Zero Based Budgeting

Looking To Streamline, Commissioners Say No Cuts to Services

A budgeting trend that gained popularity in the late 1970s is starting to come back around as governments have sought to implement cost saving measures. Zero based budgeting (ZBB) is a method that requires every expense to be justified for each new budgeting period, rather than being based on numbers from a previous year. States like Texas and Georgia were early adopters, and North Carolina recently passed legislation for phased ZBB implementation. St. Mary’s County may soon join the list after the Commissioners gave their approval last week.

The county’s chief financial officer, Vanetta Van Cleave, outlined pros and cons of the approach. Historically the county has used incremental budgeting, adjusting growth to affect revenues and expenditures and adding or removing capital improvement projects from year to year. Van Cleave says there was interest expressed in learning more about ZBB, which “requires a fresh evaluation of all expenses” each year. It would mean looking at county departments as businesses and for directors to act as business owners by identifying what they want to achieve, plans to reach those goals, and the resources needed to do so. 

But a change this significant would require a culture shift. Van Cleave told the Commissioners their support in championing this to county staff was critical. The CFO suggested beginning with a pilot department to kick off a three year phase in plan until ZBB was used across county government. The idea is to justify and use every budgeted dollar, but setting aside a reserve to cover unexpected expenses would still be necessary. In practice, ZBB is a heavier lift with more required documentation and record keeping, however the process promotes cost efficiency, priority setting, and transparency.

Commissioner Hewitt advised against selecting a pilot department without a director–like Economic Development or the Department of Public Works & Transportation (DPWT). He questioned whether it was worthwhile to change, believing with an election next year it could be left for the next commissioner board to decide. Commissioner Colvin took the opposite position. As a proponent of ZBB, he said it's “important to note that the desire is not to reduce services” but to focus on “efficient use of taxpayer dollars.” That sentiment was echoed by Commissioner Ostrow, who said there was a possibility of finding “redundant services” by making “department heads take a hard look at their budgets.” 

The change would also apply to the county’s budget for capital improvement projects (CIPs). Currently the county forecasts CIPs across five years, adding new projects in the fifth year. These requests are submitted with fully estimated costs and aren’t fully scoped, said Gary Whipple, deputy director for DPWT. Projects stay in the five year plan unless the Commissioners take action to remove them. Feedback has been received, added CFO Van Cleave, that this methodology is “setting unrealistic expectations” about what is and isn’t possible. It also creates a “big number” at the end of the five year period, skewing the county’s debt capacity calculation, Van Cleave said. 

A three phase process is the new proposal, with CIPs undergoing a more thorough review to better approximate costs. Defining the project happens in phase one, including a feasibility review and design cost estimates. At the conclusion of phase one the project is presented to the Commissioners who decide whether to include it in the five year budget outlay. Whipple acknowledged there could be some upfront costs associated with completing the analysis, such as hiring a consultant. 

Phase Two centers on project development, including project schedules, finalizing drawings, applying for grants and permits, and recommending bid awards. Phase Three covers project construction through project close out. Whipple told the Commissioners this process would provide more realistic costs and decrease project delays because of scope creep. Analysis of 21 county projects over the last 9 years, Whipple said, showed “added scope is the main reason for not hitting the original budget.” 

Though ZBB was introduced in the 1970s, it came back around in the 2010s as a method for cost savings during the economic downturn. In 2011, the Government Finance Officers Association (GFOA) released a report writing an “advantage of ZBB is that it offers a rational and comprehensive means to cut the budget…[by moving] away from use of across-the-board cuts.” By putting department managers in control, the GFOA says, budgeting becomes about “managers’ perceptions and preferences” rather than “the community’s or elected officials’ long-term priorities.” 

Another GFOA report, released in 2020, underscores the shift of budgeting power. The detail-oriented process asks elected officials to use operational information instead of “bigger-picture strategic questions to which elected officials are best suited.” How effective ZBB is when used by the government is still up for debate. GFOA recognized ZBB as effective “when good performance measures are in place but few governments have an understanding…of the relationship between services levels and cost.” 

All five Commissioners voiced their support to further explore zero-based budgeting through one or more pilot departments.