We know it’s not New York or California. The bottom of the list also includes New Jersey, Arizona, Florida, Nevada and others. These are the states that, having mismanaged spending and taxing, are now facing tough fiscal decisions. Their finances don’t add up and in a tough economy and the chance that growth will provide the solution is small.
Who then did the right thing?
Given an “A” by the Pew Governance Performance Project for “good data and strong processes,” Utah implemented performance based budgeting. This just means that they actually looked at the numbers, saw what worked and didn’t, and then eliminated non-performing programs. For example, the number of employees recruited by a $300,000 program to help businesses was minimal so it was canceled.
Other states lauded by Pew for their approach were Virginia, Maryland, and Indiana.
The Economic Lesson
Three words explain performance based budgeting: margin, benefit, cost. Looking at the margin means looking at something extra. For budgeting, it just refers to the extra item being funded. That takes us to cost and benefit. Here we just compare. If the cost for the extra exceeds the benefit, then the good or service would be cut.