What we want to do is to cost out the function for example, in highways per “highway mile” and in foster children per ‘foster child served” creating a funding formula for each function. We now have the basis for forming a budget based on actual costs we simply multiply the number of highway miles needed or expected foster children by the function’s funding formula to arrive at the new budget. Using the funding formula method simplifies the whole budgeting process. The actual expenditure from the year before is then used in calculating last year’s performance. A good performance encourages the legislature to continue funding in the next year’s budget.

The development of a valid funding formula is difficult. Here is an example of the approach I would use for the function, “Foster children“. After the Flow chart has been developed by the WIT and mileage and other costs are added to each process on the flow chart. I would request that the WIT submit a proposal for the number (range) of foster children that can be safely managed by a caseworker. I would do this to obtain a consensus among all stake holders of when to add extra caseworkers. Having done this, note that there is a relationship between the mileage traveled and the number of foster children that each caseworker can manage. Rural areas have fewer cases but must travel further than urban areas. I would develop two charts one for rural and one for urban showing how many foster children can be safely managed in each and when this number or range is exceeded then an extra case worker should be added to the budget. The flow chart should cover 80% of the foster child cases leaving 20% of the cases requiring additional expenditures and unique decisions to be made by the WIT. Thus 20% of the cases may have extra expenses that need to be budgeted for. Because these are not predictable they should be budgeted outside the funding formula. What I have done is to try and account for all of the variables that can occur in the funding formula thus making the final budget for the function dependant on projections of case loads for each county either rural or urban. Each county budget is rolled up into the state budget. Where the function’s budget is presented to the legislature along with last year’s performance numbers. The unique expenditures budgeted for 20% of foster children not a part of the funding formula are not included in the performance rating. I caution you that the above example was done to show how difficulties in getting a valid funding formula can be overcome but the actual process in most instances may be different. For more information see Article 22. “Functional Restructuring of State Government rather than Departmental Restructuring”.