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Ideas We Should Steal: Zero-Based Budgeting

Josh Shapiro has reimagined how suburban public dollars are spent—and reinvented government in the process.

When he was elected in 2011, Montgomery County Commission Chairman Josh Shapiro inherited a mess. He faced a $10 million budget hole and a structural deficit of $49 million—percentage-wise, more of a shortfall than Governor-elect Tom Wolf faces right now.

So what did he do? He started over. Literally.

Josh Shapiro
Josh Shapiro

As a young Capitol Hill staffer in the 1990s, the now 41-year-old Shapiro had once heard Bill Clinton talk about the novel notion of “zero-based budgeting.” He never forgot it, despite the fact that, to his knowledge, it’s not being practiced by any major government anywhere. Shapiro hired numbers whiz Uri Monson, the former head of the state board that oversees Philly’s fiscal matters, to be his chief financial officer. Soon after taking office, they unveiled their new  approach to all county department heads: Instead of submitting their usual request for a percentage raise in their budgets, each had to write a paragraph detailing their core mission. Then Shapiro and Monson worked backwards with them from there, essentially starting at zero and figuring out how much it would take to meet the mission.

There were skeptics. When one inherited staffer objected by saying, “This isn’t how we do it,” Shapiro abruptly ended the meeting. “People either became converts or no longer worked here,” he says.

“Philly is the ideal place for zero-based budgeting,” says Shapiro. But it would require taking on some politically sacred cows.

Within a year, the shortfall was transformed into a balanced budget with no new taxes, one that increased pension funding, grew the county’s reserves for the first time in four years, and eliminated all earmarks. Last year, the county finished with a $1.6 million surplus; overall spending was down 10 percent compared to 2011, but investment in human services, education and public safety were all up without any corresponding uptick in debt.

“I believe zero-based budgeting is the most important thing governments can do,” Shapiro says. “From Harrisburg to D.C., the debate is always about taxes and spending, when what we should be doing is starting our budgets at zero, defining our core mission, and then funding it.”

Shapiro was able to decrease overall spending but increase investment in areas where it was most needed—proving that zero-based budgeting just might be the most direct way to real reform. The exercise exposes bloated spending, expenditures that have found their way into the budget in response to political claims, and the inevitable residue of mission creep through the years. As a result, numerous programs in Montgomery County were defunded, saving some $43 million. Others that had been doing good work—like the SPCA and programs to help battered women—now had to respond to Requests For Proposal and be held to the standards of accountability that apply to all vendors.

Shapiro is vice chairman of Wolf’s budget transition team, but don’t expect the governor-elect to introduce zero-based budgeting out of the gate. There’s simply not enough time for a budget that has to be passed by June 30. Still, here’s hoping that Wolf will at least introduce the concept in his March budget address and devote the next year to the exercise, targeting his 2016 budget for a zero-based makeover.

Could zero-based budgeting work in Philly? Shapiro has already been approached by two mayoral candidates he won’t identify and by Councilman Bobby Henon, all seeking to learn more. “Philly’s the ideal place for zero-based budgeting,” Shapiro says. “The one-party structure avoids a lot of the partisan fights that can come along with it. If the next mayor calls for it, it could change the city.”

What are the chances that a city with 1.4 million residents and roughly 23,000 workers (down by only a few thousand from the days when population was upwards of 2 million) is being run at peak efficiency? But therein lies the rub. There’s got to be a reason no one else is doing this, right?

“Governmental leaders like predictability,” Shapiro explains. “If you honestly follow your core function, you could find yourself cutting core constituencies.”

In other words, what sounds like a nerdy no-brainer policy is actually pretty radical—because it can lead to taking on some politically sacred cows. That’s why Shapiro, who is up for reelection this year while the political class buzzes about his next move, was smart to do it on day one: He had four years to up his stock after spending his political capital early.

Note to all mayoral aspirants: Who among you has the courage to  instruct your department heads to start at zero the day after your inauguration?

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