Zero base budgeting in municipalities

ZERO BASE BUDGETING IN MUNICIPALITIES

SCOTT S. COWEN

School of Management. Case Western Reserve University. Cleveland. OH 44106. USA

Abstract-The use of Zero Base Budgeting (ZBB) in the public sector has increased significantly since the early 1970’s. Recent surveys have indicated that the federal government, twelve state governments and several municipalities are either in the process of implementing a ZBB System or have one in effect. The primary purpose of this paper is to determine (1) the extent to which ZBB is being used in cities, (2) the procedures and practices being employed in user cities. and (3) the problems and benefits of ZBB as a management tool in local governments. This information, collected from a mail questionnaire. provides insight into how effectively ZBB works in the pubhc sector. in general: and. in cities, in particular.

INTRODUCTION

THE USE of Zero-Base Budgeting (ZBB) as a management tool has become increasingly popular in the private and public sectors since the early 1970’s [l]. Recent surveys have indicated that ZBB is now used by fifty four of the largest corporations, eleven state governments, and in the federal government [2,3,4]. In addition, several municipalities have been identified as ZBB users [S].

As indicated above, the experiences of ZBB users in companies and states have been well chronicled in the literature. Particular attention has been devoted to identifying ZBB users, the pros and cons of the approach, and the practical hurdles encountered in systems implementation. In contrast, little is know about the extent of use of ZBB in municipalities and in the federal government other than the fact that it is being used. This paper attempts to fill the knowledge gap on the use of ZBB in municipalities by reporting the findings of an on-going research project by the author to determine (1) the extent to which ZBB is being used in municipalities, (2) the procedures and practices employed in user cities, (3) the benefits, problems and impact of ZBB in municipalities, and (4) the efficacy of ZBB as a management tool in the public sector. As a result of the “‘newness” of this budgeting approach in local governments, only tentative answers can be provided for questions 3 and 4. It is much too early to judge the impact, efficacy, and success of ZBB in user cities until they have had the opportunity to go through several budget cycles using the new technique.

REVIEW OF ZBB IN THE PUBLIC SECTOR

The concept of ZBB, that is, building a budget up from ground zero, is not new in the budgeting literature. Wildavsky and Hammann, in a classic article on the use of comprehensive budgeting (later to be known as ZBB) in the Department of Agricul- ture, clearly indicate that the ZBB concept has been periodically voiced in the budgeting literature since the early part of the 20th century [6]. What is new is the methodology employed to implement a ZBB system.

One of the earliest known applications of the technique in the private sector was at Texas Instruments in 1969. The company had considerable success with ZBB and, consequently, their experiences have been well documented in the literature [7]. As a result of TI’s success, the use of ZBB began to expand rapidly in the 1970’s. Georgia (1972) and Garland, Texas (1974) were the first state and city, respectively, to use ZBB and their experiences served as the impetus for other state and local governments to follow suit.

ZBB in state ~o~e~~~e~t

According to a survey made by Schick and Keith in 1976 eleven states (of the 41 responding to their questionnaire) indicated the use of ZBB in their budget process [4,

I’S41 r 65

Tab

le

I. Z

BB

pr

actic

es

in

sele

cted

st

ates

*

Mai

n sy

stem

fo

r bu

dget

re

ques

ts

Use

of

Z

BB

sy

stem

:

Add

ition

al

Mai

n fo

rmat

so

urce

of

fo

r bu

dget

da

ta

pres

enta

tion

Por

tion

of

prog

ram

Z

BB

re

view

ed**

Dec

isio

n

pack

ages

Com

pone

nts

of

ZB

B

syst

em:

Incr

emen

tal

per-

D

istin

ctio

ns:

cent

ages

or

am

ount

s co

ntin

uing

. of

ex

pend

iture

s ex

pand

ing

neu

Ark

ansa

s X

X

X

M

ost

X

X

X

Cal

iforn

ia

X

Som

e X

G

eorg

ia

X

All

X

X

X

Idah

o X

S

ome

X

X

Iliin

ois

X

Sim

ilar

X

X

Mis

sour

i X

A

ll X

X

X

M

onta

na

For

P

ilot

Grp

. F

or

Pilo

t G

rp.

Pilo

t G

rp.

