Rewarding Efficiency in New Jersey

It is one of the enduring conundrums of public budgeting: How do you feed success and starve failure?
by | December 21, 2010 AT 11:00 AM

It is one of the enduring conundrums of public budgeting: How do you feed success and starve failure?

Consider the challenge.

If the local police department is struggling and crime is running high, does it make any sense to punish that police department by reducing its resources? It would seem that such an approach would only serve to further punish citizens -- hardly the intent.

Indeed, poor performance by public agencies can often mean additional funds. But this establishes the perverse situation of rewarding failure -- never a good thing.

New Jersey offers two interesting examples of trying to turn this thinking on its head.

The first is President Obama's Race to the Top initiative in education. The idea was that states would submit a proposal explaining what they were doing to improve education, and the federal government would supply additional funds to those states engaged in the most effective and innovative educational management initiatives.

By design, such an approach creates a difficult political dynamic by creating winners and losers. Out of all 50 states, only ten were awarded money based on what was essentially a giant bureaucratic questionnaire. On the plus side, it represents a grand effort in attempting to reward what works.

Somewhat famously, the state of New Jersey missed out on $400 million dollars in federal funding due to a few incorrect budget spreadsheets in its 1,000-page application. New Jersey Gov. Chris Christie was apoplectic. His state was sitting on a multibillion dollar budget deficit, and because of a picayune clerical error, was marked down enough points to land their application just out of the winner's circle. Christie fired his education secretary over the error and its aftermath.

Indeed, some critics contend that Race to the Top rewarded bureaucratic hoop-jumping more than anything else. With scoring criteria more complicated than the NFL quarterback rating system, the competition reduced largely subjective evaluations to scientifically-precise reports. Struggling states didn't get anything except a rejection letter.

The idea of finding and supporting successful public enterprises is a good one, however. In fact, Gov. Christie is instituting his own version of rewarding excellence by evaluating the efficiency of New Jersey municipalities -- and funding accordingly.

According to an article in the Philadelphia Inquirer, Christie will reduce local aid by 1 to 3 percent for those municipalities that fail to measure up in a state-administered test of municipal efficiency. According to the Inquirer, "Gov. Christie is trying to pressure the state's 566 municipalities to operate more efficiently and be more accountable to the public. The 88 items on the Local Government Best Practices checklist include questions about whether a municipality maintains a website, conducts an energy audit, shares services, and controls overtime costs."

Not surprisingly, the municipalities on the losing end of this assessment are crying foul, claiming the bureaucratic review is capricious, unfair and confusing.

Unlike the Race to the Top competition, the holdback amounts for New Jersey towns are generally quite small, often just a few hundred dollars and in no case more than a few thousand dollars.

The idea of being publicly ranked by the state, however, rankles local officials. No politician wants their town being rated as inefficient. Perhaps the publicity of being docked for being inefficient will spur innovation. Gov. Christie's efficiency experiment may be worth watching, since the low-dollar holdbacks may prompt change without the draconian cutsIn contrast to a competitive market, government institutions don't get replaced or supplanted by those with superior performance. The local police department or school system is generally the only game in town, a monopoly. Cut the budget, and the service might just get worse. Citizens suffer.

During tough times, public leaders will be rethinking the incentives produced through public budgets -- but getting the incentives right won't be easy.

Both Race to the Top and Gov. Christie are looking for that magic bullet that enables government to reward efficiency and punish failure without disregarding the citizens behind the service needs.