State fiscal survival depends on budget process change

NEW ORLEANS -- States will need to make fundamental changes to their budget processes to cope with a permanent federal fiscal crisis, author and consultant David Osborne of the consulting firm Public Strategies Group said today.

To cope with the crisis, states should switch from a cost-based approach to an outcomes-based approach, Osborne said during a speech at the annual meeting of the National Association of State Chief Information Officers in New Orleans.

In a cost-based approach, government creates a budget based on last year's spending, whereas in an outcomes-based approach, the government first determines the results or outcomes it wants to achieve, then budgets accordingly. In the latter, spending is tied directly to desired outcomes.

State governments "fell off a financial cliff" in 2001, not necessarily because of economic problems but because of outmoded budget processes, Osborne said.

Budget pressures will continue because as the federal government faces fiscal restraints it will pass more mandates to the states, but not the money needed to pay for those mandates, he said.

If states begin to budget for outcomes, greater demand will be created for IT, he said, because, used properly, IT can be a cost cutter rather than a cost driver.

Washington state recently used a budget-for-outcomes approach to balance its budget, make more informed purchasing decisions and improve performance, he said.

The upshot for Washington, Osborne said, was more trust with taxpayers.