X

X

X

New

Je

rsey

X

X

A

ll X

X

X

Rho

de

Isla

nd

X

All

***

Ten

ness

ee

X

All

X

X

Tex

as

X

X

All

X

X

-_

--

*Thi

s ta

ble

incl

udes

on

ly

thos

e st

ates

w

hich

cu

rren

tly

empl

oy

a Z

BB

sy

stem

co

nsis

tent

w

ith

the

defin

ition

pr

ovid

ed

by

this

>t

udy

and

is

base

d up

on

both

qu

estlo

nnat

rc

resp

onse

s an

d a

surv

ey

of

docu

men

ts.

** P

ossi

ble

resp

onse

s In

clud

e:

all.

mos

t. so

me.

pi

lot

grou

p.

and

none

. Ilh

nols

di

d no

t an

swer

th

is

ques

tion.

**

* In

R

hode

is

land

de

clsl

on

pack

ages

on

re

ques

ts

f<>

r cxp

andl

ng

prog

ram

s or

de

velo

ping

ne

w

prog

ram

s ar

e pr

epar

ed

b\

cent

ral

budg

et

stat

f fo

r co

nsid

erat

ion

and

dcte

rmin

atto

n

* by

the

G

over

nor.

S

ourc

e:

14.

p. 3

01

Zero base budgeting in municipalities 67

p. 201. Table 1 contains a summary of ZBB practices in selected states. Most of the states using ZBB indicated that the process was their main system for budget preparation rather than being used as a supplemental system. As applied in most of these user states, the ZBB process is comprised of four steps:

1. Identi~cation of Decision Units. 2. Preparation of Decision Packages. 3. Ranking of Decision Packages. 4. Preparation of Operating Budgets (utilizing a line-item of expenditure format).

These four steps follow from the “classical” ZBB approach despite the fact that there are considerable differences among the states with regard to how each step is performed. Most of the user states expressed general satisfaction with their ZBB system with some minor exceptions. Some of the general comments and observations made are indicated in Table 2.

ZBB in the federal government

Beginning with FY 79 budgets, federal agencies are required to use ZBB as part of their normal budget process. Shortly after President Carter took office in January, 1977 he issued a memorandum to the heads of all executive agencies and departments expressing his interest in using ZBB in the federal government [S]. This interest no doubt resulted from the President’s success with ZBB in the State of Georgia during his tenure of office as Governor. This favorable experience, coupled with his great desire to achieve a balanced budget by 1980 and eliminate “bureaucratic budget slack”, provided the incentive for him to convert a campaign promise into action.

In response to the President’s request, the Office of Management and Budget issued Bulletin No. 77-9 in April 19, 1977 and Circular No. A-11 in June 29, 1977 which provided the framework for departments and agencies to prepare their ZBB submis- sions [9, lo]. Both documents described, in general, the requirements under ZBB, but left it to the discretion of the individual organizations to prescribe specific procedures and reporting formats. Since most of these departments and agencies are just concluding their initial impiementation phase with ZBB it is premature to evaluate the efficacy of this tool in improving the federal budget process. The Office of Management and Budget (OMB) is currently conducting a review and evaluation of the FY 79 experiences with the expectations of changing procedures for FY 80 [ll].

As briefly mentioned earlier, a budget system similar to ZBB in concept has previously been used in the federal government. In the Spring of 1962, the Department of Agricul- ture, then under the direction of Orville Freeman, attempted a comprehensive and zero-

Table 2. General comments by selected ZBB user states

State

Connecticut

Georgia

Idaho

Nebraska

New Jersey

Pennsylvania

Rhode island

Comments Positive Negative

“Shakes up” agencies and reduces overall Direct savings minimal: public appeal dic- budget requests. tates what ultimately stays and goes. Forces agencies to prioritize their activities; visibility of day-to-day operations: goaf congruence: more interest in budget development. Some reductions in budget: Jo&rsed on State agencies had an inadequate under- new ways to perform certain programs. standing of the process: not enough time

for training or implementation. Better information available for decision making.

Agency and staff resistance: lack ol understanding of basic concepts.

Caused shift from input orientation to out- put orientation, Tradeoff analysis improved. Led to a reallocation of funds and etimin- ation 0r 1300 positions.

