The Reason Foundation is a libertarian, non-profit, public policy organization that was established "to advance free minds and free markets." This month, they published a report by David Osborne, a policy analyst and former Clinton Administration official, who says he has a solution to California's budget problems.

In his report, entitled "The Next California Budget" (you can read the whole thing here), Osborne quickly assesses the problem:

     Jaws dropped from coast to coast at the size of [California's] $26.3 billion shortfall, a quarter of the general fund. Even more astounding was state leaders’ difficulty in reaching a budget deal—not just this year, but year after year. With its repeated use of borrowing and IOUs, the Golden State has become the poster child for fiscal irresponsibility.

Osborne offers a solution for fiscal discipline called Budgeting for Outcomes (BFO), which he claims would "build the budget in a way that delivers the results citizens want at a price they are willing to pay." It's a system that's been tried with varying degrees of success in Washington State (where it debuted with Governor Gary Locke), Iowa, Michigan, and over a dozen other cities, counties, and school districts.

What makes this system of budgeting so different and why does it purport to save money if the State of California is willing to give it a try?

The power of Budgeting for Outcomes, Osborne argues, is that it starts where other budgetary processes usually end: how much government will spend next year. BFO starts by deciding up front how much money will be spent in the next fiscal period. The rest of the process unfolds from that critical starting point- actually setting a budget.

From there, lawmakers and executives work together to rank outcomes (such as improvement of roads, or schools, or crime rates) in terms of priority. Then government agencies will actually be required to submit offers to the "buyers" (the state leaders working on behalf of the taxpayers who literally are the buyers of a state's services) in competition with each other. They define their programs, explain how they will contribute to the desired outcomes, set measurable performance indicators, and announce how much they will cost.

Then- on the basis of the outcome priorities state leaders have set, and the cost-effectiveness of proposals to meet those outcome goals- the government "buys" from the top until all of the budgeted money for the next fiscal period has been exhausted. Whatever is left would ostensibly be too low-priority or too inefficient an investment for the state to take it on at the peril of its already dangerously imbalanced budget.

Budgeting means acknowledging that our resources are not limitless. We only have limited means to unlimited ends and infinite wants. A system like Budgeting for Outcomes might have the effect of creating a more rational, simple, transparent, and effective way of determining what's really important to spend money on and what isn't, and sticking to it so that California can finally get a handle on its fiscal problems.

What do you think?