January 31, 1977
Page 2651
ZERO BASE BUDGETING: WILL IT WORK OR IS IT ANOTHER BUZZWORD?
The SPEAKER pro tempore. Under a previous order of the House, the gentleman from California (Mr. CHARLES H. WILSON) is recognized for 60 minutes.
Mr. CHARLES H. WILSON of California. Mr. Speaker, on numerous occasions in the recent Presidential campaign, and now that he has been elected President, Jimmy Carter has strongly advocated the need for zero base budgeting and Government reorganization. I share the need to modernize our budgeting Practices, reduce Government inefficiency, and to eliminate program duplication. However, while I support in principle zero base budgeting or ZBB, I have reservations over whether this could work in practice particularly if there is an attempt to impose it full scale on every Federal program at one time. I therefore, would hope my colleagues have a chance to study my detailed critical analysis of the problems and benefits associated with ZBB.
What is zero base budgeting? What problems exist in the present incremental budgeting system by Government agencies? Will adopting a comprehensive system such as zero base budgeting be the panacea to these problems? What are the benefits of zero base budgeting — hereafter referred to as ZBB? What are the costs and problems of implementing ZBB? What has been the experience in the Department of Agriculture in 1964 with comprehensive budgeting, and in the State of Georgia with ZBB?
A DESCRIPTION OF ZBB
Zero base budgeting is a management tool originally conceptualized and implemented by Mr. Peter A. Phyrr at Texas Instruments, Inc., in the late 1960's as a method of more efficient use of limited resources in the pursuit of specified goals. The goal, as with any planning/budgeting process, is to identify the output desired, and the input of resources required to obtain it. This need not involve a reduction of expenditures. An increase, if it efficiently contributed to the attainment of the desired goal, might be an alternative.
Most organizations, private and public — including the U.S. Government — utilize, to some extent, incremental budgeting system. This means that for a given budget period, only proposed increases in specific functions or activities are subject to detailed scrutiny and justification. The rest of the budget, known as the base, is assumed to be justified. It is not examined to determine if it is effectively contributing to established priorities. Under ZBB, the entire budget, both the base and the increment, must be examined and justified.
ZBB must be defined according to the methodology used and the structure to which it is adapted, given the general conceptual framework of comprehensive budgeting. Elmer Staats, Comptroller General of the United States, agreed.
ZBB is a kind of uncertain term, depending on how intensive an evaluation you do.
This definitional process has not occurred in regard to ZBB in the Federal Government. Little effort has been made to examine or specify the details and mechanisms that could be used in the adoption of ZBB. It is my contention that the problems are not appreciated and the expectations may be too high.
Zero base budgeting procedures require that each activity be examined and justified literally from the ground or base up prior to the beginning of each budget cycle. Management must first set goals and objectives, and make the basic policy decisions under which the program reviews will be carried out. Given those conditions, administrators then must ask themselves: Does this activity contribute efficiently to the organization's goals and objectives? Can this activity be eliminated? Are there alternative methods of accomplishing the purpose of this activity? Would the goals of the organization be better served by apportioning more or less resources to the activity?
ZBB answers these questions by developing "decision packages" for each definable activity center and then "ranking" the packages in order of desirability to the organization. A decision package is a document representing the results of program evaluation. It identifies and describes a method and level of financing for carrying out the functions of an activity center so that management can—
(1) evaluate it and rank it against other packages competing for limited resources, and (2) decide whether to approve or disapprove it.
The document usually includes the purpose of the activity center, the consequences of not performing the activity, various measures of performance, alternative causes of action, and information on costs and benefits.
The construction of each decision package passes through two basic stages. First, alternative ways of performing the functions of the activity center are considered. The best alternative is chosen, the others are discarded. Second, given that alternative, different levels of effort in performing the functions of the center are considered. A minimum workable level at which the functions are undertaken is established as one decision package. Increments to that level form the basis for other decision packages for the same activity center. For the benefit of higher level management, the rejected alternative methods of performing the functions should be briefly described and their rejection explained.
Determining the activity centers around which the decision packages should be prepared is the most important step in the ZBB process. Usually this is the lowest organizational level or budgeted unit.
Decision packages should be formulated by the manager with direct responsibility for the activity center. Having the greatest overall knowledge of the center's priorities and operating procedures, he is in the best position to identify and examine alternative methods and levels of performance, and the relative costs and benefits of each. Organizationally, he is also the person required to communicate this material to his superiors for their consideration of and decision on alternatives.
Finally, he has the most to gain from an in-depth examination of the activities for which he is responsible. It is crucial that lower level managers have the willingness, authority, and ability to decide which packages require review by the next higher level of responsibility if successive levels are not to be swamped with decision packages.
When the decision packages are complete, the manager will have identified all proposed activities from the coming budget cycle. The packages will fall into one of three categories: First, packages for new activities; second, packages for activities where no change in method or levels of effort is possible; and third, packages proposing different methods and/or levels for performing activities: At this point, the packages are ready to be ranked. Mr. Peter Pyhrr describes the ranking process as follows:
The ranking process provides management with a technique for allocating its limited resources by making it concentrate on the questions: "How much should we spend?" "Where should we spend it?"