Source: [4, pp. 23-261

based review of all departmental programs. A description and evaluation of this one-year experiment is contained in Wildavsky and. Hammann’s article [6]. The authors. based on their discussions with agency personnel, concluded that the experiment was generally unsuccessful. However, they did feel that the ZBB budget methodology had the potential to offer significant improvements in budget review if properly modified. It would be unfair to infer from the Department of Agriculture experiment that ZBB will not work in the federal government. Since 1962 the ZBB methodology has undergone a significant evolutionary process which has refined and improved the tool.

METHODOLOGY

There were 157 cities sampled as part of this project, A complete list of the sampled cities is contained in Appendix A. The initial sample consisted of all cities with a popula- tion in excess of 250,000 people. The Municipal Finance Officer’s Association, located in Chicago, provided assistance by identifying these cities and providing the name and address of the chief budget officer or financial officer in each municipality. This sample was constructed under the assumption that larger municipalities are more likely to have an incentive to experiment with innovative and sophisticated budget systems than smaller cities. The validity of this assumption may be questionable but it was necessary to limit sample size.

A review of Appendix A also indicates cities queried that do not meet the size criterion. These additional governmental units were added as the research project progressed. One of the questions in the questionnaire used required the respondant to name any cities known to be ZBB users. As these cities ‘were identified they were subsequently added to the sample. The inclusion of these cities no doubt biased the results upward but it also provided a better understanding of who is using ZBB and the practices being followed by these users.

A five page objective questionnaire was developed, pretested and subsequently mailed to each of the budget officers in the sampled cities. The questionnaire was constructed to be consistent with the survey instruments used in previous ZBB surveys by Schick and Keith. Dean, and Hermanson and Minmier 14, 12, 131. It was felt that this might allow for a comparative analysis among the studies in the future; each of which used ;I different sample of organizations.

The questionnaire was designed to determine:

1. what role ZBB played in the regular budget process, and 7 an ex-post and ex-ante evaluation of the technique, and _.

3. the primary problems associated with the use of ZBB, and 4. the subsequent modifications made to the ZBB process after its initial implemen-

tation.

Municipalities using ZBB were further requested to send any documents, e.g. manuals, budgets, forms, etc., which described and illustrated, in greater detail, their ZBB system.

Of the 157 cities contacted, 109 cities responded to the questionnaire---a response rate of 69”,,. This response rate is impressive for mail survey research and also considering the length of the questionnaire and the time required to complete it. In addition to the completed questionnaire, many budget officers, representing user and non-user cities, appended their questionnaire with letters and additional comments.


Table 3. Extent of use of ZBB

Number of cities

ZBB Users-Documentation Provided ZBB Users-No Documentation Provided Cities Incorporating Some Aspects of ZBB

19 2

into Regular Budget Process Non-ZBB Users: Actively Considering use

of ZBB Non-ZBB Users: Not Considering Use Cities Rejecting Use of ZBB Total

13

36 33

6 109

RESULTS

Extent of use

Table 3 provides a summary of the extent of use and interest in ZBB among the sampled cities. Nineteen cities were clearly identified as ZBB users. Another two cities stated they used ZBB but did not provide enough documentation to validate this use.

Budget officers from thirteen different cities commented that they did not use ZBB because their current budget system already incorporated many of the more desirable ZBB features. For example, several cities require managers to submit budget requests below current levels without having them go through the process of preparing decision packages. In two cities, departmental managers are required to identify at least one program which could be eliminated by the city manager if funding constraints are too limited. Thus, even though these cities do not use a ZBB system per se, their present budget system requires managers to do a more comprehensive review of the budget as well as identify areas for possible funding reductions or eliminations.

Table 3 also indicates that approximately 33:d of the cities not currently using ZBB or having a system which incorporates some ZBB features are considering the use of this system in the future. Questionnaire responses clearly indicated interest among budget officers in this process and the recognition of its potential usefulness in cities where

there are “unlimited needs but limited resources.” .Interestingly enough, there were only a half dozen cities who had considered the use of ZBB and subsequently rejected it. In one of these cases, the city had actually used the technique for 1 yr and subsequently dropped it in the next fiscal year. This is the only instance of a municipality having not continued the use of ZBB once implemented.

