David OsborneThe Public Strategies

Group

www.psg.us

978 768 3244

David OsborneThe Public Strategies

Group

www.psg.us

978 768 3244

A New Budget Process for Louisiana

A New Budget Process for Louisiana

5-Year Budget Outlook5-Year Budget Outlook5-Year Budget Outlook5-Year Budget Outlook

2

9.4 8.1 8.2 8.5 8.8

9.4

8.19.1

10.5 10.7

.91.9 1.9

0

5

10

15

20

25

30

35

1970 1975 1980 1985 1990 1995 2000 2005

Percent of Total Spending

K-12

Health

Safety

Human ServicesTransportation

Source: Bureau of Economic Analysis, National Income and Product Accounts (NIPA) Table 3.16

Distribution of State and Local Spending, 1972-2005

Distribution of State and Local Spending, 1972-2005

Distribution of State Spending 1987-2005Distribution of State

Spending 1987-2005

Distribution of State Spending 1987-2015Distribution of State

Spending 1987-2015

0

5

10

15

20

25

30

35

40

45

50

1987 1991 1995 1999 2003 2007 2011 2015

% of State Spending (All Funds)

Education

Health

Medicaid

Transportation

Corrections

Public Assistance

State and Local Government Surplus and Deficit 1980-2050

As a Percentage of GDP

State and Local Government Surplus and Deficit 1980-2050

As a Percentage of GDP

-5.00

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Source: U.S. Government Accountability Office (GAO)

Percentage of GDP

Operating Budgets

Operating and Capital Budgets

The Fiscal Crisis is Permanent

The Fiscal Crisis is Permanent

• A “perfect storm” – the convergence of inexorable cost drivers:

• 10% annual increase in health care costs.

• Pension (and Social Security) obligations as population ages.

The Current Path is Simply Not Sustainable

The Current Path is Simply Not Sustainable

• We need better results for less money, every year.

• Bureaucratic government cannot deliver that.

• We need post-bureaucratic government, capable of continuous improvement.

Duct TapeDuct Tape

• Across-the-board cuts

• Consolidation

• Performance audits and studies

• Creating oversight groups

• Reorganization

Who Said It?Who Said It?

“We trained hard, but every time we were beginning to form up into teams, we would be reorganized. I was to learn later in life that we tend to meet any new situation by reorganizing ... and a wonderful method it can be for creating the illusion of progress while producing inefficiency and demoralization.”

-- Petronius, A.D. 66

The DNA of Public Systems and Organizations

The DNA of Public Systems and Organizations

• Purpose

• Incentives

• Accountability

• Power

• Culture

The Budget System…The Budget System…

… is the most powerful driver within government.

Traditional budget instructions ask managers to explain how much it will cost to do:

• what they did last year,

• in the same way they did it last year,

• with the same results they got last year.

The Current Budget GameThe Current Budget Game

Cost- Based Budgeting

Starting Point Last Year = BASE costs

Addition Autopilot increases = new BASE

Plus “needs”

Submission Justification for needs/costs

Incentives Build up costs - make cuts hard

The Current Game (cont’d)The Current Game (cont’d)

Analyst’s job Find hidden/ unnecessary costs

State Officials’ job

Choose to cut services, OR

Raise taxes to cover costs

GET BLAMED!

Focus of debate What to cut

What to tax

Wouldn’t It Be Nice If…Wouldn’t It Be Nice If…

Your budget process aligned your money to deliver the results citizens valued? If it:

• Got rid of low-value spending

• Moved money into higher-value, more cost-effective strategies and programs

• Motivated all managers to find better, cheaper ways to deliver results

Inputs Activities Outputs OutcomesResults

Move Focus From Here…

…to Here!

Let’s Fund Results, Not Activities

Let’s Fund Results, Not Activities

We Need to Answer Four Basic Questions

We Need to Answer Four Basic Questions

• How much revenue will we have: What price of government will we charge our citizens?

• What outcomes matter most to our citizens?

• How much should we spend to achieve each outcome?

• How can we BEST deliver each outcome that citizens expect?

Louisiana’s Outcome GoalsLouisiana’s Outcome Goals

Education: I want increased academic achievement for all students, fewer children dropping out of school, and an educated workforce

Economic Development: I want Louisiana to retain, grow, and attract good jobs in a diversified, growing economy, while wisely utilizing cultural and natural resources.

Transportation: I want better, cleaner, safer and less congested modes of transportation, and I want to get where I need to go efficiently and reliably.

Hurricane Protection and Emergency Preparedness: I want Louisiana to better prepare for, respond to and recover from the next emergency (hurricanes and all other hazards).

Louisiana’s Outcome Goals (2)Louisiana’s Outcome Goals (2)

Public Safety: I want less crime and for people of all ages to be safe at home, school, work and while traveling.

