WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
To view the archives of the Tax Foundation of Hawaii's commentary click here. Weekly Commentary For the Week of January 13, 2019 Zero-Based Budgeting By Tom Yamachika, President Last week, we spent some time on “variance reports,” which is how our state government agencies report differences in position count and spending from one year to the next. The agencies are also supposed to report on performance measures that they pick themselves, but sometimes still disregard this requirement. Today, we examine “zero-based budgeting,” an idea that has been around for a while but was recently championed by House Finance Chair Sylvia Luke. Zero-based budgeting assumes that nothing, not even the amount the legislature approved the previous year, is approved. Agencies will have to justify everything, all the dollars they want to spend and all the positions they want to have, from the bottom up. This is a whole lot more work than agencies are used to doing, and it generates a lot more information than legislative staffs are used to reviewing during our compressed legislative session, so it’s going to be a tough sell all around – especially for people who don’t understand what ZBB is. The international consulting firm McKinsey & Co. defines ZBB as something that goes beyond simply coming up with a budget: "Zero-based budgeting is a repeatable process that organizations use to rigorously review every dollar in the annual budget, manage financial performance on a monthly basis, and build a culture of cost management among all employees. A world-class ZBB process is based on developing deep visibility into cost drivers and using that visibility to set aggressive yet credible budget targets. The annual budgeting process does in fact start from zero and is very detailed, structured, and interactive in order to facilitate meaningful financial debate among managers and executives. Throughout the year, multiple owners are tasked with managing performance and continuing the healthy debate on cost management. Through new system and process controls, and aligned incentive programs, all employees make cost management a part of their daily routine." One of the key elements of ZBB is visibility. An organization needs to understand what money is being spent on, and why. In government agencies, especially larger ones, it’s difficult to obtain that understanding. Waste and fraud can be buried, not only because of some evil intent but simply because “it’s always been done that way.” It takes work to figure out why a task or process is being done, and only then can it be analyzed to determine if it can be done more efficiently or even if it is needed at all. Nevertheless, it’s probably worthwhile to periodically take deep dives into an agency’s activities. Advantages of the process include sharpening the agency’s focus on its mission so marginally related activities can be identified and possibly refocused, identifying redundant activities, identifying artificial budget inflation, and increasing the efficiency of resource allocation. Doing things a certain way just because they’ve always been done that way might not be right when the times have changed and the agency’s priorities and needs have changed. Yes, it takes leadership and hard work to do ZBB correctly. But if it is done correctly, the potential for savings to the public fisc is huge. McKinsey estimates that if properly implemented, ZBB can reduce sales, general, and administrative costs “by 10 to 25 percent, often within as little as six months.” We can’t afford not to try this.
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WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers To view the archives of the Tax Foundation of Hawaii's commentary click here. Weekly Commentary For the Week of January 6, 2019 So Did You Meet Your Goals This Year? -- Um, We Dunno By Tom Yamachika, President Although our legislature hasn’t opened yet, legislators are at work already. The money committees, for example, have started quizzing the various executive departments on their budget requests for the upcoming biennium (2019-2020). According to law, specifically HRS section 37-75, the agencies are supposed to come up with a “variance report” that is supposed to list how much they were budgeted, how much was spent, and a narrative explanation for any significant difference. Variance reports are due 30 days before the start of the legislative session. They are posted here. The variance is supposed to be reported not only for dollars, but also for employee count and other “effectiveness measures.” Effectiveness measures are numeric indicators of how well the agency is performing in a certain program area. The agency gets to select their own measures to report how well they are doing to the legislators and to us as taxpayers. Let’s take a look at Honolulu International Airport from this report. We spent $158 million on this airport in FY 2017-18. Regarding measures of effectiveness: Hmm. Kind of tough to figure out how they’re doing when there’s no data. By the way, none of the airports appear to have any actual data in their measures of effectiveness sections. If they are selecting their own measures of effectiveness, why aren’t they even measuring them? And by the way, variance reports in prior years did measure these statistics – up to 2013-14. No data was collected in the 2014-15 variance report or in any year since. The 2014-15 variance report noted, “DOT’s response dated November 17, 2014 indicates the Airports Division reviewed their measures two (2) years ago and detected that many of its measures are no longer relevant and outdated. As noted by Airports, to date, the updated measures and data collection are not available.” Which basically meant that the Airports Division quit following the law at that time.
