Oregon’s Budget Transformation: “Doing efficiently that which should not be done at all”

Governor John Kitzhaber has called for transforming state government, in part by proposing a new ten-year budget process that he says “is necessary to change a decade of declining employment and wages.” The Governor hired former Metro Chief Operating Officer Michael Jordan to implement this transformation, while leading and supervising all aspects of the state’s day-to-day operations as its first COO. Jordan’s charge includes reviewing outdated state systems, streamlining departments, and creating efficiencies and cost savings.

The transformation process includes a set of Guiding Principles and Outcome-Based Budgeting Principles that sound good but so far fail to address adequately at least four important concerns:

First, Government cannot and should not do everything. Determining core functions and prioritizing them should be the first step to achieving more accountability in state government.

Many state agencies don’t have a clear understanding of what their priorities should be. This concern was highlighted in a legislative hearing where the head of an agency was asked by a freshman legislator what his highest priority activities were.* Without hesitation, the agency head looked at the freshman and told him that everything his agency did was high priority.

The legislator then asked what would be cut if the agency budget ended up smaller than requested. The agency head stated, again without hesitation, that he couldn’t cut anything. He repeated that everything his agency did was a top priority.

If everything is a top priority, then nothing is a top priority.

The proper role of government in a free society clearly includes the protection of our rights to life, liberty, and property. But just as clearly, for example, it should not include provision of our jobs, entertainment, and alcohol. We should be willing to end state economic development programs, which do not create jobs so much as they pick winners and losers in the economy.

We need to end state control of liquor through the OLCC, and we should not even consider using tax dollars to fund entertainment venues such as sports stadiums. These belong in the private sector.

Of course, sticking to core functions is hard, especially because of the misguided belief that anyone’s unmet need is the proper concern of government. It is not. The average person can’t afford the time in Salem to lobby against any given program that may only cost him or her a few dollars a year. However, it is well worth the time for those who benefit from a program to spend as much time and money as needed to ensure that the millions or billions of dollars at stake move from the taxpayers to them.

The pressure is always in favor of more government, not less. To resist this pressure, lawmakers need to understand government’s proper role and the harm they do when taking money from some to provide benefits to others. Citizens need to learn why more government means less freedom and how they might meet their needs better through voluntary, private sector approaches.

Second, we need to understand why one of the Governor’s 10-Year Plan Guiding Principles—the reliance on evidence-based information to make informed policy decisions—hasn’t worked before and may not work in the future.

In the late 1980s, then-Senator President John Kitzhaber relied on this principle when he helped create the Oregon Health Plan (OHP). The Plan attempted to use medical and scientific evidence to prioritize treatment of medical conditions for Medicaid patients based on cost-benefit analysis. The problem then was (and likely will be now) that politics gets in the way.

Medical conditions that objectively should have fallen below the cutoff line in the OHP rose above the line because special interest groups successfully lobbied for their constituents. Consequently, the plan saved little, if any, money for taxpayers. As long as government provides the service, or provides the funding, this dynamic will be hard to change.

Third, achieving streamlined operations and cost savings through consolidation of agencies, boards, and commissions will be harder than it sounds.

Forces are at work in large firms and governments that cause them to produce goods and services at increased per-unit costs. Economists call these forces diseconomies of scale. They are especially prevalent when trying to combine monopolies―which defines government agencies.

Take, for example, Oregon’s attempt from 1992 through 2001 to reduce education costs by consolidating school districts. Legislation resulted in 277 school districts being consolidated down to 198. Rather than fewer districts resulting in less administrative overhead, at the end of the period there were actually more central office staff per pupil than at the beginning. Also, non-teaching staff grew faster than teachers, and real per student spending rose more than 11 percent. We should not be surprised if upcoming efforts to consolidate boards, commissions, and agencies yield similar results.

Finally, as famed management consultant Peter Drucker warned: “There is nothing so useless as doing efficiently that which should not be done at all.”

This gets us back to the first concern above. Unless we prioritize core functions, and stop doing other things, state government will expend a lot of energy, and a lot of taxpayer dollars, trying to do efficiently that which government should not be doing at all.

* House Agency Oversight and Efficiency Committee, Oregon Legislature, April 8, 1997. Rep. Ryan Deckert (D) questioning William Scott, Director, Oregon Economic Development Department.

For more information, visit cascadepolicy.org.

Post to Twitter Post to Facebook Post to LinkedIn Post to Reddit

Posted by at 05:00 | Posted in Economy, Education, Gov. Kitzhaber, Government Regulation, Oregon Government, State Budget, Uncategorized | Tagged , , , , | 36 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Bob Clark

    It’s kind of off topic but light rail is a pig needing lots of lipstick (follow-on government subsidies) if not a bag over its head.  By comparison, a West side bypass road of the city of Portland with roll back of landuse laws (maybe in the form of free enterprise zone) would unleash the economic growth engine that is otherwise Washington county.

