A sidebar to a recent article about Clark Public Utilities’ consideration of a rate increase made the incorrect statement, “The utility uses zero-based budgeting, meaning expenses and income must bring its ledger to zero by the end of the fiscal year.”
First, this implies that Clark Public Utilities’ income always exactly equals its expenses, which is false. Read the financial statements. Second, in true zero-based budgeting, every budget account for the period starts at zero. From there, the account’s budget is built by justifying every expense that is added. This contrasts with common budgeting practice of starting with last-period’s number and adding some arbitrary amount, like 10 percent. Zero-based budgeting is the exception rather than the rule for business, government, etc. The process is more sophisticated, more time-consuming, and requires a higher level of management skill and critical analysis than the common process.
I hope Clark Public Utilities does use real zero-based budgeting, but won’t be surprised if it doesn’t. If Clark Public Utilities isn’t using zero-based budgeting, I hope it will start. It could keep their expenses, and rates, down.
