Haley Passing on Zero-Base Budgeting?

November 1, 2011

Investigative Reports

Print Friendly, PDF & Email

The NerveWhen Gov. Nikki Haley was an S.C. House member in 2009, she sponsored a bill that would have required the governor and General Assembly to radically change the way the state budget is prepared.

Typically, in crafting the budget for an upcoming fiscal year, which starts July 1, the Legislature starts with the current fiscal year’s budget as a base, and makes line-item adjustments – often upward.

But under a concept known as “zero-base budgeting” (ZBB), a budget plan doesn’t assume the previous year’s base amount. Instead, every program must be justified to be funded, forcing agencies to set priorities.

Supports of ZBB say it’s a way to eliminate unnecessary programs and duplication of services, thus saving tax dollars.

Haley’s 2009 bill (H. 3640), titled the “South Carolina Fiscal Accountability Act,” would have, among other things, required the governor to apply ZBB “principles” in drafting a proposed state budget.

But though the bill had 20 co-sponsors, it never made it out of the budget-writing House Ways and Means Committee, chaired by then-Rep. Dan Cooper, R-Anderson, who wasn’t among the co-sponsors.

Haley publicly pushed the issue last year and mentioned it again in her state-of-the-state address in January.

“We must analyze every agency – cabinet or otherwise – to see what its core mission is and whether or not the dollars we spend are contributing to that mission,” she said in her address. “We must start our budgetary process at zero and ask, ‘What do we have to have?’, as we work our way up.”

Since then, however, Haley has been largely silent on the issue – in contrast, for example, to her public push earlier this year to get one of her signature causes – roll-call voting – passed by the Legislature.

As state agencies are in the process of submitting their budget proposals for next fiscal year, The Nerve last week attempted to find out if Haley is still committed to zero-base budgeting.

Haley spokesman Rob Godfrey, however, didn’t respond to written questions or a follow-up email seeking comment.

The Nerve reported last week that state law requires the governor to submit a recommended budget to the General Assembly. The proposed budget is supposed to be based on spending proposals by state agencies and financial statements by the S.C. comptroller general, which are due Nov. 1 each year.

Haley’s 2009 bill would have set up a 10-member, joint legislative committee to begin selecting agencies to transition to zero-base budgeting and create a division within the Legislative Audit Council – the investigative arm of the General Assembly – to evaluate selected agencies’ budgets based on ZBB criteria.

The Nerve reported last year, citing a 2009 study by the National Conference of State Legislatures, that 17 states were using ZBB in some form, though it was unclear whether any state was using it as its “primary budgeting technique,” mainly because of the amount of work involved.

As a group, the S.C. General Assembly so far hasn’t shown much interest in ZBB. A companion bill (S. 658) to Haley’s 2009 proposal, sponsored by then-Sen. Mick Mulvaney, R-Lancaster – now a congressman representing the state’s 5th District – was submitted to the budget-writing Senate Finance Committee.

But like Haley’s bill, the Senate version died in committee.

Contacted last week by The Nerve, longtime Senate Finance Committee Chairman Hugh Leatherman, R-Florence, declined to say whether he supports ZBB.

“I have no comment,” Leatherman said. “I really appreciate you calling. Have a good day.”

Earlier this year, Rep. Garry Smith, R-Greenville, introduced a bill (H. 3641) that would have required the Office of State Budget to “devise and implement a zero-base budget process” based on input from a 12-member committee, nine of whom would be appointed by the governor, the House speaker and Senate president pro tempore.

But though the bill had 40 c0-sponsors, it never made it out of the Ways and Means Committee, chaired then by Cooper, who was not among the co-sponsors. Cooper has since left the General Assembly to work for a lobbying firm; the Ways and Means Committee is now chaired by Rep. Brian White, R-Anderson.

“I think with the other issues going on, that issue got pushed toward the back burner,” Smith told The Nerve on Monday when asked why his bill never made it out of committee. “But it’s something I plan to move forward.”

Because the Legislature operates on a two-year cycle, Smith’s bill doesn’t have to be re-introduced when lawmakers convene in January.

Smith said his bill was based on a report prepared by former state Treasurer Converse Chellis, who described ZBB in the report as “an important tool to help ensure efficiency in government.”

“If ZBB saved one one-tenth of one percent of the total (state) budget, that savings would total $21 million,” Chellis wrote in the report, a copy of which was provided last week to The Nerve by the treasurer’s office.

Chellis said implementing ZBB “requires a change in culture in governmental budgeting,” adding that agencies “in general do not want to have their budgets reduced and ZBB is designed to put that issue squarely on the table.”

Chellis was required to submit the report to the General Assembly under a 2010-11 state budget proviso (90.19) approved by legislators. Smith said he and Rep. Nathan Ballentine, R-Richland, sponsored the proviso.

The Nerve last week was unable to reach Chellis for comment.

In July 2010, Ben Fox, spokesman for then-Gov. Mark Sanford, told The Nerve when asked about the proviso authorizing Chellis’ report, “We’d applaud the General Assembly for finally coming around to the common-sense idea of zero-based budgeting – as this administration has done it for years with our annual executive budget.”

“That said,” Fox continued, “we’d encourage legislators not to simply require recommendations, but act – because next year’s billion-dollar budget challenge demands action, not more study committees and bureaucratic back and forth.”

For this fiscal year, however, the Legislature didn’t follow the advice of the governor’s office, passing a $22.3 billion budget in the same way it has always operated – with no serious discussion on what it considers core government functions and whether certain programs should be eliminated.

Contacted last week, Holley Ulbrich, a Clemson University professor emerita of economics who assisted Chellis with his ZBB report, told The Nerve that while she supports ZBB in concept, its main drawback is that “it’s a time-consuming process.”

“There’s some real value in doing a review on a rotating basis,” she said.

Chellis in his 14-page report said that because ZBB requires more time for analysis, the state should adopt a budget every two years instead of annually. Smith’s bill also calls for a biennial budget.

Chellis in his report also recommended that:

  • A ZBB approach should examine agency programs “from all sources of funds.” Chellis noted, “By practice, the General Assembly balances general fund expenditures to an official general fund revenue estimate but delegates the balancing of other funds (earmarked, restricted and federal funds) to the agencies that receive the funds.” The total state budget is made up of general, federal and “other” funds.
  • A “Government Streamlining Commission” be created, made up of public officials and private individuals, to “review and recommend specific programs or expenditures”; and
  • A “standard periodic review” of newly enacted legislation should be established to “measure conformance with agency commitments or success with statewide or agency goals and objectives.”

Reach Brundrett at (803) 254-4411 or rick@thenerve.org.