Industry Expertise · July 23, 2020

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 generates. 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.

Best practices for local government budgeting

You can implement several strategies to help your municipality transition away from short-term budgeting and begin to transform your budgeting process.

Set the vision

To adopt a bigger-picture approach to budgeting, first define the long-term goals for your municipality. This process should involve input from key stakeholders across departments, as well as the constituents you serve. 

Begin by understanding what residents care about—whether through surveys, public hearings or town halls. Once you understand what specific services can make life better for constituents and improve the community, you can align how you fund services with the needs of your community.

Focus on priorities

Consider taking a priorities-based approach to funding certain services. This involves identifying your municipal government's mission and focusing on core services of each department that offer the highest value to residents—whether it's improving water quality or easing traffic congestion.

These priorities should be well-defined within your long-term strategic plan. They should also be both meaningful and measurable. Set metrics to help you measure results and demonstrate the value you produce in improving residents' quality of life.

Budget based on what you have, not what you expect

You also can improve your long-term budgeting process by focusing on funding activities and services rather than just departments. With this approach, you can allocate funding based on the revenue generated by each particular activity. You can also gain a better understanding of both the direct and indirect costs of your operations, which will make the budget process more anchored in actual data rather than just forecasts or projections.

For example, set out to better understand how much it costs to issue a business license or construction permit. Include employees' labor time and any costs associated with records management. Using these details, you can set budget allocations in the future that are more in line with what it actually costs to deliver this specific service. You also can make more data-driven decisions about what license fees to charge going forward.

This method can prevent or reduce your municipality's risks of potential budget deficits that could lead to program cuts and reduced service delivery.

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.

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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.