    If the governor wants to break Oregon out of its economic malaise, it doesn’t key off another economic czar; but it rather keys off the governor getting the state and regional governments out of the way of the private sector.  The governor recently allowed some Southern Oregon counties to work with the state agency LCDC to liberalize land use restrictions there (good luck with that…actually bearing much fruit).  This is “small ball.”  Instead, the governor should lobby the federal tranportation administration and members of Congress to switch our share of federal transportation dollars going into the Portland-Milwaukee light rail and Portland-Vancouver light rail projects (some $1.5 billion plus) into funding instead a West side bypass of Portland city.  Most other major metropolitan cities have multiple bypasses of the central city.  Portland only has one bypass.  I am not even sure you would need a whole lot of extra government funding for such bypass if regulated private firm(s) were contracted to own and manage it.

    We need to reach back to our inner 50s and 60s, and unhitch our economy from modern day pigs, needing lots of lipstick (light rail).

    • Steve Buckstein

      Bob, light rail is not totally off topic here, since it fits in the category of “not doing efficiently that which should not be done at all.”

      Unfortunately, some people may take your comment to mean that government needs to subsidize lipstick companies.

      • David Appell

        Steve Buckstein wrote:
        >> Bob, light rail is not totally off topic here, since it fits in the category of “not doing efficiently that which should not be done at all.” <<

        This argument only makes sense if you think people should be allowed to dump their pollution/garbage/waste/crap for free. 

        Which is a truly strange position for a libertarian to make. Don't those people believe in the sanctity of private property???

        • Steve Buckstein

          I’m not sure what light rail has to do with dumping “pollution/garbage/wast/crap for free.”

          Unless you’re suggesting that the best use for those expensive light rail cars is to haul that stuff off.

    • David Appell

      Bob Clark wrote: “We need to reach back to our inner 50s and 60s….”

      Many of us would agree. Back then, corporate taxes were 40-50% of corporate profits (compared to 20-25% today), unions were strong, and the middle class saw a future.

      Now, in hundreds of US counties, life expectancy is decreasing.  YES — ACTUALLY DECREASING. In God’s favorite and chosen, hand-picked, exceptionally exceptional country. 

      What a sense of humor that Guy has, huh?

    • David from Mill City

       

      Bob

      I realize that you do not like light rail, but do you
      understand that it takes relatively cheap gasoline to make a highway system
      operate?  And do you understand that when
      cheap gas is no longer available the public will need a non-car based transportation
      system? Do you understand that it takes years to build such a system? Do you
      understand that if it is not built now it will not be present when it is
      needed.

  • Oregon Bob

    You know you are suggesting trying to take the politics out of politics, right? 

    • Steve Buckstein

      Well, since by definition we can’t take the politics out of politics, I’m suggesting the next-best-thing: Take as much out of the political sphere as possible and return it to the private sector where we can better meet many of our needs.

      If it’s not a core function of government, why subject it to the political process in the first place?

      • David Appell

        If it’s not a core function of government, why subject it to the political process in the first place?

        Because the [so-called] free market utterly fails to price in negative externalities. 

        Do you really not understand that? 

        Or do you not “understand” that because your funding depends on your not “understanding” it? 

  • Rupert in Springfield

    Let’s be real, streamlining government means cutting the number of government workers. That’s where the real costs are. You can get efficient with ordering office supplies all day long but until you cut your personnel costs you haven’t done anything.

    Kitzhaber is beholden to powerful unions. So, doubtful he is going to eliminate state agencies or do anything to aggravate this core constituency. 

    Until we see large cutbacks in the scope of Oregon government it’s essentially just rearranging the deck chairs.

    Id look for a nice big study, probably given to a well connected crony, that will be prepared, leather bound, locked in a time capsule and filed away in the central repository for all things useless.

    • David Appell
      • Rupert in Springfield

        An illogical request, as regardless of the result it does not alter the basic fact that governments primary costs are personnel. Thus streamlining government means cutting those costs.

        That aside, you can find the chart yourself. Results for per capita spending year by year are readily obtainable. Since the outcome doesn’t really affect my point one way or the other obviously there isn’t a lot of purpose in my doing this basic leg work for whatever point you are trying to make.

        • David Appell

          So you don’t have data for Oregon. Just as I suspected.

          But I wonder about Oregon, because Obama has been making healthy cuts in the size of the federal government. 

          Inflation-adjusted, per capita federal outlays have decreased 4% under Obama. 

