☆ Oliverio: Council's legacy budgeting process privileges more of the same
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As SJ Council gears up to figure out how to manage an upcoming $60m budget deficit, Planning Commissioner Pierluigi Oliverio explores the benefits of zero-based budgeting and a tighter focus on evolving citizen priorities. An Opp Now exclusive.
Opportunity Now: You're a fan of zero-based budgeting—which is essentially starting over from scratch in each budgeting cycle without any burdens of the past. Why do cities like SJ and Santa Clara County avoid that approach and choose incremental budgeting (starting from last year's budget)?
Pierluigi Oliverio: Zero-based budgeting resets the budget every year. Remember, local government is dominated by manual spreadsheet processes, instead of the contemporary technology used in the private sector. Zero-based budgeting would compel justification of each budget line item and potentially create disruption of having to compete against other departments. It's historically just easier to take a look at what we're doing now and have incremental increases or decreases.
The problem of course, is that society changes, the city and county change, people's priorities change. If we had a process that was tightly focused on identifying and delivering on what people want, we'd work a lot harder to listen to citizen opinion results and have a budget process that would allow the government to respond to that opinion.
ON: This sounds like the ongoing struggle between Big Organizations defending their turf and New Ideas trying to find a toehold.
PO: The zero-based budgeting approach typically shakes up organizations. Instead of just funding the same initiatives from the prior year, it forces everyone to identify which programs and services should be prioritized for the coming year. It allows analysis if taxpayer dollars are achieving the expected results. It encourages deeper analysis and daylights cost-efficiencies that might be overlooked.
ON: So how would the differences between Zero-based and Incremental play out?
PO: If the community shares that crime, homelessness, and beautification are the top priorities, then the budget spend would reflect the community's concerns.
The incremental budgeting approach, instead, privileges what previous councils did, even if citizen opinion has moved on from those previous priorities.
In a way, previous councils end up holding current councils hostage to their budget priorities, such as spending that duplicates other levels of government.
ON: Walk us through how Incremental Budgeting works.
PO: Incremental budgeting takes the previous budget and adds cost of living increase of wages and inflation from physical material costs to the previous costs. Historically, this process asks department heads to come up with some cost savings ideas, but it's usually on the margin—getting rid of vacant positions—stuff like that.
ON: Sounds like the current process makes it hard for the council to pivot away from legacy spending and ends up defending decisions made years ago.
PO: Zero-based gives you the potential to do fewer things much better.
ON: We've both worked on the corporate side, where organizations are constantly modeling scenarios because they know their revenue and income are variable. They are often publicly traded, so they have to forecast with accuracy.
PO: Government typically does not do scenario-modeling because they are stuck on 1990’s spreadsheets and assume—incorrectly, in my opinion—that revenue will be constant. That property and sales taxes will deliver the same amount, year after year.
Well, we've learned in San Jose that's not the case. Our $60m upcoming shortfall occurred in part because of sales tax receipts dropping; and since commercial buildings are selling for less than their assessed value, it will decrease projected property tax remittances for all local governments.
But going forward, this phenomenon may get worse. Historically, states, counties, and cities have assumed that federal money will also freshen our Treasury. With the new administration, 2025–2028 federal money will be delayed, reduced, or taken away altogether. The current plan of praying the local congressional delegation of a different political party will change the mind of the current administration is hopeless.
Local governments should be proactive and have already created scenarios for how we would deal with these potential changes in revenue. It's not like the new administration is being secretive about their designs to blow up city, county, and state funding, grants and reimbursements (think Med-Cal, which is $20-30 billion a year from the feds).
If you don't plan this out in advance, if you haven't done the work to create these scenarios, you get into crisis mode where you have to make hasty cuts. Cuts that are not done in an equitable manner. If you care about equity, you need to do the planning work to figure out how cuts and changes would affect our equity goals and cause the least amount of harm. For example, we should know how these cuts and changes would impact equity by census tracks that have a higher rate of poverty.
Otherwise, local government gets caught flat-footed, and the community and employees who deliver services suffer in what potentially could have been avoidable.
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