Mechanics of the ZBB process

Of the nineteen cities using ZBB (see Table 4) sixteen use it as their main budget system. The exceptions-Saginaw, Michigan and Wethersfield, Connecticut-used ZBB as

an “add-on” system to their current budget system. As Table 4 indicates, ZBB is being used in cities of all sizes. In addition, most of these cities are applying ZBB to all organizational units; the primary exception is in the analysis of debt service and the delivery of mandatory activities. These particular areas are non-discretionary and, therefore, not subject to funding flexibility. Most cities agree that ZBB is of little use in reviewing strictly non-discretionary cost items.

As applied in cities, ZBB involves the preparation of decision packages describing the consequences of different levels of funding and a ranking of packages in order of priority. Appendix B contains a summary profile of the ZBB process in six representa- tive municipalities. A cursory examination of these profiles indicates the diversity of ZBB practices being employed. As one budget officer indicated in a letter “if ZBB is to be effective, the system must be modified to meet the needs of the organization.” The observation certainly appears valid given the diverse practices being followed by user cities. ZBB is a flexible tool which can be used by any organization in any type of setting assuming management invests the time to properly modify and implement ZBB.

% rc

>>>>>>==: =>z --_____I__ --

g> >>> g_---_

2

xx


Table 5. Problems in using ZBB (Listed in order of priority from most critical to least critical)

1. Requires more time and effort than other budget methods. 2. Requires cost and evaluation information which is often not available or difficult to collect. 3

i:

Difficulty in measuring incremental benefits ol’ decision packages. Administrative and communication effort is increased in the planning and budgeting process.

5. Difficult to evaluate different or dissimilar Tunctionai decision packages on the same scale. 6. Difficult to rank order a large number of decision packages. 7. Evaluating and ranking or decision packages becomes a political problem. x. Dithcult to measure the impact of not performing a function. 9. Difficult to identify different levels of effort for performing the same function.

IO. Difficult to design Terms and procedures that capture all oi the inrormation that is required. I I. ZBB forces the organization to make different decisions. I’. Cannot do away with traditional approach to budgeting. 13. Inability to identify and define ditferent ways ol perrorming a lunction. 14. Difficult to evaluate existing and new decision packages in the same way. 15. ZBB threatens the manager.

Problems

As part of the questionnaire, ZBB users were asked to identify and rank the problems encountered in using ZBB. Their responses are summarized in Table 5. The most often mentioned problem was that ZBB requires more time and effort than the previous budget method-in both the initial year and in subsequent years. Next in importance are the problems of ranking a large number of packages, measuring incremental benefits, and comparing and ranking decision packages from dissimiliar activities. In essence, the ZBB process requires organizations to gather information and make analyses previously not required, thus making the process time-consuming, inefficient. and difficult to work with initially. However, the “learning curve effect” begins to take hold in subsequent years and ZBB users find their initial problems to be minimal.

Interestingly enough, the problem most cited by city budget officers, i.e. the system takes more time, is the most frequently cited criticism of ZBB by users in both the private and public sectors. ZBB users can minimize this problem to some degree by carefully tailoring the technique to their organization and providing flexibility in how decision packages are prepared and ranked. Several cities have eliminated the step of decision package preparation, and are just requiring program or departmental managers to identify at least one activity which could be eliminated if needed. The ranking and review process can also be simplified and made less time consuming by aggregating decision packages into consolidated decision packages or by focusing review on the marginal packages. Both of these shortcuts undermine the process but are necessary to make the system practical.

Another problem often cited was the difficulty users have in measuring benefits. This particular problem is not unique in the public sector where the profit-motive is lacking. When benefits can not be dollar quantified users are forced to develop surrogate measures which do not often have the informational content desired. As a result, compar- ability among decision packages becomes more complex because of the differing units of measurement and the criteria used to rank becomes “softer.” Instead of ranking packages on the basis of cost-benefit ratios, or return on investment ratios, other criteria are used which allow for more informal assessments to be made.

E-Y ante and ex post evuluation of ZBB

To determine the usefulness and benefits of ZBB, user municipalities were given a list of the most often cited benefits attributed to ZBB. They were asked to rate each item in terms of its importance in deciding whether to use ZBB and, secondly, to indicate to what extent each potential benefit was realized. The results are summarized in Table 6. The understanding and interpretation of this table is subject to the following caveats :

1. the question as presented in the questionnaire is biased toward providing similar ratings for the ex post and ex ante evaluation,

fnbi

e 6.

