Having watched the appropriations process of the state for many years, I have an idea that I believe would improve productivity and save money. The current system of appropriation provides little incentive for managers in various positions throughout the state to save money. Zero-based budgeting sounds great, but it encourages department heads and various institutions to spend every penny they are appropriated.
Zero-based budgeting simply means the committee responsible for appropriations requires each entity seeking an appropriation to justify their budget from the ground up—starting with zero. If an agency ends up with a large balance left in their budget at the end of the fiscal year, their only reward is perhaps a slight pat on the back while the balance of their budget simply disappears back into the state treasury. It is quite likely their savings will subsequently be appropriated to some agency or entity which was not as wise with their productivity or expenditures.
Because of the fact that in Texas one Legislature can’t bind a subsequent Legislature, the budget must be appropriated every two years. There’s no authority for any agency or department to keep unspent monies from the year before. Although not binding, a statutory policy relating to unspent appropriations (agency by agency) could provide incentive to save and to enhance productivity.
The plan would work like this. First of all, as an example, managers or department heads would be able to reduce the number of employees with the option of granting pay raises to their remaining employees when one employee retired or was laid off. The manager could offer the incentive of higher pay if the remaining employees could increase their productivity. In other words, “If you’re willing to work a little harder, I can pay you a little more with the money not spent for the employee who was leaving.” This system has proven very efficient in private industry. Crews which work by the piece are often given the option of shouldering a little more responsibility for a little more pay rather than simply adding another employee.
Our state colleges are another example. College administrators are encouraged to spend every penny they are appropriated because to do otherwise would indicate they didn’t need what they got. If we would somehow allow colleges to maintain savings which they institute through better efficiency, it would encourage thriftiness, as well as allow the colleges to build up a little reserve fund for special projects which are constantly arising in the world of higher education.
In order for the system to work, however, it would require an audit of responsibility on the part of the state assuring the spending of budget surpluses were in fact enhancing the efficiency of the institution or department. As for colleges, this could easily be overseen by the college coordinating board which regularly audits expenditures of colleges and sets formulas for the appropriations. The Legislative Budget Board and staff of the Senate Finance Committee and House Appropriations Committee could easily determine whether or not standards were met by department heads.