Defining the Problem: The missing piece to local government planning.

• Author: Harward, Brian
• Position: RETHINKING BUDGETING

A problem not fully understood is unsolvable, and a problem that is fully understood is half solved."

--Charles Kettering, Inventor

This famous quote from Charles Kettering holds great significance for local government planning and budgeting today. The traditional budget process is inadequate for dealing with the complex problems that local governments are asked to deal with, such as degradation of the natural environment, encouraging economic opportunity, re-evaluating how public safety is provided, racial disparities, drug addiction, and more.

The traditional budget and planning process is ill-equipped to deal with these kinds of complex problems because complex problems tend to exhibit characteristics that confound traditional planning and budgeting. In this article, we will show why complex problems frustrate traditional budgeting and planning. We will explain the benefits of taking the time to understand problems more deeply. We will outline the principles for designing a process to define problems more deeply. Finally, we will illustrate a process to define problems before solutions. Let's get started with what makes a problem "complex" and the challenges that poses to traditional budgeting and planning.

Complex problems are often interconnected. There are multiple interactive and possibly conflicting causal forces at play. For example, public safety is impacted not just by law enforcement practices but also by economic opportunity, the community's trust in law enforcement, public health issues, and more. The solutions to complex problems are rarely contained within a single department or within local government. Other public, nonprofit and private organizations will need to be part of the solution. Yet the traditional budgeting and planning process tends to budget strictly by department, with cross-departmental collaboration rare and collaboration with outside organizations almost nonexistent.

Complex problems are often exponential, not linear. Natural disasters like floods, fires and hurricanes are classic examples of an exponential risk. The potential damage increases at a nonlinear rate as the intensity of the event increases. This has obvious implications for a problem like global climate change, but exponential risk also applies to other problems. For example, the summer of 2020 saw widespread civil unrest that rose and spread quickly after the murder of George Floyd. Exponential risk is particularly dangerous because it catches us by surprise. For example, consider the following problem:

A lily pond starts with a single lily leaf. Each day the number of leaves will double: two leaves on the second day; four leaves on the third day; eight leaves on the fourth day; etc. If the pond is full on the 30th day, on which day is the pond half full?

If you said 15 days or so, you are not alone; but you are also wrong. The pond is half full on day 29 (if it is half full, doubling it makes the pond 100% full on day 30). On day 15 only a small fraction of the pond is full. Exhibit 1 shows that at day 15, the number of lily pads doesn't even register compared to the explosive growth that occurs later on.

This same "hockey stick" shape applies to damages from many types of natural and man-made risks. Man-made exponential risks are exacerbated by social media and other information technologies because these technologies catalyze the risk. For instance, the role of social media in catalyzing social unrest has been well documented. (1)

The traditional budget and planning process is not well suited to deal with exponential risk because the traditional process is linear. The basic underlying assumption is that the future will look like the past and incremental adjustments are made in revenues and expenditures from year to year. (2) With exponential problems, the future looks like the past until the point at which it becomes radically different.

Complex problems often involve rivalries. There are often multiple competing interests that have to be addressed to make progress. The limitation of the traditional budget process is that conflicts are papered over by giving modest increases to participants and by not making big changes from year to year. The budget is often thought of by participants as a win-lose game. Also, the rivals involved in a complex problem often feel like they are in a win-lose game. It is hard to solve a win-lose game (the complex problem) with another win-lose game (the traditional budget).

However, the rivalries involved in complex problems are not best understood in simple terms like "person A vs. person B." Rather, there are "mental models" that characterize rivalries found in public finance. A mental model is a representation of how something works. (3) Mental models help us understand the problem by uncovering blind spots we may have and revealing the forces underlying the problem.

GFOA has found that a mental model with major implications for public finance is the "tragedy of the commons." (4) This is an economic parable in which a group of farmers has common ownership of a grazing area. The individual farmer has the incentive to send his animals to the common grazing area as often as possible. This is because the additional cost to use the grazing area is zero (it is commonly owned), and if he doesn't send his animals, the other farmers' animals still graze, thus depriving the individual farmer's herd of potential food. All farmers face the same incentive and, hence, all send their animals to the common grazing area. The result is that the common area is eventually overgrazed and becomes barren.

A local government budget has similarities to the commonly owned grazing area. A government and its financial resources are commonly owned by all stakeholders. Each stakeholder has an incentive to extract resources from the public budget. Stakeholders...