 30) by 5 percent. The Zenith City Tribune has belittled it as a "mere 5 percent cut." But to every department director in the city, it is big--real big.
Still, that is the number, and all of the departments will have to live with it. Moreover, while implementing these big, quick cuts, you also have to undertake some detailed planning about how to make some intelligent, non-crippling reductions in next year's budget. Consequently, the traditional game of simply moving some expenditures across the fiscal-year border is not particularly attractive. Indeed, Rangstrom explicitly warned against this tactic in her memo, and promised to punish any department director who tried it. Moreover, she threatened to penalize any director who, while appearing to abide by the letter of the expenditure-reduction requirement, employed "illegitimate tactics that undermine the city's real need to cut real expenditures."
In Zenith City, the Department of Public Works maintains all of the city's streets. Construction of new, arterial streets is the responsibility of the state highway department. But the construction of new side streets and the maintenance and periodic resurfacing of all streets is your department's job. Deferring street maintenance would be one obvious strategy for reducing expenditures in the short run (while driving up future costs). But is this "illegitimate"?
What should you do?
You can read Bob Behn's solution to this problem on Governing's Web site, Governing.com. Behn is also the author of "Rethinking Democratic Accountability" (Brookings).