It’s a budget year, the “long session,” in which state lawmakers consider recurring outlays and emergent spending obligations to arrive at a biennial funding plan for state government and its myriad programs. It might all be wrapped up by the end of the fiscal year (July 1) — or, it may not be.
This year’s backdrop is dominated by pressing disaster relief needs still reverberating from western North Carolina; also in the picture is yet another revenue warning in the consensus forecast from the Office of State Budget and Management (OSBM); and, the whole scene is framed by a national focus on identifying and eliminating the waste, fraud, and abuse of our federal tax dollars by the new Department of Government Efficiency, or DOGE.
North Carolina has a DOGE of its own sort, now, and I’m certainly not alone in looking forward to what unjustified government spending that effort will reveal and remedy. But I believe there’s something else that can be achieved to further protect state taxpayers from government profligacy — zero-based budgeting.
Reps. John Blust, R-Guilford; Harry Warren, R-Rowan; Donny Lambeth, R-Forsyth; and, Paul Scott, R-Rutherford, have filed House Bill 142 to do just that.
ZERO-BASED BUDGETING
So, how does zero-based budgeting, or ZBB, work? It’s pretty straightforward: All spending must be justified and approved for each new budget cycle, starting from a “zero base.”
Unlike traditional budgeting — which essentially starts from the previous budget levels, factors in inflation or growth, and weighs new spending proposals — ZBB requires every function and department to build their budget from scratch, evaluating the need and cost of each expense as if it were new. The nature of the practice itself necessarily introduces a whole new level of accountability, efficacy, and transparency to state budgeting; exactly what the taxpayers of North Carolina deserve.
Under ZBB, each department, agency, or program defines its goals and objectives for the upcoming period; expenses are scrutinized to determine if they are necessary to achieve the stated objectives, ranking activities by importance and efficiency; analyses are conducted to assess the cost versus the benefit of each activity, ensuring that only justifiable initiatives are funded; budgets are constructed from zero, with only approved expenses included, meaning no automatic carryovers from the previous budget are allowed; finally, the proposed budgets are reviewed to ensure alignment with strategic state goals and policy priorities before final budget votes.
This stands in stark contrast to incremental budgeting, where previous budgets are more or less built upon and the continued worthiness of a bevy of extant programs is merely assumed. Even with a balanced budget requirement, and using inflation plus population growth as a constraining benchmark, this method has enabled state budgets to balloon and invited plenty of spending initiatives lawmakers would struggle to justify to taxpayers under a ZBB set up.
TRIED AND TRUE
The ZBB method is not just hypothetical, either, as with some more aggressively hawkish proposals. States like Florida, Texas, and Georgia have incorporated the practice with varying levels of success.
In the case of the Lone Star State, a concerted ZBB approach in 2003 helped that state government avoid a projected $10 billion budget shortfall without a tax increase, actually reducing their general revenue spending for the first time since WWII and inculcating the limited-government ethos that has served Texas’ economy so well over the last two decades.
The corporate world has had its share of ZBB success, as well, albeit with a differently motivated set of stakeholders, (compelled taxpayers vs voluntary shareholders). Still, giants like Unilever have utilized ZBB to improve balance sheets and boost performance overall. Historically, the company allocated budgets based on historical spending, but in 2017 they shifted to justifying every expense from scratch at the start of each budget period.
The result? By 2019, Unilver reported their “underlying operating margin increased 80 [basis points] mainly reflecting brand and marketing efficiencies as a result of our zero based budgeting programme.”
Some analysts caution against accelerated, aggressive approaches to ZBB, warning that the jolting change can disrupt the targeted benefits of such a system. Luckily, the legislative proposal in question incorporates a gradual, years-long implementation of ZBB, starting with executive agencies, that allows for a measured reorientation of the budget process.
ESSE QUAM VIDERI
Like Texas, North Carolina, too, has benefited mightily from more fiscally conservative, liberty-minded policy approaches in recent years.
Those escaping California and New York are finding new homes in states like ours, Texas, and Florida do so, presumably, in light of their common denominator — low taxes, limited-government intervention, and the freedom to prosper economically. However, there’s still much room for improvement in the Tar Heel State.
In keeping with the spirit of our state motto — Esse Quam Videri — we’d do well to be more conservative with my and your tax dollars, rather than simply seeming so, in many respects.
The introduction of HB 154, to implement ZBB, is a step in that direction. And the timing of such a proposed reform could not have better tailwinds. For the last three weeks, the nation’s attention has been drawn to the alarming revelations from DOGE that largely confirm the suspicions of conservatives about the incredible waste, fraud, and abuse of our tax dollars at the federal level. While political bias still largely colors any given partisan’s opinions of DOGE and/or the Trump administration, the government efficiency and accountability effort is quite popular among the general population.
With the adoption of zero-based budgeting, state lawmakers can show the great people of North Carolina their ultimate respect by justifying each and every dollar of state spending for each and every budget period.
