Budget Development and Financial Management

There are three main phases to the local government budget process:

  • Budget Preparation – Budgetary guidelines are established
    based on the annual plan and goals
  • Budget Adoption: 
    Budgets are adopted by the government
  • 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 long term sustainable solutions, 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:

  1. What are the Services we provide?  What services should we provide?        
  2. What is the true (total) cost of that service-dollars,
    people, infrastructure, overhead etc.? 
  3. Is there a way to provide this service
    more cost effectively and efficiently?
  4. 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,
  5. 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)?
  6. 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 finance and budget management
is more than a standardized set of guidelines and processes; it can and must be
innovative and visionary, seeking long term fiscal sustainability.

Dr. Oel Wingo, Ph.D., Oel Wingo Management Consulting Services