Exp

ect&

an

d r&

Ted

be

nefi

ts

from

ZB

H (

Lis

ted

m o

srde

r of

pri

ority

fr

om

mos

t ex

pect

ed:r

caliz

ed

bene

fits

to

the

le

usr

expe

cted

re

aliz

ed

hcne

titsf

--

. -~

.-

-~_(

_ E

xpec

ted

bene

fits

R

ealiz

ed

bene

fits

-

-.---

---~

~--..

...W

~-

~___

-l-_

F’

ocus

es m

anag

emen

t pr

oces

s on

ana

lps~

s an

d de

cisi

on-m

akin

g.

Allo

ws

each

bud

get

requ

est

to

be j

ustif

ied.

R

elat

es

cost

s an

d be

netit

s of

dec

isio

n pa

ckag

es

and

prog

ram

s.

Red

uces

th

e ap

prop

riat

e ac

tisiti

es

to m

eet

budg

et

guid

elin

es.

impr

oves

th

e pe

rfor

man

ce

of e

ach

man

ager

. Im

prov

es

the

plan

nmg

proc

ess.

Pe

rmits

tr

adeo

ffs

with

in

depa

rtm

ents

. R

educ

es

staf

f ex

pens

es.

Focu

ses

man

agem

ent

proc

ess

on a

naly

sis

and

deci

sion

-mak

ing.

A

llow

s ea

ch b

udge

t re

ques

t to

be

Just

i!iie

d R

elat

es c

osts

an

d be

nefi

ts

of d

ecis

ion

pack

ages

an

d pm

grar

ns.

Impr

oves

th

e pl

anni

ng

proc

ess.

A

bilit

y of

top

man

agem

ent

to f

ollo

u up

on

cost

and

pe

rfor

man

r;e.

C

onsi

ders

al

tern

ativ

e w

ays

of p

erfo

rmin

g th

e sa

me

job.

R

educ

tion

of d

uplic

ate

staf

f ef

fort

s.

Impr

oves

th

e pe

rfor

man

ce

of e

ach

man

ager

, Pe

rmits

tr

adeo

ffs

with

in d

epar

tmen

ts.

Perm

its

trad

eoff

s ac

ross

de

part

men

ts.

Red

uces

bud

get.

Red

uces

sta

flin

g m

anpo

wer

, Im

prov

es

staf

f pr

oduc

tivity

. A

bilit

y to

hol

d st

aff

pers

onne

l w

ithin

pl

anne

d le

vels

. R

educ

es t

he a

ppro

pria

te

activ

ities

to

mee

t bu

dget

gu

idel

ines

C

ompa

res

hudg

ct

requ

ests

“a

cros

s th

e bo

ard.

”

4.

5.

6.

7.

Y

$:

IO.

11.

12.

13.

14.

15.

16.

Com

pare

s bu

dget

re

ques

ts

“acr

oss

the

boar

d.”

Con

side

rs

alte

rnat

ive

way

s of

per

form

ing

the

sam

e jo

b.

Red

uctio

n of

dup

licat

e st

aff

effo

rts.

A

bilit

y to

hof

d st

aff

pers

onne

l w

ithin

pl

anne

d le

vels

. Pe

rmits

tr

ade&

ac

ross

de

part

men

ts.

Red

uces

st

affi

ng

man

pow

er.

Abi

lity

of t

op

man

agem

ent

to f

ollo

w u

p on

CO

SI an

d pe

rfor

man

ce.

Impr

oLes

st

aff

prod

uctiv

ity.

-~

- -.-

--_-

-~_-


2. since only ZBB users were filling out this questionnaire there is a tendency to overstate how well the system is working. For example, most users claimed that all the factors were considered equally before the implementation of ZBB and all were subsequently realized,

3. most of the municipalities using ZBB have only been on the system for a year or two, thus, many of their observations were based on initial impressions not

tested by time or experience.

