Chris Dudley and the Locke / Grove / Novick Plan

Steve Novick

I've previously written extensively about the Portland Monthly interviews with Bradbury and Kitzhaber - but not the interview with Chris Dudley. But there was one item in that interview that definitely caught my eye:

"When I sat down with government workers, they say, come every June 30 we’re under tremendous pressure to spend every dollar we get, because if we don’t spend it, we don’t get it next year. That’s a false incentive."

That little item shows that Dudley should not be underestimated. He's grabbed onto a criticism of government that has a grain of truth to it. In response, our Democratic candidates should adopt what Lisa Grove and I like to refer to as the Locke / Grove / Novick plan. (Actually she calls it the Locke / Novick / Grove plan. I call it the Locke / Grove / Novick plan. Truth is that it's former Washington governor and current Commerce Secretary Gary Locke's idea; Lisa and I just stole it and obsess over it.)

Those of us who have worked in government (probably the same thing is true in large private companies) know that there's something to the 'end of the year' phenomenon. Historically, if agences have some money left on December 10, they tend to spend it upgrading computers or something, even if that isn't a pressing need, because they have the money, and if they don't spend it they'll probably just get dinged in the next year's budget. It's not usually a lot of money, but the phenomenon does exist. And public employees tell stories to their friends, who tell their friends, and according to Lisa, a lot of people have heard about this and think it's a huge big deal. But even if it's not a huge deal, it's not good for anyone to have an incentive to spend taxpayers' money they don't really need to spend.

What Gary Locke told state agencies was: Let's make a deal. If you have money left at the end of the year, you will get half of it back as an add-on to the next year's budget, to whatever you would have gotten in the normal process. The other half will go to a school capita (construction) fund.

Lisa and I think every government in Oregon should adopt Gary Locke's idea. I've been told, actually, that some of them have - I vaguely recall that someone told me that there's something in state law with the same effect. But if that's true, not enough people know about it. So re-adopt it. Hold a ceremony. Get the word out.

Democrats are the defenders of effective government. Gary Locke came up with a way to address a real concern about government waste, and improve both the actual and perceived effectiveness and fiscal prudence of government.

So John Kitzhaber, Bill Bradbury, and every other elected official and candidate in Oregon - get on it. Become a champion of the Locke / Grove / Novick plan.

Comments

  • Kurt Chapman (unverified)
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    Steve, I believe that you have found an issue, but a half-baked solution. Most private business will use a zero-based budgeting plan so that ALL of the unused revenue goes back to the General Fund. The departments and divisions have from about 8 months into the year to project actual year end spending and project savings to the entity as a whole.

    This zero-cost basis budget process yields even better results with the full amount saved going to the state as a whole. Why, heck that would be one way the state could begin to re-fill the rainy day fund!

    Of course half is better than none at all, but why not go for the whole enchilada?

  • State Worker (unverified)
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    I'm not allowed to speak for my agency, so I'll keep this relatively anonymous.

    My agency sends its unspent dollars back into the General Fund at the end of our budgeting cycle.

    If we were to spend a surplus on something last-minute like, say, brand-new macguffins... we wouldn't get those dollars back again next cycle because we'd have to convince Ways & Means that there was a need for new macguffins every biennium. Which there wouldn't be. (And if there WAS a need, well then that's good and proper.)

    When we can show Ways & Means that we're running under budget though, that's a much better position to be in. When we DO actually need macguffins, the Legislature is more likely to entertain that need because we have a track record of efficient spending. Thought there will always be some bad actors out there, most agencies recognize this. Essentially, there is already a policing mechanism in place to prevent these types of abuses and it's the Ways & Means Committee.

    Now, further inventivizing savings by kicking a portion into a capital expenditure account... that's a good idea too.

    I'm not suprised to see Dudley's platform composed of unsourced urban legends and anecdotal clips from "The Office." Sadly, it'll probably resonate.

    (For the record, I'm on a personal laptop during my lunch hour, which has been duly marked on my timesheet.)

  • JD Green (unverified)
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    We need to spend our way out of this recession. Those year-end computer upgrades are needed and a good way to help stimulate the economy.

    We don't need to play into Dudley's hand, he'll never be governor anyway. Democrats need to ramp up spending and increase taxes in Oregon to levels that more reflect the national tax levels.

    Curbing year-end spending, and playing into Dudley's hand will loose votes in the long run.

    Steve, brutha, you should style it up with some dreds...

  • Roy McAvoy (unverified)
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    The Locke idea is fatally flawed. It still returns taxpayer money to an agency to be spent, as some type of reward or incentive for keeping costs to a minimum. Monies that are never really identified in the next budget cycle for any specific need, though they are returned just the same. Dudley may be making some sense here.