          Bush increased them by 45%. (No, that wasn’t a result of his economic meltdown: by the end of FY 2008 they had already increased 23%.)

          Some data for recent Presidents:

          Carter: +6%
          Reagan: +15%
          GHW Bush: +1%
          Clinton: -2%
          GW Bush: +45%
          Obama: -4%

          • Rupert in Springfield

             >So you don’t have data for Oregon. Just as I suspected.

            No, my lack of interest in putting together a chart for you on easily available data doesn’t mean anything of the sort.

            It simply means I don’t see the purpose in preparing charts for you on something that is irrelevant to my point.

            You just simply can’t argue your point, whatever it is, very well.

            Reagan, Carter et. al. are not in charge of streamlining Oregon government. That’s what we are discussing here.

            We all know in your mind everything is Bush’s fault. That’s no news.

            Can you actually argue somehow that streamlining government does not involve cutting personnel costs?

            That’s what you would need to do to rebut my point. Not go off on crazy tangents about Bush.

          • David Appell

            Since so many of your conclusions are incorrect in light of the actual data, I’m simply asking for the numbers that show whether Oregon government is “streamlining” or not. 

            Many conservatives complain that Obama has brought out-of-control spending, when the data suggests otherwise. So I’m wondering about other things they think are obvious, too.

          • David Appell

            The streamlining is even more noticeable on a per capita basis:

            http://research.stlouisfed.org/fred2/graph/?g=7Mk

          • David Appell

            Just as I thought: Oregon government *has* been streamlining in the last few years:

            http://research.stlouisfed.org/fred2/series/ORGOVT?cid=27319

  • 4real

    Could anything possibly be more foolish?

  • Oregonnative

    Taking money to assist others… hmm sounds kinda drancoin to me.(Websters = inhumananly severe) Good Luck too you all

  • valley person

    ” We should be willing to end state economic development programs, which do not create jobs so much as they pick winners and losers in the economy.”

    So we should have let Intel walk?

    “we should not even consider using tax dollars to fund entertainment venues such as sports stadiums.”

    Even when the economic return to the community exceeds the public investment?

    “Of course, sticking to core functions is hard, especially because of the
    misguided belief that anyone’s unmet need is the proper concern of
    government. It is not. ”

    Prop up a straw man and then knock him down. No one argues that “anyone’s unmet need” is a proper concern of government. But people do argue that the proper concern of government extends to the well being of the people. That the marketplace alone is not sufficient, and can even be counter productive to well being. And if a government doesn’t care about the well being of its people, which is in the constitution by the way, then what good is government?

    “Consequently, the plan saved little, if any, money for taxpayers.”

    The OHP wasn’t designed to save money for taxpayers. It was designed to take the available money for health care and stretch it as far as possible by paying for what is most effective first.

     

    • Steve Buckstein

      No, we shouldn’t have let Intel walk. We should have rationalized our property tax system so that all companies could enjoy lower rates on higher valued properties. Instead, we make companies lie; telling us that they wouldn’t be here unless we gave them a big tax break through the Strategic Investment Program. We don’t have to pick winners and losers, but for some reason we feel compelled to do just that.

      Yes, we should decline to use government funding for entertainment venues even if the economic return to the community seems to be positive. If a positive economic return is your criteria, then government can do anything that some bright analyst can argue will make money. 

      I’m glad to hear that you don’t argue that anyone’s unmet need is a proper concern of government, but we don’t have to look far to find people making such arguments.  We obviously read the meaning of the general welfare clause of the constitution differently.

      I grant you that the OHP wasn’t expected to reduce the cost to taxpayers, but tried to stretch available Medicaid tax dollars by paying for cost effective treatments and not paying for ineffective ones.But it didn’t even do that; it ended up paying for items that, based on the best science, were below the cutoff line but had political support. The result was the OHP budget grew as fast as Medicaid budgets in other states that tried no such cost-effectiveness excercize.

      • David from Mill City

         

        Steve

        Do you understand that lowering taxes to the point that essential
        services (i.e. public safety, civil courts, schools, and roads) are not adequately
        funded does not make Oregon an attractive place to do business? In the O&C
        counties they are at that level all ready and going down. More importantly they
        are not an aberration, they are the Canaries dying in the mine shaft, thanks to
        previous tax “reforms” the rest of Oregon’s cities and counties will soon be
        following them.

        • Steve Buckstein

          The O & C county funding problems are more a function of federal government timber harvest policy than they are a function of Oregon state government tax policy.

          • David from Mill City

             

            Steve

            The decline of O&C Timber revenues is how the O&C
            counties with their ridiculously low property tax rates got  into their a financial crisis faster than the
            other Oregon Counties.   However thanks
            to property tax “reform” the non-O&C counties will eventually be in similar
            crises and like the O&C Counties those property tax “reforms” will also prevent
            them from ending the crises.