Self Sufficiency: I want self-sufficient families and healthy and safe Louisianans.

Health: I want better health for Louisianans, more affordable care, and the creation of a culture of personal responsibility for health.

Natural Resources: I want a better environment and abundant natural resources, and I want to preserve Louisiana as a sportsman’s paradise.

Transparent, Accountable, and Efficient Government: I want a smaller, more cost-effective state government I can trust and be proud of.

Tracking Progress on Outcome Goals

Tracking Progress on Outcome Goals

We will define 3 key indicators for each one.

E.g., for health care, one state chose:

• Infant mortality rate

• Self-perception of health on survey

• Percentage with health insurance

Pricing the PrioritiesPricing the Priorities

• How much are they each worth? Not how much do they cost?

• It’s judgment about relative priorities, not science

• Leaders can revisit these decisions later in the process

• The purpose is to create 9 finite pots of money, for which programs must compete

Delivering the Results Delivering the Results

• Teams of policy experts analyze the basic factors that have the most influence on the outcome.

• They use those factors to create a Cause-and-Effect Map, showing the relationships between those factors.

H E ALT H

R is kFa cto rs

E nv ironme ntB eh avio r

O ccupa tion

R ace /e thn ic ity

Age andge nder

S oc io -

econo mics ta tus

C ongen ita l

& G ene tic

fac tor s

A dequ atew ate r

S af ew ate r

Saf efood

A dequ atefood

E xp osu re to

ha zar dou sm ater ia ls

Exp osu re to

com m un ica bled iseas es

E xp osu re to

ha zar dou scond it ions

S ee k

ap prop riat ecare

S e lf- p ro tec t

fro m ac ciden tan d in ju ry

H ea lth y

sexu albe hav io r

H ea lth yE xe rc is e

R educ e

subs tan ceab use

R educ eob esity

H ealth yd ie t

C are S pe cial tycar e

Em er ge ncycar e

C hron ic /longte rm c are

P rima ry careP reventivecar e

A ccess to

cover ag e

Q ua lity

p rov id ers an dfacilit ies

G eog ra ph ic

d is tribu tio n o f

p ro v iders an dfacilit ies

R educ e

toba cco

use

ENVIRONMENT

HEALTHHEALTH

RISKFACTORS

CARE

BEHAVIOR

Sample Cause-and-Effect Map for Health

Sample Cause-and-Effect Map for Health

ImpactNational Health Expenditures

$1.2 trillion

Source: Centers for Disease Control and Prevention, University of California at San Francisco, Institute for the Future

Health Impact vs. SpendingHealth Impact vs. Spending

Turning Cause-and-Effect Maps Into Purchasing Strategies

Turning Cause-and-Effect Maps Into Purchasing Strategies

• Focus on changing lifestyle choices (smoking, drinking, diet, exercise, etc.).

• Focus on prevention: pre-natal care, immunizations, educating new parents, etc.

• Stop high-cost, repetitive cycles of care in emergency rooms.

• Electronic health records, to eliminate duplicate tests, increase quality and cut costs.

Potential Health Care Examples:

Turning Purchasing Strategies Into “Requests for

Results”

Turning Purchasing Strategies Into “Requests for

Results”

• Budget Office issues new budget instructions, called “Requests for Results”

• For each outcome goal, the RFR explains the purchasing strategies, the funds available, & the desired results.

• They include other criteria as well, such as: “We will look favorably on offers than involve collaboration between agencies, or partnerships with NGOs.”

“Sellers” Make Offers“Sellers” Make Offers

• Offers promise a specific level of performance at a specific price.

• They include proposed measures of performance.

• Offers assume no guarantee of funding based on historic levels.

• Offers are opportunities for departments to propose new, innovative practices.

Buyers Seek the Most Results for the MoneyBuyers Seek the Most Results for the Money

Budget office:

• Evaluates offers

• Engages in dialogue with sellers

• Gives feedback

• Ask sellers for better offers

Innovative Offers: ExamplesInnovative Offers: Examples

• Washington State: shifted $45 million in Medicaid money from emergency room care to drug & alcohol treatment

• Iowa: Reinventing the Corrections Dept.

• Los Angeles: New method to repave streets, using cold slurry seal

• Ft. Collins, Co.: Dial-a-Ride Solution

Budget Office Prioritizes Final Offers

Budget Office Prioritizes Final Offers

• Sellers submit new, improved offers

• Budget office engages in further dialogue with sellers

• Budget office prioritizes offers within each outcome goal; recommends activities to fund and activities to eliminate

The Bottom LineThe Bottom Line

• Balanced budget without gimmicks

• Focus on the ‘keeps,’ not the cuts

• Buy results, not costs

• Important new investments go to the front of the queue

• Performance accountability

• Continuous reform/ improvement