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    Dear State Worker, in real life what you say is probably true for your agency. In perception it is not true and I suspect for some government agencies the perception bears some relationship to reality. I should add that Locke did not allow the agencies to spend the 'extra' money on whatever; there were parameters. Here's an excerpt from a Locke press release:

    "This Savings Incentive Plan will change the old government mentality of 'spend it or lose it' to a new attitude of 'save it and invest it,'" said Locke, who plans to release his budget plan early next month. "It will make state government become more efficient and provide better services at a lower cost so that we will be able to address the growing demands for state services within the spending limits established by Initiative 601."

    Modeled after a similar initiative Locke implemented as King County Executive, the new incentive plan drew support from West, who chairs the Senate Ways & Means Committee, and Huff, chair of the House Appropriations Committee.

    "This is an innovation to create incentives for state agencies and their employees that will save tax dollars and improve service," West said. "It furthers our goal of making government more accountable and more effective."

    "I think it is important that there be incentives for savings and efficiencies," Huff said. "I look forward to working with the governor and Sen. West on an effective way to achieve that."

    The business community is also in favor of the plan. "The concept of incentives for government agencies to save money is an approach we are delighted to see," said Don Brunell, president of the Association of Washington Business. "We look forward to seeing the details and working with the governor and legislature to implement it."

    As part of the state efficiency plan, cabinet level agencies will be allowed to invest half of these funds in new initiatives to improve service and provide opportunity for additional savings. The rest will be used to fund local school construction projects across the state.

  • bba (unverified)
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    Gary Locke was an unremarkable and to that degree unsuccessful Republican-wearing-Democrats clothes governor. As Secy' of Commerce he has already distinguished himself as too-small for the job both intellectually and on his values.

    You've Peter-principled out Steve as a politician and public policy person. Time to move on to try to become a productive member of society. There really is a need for lawyers who can do a workman-like job representing people who deserve their day in court, too many have oversized egos and undersized competence. So why don't you spare us inane encomiums to a politician who was a loser his entire term in office (and was rewarded by an Administration who is failing fast - including inexplicably deciding to take moral ownership of two misguided wars).

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    Steve, while I appreciate the modesty shown by you and Lisa Grove over who deserves top billing, does Ted Gaebler, co-author of Reinventing Government (published in 1993), get any credit for explaining how they were doing this in Visalia, CA, when he was city manager there?

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    As a controller and CFO in business and non-profits I have always been disturbed by unit managers who believe that the expense budget, once approved is sacrosanct and belongs to them, not the larger organization. In every for profit business, the budget is updated monthly by forecast and there is always pressure to keep spending in line with revenues and also with the broader company requirements. In non-profits it is also subject to income, but also to decisions by the exec. director to shift priorities during the year.

    Only in government, where budgets are set by the legislature, and not by the governor do things get so locked into place. This is a cultural issue and if I were in the legislature on a budget committee or in the executive branch and discovered any of this BS by the department heads I would seek the manager's removal from their position. I think that changing the mindset is a better approach than rewarding bad behavior.

  • Doug Allen (unverified)
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    During my first summer job with the US Forest Service, they told us "The end of the fiscal year is coming up, and we need some more miles on your rig, or we might not get it next year. Take it and drive off somewhere to go swimming after work or something." Thirty-five years of public employment later, I am no longer surprised, but it still annoys me.

    There are two related problems. First, the "use it or lose it" system, and second, as John Calhoun points out, the inflexibility of doing yearly (or every-other-year) budgets. One leader, firing some department heads, isn't going to change anything. The problem is systemic.

    I am told that before Measure 5, the City of Portland used to allow managers to carry over unspent funds from one fiscal year to the next. When Measure 5 passed, they were told to return the money. Somehow, before the end of the year, it all evaporated. Can anyone verify this?

    The point is, this is a real problem at all levels of government. It is similar to the psychology involved in pork barrel spending. The good of the larger organization (or society) is sacrificed for the benefit of the sub-group. Max Weber's study of bureaucracy might be a place to start in understanding the causes and potential solutions to these problems.

  • stevenovick (unverified)
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    Jack - how embarrassing; I actually read that book not too long after it came out. OK, we can amend the name. "Gaebler / Locke / Grove / Novick."

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    Not a bad idea, Steve. Sort of like the Newton/Roberts Law of Gravity. :-)

  • Steve Buckstein (unverified)
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    Jack and Steve - now that Ted Gaebler has been thrust into this discussion, I have to mention that in December 1992 he spoke at PSU before a group made up largely of state and local government officials (and me).

    He made some good points, but lost me when he said that state and local governments in America "launder" only 12 percent of their citizen's personal incomes. “Launder” was his word, and he used it two or three times.

