Saturday, June 12, 2010

Budget Reductions, Five Stages

A timely article from Management Insights.

An excerpt.

“No one likes to face up to the need to cut back on their lifestyle. Governments and families alike rightly recognize the process of fiscal sacrifice as a wrenching one. The process of dealing with cutbacks in any sector can be fractious, contentious and notoriously short-sighted, as we all are tempted to put off until tomorrow what we would rather not do today.

“Many of us who have high hopes for the public sector actually see the silver lining in the deficit cloud. A fiscal crisis can force a very healthy reexamination of programs, priorities and operations. While often too painful to address in normal times, inefficient work rules, program designs and benefit formulas can be reformed. Unfunded promises can be curtailed and rationalized. And perhaps governments might emerge from this difficult period in healthier shape than they were before.

“But such are the dreams of reformers like myself. The process of dealing with deficits are rarely this high-minded or straightforward. Instead, we see a process that is pockmarked with resistance, privilege and short-sighted decision-making. The actual process of fiscal sacrifice has never really been charted and varies considerably across governments. But it resembles the stages of grieving for losses more than we would like to admit.

“I want to lay out what I will call the inferno of deficit reduction. I would suggest that governments facing fiscal gaps go through stages of budgetary recognition and decision-making. I would caution that this is not based on empirical surveys but rather on a long view of observations over many episodes of fiscal retrenchment at all levels of government.

“Denial. Often, initial deficit projections are ignored or even fudged. At the federal level, we heard under President Bush that deficits did not matter in a growing economy. In the Obama era, we hear some suggest that deficit reduction is trumped by the need for greater stimulus and that the resulting economic growth will help the budget bounce back. Denial is a strategy that stresses the risk of taking action versus the risks of letting deficits accumulate to daunting levels.”