Management answers these questions by listing all packages identified in order of decreasing benefit or importance. Managers can then identify the benefits to be gained at each level of expenditure and can study the consequences of not approving additional packages ranked below that expenditure level.
Then the manager at the next level up the ladder reviews these rankings and uses them as guides to produce a single, consolidated ranking for all the packages presented to him from below.
Theoretically, one ranking of decision packages can be obtained for an entire company and judged by its top management. But while this single ranking would identify the best allocation of resources, ranking and judging the large volume of packages created by describing all the discrete activities, if not impossible, task on top management. At the other extreme, ranking at only the cost center level is obviously unsatisfactory, since it does not identify to top management the trade offs among cost centers or larger organizational units are usually too numerous for top management to make these trade offs themselves.
One can begin to resolve this dilemma by stopping the consolidated ranking process at some level between the cost center and the entire company. Such a level might be, for example, a division, department, agency, product line, or profit center.
Finally, when decision packages for each activity center have been chosen in light of available resources, the final budget for the organization can be prepared. At this point the ZBB process is complete.
This description has presented zero base budgeting as a precise, step-by-step process that produces a final, definitive product. For illustrative purposes, this is necessary. However, the essence of ZBB is the development, communication, and utilization of information in a useful form. It is a fluid process. The results are subject to change as the process goes forward and new information is generated.
ZBB AND SUNSET LEGISLATION IN THE U.S. CONGRESS
My remarks primarily center around ZBB and its problems, and thus I will only devote a brief time to discussing legislative proposals such as zero base review and sunset bills before the Congress. These legislative proposals reflect the popularity with the general public of attempting to do something positive about Government growth and program duplication: Senator MUSKIE's bill, S. 2925, had 47 cosponsors and Congressman JAMES BLANCHARD's bill, H.R. 11734, and its companion had over 113 cosponsors.
Sunset legislation refers to the establishment of a date on which the statutory authority for a program automatically expires unless reenacted. As conceived for the Federal Government, the basic legislation would continue in force, but funding would terminate unless reauthorized. Sunset provisions have usually been coupled with some form of program evaluation to assist in determining whether or not a program should be reauthorized. As a result, sunset legislation and comprehensive budgeting have been linked and often confused. In practice, they are separate, although related, concepts.
To be concise, sunset legislation is defined as "the sun could set on programs with unfavorable reviews" by the Congress, while ZBB refers to programs reviewed from the ground zero up, and represents executive department budgeting. Although ZBB generally is not conceived as a legislative tool, there is no reason for legislative bodies to be completely excluded.
The basic provisions of Senator EDMUND MUSKIE's zero base review bill, S. 2925, are as follows :
First. It terminates budget authority for all Government programs on specific dates. The only exemptions are disability programs funded by trust funds, general retirement and disability insurance, health care services, Federal employee retirement and disability insurance, and interest.
Second. Any bill, resolution, or amendment providing new budget authority is subject to a point of order unless the budget authority has been provided for through the required zero base review in S. 2925.
Third. Each committee must adopt and report to their respective House a plan to conduct the zero base review in the year before it is to occur.
Fourth. Each program must be reviewed systematically every 4 years by the responsible standing committee to determine its cost, effectiveness, the extent to which it is being duplicated by other programs, and alternative ways in which the same function could be more effectively performed. Each committee must report the results of its program reviews and recommendations to their respective House of Congress.
Fifth. In undertaking the program reviews, the committees may request assistance from the executive departments and agencies, the General Accounting Office, the Congressional Budget Office, the Congressional Research Service, and the Office of Technology Assessment.
Sixth. The act establishes a Citizen's Bicentennial Commission on the Organization and Operation of Government. The commission is to make recommendations for increasing efficiency, eliminating duplication, and maintaining effective performance in Federal programs.
Seventh. It establishes procedures for the zero base reviews of tax expenditures.
The bill defines a zero base review as "a systematic evaluation by the committees of legislative jurisdiction with the assistance of the appropriate agencies of Government and congressional support agencies to determine if the merits of the program justify its continuation rather than termination, or its continuation at a level less than, equal to, or greater than the existing level."
WHAT ARE THE BENEFITS OF ZBB?
THE PRO ARGUMENTS
Why is ZBB needed? One can cite the following facts as indicative of the general problem area:
A 1971 General Accounting Office (GAO) study found 11 different child care service programs in the District of Columbia alone, administered by the Department of Health, Education and Welfare (HEW), the Department of Housing and Urban Development (HUD), and the Department of Labor.
A 1973 HEW study found 50 federal programs providing help to handicapped youth. Fourteen separate units within HEW administered the programs, and the GAO, which examined the HEW study, found that there was no central coordinating point.
The 1976 federal catalog of domestic assistance lists 1,030 programs administered by 51 agencies, totaling $60 billion in expenditures for fiscal year 1976; 302 health programs, administered by 11 agencies; and 259 community development programs. Even using a more specific heading does not help — there are 27 different vocational education programs.