Despite these obvious limitations, at least two interesting observations can be dis- cerned from Table 6. First is the consistency in the first three items in the ex ante and ex post evaluations. The ZBB process forced management to focus more attention on the analysis and justification of budget requests, and to relate costs and benefits with discrete activities. Second, ZBB serves management in multiple ways not just as a budget cutting device. The possible benefits to be derived from a ZBB system include:

1. expanding lower level management participation in the budget process, 2. providing better coordination between planning, programming and budgeting, 3. causing managers at all levels to evaluate in greater detail the effectiveness and

efficiency of their operations-both old and new, 4. identifying tradeoffs between and within programs and departments, and 5. providing managers with better information of the relative priority associated

budget requests and decisions.

ZBB processes are aimed at providing some if not all these benefits. Expenditure reductions are an attendant benefit of ZBB but not the primary end purpose of implementing such a system.

SOME OBSERVATIONS FROM NON-ZBB USERS

As Table 3 indicated, there are a number of cities who do not use ZBB. The majority of these municipalities are in the process of considering its use in the future while another six cities considered and subsequently rejected its implementation.

Most of the non-ZBB users felt that their current system accomplished many of the objectives of ZBB without having to install such a system. The following quote from

one budget officer supports this observation:

“In summary, we do not use the ZBB system. Yet our procedures, methods of analysis, and approach arrive at what we believe to be the same objectives, achieving essentially the same results, i.e. cost-effective ways to get things done.”

The variety of techniques used by non-ZBB municipalities to promote operational effectiveness and efficiency cover the spectrum of budget systems and general management approaches. Performance Budgeting and Planning-Programming and Budgeting Systems

(PPBS) appear to be the most used budget systems while Management By Objectives (MBO) and management audits are the most popular non-budget approaches. At least four budget officers from non-ZBB municipalities were actively opposed to the use of ZBB. Two of these budget officers wrote the following:

‘L . . . . I disagree with the concept of ZBB as it is discussed generally in the literature today and as you described it in the opening paragraph of the questionnaire. In my judgment, ZBB, which focuses review and evaluation and analysis on all proposed expenditures, is a practical impossibility and anyone who advocates the contrary doesn’t understand the governmental budget making process or is motivated toward political expediency.”

“Strict application of the ZBB method in its stated form is not practical nor suited to our needs. As you know, in municipal government, there are activities carefully defined and mandated by Charter, Ordinances, Amend-

74 Scan s. Cowtri

ments, State and Federal requirements that must be provided. These services. and levels of services. therefore must be maintained year to year, and measured against rather specifically defined public needs. Thus, there are very few programs in which there is room for major budgetary adjustment.”

These two comments adequately summarize how many other non-ZBB municipalities feel about ZBB. The process is too time consuming and impractical and not useful enough in an environment where the activities are primarily nondiscretionary. ln such a structured atmosphere the “classical” ZBB approach becomes quasi-incremental.

CONCLUSION

The use of and interest in ZBB in municipalities has increased significantly since 1974. This increase has no doubt resulted from the continual pressure local governments are facing to reduce expenditures and maintain financial solvency. ZBB is an approach which forces managers to be more fiscally conscious and aware of possible ways to reduce funding levels. In essence, the primary result of a ZBB review is that it forces managers to do the things managers ought to be doing-planning, objective-setting. programming. budgeting, and controlling. As one fiscal officer stated in a letter “... if managers did their jobs right in the first place there would be no need for ZBB or any other similar system.”

ZBB is not a panacea for curing management ills. However, if properly implemented and operated, it can increase the efficacy of the budgeting process. The initial key to success is to develop and implement a ZBB system tailored to the needs of the organization. and not vice versa. In addition, the budget system must be flexible and responsive to the constraints and needs realized by budget personnel during the budget cycle.

REFERENCES

I. i‘owen. S. S.. Dean, B. V. and Lohrashi, A. An analysis of zero base budgeting (ZBB) as a management tool. forthcoming in the Spring, 1978 issue of MSCI Errsinc~.s.s Topics.

_’ Taylor. G. New management approach to federal budgeting. Cit.. %rr. J. 18, 13 19 (July September -. 1977).

3. Stonich. P. Zero Bcrse Planning and Budgeting. Dow. Jones & Irwin. New York (1977). 4. Schick. A. and Keith, R. Zero base budgeting in U.S. congress. senate committee on government relations.

