Fixing the Deficit with Zero-Based Budgeting

By Audie Bock

Without raising taxes, we can adopt ZBB as many other states are doing to trim waste in agencies and school districts.

We have gone from a $12 billion surplus when I left the Legislature at the end of 2000, to a $38 billion deficit acknowledged by Gray Davis only after he was re-elected by a narrow margin in 2002. Before the election, the clear warnings from State Controller Kathleen Connell were buried under Davis's insistence that the deficit was at $20 billion. He never acknowledged his failure to tell the truth.

While ignoring the fact that his own long-term energy contracts had seriously exacerbated the deficit, Davis hurried to appoint former State Senator Steve Peace, author of the energy deregulation legislation signed by former Governor Pete Wilson, to be State Director of Finance. Due to popular backlash against the deregulation, Peace had had to abandon his hopes of seeking higher office, but he had valiantly defended Davis's no-bid selection of Oracle as the sole computer-system contractor for the State.

Unable to offer solutions that the Legislature could agree on in 2003, Davis left State Senate leaders John Burton (D) and Jim Brulte (R) to do the budget we now have, which rolls over $8 billion in deficit at extremely high interest rates. Davis then complained about the budget when he signed it. Finance Director Peace's latest act has been to refuse to implement the budget cuts mandated under the Burton-Brulte budget.

The Legislature faced the energy crisis in the summer of 2000, when San Diego's power authority begged for a state bailout to keep the air conditioning on for the elderly. Legislators representing San Diego came door-to-door pleading for charity "because your district will be next." But it was only San Diego's urgent problems that received any attention that year.

Instead of calling a special session of the Legislature to address the energy crisis, Davis put off making any decisions until the rolling blackouts hit in the summer of 2001. Only then, when the spot market was at its peak, did he lock in the Department of Water Resources ten and twenty-year contracts for which we now pay over 10.5 cents per kilowatt hour, the highest rate in the nation.

The failure of leadership on the economy is best exemplified by the current administration's handling of the energy crisis. The large political contributions from interested parties--such as $100,000 from Enron to the Davis campaign--undoubtedly played a role in the ignorance displayed by our leaders.

As Governor, among my first acts will be the renegotiating of the long-term energy contracts. California's ratepayers are entitled to a better business deal from their elected officials.

We must also rework the entire deregulation process so that energy companies have incentives to produce energy again, and not just to trade it, as Enron did.

For individuals and small businesses, we must reinstate incentives for energy self-sufficiency through solar, wind and other renewable energy resources. Energy independence is a vital component of California's economic revival.

The energy mess is not the only budget area we need to correct. We can also save billions by reordering priorities in criminal justice and education. But these savings still pale in comparison to the enormity of the deficit we are facing.

The most drastic measure we must undertake immediately is performance- or zero-based budgeting (ZBB). This is not a new economic concept for California. It was introduced under former Democratic Governor Jerry Brown during the fiscal crises brought on by Proposition 13.

Performance-based budgeting requires justifying every expenditure. It is especially recommended for government agencies, which prefer to operate on an incremental budget, taking last year's expenditures and simply adding on to allow for inflation or cost of living adjustments for the next year. It is this incremental approach that leads to waste, when what was spent one year is not needed to be spent the next. California's state bureaucracy has grown three times faster than its population. Zero-based budgeting is the only way to trigger speedy cost reductions throughout state agencies and school districts.

If we start cherry-picking which agencies and which districts should or should not be subjected to ZBB, the wrangling will never cease. If we implement it across the board, as the state of Oklahoma has done this year under a Democratic governor and Legislature, we can save the time the wrangling would take up. ZBB has been proposed in Rhode Island, Mississippi, Alabama, and repeatedly in a bipartisan measure in Massachusetts. The entire Illinois public school system operates under modified ZBB as of this year. Performance-based budgeting will save, as it did when implemented in the 1970s, hundreds of thousands of dollars in each and every agency, department and district where it goes into effect. The result will be to pull us out rapidly from the $8 billion deficit we still have under Gray Davis, without sacrificing any programs.