A recent Brookings Institution study of the life span of governmental bodies found that of 175 government organizations existing in 1923, no less than 148, or 85%, were still in existence in 1975, and fully 109, or 62% existed in essentially the same status as they had 52 years earlier. In addition, 246 new organizations had been established, and the "birth rate" had more than doubled.
The Library of Congress, in a similar study, found that 329 bodies were created between 1960 and 1974, while 123 were abolished, for a net 14 year gain of 203.
No dollar estimates of costs or benefits of implementing a zero base budgeting system have been made. This is in line with the state of the proposals before Congress. Even at their most specific, they do not provide details for an operating system or the mechanisms required for implementing it. Until such time as a system and methodology are proposed, a discussion of the pros and cons can only be in general terms. This will hopefully channel the debate and set some of the limits within which the system must fall. This is neither surprising nor distressing. Senator MUSKIE, in opening the hearings before the Senate Subcommittee on Intergovernmental Relations made it clear that his concern was not to enact any particular piece of legislation, but "to open a dialog on the important task of making Government more productive."
The following lists certain expected gains generally attributed to a zero base budgeting system:
First. It may eliminate duplicative and overlapping programs. There appears to be general agreement that such programs exist and that the elimination of some or at least their consolidation, should take place. This is probably one of the most frequently cited benefits of any comprehensive planning budgeting system like ZBB. However, identifying and actually reducing such duplication is a difficult task.
Second. ZBB is seen as an effective response to the problem of the erosion of public confidence in Government. The assumption is that ZBB will attempt to make Government, administrators, and the Congress more responsive to the public.
Third. It would permit Congress to better establish its priorities and allocate scarce resources.
Congressman ELLIOTT LEVITAS on ZBB in Georgia:
That is where the biggest tool in assistance to the Legislature came in, because when we have these alternatives presented to us in functional decision packages, and we go through the appropriations process . . . what we would end up doing is anayzing these decision packages, able to view the alternatives and look at different incremental levelsof funding played off against incremental benefits that would be derived.
By going to the zero base . . . the legislator now has the tool to make the type of judgment both in the committee and on the floor of where do we list our priorities, given this cyclical reanalysis of the effectiveness and alternatives of delivering the program.
Generally, the benefits attributed to ZBB revolve around the idea that the process can generate previously unavailable data that can be effectively utilized at either the level of the individual program or in setting overall priorities. The concern to reset priorities is shared by both conservatives and liberals.
Fourth. It may reduce expenditures. Such savings, if they occur, are hard to measure. First, the cost of comprehensive budgeting must be deducted. Second, the assumption that the savings would not have occurred in the absence of comprehensive budgeting must be verified. Finally, savings in some areas may be offset by increased expenditures in others.
Fifth. It can result in increased efficiency through the close examination of programs and activities to ascertain whether they have been successful in meeting program goals and objectives. As will be discussed, there are serious technical and conceptual problems in determining what constitutes efficiency and in measuring it. In addition, time and resources for the evaluations may not be available.
Sixth. It can provide middle management with useful information not previously available. It can also increase their understanding of and commitment to their programs by increasing their involvement in the budgeting planning process.
Congressman LEVITAS on ZBB in Georgia:
Zero base budgeting . . . requires the middle level manager in preparing his budget request not only to analyze what he needs for the future, but the effectiveness of his planning for the expenditure of current funds and the delivery of current services, and I think one of the most important results that has come out of it is sensitizing middle management in the administrative agencies so that they tend to do a better job in administering their own departments.
Another gain is that middle management becomes better cost conscious, for in justifying one's program from the base, alternatives are explored to reduce costs. The lack of such cost consciousness in most Federal Government administrators is a most serious problem in public finance today.
It is crucial to recognize that traditional incremental budget techniques reinforce, and are reinforced by, the psychology of governmental institution. This psychology was effectively explained by Peter F. Drucker in an article in the Public Interest on "Managing the Public Service Institution." Mr. Drucker pointed out that service institutions were paid out of a budget allocation, whose revenues are normally allocated from a revenue base not directly tied to what the institution is doing:
Being paid out of a budget allocation changes what is meant by 'performance' or 'results.' 'Results' in the budget based institution means a larger budget. 'Performance' is the ability to maintain or to increase one's budget. The first test of a budget based institution and the first requirement for its survival is to obtain the budget. And the budget is, by definition, related not to the achievement of any goals, but to the intention of achieving those goals.
This means, first, that efficiency and cost control, however much they are being preached, are not really considered virtues in the budget based institution. The importance of a budget based institution is measured essentially by the size of its budget and the size of its staff. To achieve results with a smaller budget or a smaller staff is, therefore, not 'performance.' It might actually endanger the institution. Not to spend the budget to the hilt will only convince the budget maker — whether a legislature or a budget committee — that the budget for the next fiscal period can safely be cut.
Seventh. Efficiency in the legislative process might increase as ZBB would assist Congress to be more aware of what it is already doing.
