(Note: This is the part 3 of a three-part interview with Bob Williams, president of State Budget Solutions.)

Bob Williams, president of the Washington state-based think tank State Budget Solutions, has some tips for Idaho’s budget writers when considering next year’s spending priorities: Save more money, address the pension funding gap, spend based on outcomes and find ways to be more flexible with Medicaid dollars.

Williams, in Boise Tuesday to talk to lawmakers about pension reforms, told IdahoReporter.com that as lawmakers set the Idaho’s 2013 budget, they need to be cautious about how they use revenues.

Legislators set a 2013 revenue target of $2.667 billion, an increase from this year’s $2.552 billion budget. Gov. Butch Otter has plans for the enlarged budget next fiscal year and wants more money for education, $41 million for state worker bonuses, $60.9 million for reserve accounts and $45 million in unspecified tax relief.

Williams says that legislators should make rainy day funds the top priority. “Don’t spend the extra funds right now,” Williams warned. “Put it into reserves.”

He would like to see the state save at least 5 percent of its annual budget, or about $133 million if using the 2013 budget target.

While Otter has directed the $60.9 million to reserves, it’s much less than the state’s had in the accounts in previous years. Through the slumping economy, the state spent more than $381 million in reserve funds to prop up various programs.

Once lawmakers achieve a proper reserve funding level, Williams recommends addressing the state retirement program’s unfunded liability, now more than $1 billion.

But more than just putting cash in various programs year after year, Williams recommends Idaho lawmakers change the way they set the budget. Instead of simply accounting for program growth in each new fiscal year, Williams believes lawmakers should spend based on outcomes and priorities. Programs should have defined outcomes and legislators should meet with agency officials to ensure objectives are being met. Those programs failing to meet expected outcomes are reformed or ended and efficient programs are rewarded. (Read more about Williams’ outcome-based budgeting here.)

“They need to change the process,” Williams warned, adding that simply increasing appropriations for programs won’t necessarily produce better outcomes.

On a larger scale, Williams encourages Idaho lawmakers to push the federal government to allow for more flexibility in health spending. He says block grants, essentially set sums of money allotted to the state with certain objectives attached, would allow Idaho the ability to handle its Medicaid system as it sees fit, free of overly burdensome federal regulations.

“Your needs in Idaho are so much different than even Washington, but certainly New York and California,” Williams said. “But the feds have one size fits all.”

Giving Idaho more power in determining how health dollars are spent, Williams believes, would allow lawmakers to implement affordable insurance options, including health savings accounts.

Video for the series by Mitch Coffman, IdahoReporter.com.