Why “Proportional Sharing” Is an Ineffective Resource Allocation Strategy

Note: This post originally appeared as a guest column on Dr. Alan Weiss’s Contrarian Consulting blog on March 20, 2011.

Times are tough. Government entities at all levels are scrambling to balance their budgets, which in most cases means making hard choices about how to allocate resources that are scarcer than ever. One strategy that some public sector leaders are using is called “proportional sharing,” which essentially means that all departments and agencies are told that they must cut their budgets by the same percentage amount. Sounds fair, doesn’t it? One Long Beach, CA City Council member was quoted recently as saying, “I do believe in proportional sharing in terms of budget cuts, and it is a meaningful approach to managing quality of life in this city.” She couldn’t be more wrong.

In fact, proportional sharing is NOT fair, and it is an ineffective resource allocation strategy. Here are three of the reasons why:

1. It doesn’t consider the appropriateness of the budget before the cuts were made. That is, some departments or agencies may have been over-funded, others may have been under-funded, and some may have been funded appropriately. Now the errors are more pronounced.

2. It treats all services as equally important – i.e., there is no attempt to prioritize them. In reality, there are services that are critical to the public sector entity’s (i.e., city, county, state) ability to achieve its mission, those that are very important, those that are important, and those that don’t have anything to do with the mission.

3. It gives the public a false sense of security that their leaders are taking a close look at what is being done and why, so they can make informed decisions about allocating resources most effectively. In reality, proportional sharing doesn’t do anything of the sort. By requiring across-the-board cuts, decision-makers simply are supporting the status quo, but at a lower level. This way they don’t have to justify any changes, which voters may not like.

Why do public sector leaders favor proportional sharing when addressing resource allocation? Although I can’t speak for them, two possibilities that come to my mind are (1) they truly don’t know how ineffective and unfair this strategy is, or (2) they realize that it enables them to shirk their duty of making tough decisions while appearing to be taking actions that are in the best interest of the (city/county/state) citizens involved.

What should decision-makers be doing instead of relying on proportional sharing? Here are my suggestions:

1. Take the opportunity presented by the challenging economic environment to question how they are allocating their resources, why they are doing so, how those allocations are supporting the entity’s mission, and whether there are more effective ways to use the resources.

2. Prioritize the services provided by determining the impact they have on the entity’s mission. These are the priorities I use with my clients:

Critical services: those which, if not provided, would prevent the entity from achieving its mission. There are relatively few truly critical services.

Very important services: those which, if not provided, would enable the entity to achieve its mission but with a serious negative impact.

Important services: those which, if not provided, would enable the entity to achieve its mission but with a diminished level of performance (e.g., quality of service).

3. Assess the risks by considering alternatives to the status quo. For example, what would the impact on the entity’s mission be if a given service were eliminated, delayed, or partially fulfilled, or if the standards for performance were reduced?

4. Decide what the allocation of resources should be among the three categories above. For example, it’s unrealistic to devote 100% of the resources to services deemed critical. Thus they may decide to allocate 75% to critical services, 20% to very important services, and 5% to important services.

5. Ensure the decision-making process is transparent and fair. Stakeholders will accept decisions, even those they don’t like or agree with, IF they believe the process by which those decisions were made was fair.

It’s time to put to rest the myth that proportional sharing is fair and effective, and to demand that public sector leaders make the tough decisions they were elected or hired to make. We simply don’t have the luxury to do otherwise.

© 2012 Pat Lynch. All rights reserved.