Elliot Richardson:
In all my speeches for quite a while I used to call attention to the fact that it was regular practice for the Congress to rediscover some need and enact new legislation, creating new categorical authority to do what, in this case, HEW already had authority to do. We asked to have the number of bills in each Congress that did this counted and identified. As I recall, in 1 Congress I got up to something like 11 bills giving HEW authority to do what the Congress had long since given it authority to do.
OBSTACLES TO ZBB: THE CON SIDE
The expectation among those who support ZBB is that ZBB will lead to an immediate reduction in Federal spending through the identification and elimination, modification, or consolidation of obsolete, ineffective, or duplicative programs. But ZBB is not a panacea for such changes.
There is no magic in the phrase, "zero base budgeting." Could one major problem be that the term has already or will come to mean "all things to all people?"
BUREAUCRATIC AND POLITICAL RESISTANCE
Even if programs and objectives can be identified, and evaluations successfully undertaken, it is not clear that the goals of ZBB will be successfully met. Bureaucratic resistance and inertia may prevent some benefits from being realized. The political environment, remaining basically unchanged under ZBB, will also mitigate against success.
Elliot Richardson:
While at HEW, I installed an evaluation system throughout the Department. Some of the resulting studies were gratifying successes in terms of competent execution of rational study design. Some were not so successful. However, the ability of even many of the successful studies to effect changes in program direction and magnitude was modest, since resulting program proposals were either ignored or submerged in rhetoric. Therefore, the effort to support and institutionalize the evaluation function within the Government is becoming increasingly critical. It must be pursued with great vigor. (Italic for emphasis)
In 1972, on its own initiative, the Department of Agriculture undertook comprehensive evaluations of a large number of its programs. Dr. Paarlberg had this comment on that effort:
It has had a mixed effect. We have through this process, I think, slimmed down certain programs. I am not sure any have been totally eliminated.
As a result of this process, we have recommended the elimination of certain programs which, however, were not eliminated in the budgetary process. They were funded even though we had hoped to phase them out.
In material later submitted for the record, Dr. Paarlberg commented on one of the political facts of life that any comprehensive budgeting like ZBB will have to overcome if it is to be successful.
The crux of the problem is that rarely is it possible to find a program in which a significant change or cutback would not involve some real or perceived loss to someone. Related to this is the fact that many programs often contribute to a number of objectives beyond their primary purposes. Hence, differences in judgments as to the significance of the various effects of a recommended program change frequently arise. In many cases recommended cutbacks or consolidations will result in overall gains in government efficiency, the benefits of which are widely disbursed, while the sacrifices involved in the change may relate only to a readily identifiable minority. The Department has had a number of its recommendations reversed by Congress for these reasons. (Italic for emphasis)
Dwight Ink, former Deputy Administrator of the General Services Administration, agreed:
We know how to zero budget in theory, but having it done in a practical environment of the real world involving the total process of the department and OMB and the congress is a very different thing.
INABILITY TO DEFINE PROGRAM GOALS AND OBJECTIVES
ZBB assumes an ability to express clearly the goals and objectives of each activity center being budgeted, as well as the goals and objectives of the entire organization. When the Federal Government is viewed as a single entity for the purpose of implementing a budgeting system, such requirements cannot be met. The Federal Government as a whole is not characterized by a small number of related goals and objectives, but rather contains a mass of unrelated and often indefinable ones. The very broad goals and objectives which might be attributed to the entire Federal Government are of little use in implementing ZBB or a related system. Reducing the goals of the entire Federal Government to a few would be like reading the Preamble to the Constitution: "National defense, . . . promote the general welfare." Even at lower levels of government, this problem still persists. Agencies, and even bureaus within agencies, may be responsible for several programs whose only relationship may be that, organizationally, they are part of the same agency. Even individual programs often have multiple objectives. Activities often cross organizational lines, making it difficult to define and delineate "programs." How far down into a given bureaucracy this problem persists depends on the definition of a program.
Elmer Staats:
In a recent report to the Congress, we noted that 228 programs could provide funds to State and local governments for health related activities. Of these programs:
24 were for facility planning and construction; 22 were for health services planning and technical assistance; 22 were for mental health; and 24 were for narcotic addiction and drug abuse. At the broadest level, the 228 programs could be considered to have duplicative objectives in that all related to health. At a lower level one could look for duplication among the 22 mental health programs.
Such problems are, to a large extent, a function of the size of an organization. Increasingly, they are not limited to the Federal Government, or to government units in general. The very size of some corporations means they face similar problems in utilizing ZBB techniques."
ZBB or a related system cannot and should not simply be imposed on a large organization with a variety of unrelated, or only tangentially related, goals and objectives, be it public or private. In private organizations, divisions or departments already established are likely to provide the units in which ZBB can be implemented. In the public sector, especially at the Federal level, this is not always the case. Similar activities are carried on by different bureaucracies, making identification of the units needed for ZBB very difficult.
The difficulty of determining objectives and carrying out evaluations will increase workload to implement ZBB.
