Zero-Based Budgeting in Government

Zero-based budgeting in government requires agencies to justify every expenditure from the ground up each budget cycle, rather than treating the previous year’s spending as a fixed baseline and debating only the incremental changes. It forces scrutiny of legacy programs and can suppress automatic spending growth, but it is also administratively burdensome and has been adopted inconsistently.

How Incremental Budgeting Works (and Why Zero-Based Is Different)

In typical government budgeting—called incremental budgeting—agencies start with last year’s spending level and request increases or decreases from that baseline. The debate centers on the marginal change: “Should we increase the Education Department by 3% or 2%?” The underlying assumption is that the base spending is justified because it was approved last year.

Zero-based budgeting (ZBB) rejects that assumption. Every agency, every program, every line item must be justified anew, from a $0 starting point. An agency cannot simply say, “We spent $500 million last year on Program X, so we need $510 million this year.” Instead, it must demonstrate: why does Program X exist? What outcomes does it produce? What is the minimum cost to deliver those outcomes? Could the money be spent differently?

This sounds logical on paper. In practice, it is a dramatic departure from how large organizations budget.

The Appeal: Visibility and Restraint

Zero-based budgeting gained traction in the 1970s as a potential solution to runaway government spending. The logic was clean: if agencies had to justify every dollar, then wasteful, low-value programs would lose funding, and overall spending would decline. The approach appealed to budget hawks and efficiency advocates.

President Jimmy Carter introduced zero-based budgeting to the federal government in 1977, at the height of inflation and fiscal concern. Georgia, where Carter had been governor, had experimented with ZBB in the early 1970s. The federal attempt ran from 1977 to 1981, applied to most discretionary spending categories. The Office of Management and Budget (OMB) required agencies to develop “decision packages”—detailed justifications for every program at multiple funding levels (e.g., 75%, 100%, 125% of current spending)—and rank them in priority order.

The intention was to expose low-priority spending and redirect dollars to high-value programs.

Why Federal ZBB Did Not Stick

The Carter-era experiment revealed several challenges:

Complexity and burden: Preparing decision packages for thousands of line items consumed enormous staff time across agencies. The preparation cost was itself substantial. A small agency might spend months preparing budgets, diverting resources from actual operations.

Political reality: Justifying the entire budget from scratch sounds neutral, but it is not. Every program has a constituency—employees, beneficiaries, contractors, local politicians. ZBB did not eliminate politics; it just changed the arena. Agencies found creative ways to bundle or present programs to make them seem indispensable.

Inconsistent application: Not all discretionary spending was subjected to ZBB with equal rigor. Congress, which ultimately controls appropriations, reverted to incremental reasoning (“We approved $10 billion last year, so let’s debate the incremental change”).

Limited results: Spending did not decline materially. The federal budget continued to grow in nominal terms, though some analysts argued ZBB did slow growth relative to what would have occurred otherwise.

By 1981, the federal government abandoned ZBB. The administrative burden was deemed not worth the marginal restraint on spending.

State and Local Experiments

A few states and cities persisted with zero-based budgeting. Texas adopted a form of ZBB for its biennial budget cycle starting in 2003. State agencies are required to rank programs by priority and justify spending at multiple levels. The approach has been credited (by its proponents) with maintaining fiscal discipline despite rising demands on the state budget. However, critics note that Texas also benefits from oil revenues and population growth, which made budget growth easier regardless of ZBB discipline.

New Jersey, Illinois, and a handful of cities have experimented with ZBB or variants. None has achieved the dramatic spending reductions that advocates promised. The pattern is consistent: ZBB is adopted with enthusiasm, runs for a few budget cycles, creates administrative strain, and then devolves into a quasi-incremental approach with some ZBB language retained for appearances.

Why Modern Governments Prefer Incremental Budgeting

Incremental budgeting persists because it is pragmatic:

1. Speed: With thousands of programs, justifying from zero requires months of preparation. Incremental budgeting allows faster cycles.

2. Institutional continuity: Established programs have stakeholders, employees, and beneficiaries. Forcing re-justification every year creates instability and uncertainty.

3. Predictability: Agencies can plan multi-year initiatives knowing their base budget is secure. ZBB introduces risk.

4. Political reality: Ultimately, elected officials make budget choices. They are unlikely to vote to eliminate a program entirely just because it scored poorly in a staff justification exercise.

Incremental budgeting + regular policy review (e.g., “sunset” provisions that force re-authorization of programs) achieves much of ZBB’s transparency goal without the administrative burden.

ZBB vs. Performance-Based Budgeting

Zero-based budgeting should not be confused with performance-based budgeting, which allocates funds based on measurable outcomes. A government can use incremental budgeting but tie increases to program performance. Conversely, a government can use ZBB (justify from zero) and still use poor outcome measures.

In practice, some modern budget reformers advocate for a hybrid: incremental adjustments to the base (for efficiency), plus selective zero-based review of new or expanded programs.

The 2017 Revival and Corporate Context

Zero-based budgeting experienced a minor revival in corporate settings during the 2010s, particularly among management consultants advising companies on cost reduction. Some large corporations experimented with ZBB for staff functions (HR, IT, finance) to control overhead. Results were mixed; most companies found that ZBB’s benefits plateaued after the first application, because the second time around, decision-making was less thorough.

In 2017, there was brief talk of applying ZBB to the federal budget as part of budget reform, but the proposal did not gain traction. Congress did not adopt it, and the Trump administration’s use of “sunset” provisions (requiring periodic re-authorization) was closer to a compromise than full ZBB.

Limitations and Criticisms

It assumes programs can be evaluated in isolation: Government programs often have spillover effects and contribute to long-term outcomes that are hard to quantify quickly. A researcher funded today may produce discoveries years from now. A youth mentoring program may reduce crime in 5–10 years. ZBB’s annual re-justification misses these long-term returns.

It does not address mandatory spending: In the modern U.S. budget, Social Security, Medicare, and interest on the national debt (collectively, mandatory spending) consume most of the budget. ZBB cannot be applied to these without changing eligibility rules or benefit formulas—a political decision, not a budgeting process.

It is vulnerable to gaming: Agencies can repackage or rebrand programs to make them appear new or essential. A consultant firm can be retained to “study” whether an agency function should be kept, costing funds that could have been spent on the function itself.

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