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 Jordan’s charge includes reviewing outdated state systems, streamlining departments, and creating efficiencies and cost savings.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.