Elliot Richardson, Secretary of Commerce:
If the process of zero base review of Government programs is to be productive, then we must all understand what it is that the programs are trying to accomplish. In this regard, there must be more precise definitions, perhaps alternative wording for the many uses of the concept of objectives.
Many Federal programs have multiple objectives which are achieved through a single project. For example, a water resource program may manage available flow to produce municipal or industrial water supply and thereby enhance economic development or quality of life; provide irrigation for agriculture to improve the output of American farmers; produce hydroelectric power for economic development or for lower cost power for residential customers; and/or reduce damage to life and property from floods.
While few programs have this level of complexity, it illustrates the difficulties which we can experience at the "front end" of zero base reviews and evaluations. The utility of any efforts we may make is related to how well we understand and agree upon what is to be evaluated.
I suspect that the executive branch and the Congress would have some difficulty in agreeing on just what "objectives" are appropriate for all Government programs ..."
At the same time, specifying objectives too precisely might be unwise.
Arnold Weber:
Don't assume that zero base budgeting is a form of magic. The development of overly precise objectives so you can hold an agency's feet to the fire is not always the best way to go.
The nature of Government and particularly governmental programs is intrinsically ambiguous.
If you set very specific objectives, you deny the capacity of the administrators to modify and deal with new or different circumstances.
Legislation providing the flexibility needed to make comprehensive budgeting in the Federal Government feasible might be too general to be meaningful. Very specific legislation could lead to a restrictive, mechanical, and inflexible approach. The planning/programing/budgeting systems of the 1960's failed in part because it was too rigid. Federal programs vary widely. Any attempt to force them all into the same mold for evaluation may result in failure.
PAPERWORK CRISIS
There is almost complete agreement that the workload created by imposing a zero base system on all or most of the Federal Government at one time would be unmanageable. This is true even if program reviews are staggered and undertaken only every 4 years. The system might collapse under its own weight or develop into a meaningless bureaucratic exercise. Many present and former top officials have reiterated this:
Roy Ash:
I believe we must avoid setting up a system destined to fail because it imposes a workload that can't possibly be handled or one that requires a substantial sacrifice of quality, and thus usefulness, to complete ...
To start full blown giving zero base consideration to an average of over 250 programs a year is like attempting to jump aboard a 747 in full flight.
Don A. Paarlberg, Director of Agricultural Economics, Department of Agriculture:
The routine frequency of a 4 year cycle would spread our staff resources too thinly. In our own internal work within USDA to evaluate programs we have identified about 250 programs which require individual analysis. To attempt to cover all of these programs within so short a period would tax our resources to the limit. It would probably mean that the quality of the work would suffer, we would produce large numbers of papers which might not be useful to decision makers, and we would be unable to focus on specific high priority areas.
The workload will be partly defined by the nature of the system implemented. The more detailed and frequent the required program evaluations the greater the workload.
PROGRAM EVALUATION
Even if programs can be defined and objectives determined, evaluations may be prohibitively difficult. The necessary data and methodology may not be available. It is not always clear what must be measured to determine program success. According to traditional research methods, no program can be evaluated unless, when the program was implemented, a controlled situation was established to determine what would have happened if no program had been started.
James Lynn:
The magnitude of this task (regular zero base review of Federal programs) for most, if not all, programs can be illustrated by the following example of a two-step process.
Step 1— Measurement of effort. Determination of the program impact of a specific level of budget authority is frequently so difficult that it is virtually impossible to anticipate how much time it will take to have useful results.
An excellent, though not extraordinary, example of these problems is provided by an elaborate evaluation of Title I of the Elementary and Secondary Education Act (ESEA) . Title I of the ESEA is aimed at meeting the special needs of educationally disadvantaged children. The evaluation study is expected to take 7 years — at a cost of approximately $7 million for the first 2 years. Design and measurement techniques in such an evaluation present a formidable task due to the diversity of projects that have been undertaken under Title I. State and local educational jurisdictions have taken highly varied and individualized approaches in designing corrective programs for the educationally disadvantaged. Moreover, the measurement of educational attainment is clouded by the absence of standard tests for which there is agreement among educators as to their validity, and by the unavailability of adequate comparison groups.
All of these uncertainties about the success of this long term, expensive evaluation project are set against a background of previous efforts that frequently have been unable to demonstrate conclusive evidence concerning the effect of such special educational programs. The difficulty and expense of measuring program effects is not to be taken lightly.
Step 2— Production Functions. Even if these vexing measurement problems can be solved — and we are constantly seeking solutions — true zero base review and evaluation as outlined in the bill requires a good deal more. It requires relating such efforts to varying dollar and employment levels. At this point, it is not more evaluations, but better evaluations, that are needed.
Arnold Weber:
I remember in analyzing one of the drug control programs we asked, "How efficient is Customs or the other agencies?" We looked for measures. We ended up with a spot price for cocaine in illegal markets in 20 cities.
We said that if the price went up, the enforcement program was succeeding because that indicated a curtailment of supplies.