Another statistic that is high on the head-scratching factor is for Halawa Correctional Facility. We spent $28 million on that facility this year. Two of the measures of effectiveness are the number of times an inmate escapes by using violence (first degree escape) and the number of times an inmate escapes otherwise (second degree escape). The variance report claims to have no data on these statistics. Huh?? Do they mean that they don’t know when people who are supposed to be locked up aren’t? Strike that – I don’t even want to know the answer to that question. Other holes in the variance report drew excuses like “We no longer track this because federal grants no longer require it” or “We don’t keep the data in this way any more.” In the private and nonprofit sectors, if a metric is no longer meaningful, it’s common to switch to another one that is. How long does it take for one of our Hawaii departments to switch metrics on these reports? Please don’t tell me it takes years. For our government to operate well and to be fairly evaluated, we need good data and transparency. Let’s keep pressing, and maybe someday we will get some. WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
To view the archives of the Tax Foundation of Hawaii's commentary click here. Weekly Commentary For the Week of December 30, 2018 No, Killing a Special Fund Doesn’t Kill People By Tom Yamachika, President Recently, the State Auditor released Report No. 18-19, which reviewed special funds, trust funds, and trust accounts of our Department of Land and Natural Resources. Under law, the Auditor is supposed to review an agency’s special, revolving, and trust funds every five years. The review is supposed to find accounts that are not appropriately classified so that appropriate action can be taken. Why? Back in the bad old days, agencies had little pockets of money all over the place that only they knew about. Our legislators, who are supposed to be watching the money the agencies spend, couldn’t do their job because they had to track special fund dollars hidden in hundreds of nooks and crannies as well as the general fund moneys that the agencies were getting. So, legislators came up with some sensible criteria written in law, such as one that says special funds need to be self-sustaining, and sent the Auditor to ferret out the funds that didn’t conform to the rules. Apparently, DLNR doesn’t seem to have gotten the memo. It butted heads with the Auditor over several of the funds. Typically, the arguments went like this: Auditor: Let’s now turn to the beach restoration special fund. The fund is self-sustaining, but the program supported by the fund can be successfully implemented under the general fund appropriation process. DLNR: The importance of this account cannot be overstated. We need to protect our beaches! If we don’t have this fund, our efforts to support beach restoration projects will be severely compromised. The program should be specially funded because we get funding from Transient Accommodations Tax, and there is a strong connection between the tax and beach protection. Auditor: How about the administratively established Conservation and Resources Enforcement fund (which, by the way, is not the same as the Conservation and Resources Enforcement Special Fund)? It generates no revenue, so it clearly isn’t self-sustaining. DLNR: But it gets transfers from the Boating Special Fund to support marine patrol! It’s used to supplement the general funding for personnel services. Maintaining this account is important to the Division’s focus in marine patrol efforts. Are the folks at DLNR even listening to what the auditor is saying? The loss of a special fund isn’t the end of the world. People who are paid out of the special fund can be paid out of the general fund instead. Nobody is going to die or be fired. The programs that were there before can continue if there is justification for them, which, given their importance, should be easy to establish, right? Again, the object of this exercise is not for the Auditor to come to the department with a program-chopping axe. It’s for everyone involved to understand where the money is. It’s about lifting the veils and promoting transparency, not about swinging the budget machetes through the marshlands. DLNR needs to understand that the money in these funds isn’t “their” money. It’s taxpayer money. If they as an agency do good and necessary things, the public and our legislators will have no problem with their use and stewardship of that money. Legislative oversight of that money isn’t just an inconvenience, it is a constitutional requirement. Once our government agencies understand this, all of us will be better off. |
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