    He told the audience that their citizens wouldn't let them "launder" any more of their incomes until they learned to get more bang out of limited bucks.

    I don't remember the word "launder" being in his book, "Reinventing Government," and hope it was simply a poor choice of words on his part. But it might have been a Freudian slip. In either case, I sure hope I don't hear of a Gaebler/Roberts/Novick laundering plan anytime soon.

  • stevenovick (unverified)
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    Steve - bizarre choice of words by Gaebler, to be sure! Jack - I see this idea as more of a song than a law of nature, so the first person to do a cover version in a given state can claim credit. The Arrows wrote and first performed "I Love Rock 'n' Roll," but it's still a Joan Jett song. Although I guess I have a hard time thinking of it as a Britney Spears song ... hmmm ... maybe you have to stop after the first cover ... which would makes this the Gaebler / Locke plan, forgetting Lisa and me.

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    I'll have to think about the "laundering" terminology. It certainly doesn't have a reassuring quality to it, but then I assume it wasn't intended to.

    In the sense that government takes our money and then either redistributes it back among us or uses it to pay the people who actually provide us with services, arguably "the government" narrowly defined is a money laundering system.

    Of course, if you define government broadly to include the services it actually provides, so that public schools, police and fire departments, the military services, etc. are part of "the government," then it is not accurate.

    Since Gaebler was arguing that direct government service providers should emulate, and whenever possible compete with, extra-governmental service providers, he probably want us to see government simply as the middlemen who "launder" our money to those service providers, whether public or private.

  • KenRay (unverified)
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    As much as I like the idea of state government spending less and returning excess to be saved, there is no way that will be allowed to work in Oregon.

    As long as the state is run by AFCMSE/SEIU and other public employee unions, reform is impossible. Anytime there is extra money in the state budget from savings, the unions will immediately try to grab that from state workers. It's bad enough that they regard annual pay raises as an entitlement, but can you imagine the bargaining sessions when the state has any extra money in the budget? I can't afford that Danegeld.

    Once merit determines pay raises, not seniority, and once the public is considered in budgeting instead of which manner the state will capitulate to the public employee unions, then maybe reform has a chance.

  • jaycosnett (unverified)
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    I worked in a private, fortune 50 global corporation where this was practiced, but my experience included a few key points that I think are being overlooked:

    One is that "use it or lose it" isn't a self-centered tactic by smaller entities to cheat the larger--it is a survival skill. And not survival in the sense of a unit that doesn't deliver value wanting to stay on the gravy train. Quite the opposite. You see, the bean counters who effect these budgeting games, and the executives who are compensated (very well, thank you) for using them, couldn't care less about your group's effectiveness, or your contribution to the organization. They also don't give a hoot what you actually need the money for. If you launched 10 products last year but are going to launch 20 next year, tough. You still don't get any more money. And since you know that could easily happen, you'd be stupid to not give your group a little cushion against being screwed.

    Yes, budgets are adjusted to fit revenues, but in only one direction: down. Your budget will get cut, and cut again, but the expectations will be the same or more likely become greater--"Didn't you see last quarter's numbers? The whole company is counting on you!" To do what--turn water into wine?

    Would a more efficient business unit, one that really did do more with less, get rewarded? Hell no. They'll get cut even more, because they've shown they can "take it." It's like requiring more blood donations from those who've already donated the most.

    Saving for a rainy day, or a bad year, or a biennium when more services might be needed, is completely impossible when someone with more power but less sense will always say, "A ha! I see you didn't need that after all. I'll take it off your hands!" and uses it for a pet project, a pet peeve or their more personal pet. At a certain point, the physical reality is that you simply cannot do more with less--you do less with less, and the simple fact is that the people making sure you get less simply don't give a rip.

    In the private sector, its the folks compensated based on short-term numbers, instead of long-term value. In the public, it's the drown-government-in-the-bathtub types, and their opponents who hope to prove that they, too, can shrink government, but only small enough that they can waterboard it.

  • jaycosnett (unverified)
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    Oh, and Ken, if you think that "merit determines pay raises" when there are no unions involved, I have some very non-union, very private sector ex-managers I could introduce you to. And a number of entrepreneurs whose own incompetence drove their companies into the ground, but, of course, they still managed to pocket a very nice wad for themselves, just before kicking all of the employees (those who actually created and delivered the value to customers that produced that wad in the first place) to the curb. And then they turned around and did it again, and again.

    But I guess if you consider being good at ripping people off "merit," then maybe you're right, after all.

  • Yaruna (unverified)
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    Hi. I like your blog. well done!Steve, I believe that you have found an issue, but a half-baked solution Now, further inventivizing savings by kicking a portion into a capital expenditure account... that's a good idea too.We need to spend our way out of this recession Good post, hope will it help me to finish my writing service !

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