Zero-Base Budgeting Concepts and Examples - IBA Report 16-16

Sep 12, 2026

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An Office of the Independent Budget Analyst report issued June 23, 2016 (IBA Report Number 16-16) presents an overview and examples of Zero-Base Budgeting (ZBB) for City Council consideration. It explains the origin and purpose of a ZBB pilot for the FY 2017 proposed budgets, summarizes how ZBB works through decision units, packages, and ranking, and discusses cited advantages drawn from a 2011 Government Finance Officers Association research paper. It also describes planned tracking and future cost-benefit analysis to be included in a September 2016 update.

LanguageEnglish

CategoryLetters

FormatPDF

Pages12

Reading Time4 min

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Zero-Base Budgeting Concepts and Examples

Overview

Fiscal/Policy Discussion

ZBB – What is it?

Brief History of ZBB

How ZBB Works in Theory

Cited Advantages Associated with Theoretical ZBB

| OFFICE OF THE INDEPENDENT BUDGET ANALYST REPORT | | --- | | Date Issued: June 23, 2016 IBA Report Number: 16-16
City Council Docket Date: June 28, 2016
Item Number: 338 | Zero-Base Budgeting Concepts and Examples OVERVIEW In 2006, the City Council adopted a financial training program to provide Councilmembers with relevant information on important areas of government finance. In accordance with this program, the Financial Management Department (FM) and the Office of the IBA will present information on Zero-Base Budgeting (ZBB) to the City Council on June 28, 2016. Early in 2015, Councilmembers Scott Sherman and Chris Cate issued a memorandum discussing ZBB as an alternative approach to traditional budgeting practices. They requested a ZBB pilot program be undertaken for the FY 2017 Budget to explore the potential for increasing transparency and accountability in the City’s budget. In response, FM utilized a ZBB service-based budgeting approach to develop budgets for the Performance & Analytics and Public Works General Services departments for the FY 2017 Proposed Budget. On May 2, 2016, FM issued a memorandum discussing ZBB and the results of incorporating ZBB principles in developing these budgets. Although this information was made available immediately before the scheduled public budget hearings for the two City departments, the Council did not have the opportunity to learn about the ZBB processes used in the development of these budgets. FM is also tracking staff time for both the ZBB pilot and the current budget development process. This information will be incorporated into a cost-benefit analysis that will be included in a ZBB update report that FM plans to release in September 2016. In an effort to supplement the information provided in FM’s memorandum, the IBA has researched other jurisdictions who are either currently using or have used ZBB principles to develop their annual budgets or review programs and services. The intent of this financial training is to allow FM and the IBA to present information in their respective reports to the City Council, and allow Councilmembers to ask any questions they may have about ZBB. FISCAL/POLICY DISCUSSION Of the ZBB articles and analyses reviewed by our Office, perhaps the most comprehensive was a research paper published by the Government Finance Officers Association (GFOA) in 2011 entitled “Zero-Base Budgeting: Modern Experiences and Current Perspectives.”1 The GFOA surveyed their members about ZBB and received 413 responses. Much of the information below is drawn from the 2011 GFOA paper. ZBB – What is it? ZBB calls for developing a budget from the ground up, starting from zero. In theory, an organization’s entire budget needs to be justified and approved, as opposed to focusing on the incremental change from the prior year’s budget. ZBB moves an organization away from incremental budgeting, where last year’s budget is the starting point. Instead, the baseline is zero, implying that past patterns of spending are no longer a given. Renewed interest in ZBB in today’s environment of fiscal constraint may be due to the notion that the “zero” in ZBB sends a powerful message that taxes and spending will be held in check. Brief History of ZBB ZBB in government rose to prominence in the 1970s when U.S. President Jimmy Carter promised to balance the federal budget in his first term and reform the federal budgeting system using ZBB. President Carter had used a ZBB system while serving as governor of Georgia. At the time, federal spending was perceived by many to be out of control, with much ofit no longer subject to annual appropriations, but driven by permanent entitlement programs and multi-year budgetary authority. Interest in ZBB subsequently declined in part because it required extra time and paperwork to implement, and due to doubts about the method’s ability to fully meet its theoretical promises. Additionally, economic conditions improved from t

FAQs

What is Zero-Base Budgeting (ZBB) and how does it differ from incremental budgeting?

ZBB develops a budget from the ground up by justifying the entire budget starting from zero. Unlike incremental budgeting, it treats past spending patterns as not automatically guaranteed.

How does ZBB work in theory within an organization?

ZBB breaks the organization into decision units and requires managers to describe and evaluate activities and alternatives. Each decision unit prepares decision packages, which are ranked by priority to inform final budget decisions by central budget authorities.

Why was a ZBB pilot requested for the FY 2017 budget?

City Councilmembers requested a ZBB pilot to explore whether the approach could increase transparency and accountability in the City’s budgeting process, and FM developed service-based budgets using ZBB principles.

Sep 12, 2026

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