Conrprmfium ofMtrrericr/s on Zero &rse Budgrrirtg in rhe Srtrre.\. U.S. Government Printing Office, Washing-

ton. DC (1977). 5. Cowen. S. Zero base budgeting in state and local governments. Paper presented at the ORSA,TlMS

Meeting. Atlanta, Georgia (November 8. 1977). 6. Wildavaky. A. and Hammann. A. Comprehensive versus tncremental budgeting in the department of’

agriculture. Adm. Sci. Q. 10(3), 321-346 (December 1965). 7 Phyrr. P. A. Zero base budgeting. Hurr. Bu.sinr.w RPU. 48. 321 346 (November December 1970). X C‘arter, J. E. Memorandum for the Heads of Executive Departments and Agencies. White House. Washing-

ton, DC (February 14. 1977). Y. Office of Management and Budget, Bulletin No. 77 9. Washington DC (April IV. 19771.

IO. Office of Management and Budget. Circular A 11. Washington. DC (June 1977). Il. Office of Management and Budget, Circular No. 7X I. Washington, DC (October 1 I, 1977). 12. Dean. B. V. Zero base budgeting in industry. Paper presented at the ORSA,TIMS Meeting. Atlanta.

Georgia (November X, 1977). Ii Hermanson, R. H. and Minmier. G. S. A look at /era base budgeting-- The Georgia Experience. .,lr/uurtr

E(,o,r. Rt,r. 26, 5-l 2 (July-August 1976).

Zero base budgeting in municipalities

APPENDIX A

75

Alabama

Birmingham Huntsville Montgomery Mobile

Alaska

Anchorage

Arizona

Tucson Tempe

Arkansas

Little Rock

California

San Bernadino Riverside Berkeley Santa Ana Fresno Stockton San Jose Sacremento Oakland Long Beach Anaheim San Francisco San Diego Menlo Park Huntington Beach Glendale Altadena Torrance San Pedro Los Angeles

Colorado

I>enver Colorado Springs

Connecticut

Wethersfield Hartford New Haven Waterbury E. Hartford Bridgeport Stamford

Delaware

Wilmington

Florida

Fort Pierce Tampa Miami

St. Petersburg Dade City Ft. Lauderdale

Georgia

Atlanta Macon Savannah Columbus

Hawaii

Honolulu

Illinois

Peoria Rocklord Chicago

Indiana

Indianapolis Gary Fort Wayne Evansville South Bend

Iowa

Des Moines Cedar Rapids

Kansas

Wichita Topeka Kansas City

Kentucky

Louisville

Louisiana

Shreveport Baton Rouge

Maine

Springfield

Maryland

Baltimore

Massachusetts

Boston Worcester Cambridge Springfield New Bedford

Michigan

Grand Rapids Saginaw Detroit Warren Dearborn Livonia

Flint Lansing

Minnesota

St. Paul MinneapoIis Duluth

Mississippi

Jackson

Missouri

Kansas City St. Louis Springfield Independence

Nebraska

Omaha Lincoln

Nevada

Las Vegas

New Jersey

Trenton Newark Jersev Citv Nutley - Elizabeth Paterson Camden

New Mexico

Albuquerque

New York

lslip Yonkers Oyster Bay Buffalo Rochester Niagara Falls New York City Syracuse

North Carolina

Greensboro Raleigh Winston-Salem

Ohio

Dayton Cincinnati Toledo Akron Cleveland Parma Youngstown Can ton

Oklahoma

TUfSd

Oregon

Portland

Pennsylvania

Pittsburg Erie Allentown Scranton Philadelphia

Rhode Island

Providence

South Carolina

Columbia

Tennessee

Nashville Memphis Chatanooga Knoxville

Texas

Garland Wichita Falls San Antonio Fort Worth Dallas Corpus Christi Austin El Paso Houston Beaumont Lubbock

Utah

Salt Lake City

Virginia

Alexandria Richmond Hampton Norfolk

Virginia Beach Charlottesville Newport News Roanoke Portsmouth

Washington

Seattle Spokane Tacoma

Wisconsin

Milwaukee Madison

76 SCOTT s. COWEN

APPENDIX B

Dccislon Packages: Each program manager is required to prepare at least two packages for his unit wrth the r)ptmn of preparing three additional packages. The lunding of each package are ;ts follows:

Zero Appropriation Request Required Describes program with a funding level from %X9”,, of last year‘s level.

LL%el I Optional-Describes program with a funding level equal to 90”,. of continuation package.

