Commentary: The Budgetary Elephant in the Room

2009-07-20T18:21:32Z

It seems everyone is talking about it.

Sacramento still has no budget, and the cost of inaction alone is steadily approaching half a billion dollars. It's big news, with blame being cast on both sides. In a prime example of the definition of partisanship, our elected leaders can't seem to make up their minds. Granted, the decisions to be made are tough - stemming from a stagnant economy. But this in of itself isn't the big picture. It doesn't even address the crux of the issue. The entire argument and subsequent cost seems to entirely overlook the Elephant in the Room.

When I think about what goes on behind closed doors in the Capitol, I picture a frenzy of men and women in suits, fighting over a very large pie. Some wield better weapons than others, and few seem to have the interests of their constituents at heart. The laundry list of line items they debate over is staggering; police, fire, schools, public health, higher education, infrastructure, libraries, and public services - the list goes on and on. Each of these have powerful lobbies backing them, bending our elected leaders toward their will - further compounding the problem.

Even without the hurdles our political system creates, it's a huge undertaking - one that affects 36.7 million people. It's no wonder it takes time to sort it all out. As an aside, many of us are left wondering though; just what is it that our leadership had been doing leading up to the deadline? The budget's due date isn't a state secret... Its passing alone saves the state millions. So what gives?

There's a bigger problem though, one that's being overlooked from every angle. In my vision of our legislators 'at work', there's a rather timid, rather large elephant sitting in the middle of the room. He occupies plenty of space, but no one seems to care. They can't see him, even as he himself sits upon a very large portion of the imaginary pie.

This elephant is hard to name, but he represents the manner in which our individual state departments spend their money. He's not occupying a share of the pie that belongs to any one agency or initiative, but all of them. He's parked himself on the very center of the proverbial pie, eating up a vast share of the available pool of money. It takes a keen eye to see his effects, and a little experience working in or around any one of the many agencies and institutions that serve the business of running California.

Based on my experience, here's how it works:

In any one of our many agencies and institutions, there exist multiple departments, each of which is responsible for a set series of tasks. Some pertain to public services such as parking, public transit, libraries, etc. Others support infrastructure. Still others simply oversee the people who serve in these departments, be it from a human resources perspective, payroll, or training & development. There are many hundreds of these departments. Each department has a role it plays in the overall progress of the state's initiatives, and each one has an allotted amount of money. This money comes from the California State Budget, which serves as an allocation of funds to various state departments.

These departments are allocated a finite amount of money with which to undertake their initiatives. The decision for what to spend and how is largely left to the individual department leader(s). These leaders approve or deny requests to spend money from their subordinates. The requests cover everything from staples and other office supplies, to computer software and peripherals, to huge projects, and everything in between.

Here's where the problems begin. Each department is given a set amount of money to spend, and a set amount of time to spend it in. If for any reason they don't require the full amount they've been allocated, two things can (and typically do) happen. The first is that any amount left over when their time expires is lost. The second is that their budget allocation for the next cycle is often reduced by whatever amount they didn't spend. This means there is no incentive for individual departments to save money, only penalties for not spending it.

I like to demonstrate my points with scenarios, so let's consider an unlikely one here to demonstrate this effect:

Let's say that your spouse is responsible for your family budget. (S)he determines how much money is coming in, what money is to be spent, and where. Your spouse allocates a set amount of money for bills, entertainment, automotive upkeep, rent/mortgage, etc. One of the items within the budget is your meal allowance, which your spouse has set at $40 a week.

Now, let's imagine that on Sunday night, your spouse hands you $40 cash for your meal allowance. You put this in your wallet, and commence your week. Some days, you eat out. Others, you take a lunch from home. It's a busy week, so one day you don't eat lunch at all. You know how much you have to spend, but by the time Sunday rolls around again, you have $10 left.

You ask your spouse about your meal allowance for the coming week, but before they hand it over they ask, "How much do you have left from last week?" You show them your $10, which they promptly take from you, and pocket.

They then take out $30, and give it to you as your meal allowance for the coming week. Puzzled, you look at this and ask why it's been reduced. "Clearly, you don't need as much as I gave you." They reply.

Confused, you ask for the funds to be increased over several weeks, and have little success. Each time Sunday comes around again, you've ensured that every last dime is gone before you approach your spouse for the next week's allowance. You realize that if you don't spend it, you don't get to keep it. Worse still, you also get less to spend the next time around.

Unlikely though this may be in your personal life, it applies to an important lesson in how bureaucratic spending works. Sadly, this is how many of our state's departments are run. It demonstrates a fundamental flaw in the way our political system does business - one that will ensure that the problems we're facing now will never go away.

So what's the fix?

Simply put, it's to reverse the inherent penalties associated with saving money. This can only occur on a department level, but must be brought about by reform at the highest levels of the budgeting process. Until department leaders are confident that saving money won’t put their efforts deeper in the fiscal hole, we'll never see the progress we'd like.

I'm of the belief that departments should be rewarded for the savings they bring about. I consider it akin to training dogs or small children - you simply reward the behaviors you like to see, and discourage those you don't. There's several ways this could be brought about through unique incentives for employees and departments alike. Any of them could truly serve the interests of the people of California, by mitigating spending on every level.

Sadly, this isn't likely to ever happen in California, largely because our elected leadership is often in the stalemate brought about by the 2/3rd's majority rule. This rule alone impedes our ability to get much of anything done (wasting significant amounts of time in the process), and makes our state leadership ineffective at bringing about change.

That said, department spending isn't a problem limited to our efforts here in Sacramento, but one that faces bureaucracy on every level nationwide, be it city, county, state, or federal. In our personal lives, we value our money and strive to save it. When we do so, we're rewarded. I believe that the system of government that reflects our will should absolutely do the same.

Until it does, I'm afraid the hole we're in will just keep getting deeper and deeper.

Sacramento: Our Beloved State Capitalism

Commentary: The Budgetary Elephant in the Room