OMB summed up evaluation problems as follows:
. . . The process of systematically analyzing programs and reporting on their performance — program evaluation — is potentially a valuable tool for governmental decisionmaking, but is only rarely useful to key policymakers and program managers at present. This lack of usefulness stems from many causes, including presumed or real methodological inadequacies, the absence of sufficient incentives for the conduct of objective evaluations, the fact that Federal programs typically do not have measurable objectives, or the absence of testable assumptions linking program activities to the accomplishment of program objectives.
As Allen Schick has astutely observed: The gap between doing evaluation and using it is very great.
PILOT PROJECT
When concern over the work load is voiced, it is usually coupled with the suggestion that a pilot project be undertaken. These would permit methodologies and procedures to be developed and problems to be solved. ZBB or some form of comprehensive budgeting might then be eased into part or all of the Federal Government.
Elmer Staats:
I would suggest, as one possible alternative, some type of pilot test of this legislation which could perhaps help the Congress uncover and resolve some of the complexities associated with the zero based approach.
Alice Rivlin, Director, Congressional Budget Office:
It is difficult to evaluate the effectiveness of agencies.
It will not be done well if the process becomes rigid and mechanistic and if you bite off too much too soon. It does seem to me that the way out of this, which serves both the purpose of the bill and of realism, so to speak, is to use some kind of selectivity, of starting on an environmental basis, if you will, you could start with some significant portion of the set of possible programs first, as a dramatization that this really can be done and can work and as a way of building the tools needed to complete the job.
Even Peter Pyhrr, one of the most enthusiastic supporters of ZBB for the Federal Government, acknowledged the need to proceed carefully.
What I would recommend would be to take a program area which may encompass more than one department, or may even be one large department, so that you can do it completely throughout that entire program area or throughout that entire department to get a very good operating feel for how the process works and see what kinds of benefits you could achieve. You can attempt to take selected operations or subprograms in each major agency in the Federal Government and attempt first implementation — do it there.
Another problem has been raised whether or not all programs require or could benefit from comprehensive review on a regular basis. For a legislated requirement to prepare evaluations on every program every 4 years as proposed by Senator MUSKIE's bill could easily become a mere mechanical exercise.
William A. Morrill :
Another problem with comprehensive zero base review is that it simply is not worth doing for every program. Evaluations themselves should be cost effective and every program probably will not need an in-depth evaluation at a given moment in time. While we may well need improved evaluation of programs, we should focus our limited quantities of talent and expertise on high priority program areas.
Elliot Richardson:
Rather than a legislated requirement to prepare evaluations on every program every 4 years, which could easily become a mere mechanical exercise, I would strongly urge that a more discriminating approach be used. Just as we must make priority decisions on allocating finite resources to programs, we must also choose which program evaluations can usefully be completed in a given period of time.
Arnold Weber:
It seems to me that the legislation should distinguish between programs to which the zero base concept applies, and where it would be inappropriate.
It would be inefficient and misguided to impose a law of the equality of millstones on every Government program.
A second aspect of difference between programs is the expected period of maturity or performance.
For example, for some programs you can expect to have an outcome in a year. Other programs . . . may require a longer time horizon for performance.
Similarly, a program that has been in effect since 1906 is different than a program that was started last year.
To the extent that we are concerned with zero base budgeting as an instrument to evaluate a particular program, it seems to me we should have some criteria which determine which programs should be higher on the roster for inquiry and examination.
CONGRESSIONAL PITFALLS
The procedures and organization of Congress also hold pitfalls for comprehensive budgeting. There is some indication that committee chairmen may be reluctant to support a reform which would add significantly to their work load while limiting their traditional prerogatives by emphasizing economics and program success. To the extent that the new congressional budget is already doing this, they may be especially alert to further intrusions.
The frequently expressed concern that Congress may not be able to complete its new budget process within the legislated deadlines raises a related problem. Where is Congress going to find the time to handle the additional work load generated by comprehensive budgeting? The lack of time, coupled with committee resistance holds out the danger that comprehensive budgeting could become a meaningless, formalized service.
If we attempt too much, the effort may simply become one of satisfying the form without addressing the substance.
The potential for both political and organizational resistance in Congress to comprehensive budgeting has been frequently discussed. One of the arguments of opponents of comprehensive budgeting is that the committees already have the authority to carry out any kind of program review they desire, but have not often opted to do so. As a result, legislation to this end would be an exercise in futility. The implicit argument is that Congress does not want to undertake program evaluation. Senator EDMUND MUSKIE was in part alluding to this when he stated:
I think we also understand that if the bill (S. 2925) moves . . . that changes will have to be made to accommodate the realities as we identify them."
Senator FRANK Moss thought it would be more appropriate to reorganize Congress rather than to change the bill:
Clearly S. 2925 demands and depends upon Senate committee realignment. Now that the Senate has finally created a select committee on committees . . . these reforms can go hand in hand.
Senator Moss was referring as much to the problems caused by congressional organization as to the political resistance a reorganization would face. ZBB or a related system would require that the programs a committee has jurisdiction over be identified and that programs in one and all be evaluated by the same committee. This seems the logical way to identify duplication and select among competing alternatives. But aside from politics, there are other difficulties.
