Investing in Your Employees' Best Ideas

In 2008, as the Great Recession was bearing down on cities across America, Baltimore made a decision to turn the traditional city budget process on its head. Instead of starting from the previous year’s spending and making incremental changes year to year, we tried a radically different way that we called Outcome Budgeting. 

Outcome Budgeting starts with a city’s long-term goals and builds the budget around them. Agency budget targets are replaced with funding pools for outcomes like better schools, safer streets and stronger neighborhoods. Budget decisions are brought out of the back room as “Results Teams” made up of employees and residents review service proposals and make recommendations to the mayor.

When budgets were at their worst for Baltimore, Outcome Budgeting was at its best, helping us prioritize spending by eliminating services that couldn’t demonstrate results and protecting and even enhancing funding for services that could.  Through the brutally tough years of the economic crisis, Baltimore never raided reserves or resorted to arbitrary across-the-board cuts.

For all its success, Outcome Budgeting is limited by the imaginations of agency heads and program managers. It can give incentives for innovation and collaboration, but it can’t put ideas in people’s heads. After the first year of the new process, I was already asking the question: What happens when Outcome Budgeting becomes the new status quo? 

I have seen my share of management initiatives (okay, “fads”), and I know that after they pick off the low-hanging fruit, they can become huge time sucks with diminishing returns. As I looked to the future of Outcome Budgeting in Baltimore, my rationale for sticking with it was that there was more fruit within reach, but we needed to supply some ladders. One of our “ladders” was the Innovation Fund.

In 2012, Mayor Stephanie Rawlings-Blake was persuaded by one of the Results Teams to create the Innovation Fund.  From a budget that included service reductions, layoffs, furloughs, and deferred capital spending, she carved out $2 million to start a revolving loan fund for agency projects that would improve customer service and either reduce operating costs or generate new revenue for the city. Some city council members argued that $2 million could spare 40 jobs from being abolished, but the Mayor insisted that the fund would more than pay for itself in the long-term.

The Mayor was right. In its first five years, the Innovation Fund made loans totaling $6.5 million to a dozen projects, ranging in cost from $100,000 to $2 million, and the return on investment has far exceeded the up-front seed money. Nearly a third of the loans have already been repaid, and the council has continued to appropriate new dollars to the fund every year.

When the Mayor asked agency heads to submit the first round of loan applications, they replied enthusiastically, sending my office 36 of them. We had enlisted a loan committee made up of a retired bank president, a tech entrepreneur, and a foundation head. They were tough customers, and they green-lighted only three projects, the ones they thought were ready to implement and had a good chance of success.

The first loan to close was for putting the housing department’s development plans review process online. ePlans, as it was called, cut through a slow, cumbersome series of sequential approvals by as many as a dozen different offices. I remember seeing clerks wheeling garbage cans stuffed with blueprints from one office to the next. For developers ready to break ground, time is money, and they were more than willing to pay $100 to expedite plans approval (and avoid the cost of large format printing). ePlans has sped up approvals, cut data entry and “transportation” costs, and paid for itself from submission fees.

My favorite Innovation Fund project is the smallest loan we made. Camp Small is a 12- acre tree waste collection yard located in the Jones Falls Valley that bisects the city. Every day, city tree crews dump fresh trimmings and felled trunks at the site. In 2016, the sustainability office and recreation and parks department put their heads together and came up with a plan for turning the massive piles of waste into wealth. With $100,000 for a contract yard master and equipment rental, recreation and parks has produced mulch for sale to residents and auctioned the logs to local sawmills.

“A tree, like every living thing, is a resource in life and death,” says Shaun Preston, the Camp Small Yard Master.  Since the Camp Small zero waste initiative began, fallen trees have been turned into nature play spaces, whiskey barrels, art, furniture, outdoor seating, and even ox yokes. In late 2017, 40 urban trees were processed into more than 15,000 square feet of kiln-dried tongue and groove boards that will be used to clad the walls of a city recreation center.

The Innovation Fund took on a life of its own, spinning off great problem-solving ideas. It was the source of seed money to start a business process improvement program that trained more than 1,000 employees to cut waste and deliver better customer service. Later, it funded the TECHealth initiative, in which local design teams were rewarded for finding creative solutions to some of the city’s toughest public health challenges, including an opioid overdose notification and outreach system.

Before I left City Hall, I was working on an extension of the Innovation Fund I called “Shark Tank for Government.” The idea was for private investors to provide seed funding for city efficiency projects and lend their expertise for project implementation. The more successful the project, the greater the investor return. The local chamber of commerce was a willing partner.

Baltimore put money down on its own creativity and has raked in results.  Other cities should make the same bet.

This commentary is adapted from Andrew Kleine's new book, City on the Line: How Baltimore Transformed Its Budget to Beat the Great Recession and Deliver Outcomes (Rowman & Littlefield).