Prioritize Long-Term Goals in Local Government Budgeting

To achieve their missions and deliver quality services to the public, state and local governments must be excellent stewards of taxpayer dollars. This all starts with good budgeting.

However, setting budget priorities is difficult, even in the best of circumstances. It requires weighing short-term versus long-term goals and deciding which investments will have the greatest impact on residents' quality of life. Improving your local government budgeting process starts with understanding the potential pitfalls and creating a strategic plan that keeps you on course.

Budgeting challenges for municipalities

Most states are required to maintain balanced budgets, meaning they can't spend more than they have. This mandate gets challenging during economic downturns or unforeseen crises that affect local tax revenue.

Typically, budgeting includes estimating how much revenue a municipality will generate in a given year from income, sales, property and other taxes. This revenue must fund a wide range of public services, including education, public safety, health and transportation.

Today, the budget allocation for many of these services isn't based on the revenue these line items generate. Rather, it's based on some combination of the previous year's allocation, departmental budget requests and an assessment of needs. Because of how revenues fluctuate from year to year, municipal budgeting tends to be very short-term. Most state and local governments have annual—rather than multi-year—budgets.

Threats to long-term budget sustainability

According to Pew, there are two main causes of budget shortfalls—structural deficits and temporary gaps. Structural deficits happen when spending grows at a quicker pace than revenue. Governments that depend heavily on one industry are especially susceptible to structural deficits, but all governments are at risk. Once a structural deficit is in place, it's exceptionally difficult to eradicate. Many local officials will enact short-term fixes that exacerbate deficits.

Even governments that have structurally balanced budgets will face years when temporary factors cause spending to outweigh revenue. Although the causes are temporary, the consequences can be long term. The key to avoiding long-lasting consequences is to plan ahead. Some governments save a rainy day fund to avoid budget cuts and tax increases during temporary shortfalls.

How long-term budget assessments and budget stress tests can help

Data and analysis can provide leaders with details on their government's risks and long-term outlook. A long-term budget assessment helps leaders identify key revenue and spending categories, project the balance in these categories at least three years into the fiscal future and uses projects to analyze ongoing sustainability. A budget stress test identifies scenarios that could cause budget stress and analyzes the effects on general budget conditions. Then, it compares the negative effects with available or needed contingencies to address the effects.

These tools can help governments decide how much to tax, spend and save to keep priorities on track. Stress tests in particular can show governments both when they need additional savings and when they're in good shape. This can be helpful in letting governments know when they can use additional revenue for other priorities.

Rethink local government budgeting

Modern budgeting practices can help local government align resources with strategic priorities to more effectively serve their communities.

Program-based budgeting

Program-based budgeting defines the programs and services a local government provides. Then, budget resources are allocated to those programs to clearly show the cost of providing each program. This approach makes it easy for staff, residents and decision-makers to understand how government resources are being used.

Priority-based budgeting

Priority-based budgeting builds on program-based budgeting. It identifies which programs are aligned with community priorities, such as safety or recreational services. This type of budgeting allows local government to allocate resources according to their community's goals.

Transparency

Transparency in a local government's budget builds community trust and allows residents to interact with their community's financial information to gain greater understanding. Governments can share budget information on their website, in community-facing data visualizations or in interactive resident dashboards.

Social change

Collaboration between local governments, leading academics and private sector companies can drive innovation and change. A government's budget is one of the most influential policy documents a local government produces. Looking at it through an equity lens can create positive outcomes for each community member. Modern budgeting approaches, especially priority-based, allow leaders to more easily see the full impacts of budgeting decisions.

Building better government

Even with improved budgeting, your organization will need to overcome several challenges to produce sustainable long-term outcomes. The hurdles include finding skilled talent, boosting citizen engagement and meeting citizen demand for better, faster and more responsive service.

Technology modernization is one of the most effective ways to overcome these challenges. This solution requires a significant upfront investment, but it can reap long-term rewards in terms of automating business processes and increasing efficiency.

Taking the time to thoroughly understand constituents' needs and focusing budget priorities around them will have the greatest impact for the communities you serve. In turn, this will enable your local government achieve its larger mission and improve residents' lives.