Zero-base budgeting: a concept whose time has come--again.

• Author: Hartung, G. Chris

The City of Garland, Texas, has a long and interesting history with zero-base budgeting, often referred to as ZBB. In the 1970s, Garland was not trying to deal with a stagnant or declining economy or revenue base; in fact, at the time, it was in a very good financial position and was experiencing growing revenues. The city needed ways to accommodate a large number of competing interests as it dealt with rapid growth. Today, cities must balance stagnant or declining revenues with the traditional citizen demands for services, the need to address aging infrastructure, and other increased costs for pensions and health-care for employees and retirees. The competition for limited resources is potentially cataclysmic. In the '70s, Garland embraced zero-base budgeting as a way forward, and jurisdictions today can do the same. The purpose of this article is to explain the zero-base budgeting process, to discuss what was learned in Garland during and after its implementation, and to comment on the usefulness of ZBB in today's local government environment.

BLAZING A TRAIL

In the early 1970s, the City of Garland, a suburb of Dallas, was experiencing a population explosion. City growth during this period reached 10-12 percent annually, and such rapid expansion presented a number of challenges. Municipal leaders had to oversee major infrastructure requirements and also increase staff to provide the services the expanding population required. Garland operated a municipal electric system, which also involved the city in the first stages of the 1970s energy crisis. International events caused the price of the natural gas, used as fuel for the city's electric generation plants, to skyrocket from 22 cents to more than $2 per million cubic feet. Questions surfaced regarding Garland's future ability to even obtain natural gas for the plants. The community's rapid growth, combined with steadily rising fuel costs for the electric utility, resulted in greatly increasing expenses.

The city manager at the time directed all executive staff members to look for new ways to conduct business. The motivation was not merely to cut costs, but to find better ways of allocating the city's limited resources to meet the increasing demands of the populace. During this time, Garland learned about a program that had been implemented in the State of Georgia (by then-governor Jimmy Carter)--zero-base budgeting, or ZBB. It turned out that zero-base budgeting had been initially developed in a manufacturing environment at Texas Instruments, whose Dallas headquarters was located just a few miles from the Garland city limits. After contacting Peter A. Phyrr, the consultant who worked with Governor Carter, it turned out that not only had Phyrr originally developed ZBB at Texas Instruments, but that he literally wrote the book on the subject. (1) After further investigation, the city contracted with Phyrr to implement ZBB for the City of Garland --the first time a local government implemented ZBB, as far as anyone knew.

NOT JUST ANOTHER ACCOUNTING TOOL

The methodology of ZBB was developed to address a major criticism of then-current budgeting systems in both the public and private sectors. Invariably, the baseline for discussions of the next budget cycle was the dollar amount of the current budget. As a result, budget discussions typically revolved around the amounts of additional funding a department would receive. Little, if any, justification was presented for the existing level of expenditures. If reductions were required, they were typically accomplished across the board. Evaluations relating to the effectiveness of existing programs or their priority in the current economic environment were seldom discussed. New programs did not compete against existing expenditures, which meant they had to be funded by additional revenues or increased rates. Zero-base budgeting was intended to force the organization to analyze its activities back to zero; that is, to consider the potential result if an activity were not funded at...