Budget Development and Financial Management

There are three main phases to the local government budget process:
1. Budget Preparation – Budgetary guidelines are established based on the annual plan and goals
2. Budget Adoption: Budgets are adopted by the government
3. Budget Execution: Implementation of the budget consistent with nationally established accounting procedures and policy with oversight mechanisms to ensure funds are properly spent.

Guidelines established by the Government Finance Officers Association’s (GFOA) steers the local government budget process. These guidelines include:

1. Establish Broad Goals to Guide Government Decision Making – Strategic Planning Process
2. Develop Approaches to Achieve Goals- Objectives and Activities to Achieve
3. Develop a Budget Consistent with Approaches to Achieve Goals
4. Evaluate Performance and Make Adjustments

There is no question that these guidelines create a sound finance and budget process. But, as is evidenced by the current financial state of most local governments, additional standards are required to ensure the long term fiscal sustainability of a community.

Persisting with processes that create annual budgets based on past budgets with incremental changes, does not take into account the volatility of the economic environment in which we are operating. Nor does it provide for future stability.

While Zero Based Budgeting is an old tool; when used correctly it provides a process for budgeting, which promotes a more thorough operational analysis which can be based on an analysis of current and future variables affecting revenues and predicting outcomes for more than a single budget year. In particular, costs associated with personnel and benefits, the largest percentage of most government budgets, must be reviewed and analyzed based on long term liabilities. Additionally, long term planning for infrastructure maintenance should be should be based on a ten to twenty year horizon, not the traditional five year planning scenario. This process requires more intense and focused planning, including a realistic environmental scan that provides a thorough understanding of the impact of growth and future service needs, coupled with changing economic conditions and other factors that impact service delivery.

To be successful, the budget process must be a fluid process, revenue projection and expenditure analysis must be ongoing and not a once a year static process. Adopting a process similar to what successful companies utilize requires looking at governmental management in a different way than we have in years past. In the private sector, successful companies routinely incorporate “what if scenarios” or projected outcomes which might be triggered by certain events and constantly monitor those events and the potential impact on the budget. In local government, we should be examining potential “trigger events” such as weather phenomenon and its potential impact, economic or community issues and other variables including political shifts, which may affect not only the stability of resources, but the services required.

The economic, political and cultural components of our communities are constantly changing. Therefore, the way we budget and plan for services must be more inclusive and consider both the current and long-term impact of these variables. Efficient and effective local government management
requires long term sustainable solutions not just annual budget ‘quick fixes’.

To accomplish this goal, managers must learn to be adept at
• Determining when to contract services and when to add the necessary overhead to provide direct services with City employees.
• Establishing fund reserves for future growth and needs for capital planning and infrastructure on a long term basis.
• Managing growth and not letting the growth drive service demands.
• Knowing how and when to restructure the city organization and keep staff focused on the bigger picture-the vision of the elected body and its citizenry.
• Recognizing that government is not always the answer to a service delivery problem

Thus, managers must learn to create alternative solutions to service delivery by asking different questions including:
• What are the Services we provide? What services should we provide? What is the true (total) cost of that service-dollars, people, infrastructure, overhead etc.? Is there a way to provide this service more cost effectively and efficiently?
• Why do we provide this service? Does it really meet a current need? Do our citizens really want this service? Does it truly promote and protect health safety and welfare of our citizens? In other words is it truly a CORE services that is a necessity that should be funded by local government? If so,
• Who should provide this service?—County? City? Private? Can we give up control/turf to improve the service or make its delivery more efficient by finding a better provider(s)?
• How should the service be provided? Are there different types of service delivery that might work better? Is there a new technology which can provide the services more cost effectively in the long run?

In summary, local government budget-and-financial-management is more than a standardized set of guidelines and processes; it can and must be innovative and visionary, seeking long term fiscal sustainability.