Government Budgeting Process: How to Develop, Maintain, and Strategize for the Future

This is the second article in a two-part series on the budgeting process and best practices for local governments. 

Click HERE to view the first article in the series.  

The operating budget is a municipality’s most important work product. For elected and appointed officials to maximize results, they need to embrace the detailed (and necessary) steps that make up the operating budget to properly allocate their resources.     

By following budgeting best practices, local governments can improve their budgeting efficiency, and spend more time focusing on the big picture – executing their municipality goals and priorities.   

Characteristics of an Effective Operating Budget    

Start with a long-term plan. Investing the time and resources to develop a sound strategic plan is an important first step of the process. A plan allows the local government to have a blueprint of its desired future state, inclusive of its goals and metrics that help to qualify its success.   

Once the plan is in place and it has buy-in from key stakeholders, all parties should commit to making budget decisions that align with the agreed upon plan. Prioritizing spending helps ensure that the most critical needs are addressed first and that resources are allocated efficiently.  

Use a well-defined budget process. Establishing a straightforward budget process helps ensure that all stakeholders understand the timeline, roles, and responsibilities involved in the budgeting process, and no one is surprised.    

Budget process tips:   

• Use tools such as flowcharts or calendars to set expectations and identify important milestones throughout the process 
• Make sure it is a system that everyone can follow   
• Communicate, communicate, communicate   

Make sure the right people are in the room. Providing those involved budget process to have a voice in the conversation will help boost trust and buy-in. It also gives them a chance to understand the complex and complicated decisions that have to be made to balance a budget.    

Who are some of the key people that should be involved in budget discussions?   

• Governing board   
• The public   
• Necessary departments   

• Community Stakeholders   

Use data and analysis. Multiple sources of data and detailed analysis of trends are important elements to consider when building a budget.   

The more thoughtful and precise each line item is, the better-limited resources can be allocated effectively.    

The budget should use more than just a standard percentage increase from last year’s budget. Instead, it should include a complete review of historical trends, potential new projects, and future economic assumptions that will reflect actual expectations for the upcoming fiscal year.   

Over-budgeting does not allow the local unit to spend its limited resources on other potential priorities.    

Underbudgeting causes the local unit to exceed its adopted budget and be put in a situation that they have to make more complex decisions midyear.     

 So take the time upfront to get things right.   

Understand that a budget is more than numbers. A budget is more than appropriated revenues and expenditures for the upcoming fiscal year, it tells a larger story. An effective operating budget should make sense to those who aren’t involved in creating or managing it.   

Including narrative tables, graphs, and other elements that highlight and explain critical information could be helpful for a citizen to understand. It also could benefit new board members and staff not as close to the nitty, gritty details.   

Department goals, large funding projects and other spending allocated for key priorities are also important to call out. Outlining this information can help to connect the dots between numbers and tangible work that improves the municipality.     

Think about the short and long term. When developing next year’s budget, the focus is clearly on what immediate items and tasks must be accomplished. But decisions made next year will impact decisions for years to come, including:   

• Purchasing a new capital item   
• Hiring new employees   
• Adjusting fees    

Evaluating impacts on future municipality budgets, while challenging to determine and not always perfect, can help make all the difference in the future. Developing five-year budgets helps illustrate the repercussions a decision made today will have on the future budgets. The Multi-Year Budget Projection Tool from Michigan Treasury is an excellent resource to assist local governments in this analysis.     

Monitoring.  Department heads and the governing body must review the progress of projects and the actual revenues and expenditures quarterly, if not more often.    

Make this a priority and a standardized step of the budget process within your organization. Staying on top of the budget helps ensure that more difficult decisions don’t have to be made later in the year.     

Recapping the Highlights   

Local government officials have a fiduciary responsibility to use their constituent resources efficiently and effectively.    

Following the above best practices will help local governments maximize their potential for short and long-term success.     

Our Experts Are Here to Answer Your Questions  

The development of a budget can be overwhelming, and if you want to maximize the benefits of a structured budget process, the experts at Maner Costerisan can assist.    

Contact Rod Taylor, Senior Governmental Consultant, at rtaylor@manercpa.com or maner@manercpa.com, if you could use some extra help crafting an operating budget.