Required--continuation Package-Describes funding required to provide ~mc general level of service next tear that is currently provided.

I.evel -3 Optional-Continuation Package plus IO”,, increase. Le\rl 4 Optional--Any request grenter than I IO”,, or continuation.

Rankmg: First ranking done at department program manager level. This is followed by a department ranking and lastly a city-wide ranking. The department must submit. in con.iunction with their overall ranking, an Impact statement summarizing the impact of different funding levels on the overall goals UI” each department.

Introduced: FY 1978

Dectsron Packages: Each Budget Unit was required to prepare decision packages for level of funding from the “survival level” to any additional levels they felt appropriate. No arbitrary dollar limits were placed 011 the amounts requested in each package.

The most interesting thing about this city is that they published in their budget message a list of the lunded and unfunded decision packages or each budget unit. 617 discrete funding levels were proposed in the budget, 373 were ultimately funded.

Ranking: Ranking was done at [our different levels: (I) service level division rank. (2) service level department rank. and (3) city manager city-wide rank: (4) city council had final vote in rankings.

Introduced: FY 1974- 1975

[>ecihlon Packages: Each activity within a department is segmented into programs. Activity managers must prepare at least a conrinuation level package for each program: however. he must describe the diflcrent level\ of effort the program could go to. The continuation level package does not contain a dollar limit’ It assumes the same level of activity as the prior year costed out at expected prices.

Ranking: The initial ranking is done by the activity manager. These rankrng& are further consolidated at the department and administrator level. The city manager. with each of the respective administers. has the rcsponhibilit) of establishing a city-wide ranking. Once the final city-wide rankings are obtained. the next rtep i\ to establish an aggregate expenditure level. Rankings. down to the cut-off line. are then used a< ‘I ha\is for the final budget presented ror review by the city council.

Introduced: FY 1975 I976

Decision Packages: Each department initially prepares a “Base Budget.” This budget requires an estimate ot” the cost or providing the highest priority or most beneficial services within each department for the next ?ear with a maximum cost of 95”,, of the previous year’s departmental budget allocation.

,Activities or reduced services not included in the Base Budget are identified as “Budget Differential.” These budget differential items constitute activity changes. Each proposed change must be justified in light of costs and benefits, and probable impact on accomplishing activity objectives.

R,lnkmg: Decision packages are ranked by activity, department, and city level. <‘it! council has final decision on what gets funded.

Jntroduced: FY 1976

Deciston Packages: Division heads must prepare at least three packages. Minimum level: the minimum level of service 1s defined as that critical level of effort below which the

operation would be discontinued because it loses its viability or effectiveness. Usually ranges from 5U- 70”,, of the current level of expenditures. It cannot exceed 90”,, of the current budget.

Current Level of Expenditure: a decision package describing what services could be provided given the same funding as in the current budget.

(_‘urrcnt Level of Service: a decision package describing what It would co\t to maintain the same service level iis in the current year.

Base

Supplemental

Zero base budgeting in municipalities

Zero base City of Phoenix, Arizona

r 100%

Second review

1977-78 zero base budpet cutoff levels

Council I Manager 82 294

issues decision units

4 I

Managemeni

and:3et kscisian units

77

DeqaGl?Yt dedlsion

units

Fig. 1. City of Phoenix, Arizona 1977-78 zero base budget cutoff levels

Additional packages can be prepared in excess of the current level at the option of the Decision Unit Manager.

Ranking: Decision packages go through three levels of ranking: divisional, departmental. and city-wide. The city manager is responsible for preparing the final consolidated ranking. All packages above the recommended level of funding (based upon projected revenues) are funded. those below are rejected.

Introduced: FY 1977-1978

Decision Packages: Each department is left to its own devices to develop decision units and priortty rankings below the department level. It appears that each department required their respective activities to submit a minimum level package with a funding requirement which was less than or equal to SOY, of the current year funding. Additional packages can be prepared at the option of departmental/activity managers.

Ranking: The ranking process above the department level is illustrated in the above chart. Note that at higher levels of consolidation the cutoff point increased so as to minimize the number of packages reviewed. Final rankings were made by city council using an iterative process. Each review required city council to focus on a smaller number of “key” decision packages.

Documents

Zero base budgeting in municipalities