James Lynn:
I asked my people to advise me as to the legislative process on the energy situation, and my figures show a total of over 500 days of energy related hearings were held in the first 9 months of the 94th Congress, involving 12 Senate committees and 25 subcommittees, 17 House committees and 35 subcommittees. FEA alone, in calendar 1975 appeared in 46 Senate hearings, 58 House hearings, and 8 joint committee hearings; and during the first 3 months of 1976, FEA has already testified 31 times. . . .
the more I look at functions of a budget or at executive branch organization, (the more I realize that) there is no set of organizations that will allow any real, important problem to be assessed and evaluated within that one department.
Other problems may develop:
First. In the short run, reducing personnel in the Federal Government is difficult and obviously unpopular with Government employee unions. As a result, immediate dollar savings may be difficult to achieve. The personnel, transferred to another area, would still have to be paid, require administrative support. In the longer run, attrition through retirements would help deal with this.
Second. When agencies rank decision packages and set their priorities, there may be a tendency to rank existing programs especially the most favored "pet" programs higher than proposed ones, regardless of which would be more valuable. The temptation to fall back into incremental budgeting by assuming that what exists is justified will be very strong.
ZBB: TWO EXPERIENCES — U.S. DEPARTMENT OF AGRICULTURE AND STATE OF GEORGIA
INTRODUCTION
One of the biggest criticisms of ZBB relate to its actual success or lack thereof in government. I refer to the examples of ZBB in the State of Georgia when President Jimmy Carter was Governor and the case experience of comprehensive budgeting in the U.S. Department ofAgriculture in 1962 as documented by Aaron Wildavsky.
It is not within the parameters of this paper to discuss the record of ZBB in the States. I would refer my colleagues to a Library of Congress, Congressional Research Service study by Mr. Allen Schick,and Mr. Robert Keith entitled "ZBB in the States."
I have, however, selected the case experience of ZBB in Georgia for two reasons : First and foremost is the national attention given it by the news media for President Carter has stated his success with ZBB in Georgia has made him recommend it be applied to the entire Federal Government. Second, Georgia was one of the first States to completely implement ZBB, and its program director was Mr. Peter Phyrr who is credited with developing this technique.
It is important to examine the actual case experience where ZBB or comprehensive budgeting has been attempted in government organizations. However, caveats are in order.
First, this is a discussion of the benefits gained and problems encountered rather than a description of the system itself. Second, while the systems involve comprehensive budgeting, they differ significantly and the results are not strictly comparable. Third, the information available is limited, and in some cases contradictory. Because it is difficult to draw any definitive conclusions on the success or failure of the various systems, considerable more research is necessary. Finally, while trends may be observed, one should be very cautious about drawing conclusions on the feasibility of comprehensive budgeting in the entire Federal Government. For the Federal bureaucracy is a different entity from one of its component agencies or from State government.
AARON WILDAVSKY STUDY OF COMPREHENSIVE BUDGETING IN THE DEPARTMENT OF AGRICULTURE
The Department of Agriculture in the spring of 1962 decided to undertake comprehensive budgeting for the upcoming fiscal year. The instructions required each agency within the Department to undertake three major calculations: First, justification of the need for agency activities and programs without reference to congressional mandate or past practice; second, justification of the requested level of expenditure — fund obligations — based on the needs; third, justification of the costs of the needed programs from the ground up.
When the exercise has been completed, only one savings was credited to the comprehensive procedures; a $100,000 reduction in an obsolete research program that might have happened anyway.
There were benefits, but not of the kind anticipated. Especially among supporters of ZBB, the procedures generated a feeling of greater involvement and interest in their activities. The benefits of such a commitment are important, even if they are difficult to quantify or measure. Those who had little or no experience in budgeting gained insight into the value of the budgeting process, more knowledge of their own programs, and a better understanding of how their programs related to the larger organization. In spite of this, very few changes resulted from the use of comprehensive budgeting.
This is not surprising, given the difficulties that were experienced. The agencies had difficulty conceptualizing a situation in which there existed no legislative mandates or commitments. The agencies assumed or quickly decided that their programs were necessary. Many were partly justified by reference to the authorizing legislation, even though it had been made clear that this would not be considered important. In short, they tended to do what they would usually have done under incremental budgeting procedures, but they did it in more detail and produced more documents.
They also reduced their work load by assuming the usual parameters; what was required by law and what Congress could reasonably be expected to approve. There was a trend toward taking the budget of recent years and then considering increases and decreases. Interestingly, those involved were often not aware that they were continuing with incremental procedures. When challenged, they often responded by saying that they had to start somewhere or that the whole thing was silly, since everybody knew that no substantive changes would come out of it given the political and economic realities. In effect, Wildavsky states "they made the decisions that comprehensive budgeting was to assist them in making before the evaluations were ever completed."
In sum, the experiment in the Department of Agriculture seems to support many of the arguments in this presentation. The system and methodology needed to be better defined before it could be implemented. Many agency officials did not know how to go about making the required calculation for ZBB and did not believe, in any event, that it was a necessary or valuable procedure.
