Budgeting is not going to get easier for states anytime soon. In a Rockefeller Institute report released in August, fiscal analyst Nicholas W. Jenny concluded that "underlying state revenue trends in fiscal year 2003 were still down." When he factored inflation into the revenue numbers, he found state tax collections were 0.2 percent lower for the fiscal year.

But problems present an opportunity--to solve them. State budget leaders are looking with increasing interest at new wrinkles in budgeting strategies, such as those the state of Washington used this past budgeting session. Its "Priorities of Government" was developed to find a more rational--and politically acceptable--way to cut the budget.

Under POG, representatives from the governor's office and the state Office of Financial Management plus agency heads--some 150 executive branch folks in all--examined the 1,400 programs that the state runs, looking at what the state does by function, rather than by agency. The state agencies were asked to lay out the cost of each of their specific programs and to describe what they thought the programs accomplished--in simple, everyday English. They were also asked to rank each program according to priority. At least one-third of each agency's programs had to be placed in the low-priority category.

The resulting guidebook provided the raw material for the POG group to assess programs and initiatives according to their effectiveness in achieving 10 overarching goals in education, transportation, health, public safety and other areas. As the team developed the budget, some programs survived, others--such as lower class size and higher teacher pay--were suspended as unaffordable. In the end, the POG group was able to make budgeting decisions that might not have been made by separate agencies drafting their own budgets. And they closed a $2.6 billion gap without raising taxes.

"What POG supplied us with, aside from an unfortunate acronym," says assistant budget director Candace Espeseth, "was a disciplined way to keep focused statewide on what we're trying to achieve. In many ways, the Priorities of Government was not revolutionary, but you almost need the excuse to ignore the agency structure for a while to look at what programs work."

The "brilliance" of the POG exercise, in state Representative Fred Jarrett's view, was to reconcile everything at once instead of letting agency people or constituent groups fight to preserve all their favorite programs. But some legislators, including state House Appropriations Chair Helen Sommers, complained that the exercise was a ruse, that Governor Gary Locke just cut what he wanted to cut and labeled it a way of remaking government.

The whole notion of performance or zero-based budgeting is not, of course, new. Such ideas have been trotted out under different names at least since the Carter administration. Virginia has had a system of performance measures in place for a decade, but those mostly have amounted to yet another set of rarely read tables at the back of budget reports. The commonwealth is now stepping up its efforts with a new council, including the governor and top legislators, that is charged with finding specific savings through technology and streamlining.

Several outside experts agree that the Washington approach was more thorough than other budget-management attempts. "As far as having a formal process to determine the priorities of government," says Scott Pattison, of the National Association of State Budget Officers, "they are fairly unique."