            The basis of the problem for local governments is that you
            cannot provide last year’s level of service at last year’s cost levels this
            year and the amount of revenue increase over last year is less than the
            increase of costs. Further that increase in revenues is contingent on an
            increase in Assessed and Real Market Values of real estate located within their
            taxing jurisdictions.  Once Assessed
            Value reaches the Real Market Value there will be no revenue increase and the
            decline of local government will accelerate.

          • valley person

             They are partly a function of the loss of free federal money paid to the County off the top of timber sales from federal land, and partly due to these Counties having the lowest property tax levels in the state, with limited ability to raise taxes due to previous tax limitation ballot measures.

      • 3H

        “…
         but we don’t have to look far to find people making such arguments.”

        I’m gonna call you on this one.   Care to link to examples of find people who advocate for governmental involvement in “anyone’s unmet need?”

        Or, you can bow out gracefully by rightfully claiming that is was hyperbole.  😉

        • Steve Buckstein

          Sure, it’s hyperbole to the extent that “anyone’s unmet needs” might include your “need” to be named the next Queen of England, or your “need” to own a major league baseball team. But I’m talking about things like someone’s “need” for more time off with pay, or their “need” to be paid more than their boss thinks they’re worth, or the “need” for health insurance that covers everything with no premiums, co-pays or deductibles. These are very real examples of “needs” that many people advocate for in Salem every day, and that I believe are not the proper function of government.

          • 3H

            Well…  those things are certainly debatable, and thank you for acknowledging the hyperbole.  The things you listed are a far cry from “anyone’s needs” and your willingness to trivialize those issues has been noted and placed in your permanent file.

            How did you know I wanted to be the Queen of my own major league baseball team?  I wasn’t prepared to release that information until the press conference I scheduled for next week.

      • valley person

         Oregon can’t unilaterally disarm when it comes to providing carrots for large traded sector companies. Setting the tax rate lower for ALL companies makes little sense. First, they rely on public services, so if they aren’t paying taxes then the burden to provide for them shifts to the individual. Intel for example, relies on a well educated work force, and that education is paid for by taxes.

        Governments invest in projects strategically to boost the local economy. A smart government invests well, and dumb one doesn’t. But to think that government has no role or ability to make good investments is naive. Its something the public wants, and the public elects the government.

        I don’t know anyone who argues that government is there to meet anyone’s unmet need, so we must travel in different circles. In my circles, which are left of center, the argument is that government should step in where necessary, not wherever convenient. Yes, we probably read the general welfare clause differently. But the Courts have interpreted it broadly enough to allow construction of a welfare state.

        OHP did stretch the tax dollars. That the budget grew in proportion to other states does not seem relevant to whether or not it made wise use of what was available.

        Its interesting to watch free marketers such as yourself make these very generalized arguments about government and its role in the state and national economy. We are having an election, and one side, Romney, is accusing the other, Obama of not having done enough to encourage more private sector growth. Doesn’t that suggest that, whatever you may think, the political reality is that governments are handed responsibility for the performance of the private sector economy?

        And by the way, how do you react to the news today that Oregon’s economy has had the 2nd fastest rate of GDP growth in the nation over the past year?

        • David Appell

          Intel also relies heavily on government funding for basic research. Their transistors have gotten so small that it is only fundamental advances in optoelectronics in the last 20 years that let them build their current generation of chips. The future, of course, will be even more heavily dependent on current work in nanotechnology. 

        • Steve Buckstein

          In answer to your final question, my reaction is to note that while Oregon’s growth rate was 2nd highest at 4.7% in 2011, you have to read down the page to see that this is a 42% DECLINE from our growth rate in 2010, which was 8.1%. I’m happy for both results, but it seems like our bounce out of the “official” recession didn’t last long.

          • David Appell

            I’ll give you credit: one has to dig pretty deep to find something negative about a 4.7% annual growth rate.

            Or that over the two year period growth has been 13.2%. 

            Both annual growth rates are very good, and any state would be happy to have then for even a single year. 

  • David Appell

    By the way, did you see that Oregon had the second-highest GDP growth of all 50 states last year?

    http://www.ocpp.org/2012/06/05/blog20120605-oregons-economic-growth-shines-again/ 

    • Steve Buckstein

       Yes, see my response to valley person above.

Stay Tuned...

Stay up to date with the latest political news and commentary from Oregon Catalyst through daily email updates:

Prefer another subscription option? Subscribe to our RSS Feed, become a fan on Facebook, or follow us on Twitter.

Twitter Facebook

No Thanks (close this box)