ZERO-BASE BUDGETING (ZBB) REEXAMINES THE BASE OF EXISTING PROGRAM ACTIVITIES, EXPLORING THE EFFECTS OR REDUCING OR REALLOCATING THE CURRENT LEVELS OF RESOURCES RATHER THAN TAKING FOR GRANTED THE BASE OF EXISTING PROGRAMS. PROGRAM EVALUATION IS DEFINED AS THE IDENTIFICATION OF THE OBJECTIVES OF EXISTING PROGRAMS AND THE MEASUREMENT OF PROGRAM COSTS AND THE DEGREE OF PROGRESS TOWARD PROGRAM OBJECTIVES, RESOURCES, AND ACTIVITIES. ZERO-BASE BUDGETING AND PROGRAM EVALUATION ARE CONCERNED, WITH FOUR PROBLEMS FACING POLICYMAKERS AT ALL LEVELS OF GOVERNMENT: RAPID INCREASES IN GOVERNMENT COSTS; THE INERTIA, INEFFICIENCY, AND INEFFECTIVENESS OF MANY GOVERNMENT PROGRAMS; LACK OF POLICY CONTROL; AND INADEQUATE INFORMATION ON PROGRAM PERFORMANCE. SOLUTIONS TO THESE PROBLEMS ARE DISCUSSED IN THE APPLICATION OF ZBB PRINCIPLES. IN ADDITION, THE COST, FEASIBILITY, AND VALUE OF PROGRAM EVALUATION ARE DISCUSSED IN LIGHT OF THE TIME AND PAPERWORK REQUIRED AND THE INEFFECTIVENESS OF PAST ZBB AND PROGRAM EVALUATION EFFORTS. SPECIFIC STEPS FOR OUTLINING AND IMPLEMENTING SIMPLIFIED ZBB ARE PRESENTED USING EXAMPLES DRAWN FROM THE BUDGET BALANCING ACTIVITIES OF A COUNTY MANAGER AND AN URBAN TRANSIT AUTHORITY. THE INVOLVEMENT OF POLICYMAKERS AND PROGRAM MANAGERS AT ALL LEVELS IS STRESSED IN SETTING OBJECTIVES AND ESTABLISHING PRIORITIES AMONG ACTIVITIES. THE IMPLEMENTATION OF THE ZBB PROCESS AT FEDERAL, STATE, AND LOCAL LEVELS IS ALSO DISCUSSED. FOUR PROGRAM EVALUATION PROCESSES THAT PROVIDE POLICYMAKERS WITH NEEDED INFORMATION ON PROGRAM PERFORMANCE WHILE MINIMIZING INFORMATION COST ARE CONSIDERED. THE RELATIONSHIPS BETWEEN ZBB AND LONG-RANGE PLANNING ARE CONSIDERED, AND IT IS SHOWN HOW PROGRAM EVALUATION CONTRIBUTES TO EFFECTIVE LONG RANGE PLANNING AND POLICY DEVELOPMENT. APPENDIXES CONTAIN THE ARLINGTON COUNTY, VIRGINIA, 1977 DECISION PACKAGES, THE WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY FISCAL YEAR 1978 DECISION PACKAGES, AND THE ARLINGTON COUNTY FISCAL YEAR 1978 PROPOSED BUDGET. AN INDEX IS ALSO INCLUDED. (RCB)