Long-term state budget reform needed

By David Fisher and Gretchen Tegeler

Several weeks ago, Gov. Culver ordered a 10 percent across-the-board cut in the state budget, a percentage more than twice as large as any such cut in the state's recorded history. The action is intended to balance the budget in the short term (the current fiscal year) following an 8 percent downward adjustment in the estimated revenue available.

The impacts are just beginning to be identified, including the local property tax increases that will inevitably happen to replace the state revenue that local governments lost in the cut.

The worst news is that even before the recent drop in receipts, it was generally agreed the state is facing a longer-term “structural deficit” amounting to $1 billion or almost 20 percent of the state budget.

A structural deficit means simply that the rate of growth in ongoing spending - the current level of spending plus the “built-in” increases that have already been enacted for future years - cannot be sustained with the state's revenue base.

Over the past few years, budgets have been put together using a series of one-time revenue sources; however, these sources have now been largely depleted. Unfortunately, perhaps tragically, the recession-driven drop in receipts is occurring at the same time as the structural deficit must be confronted. Thus, significant long-term adjustments in state spending are necessary.

The process used to solve a challenge of this magnitude will need to be comprehensive, transparent and inclusive.

The approach that Gov. Terry Branstad used in 1991 with The Governor's Committee on Government Spending Reform (the “Fisher Commission”) suggests a model that works. They worked, and they set the stage for Iowa to achieve its strongest financial position in the state's history - a $900 million balance when Branstad left office.

As leaders of the process at that time, we want to review some of the factors that we believe made it successful.

l The charge was clear.

Gov. Branstad understood the nature of a structural deficit and charged the committee with developing options to “bring government in line with the demographics and financial realities of the state,” with “no sacred cows.” Then, the governor and the Legislature stood back and provided the necessary breathing room for the committee to work.

l The process was inclusive.

The 22 bipartisan members of the committee and more than 100 task force members included business executives with experience managing through tough times, local officials with a huge stake in the outcome, state legislators, a labor representative, the state treasurer and other state employees. In being so inclusive, the group was able to transcend politics and work together in Iowa's best interest.

l Roles were clearly and properly defined.

Booz Allen Hamilton consultants were brought in to facilitate the process but were not charged with generating the ideas and recommendations. State department directors and other state employees were heavily involved. They were closest to the problem and were going to be responsible for implementing the recommended changes.

l The committee provided a structure for the work.

Seven task forces were designed around the areas believed to offer the greatest opportunity for efficiencies and/or savings: collections, intergovernmental relations, privatization, public finance, statewide service delivery and technology enhancement. Then, committees were charged with developing recommendations.

l Time was spent on the front end to educate the players about the state budget, the nature of the key drivers of spending and the reasons behind them.

This gave everyone a baseline understanding, and even opened the eyes of some veteran state legislators. It helped identify where to look for solutions and better understand the longer-term ramifications of spending measures.

l The process was very open.

Members of the media were invited and encouraged to attend every meeting of the committee and its task forces. The openness fostered trust and a strong sense that we all had to work together in the state's best interest. The excellent coverage enabled citizens to be engaged in the process.

Results: The “top opportunity” recommendations from the Fisher Commission totaled nearly $500 million per year in ongoing savings. Many of the most significant reforms were enacted during the 1992 legislative session (and two extraordinary sessions called at the governor's insistence) including reforms in Medicaid, foster care, indigent defense, property tax limitations and centralization of some functions including collections.

Others came in the following years.

The most important factor in the project's success: accountability. Every year, progress in implementing the committee's recommendations was assessed, documented and reported. That reinforced continuous improvement.

As was shown in 1991, a good process can go a long way to anticipate and manage the risks of major and permanent changes. In following such an approach, Iowans can be confident that today's historic challenges can be met and tuned into opportunities for making Iowa an even greater place to live and work.

David Fisher was chair of the 1991 Governor's Committee on Government Spending Reform and is a Des Moines businessman. Gretchen Tegeler, former director of the Iowa Department of Management, is a Des Moines management consultant.