THE STATE OF GEORGIA
The State of Georgia, under the auspices of former Governor Jimmy Carter, was the first State to implement ZBB procedures in fiscal year 1973. Peter Pyhrr was intimately involved. As a result the ZBB system implemented closely resembles that discussed earlier.
It is difficult to characterize the use of ZBB in Georgia as either a success or failure. A doctoral dissertation on the subject reached the following conclusions :
There are three primary advantages associated with the employment of the zero base budgeting system in the State of Georgia. These advantages are: (1) the establishment of a financial planning phase prior to the preparation of the budget; (2) an improvement in the quality of management information; and (3) greater involvement in the budgeting process by personnel in the lower organizational levels of State Government.
The major disadvantage — is the increased time and effort required for budget preparation. This has contributed toward a great deal of dissatisfaction with the new system, particularly among personnel at the department and activity level. This dissatisfaction has, in turn, had a detrimental effect on the effectiveness of the zero base budgeting system.
In addition, the study indicates that there are two significant failures associated with the employment of zero base budgeting in the State of Georgia. These failures are: (1) the inability of the new budgeting system to significantly affect the efficient allocation of the State's financial resources; and (2) the ineffectiveness of the decision package ranking in meeting changes in the level of funding.
In terms of what its advocates hope comprehensive budgeting will do for the Federal Government, the system in Georgia seems to be more a failure than a success. On the other hand, in terms of the cost incurred in implementing the system and the potential benefits which may be realized in future years as the problems are solved and ZBB is better institutionalized in the State, the system might be considered a success. Peter Pyhrr estimates that the entire cost to the State, including his salary, was only $40,000.
Mr. Pyhrr goes on to make another interesting point about ZBB in Georgia.
Most of the areas that this [ZBB] has proved more effective [in] did it as the only budget process.
Unless you did zero base budgeting in Georgia, you didn't get a budget.
That adds incentive for the managers to use the process. Those seeking a mechanism for comprehensive budgeting in the Federal Government might keep this in mind. As was seen in the Department of Agriculture, ordering it to happen does not insure that it will replace incremental budgeting.
Other systems involving various types of comprehensive budgeting have been or are being adopted in a number of States, including New Mexico, New Jersey, and Colorado. For my colleagues that may be interested in more detailed information on these and other systems, I have enclosed references and suggested readings. In all cases, it is difficult to make a clear judgment of the system adopted. Generally, there are elements of both success and failure, and the potential is greater than the achievement to date.
FINAL OBSERVATIONS
Given the current state of knowledge, it is probably not possible to specify a system of zero base budgeting that would be effective and successful for the entire Federal Government. However, by explaining what cannot be done, and by asking questions that must be answered, may in itself be positive steps in the right direction.
Comprehensive budgeting in Federal agencies is not a new idea. Program evaluation has been around a long while. It is being used increasingly with varying degrees of success. However ZBB or a variation of comprehensive budgeting is utilized, the questions below are just a few among the many that will have to be answered.
First. Can the necessary evaluation techniques be developed? Can the evaluations be summarized in a meaningful way?
Two. Can the objectives of the program(s) be defined and their success measured within available time and resources?
Three. How great will the work load be? Will it just represent the "triumph of process over substance?"
Four. What can be done to counter resistance by executive branch, administrators and even the Congress in implementing ZBB?
Five. Can Federal programs be divided in an acceptable way into those where efficiency and changes at the margin are the major questions and those in which the existence of the program is really the issue and in which ZBB is a good idea?
In summary, it should be clear now that ZBB cannot simply be imposed on the entire Federal Government. Programs, program goals, objectives, and evaluation techniques vary too widely. A system and methodology so flexible that it could be adapted to all programs would be meaningless. On the other hand, any system rigorous enough to be successful in some cases would certainly not be appropriate in others.
The management tool of zero base budgeting can provide information on alternatives. But no budgeting system can make the ultimate decisions on priorities and the allocation of resources.
Evaluation is still more art than science and it is not a panacea. The rational process, by itself, cannot bear responsibility for criterion, continuation, or discontinuation of governmental programs. The real challenge is to policymakers to use evaluation effectively, while recognizing uncertainties in information and the limits of analysis. (Italic for emphasis).
After extensively analyzing the Department of Agriculture experience with zero base budgeting, Aaron Wildavsky summarized :
The first conclusion would be that comprehensive budgeting vastly overestimates man's limited ability to calculate and grossly underestimates the importance of political and technological constraints. The required calculations could not be made and would not have led to substantial changes. As a result a great deal of effort went into zero base budgeting with few specific changes attributable to this costly method.
One should not forget that budgetary decisions are, or soon become political decisions.
Conceptually, the idea of zero base budgeting is a sound one. In theory, we have been zero base budgeting for years. In reality, we have not been, and it is unrealistic to think we can zero base for the entire Federal Government given the state of the art and the many constraints mentioned earlier. We must realize that zero base budgeting is a very new development in budgeting and public finance and that more research and analysis by both public administrators and academicians is first necessary.