Budgeting In Tough Times: Lessons From Michigan

The Governing Conference on Managing Performance is always a rich environment for new ideas and best practices. This year’s conference – held in Atlanta, GA, earlier this fall – was no exception:

No one knows more about how to budget in tough times while still investing strategically in the future than the State of Michigan. Lisa Webb Sharpe, the Director of Michigan’s Department of Management and Budget, gave a high value presentation at Governing’s Managing Performance conference entitled “Budgeting in Tough Times: Strategies that Work, Gimmicks that Don't.” Lisa’s “do and don’t” insights are worthy reminders for everyone in the public sector:

Do - Define government's role. Examine current programs and functions. Are they still relevant in today's environment? Prioritize polices and fund them. Ask the question: what is government's role and core mission?
Do - Develop a long-term vision and invest. In Michigan, our investment in education, early childhood, K-12 and higher education, is key to our economic recovery.
Do - Fix structural problems rather than plugging holes short-term. It's easier said than done. If your tax structure is manufacturing-based, and your economic model is moving toward services, the tax structure must recognize that to provide adequate revenue. Likewise, government can't be all things to all people. Re-examine services and programs for relevance and effectiveness, then prioritize and make the tough calls. Of course, you must look for efficiencies and economies of scale in administrative functions.
Do - Maintain a rainy day fund, because the rain will certainly come.

Don't - Play around the edges. Symbolism is great to help the public understand you're watching every penny, but look at your real cost drivers – education, corrections, and health care – and work to produce appropriate reform that achieves solid results for the taxpayer money you're spending.
Don't - Assume wholesale outsourcing works. States must examine each project or program separately to determine if outsourcing makes good business sense, both short and long term. In Michigan, our vehicle fleet is outsourced and it works tremendously well for us. Based on an independent review of our accounting operation, we are high performers, with the exception of a small portion that is privatized.
Don't - Offer across-the-board early retirements to thin the employment ranks. Early outs can drive up the employer contribution rate paid by state agencies, and the brain-drain is significant.