BEST PRACTICES SERIES: Best Practices in Local Government Budgeting

The information contained in this article is not intended as legal advice and may no longer be accurate due to changes in the law. Consult NHMA's legal services or your municipal attorney.

A government’s budget reflects its vision, strategy, and priorities. Similarly, the process public sector leaders use to create and communicate the budget reflects how they operate. The most effective processes are inclusive, transparent, and efficient. They build trust through involvement and buy-in from citizens, department heads, and elected officials. According to public sector experts and professional organizations, local governments build greater trust and buy-in from stakeholders when they adopt and adhere to budgeting best practices. Operational best practices ensure budget planning is strategic and organized. Communications best practices help local leaders convey information simply, clearly, and frequently, which results in greater transparency and strengthened trust.

Local Governments’ Most Important Documents

Budgets matter. As public sector budgeting has become more strategic1 over the last several decades, the budget itself has increasingly become a combination of a policy, operational prescription, and communication tool.2   A local government’s budget reflects its policies and civic priorities. It indicates how a community anticipates raising revenues, spending, and investing, encapsulating both fiscal and programmatic policy decisions. Its changes from one year to the next, articulating the direction in which a community wants to head. For instance, all else being equal, increased spending on police year over year signals that a city is placing a higher priority on addressing public safety. Furthermore, it should convey not just what a community’s policy priorities are, but also how the government’s leaders plan to operationalize resources to address them. It conveys a strategic plan to those within and outside the government – those stakeholders including citizens, department heads, staff, and elected officials. Each year, the budget is the most important document a local government will produce.

Facing Numerous Challenges

Local governments face numerous challenges, over which they have varying amounts of control:

1. Economic uncertainty. Given economic cycles, public sector organizations must plan for revenues that may rise or decline at different paces due to future conditions.
2. Changing revenues and costs. Factors largely beyond government control like property valuations, consumer behavior patterns, and the economy influence revenue levels. Unfunded retirement liabilities and changing demographics are examples of structural factors significantly impacting how governments spend.
3. Limited citizen engagement. Especially because they often lack experience in the public sector and finance, citizens tend to have difficulty understanding how government works.
4. Relations with council. Finance and budget directors sometimes cite lacking clear direction from their councils and boards, which can result in reduced alignment around a central vision or strategy and unclear performance measures.
5. Lack of budget ownership within and collaboration across departments. Department heads have substantial expertise within their own fields, but as policy challenges become more cross-functional, shared resources must be distributed across departments and interdepartmental personnel must collaborate more.
6. Difficulty tracking budget revisions and accessing realtime information. During planning and development, budgets change often as forecasts are updated, budget requests are modified, and stakeholders offer input. Tracking those changes consistently across different versions of documents and spreadsheets is difficult.
7. Errors slow down budgeting process. Manual data entry, ad hoc calculations, and maintaining disaggregated supporting documents can lead to time-consuming errors.
8. Staff retirement and other turnover. As baby boomers retire, and as other staff leave and join the team, it can be difficult reconciling old and new work, especially amid an ongoing budget process.

Overcoming Challenges with Best Practices

Best practices have been compiled from local government budget and finance directors, as well as research-based findings from professional associations. Adopting these operational best practices has helped public sector teams successfully improve their budgeting efficiency, effectiveness, buy-in, department ownership, and citizen engagement.

1. Have a clear, well-defined process.  As an organization is planning for, developing, and approving the budget, all key steps of the budget process should be clear on an annual and month-by-month basis. Visual representations of the process – budget calendars, timelines, and flowcharts – can help clearly identify important deadlines, milestones, required action items, and involved personnel.

2. Start with a vision, goals, and a strategic plan. The budget supports what a municipality and its citizens want to accomplish – now and in the future. Therefore, a successful budget process should begin with city leaders articulating a clear vision, identifying community and department goals, and undertaking a strategic plan that will help mitigate conflicting goals. While it is important for leaders to push the vision forward, it is also important for citizen input to inform and guide that vision as it develops.

3. Prioritize. Choose to focus on addressing key challenges in a given budget year. Attempting to tackle everything at once is not only inefficient, but it also commonly leads to staff burnout. Identify a focus area, and come up with a clear strategy to address it, taking care to report the results back to the community.

4. Empower and foster collaboration among internal departments. In creating a budget, it is important for all department staff to understand the vision and goals underlying it, as well as how their departments factor into achieving those goals.  Garnering buy-in across departments occurs when staff at all levels are engaged from the outset of the budget planning process and when they can collaborate easily on budget requests and revisions.

5. Meaningfully engage citizens and elected officials.8 Budgets are more credible and receive the broadest support when citizens and elected officials have provided input throughout the planning process, are aware of major developments, and understand budget tradeoffs. Providing them with a genuine voice in the municipality’s choices further strengthens trust and buy-in. To open input and feedback channels, municipalities may solicit feedback in person or online through public hearings, open houses, citizen academies, focused discussion sessions, and needs surveys. To reach a more representative cross-section of citizens, municipalities should use technology solutions whenever possible to make it more convenient for stakeholders to access information and participate on demand. Consider asking citizens the following:

• What core service areas are most important to you?

• What should the city/county/district’s top priorities be –this year, and in the future?

• What do you want to see more of from your local government?

• What are you willing to pay more for?

6. Communicate the budget broadly, simply, and clearly.

Once teams have collaborated to plan and develop the budget, it is important to communicate it to all key stakeholders, including elected officials, department heads, staff, and citizens. Successful local government leaders communicate the same information multiple times, in multiple formats.

These formats include formal budget books, press releases, public presentations, summary sheets, and social media. When possible, publish information electronically and in formats beyond PDFs, such as web-based data visualizations, infographics, and FAQ web pages. These electronic formats make it easier to find relevant data, gain high-level takeaways, and receive quick answers to common questions.

7. Use technology to reduce time spent developing the budget and to power insights. While the time spent budgeting varies from organization to organization, it typically takes local public sector organizations between six and nine months to complete the process from initial planning to final approval. Though even the best technology solutions are not substitutes for strategic planning and decision-making, they can help streamline budgeting by automating calculations, centralizing communications into collaborative environments, and increasing access to budget data on demand.

Building Trust with Effective Processes

Securing the support, buy-in, and trust of all key stakeholders helps municipal leaders successfully implement their plans. Because budgets are complex and detailed, achieving understanding and trust requires effectively translating large amounts of data and complex policy into simple, clear information. The following communications tips can help local governments successfully communicate their decisions and build trust:

1. Be as transparent as possible. Transparency helps build trust. Share as much as you can, as often as you can. Sharing information proactively helps governments correct and counteract misinformation.
2. Keep it simple. Do not assume your audience knows what you know or has the same level of expertise. Consider having nonfinance staff proofread written communications.
3. Use compelling visuals. Pictures, infographics, and interactive charts help convey complex information.
4. Provide consistent, repeated messages. Deliver the same messages over and over through different channels. Consistency helps build trust, and utilizing a variety of means – not just speaking to those who come out for public meetings – will engage a broader, more representative constituency. Repetition is good.
5. Make data dynamic. Create a dynamic web page that grants users as much flexibility as possible for interacting with information. Enable them to see multiple views of the same information.
6.  Promote feedback and engagement. In addition to making budget information transparent and easily accessible, build trust by fostering frequent dialog with citizens.
7. Choose technology solutions that make trusted communication easy. Leverage user-friendly technology platforms that make internal collaboration, internal communications, and external engagement easy.

Source:  Best Practices in Local Government Budgeting, White Paper, OpenGov.  Learn more at www.opengov.com.