The Kindest Cuts

Taking a Fresh Look at State Spending.

With its budget under stress, Iowa hired a consulting company to help it find ways to cut down on spending without disrupting services. Instead of paying Public Strategies Group an upfront fee, though, the state will reimburse the company out of money saved.

The cuts PSG targeted for the current budget come to $128 million. When the savings are realized, PSG will get 5 percent of the total; when policy improvements are documented, the company will get another 5 percent.

The savings package is made up of three main parts. First, the state is slashing aid to localities by $70 million, while removing some mandates and constraints. Then, the state is allowing some agencies greater freedom if they will agree to take a 10 percent cut in general fund money. The rest of the savings will come out of reforming the child welfare system.

PSG has become a cabinet-level "reinvention partner" in Iowa, reflecting the administration's desire for long-lasting change. "This isn't just a one-year effort to reduce costs and introduce reforms," says Cynthia Eisenhauer, director of the state department of management and budget. State officials hope that the skills at reinventing government will transcend the current administration and legislature.

Washington State also turned to a consultant for a new approach to its finances this year, designing and implementing "results-oriented budgeting." Instead of state agencies preparing budgets and asking for money, the state and its consultant drew up a list of priorities and allotted money based on the ability to achieve those objectives.