David Osborne The Public Strategies Group psg 978 768 3244

1. A New Budget Process for Louisiana David Osborne The Public Strategies Group www.psg.us 978 768 3244

2. 5-Year Budget Outlook 10.7 10.5 9.4 9.1 1.9 1.9 8.1 .9 9.4 8.1 8.2 8.5 8.8 2

3. Distribution of State and Local Spending, 1972-2005 Source: Bureau of Economic Analysis, National Income and Product Accounts (NIPA) Table 3.16

4. Distribution of State Spending 1987-2005

5. Distribution of State Spending 1987-2015

6. State and Local Government Surplus and Deficit 1980-2050As a Percentage of GDP

7. The Fiscal Crisis is Permanent • A “perfect storm” – the convergence of inexorable cost drivers: • 10% annual increase in health care costs. • Pension (and Social Security) obligations as population ages.

8. The Current Path is Simply Not Sustainable • We need better results for less money, every year. • Bureaucratic government cannot deliver that. • We need post-bureaucratic government, capable of continuous improvement.

9. Duct Tape • Across-the-board cuts • Consolidation • Performance audits and studies • Creating oversight groups • Reorganization

10. Who Said It? “We trained hard, but every time we were beginning to form up into teams, we would be reorganized. I was to learn later in life that we tend to meet any new situation by reorganizing ... and a wonderful method it can be for creating the illusion of progress while producing inefficiency and demoralization.” -- Petronius, A.D. 66

11. The DNA of Public Systems and Organizations Purpose Incentives Accountability Power Culture

12. The Budget System… … is the most powerful driver within government. Traditional budget instructions ask managers to explain how much it will cost to do: what they did last year, in the same way they did it last year, with the same results they got last year.

13. The Current Budget Game

14. The Current Game (cont’d)

15. Wouldn’t It Be Nice If… Your budget process aligned your money to deliver the results citizens valued? If it: • Got rid of low-value spending • Moved money into higher-value, more cost-effective strategies and programs • Motivated all managers to find better, cheaper ways to deliver results

16. Let’s Fund Results, Not Activities Move Focus From Here… …to Here! Outputs Inputs Activities Outcomes Results

17. We Need to Answer Four Basic Questions • How much revenue will we have: What price of government will we charge our citizens? • What outcomes matter most to our citizens? • How much should we spend to achieve each outcome? • How can we BEST deliver each outcome that citizens expect?

18. Louisiana’s Outcome Goals Education: I want increased academic achievement for all students, fewer children dropping out of school, and an educated workforce Economic Development: I want Louisiana to retain, grow, and attract good jobs in a diversified, growing economy, while wisely utilizing cultural and natural resources. Transportation: I want better, cleaner, safer and less congested modes of transportation, and I want to get where I need to go efficiently and reliably. Hurricane Protection and Emergency Preparedness: I want Louisiana to better prepare for, respond to and recover from the next emergency (hurricanes and all other hazards).

19. Louisiana’s Outcome Goals (2) • Public Safety: I want less crime and for people of all ages to be safe at home, school, work and while traveling. • Self Sufficiency: I want self-sufficient families and healthy and safe Louisianans. • Health: I want better health for Louisianans, more affordable care, and the creation of a culture of personal responsibility for health. • Natural Resources: I want a better environment and abundant natural resources, and I want to preserve Louisiana as a sportsman’s paradise. • Transparent, Accountable, and Efficient Government: I want a smaller, more cost-effective state government I can trust and be proud of.

20. Tracking Progress on Outcome Goals We will define 3 key indicators for each one. E.g., for health care, one state chose: • Infant mortality rate • Self-perception of health on survey • Percentage with health insurance

21. Pricing the Priorities How much are they each worth? Not how much do they cost? It’s judgment about relative priorities, not science Leaders can revisit these decisions later in the process The purpose is to create 9 finite pots of money, for which programs must compete

22. Delivering the Results • Teams of policy experts analyze the basic factors that have the most influence on the outcome. • They use those factors to create a Cause-and-Effect Map, showing the relationships between those factors.

23. CARE RISK FACTORS HEALTH ENVIRONMENT BEHAVIOR Sample Cause-and-Effect Map for Health

24. Health Impact vs. Spending National Health Expenditures $1.2 trillion Impact Source: Centers for Disease Control and Prevention, University of California at San Francisco, Institute for the Future

25. Turning Cause-and-Effect Maps Into Purchasing Strategies Potential Health Care Examples: • Focus on changing lifestyle choices (smoking, drinking, diet, exercise, etc.). • Focus on prevention: pre-natal care, immunizations, educating new parents, etc. • Stop high-cost, repetitive cycles of care in emergency rooms. • Electronic health records, to eliminate duplicate tests, increase quality and cut costs.

26. Turning Purchasing Strategies Into “Requests for Results” • Budget Office issues new budget instructions, called “Requests for Results” • For each outcome goal, the RFR explains the purchasing strategies, the funds available, & the desired results. • They include other criteria as well, such as: “We will look favorably on offers than involve collaboration between agencies, or partnerships with NGOs.”

27. “Sellers” Make Offers • Offers promise a specific level of performance at a specific price. • They include proposed measures of performance. • Offers assume no guarantee of funding based on historic levels. • Offers are opportunities for departments to propose new, innovative practices.

28. Buyers Seek the Most Results for the Money Budget office: Evaluates offers Engages in dialogue with sellers Gives feedback Ask sellers for better offers

29. Innovative Offers: Examples • Washington State: shifted $45 million in Medicaid money from emergency room care to drug & alcohol treatment • Iowa: Reinventing the Corrections Dept. • Los Angeles: New method to repave streets, using cold slurry seal • Ft. Collins, Co.: Dial-a-Ride Solution

30. Budget Office Prioritizes Final Offers Sellers submit new, improved offers Budget office engages in further dialogue with sellers Budget office prioritizes offers within each outcome goal; recommends activities to fund and activities to eliminate

31. The Bottom Line • Balanced budget without gimmicks • Focus on the ‘keeps,’ not the cuts • Buy results, not costs • Important new investments go to the front of the queue • Performance accountability • Continuous reform/ improvement