News & Insights
How To Develop a Responsible Local Government Budget Process
May 25th, 2023
By Rod Taylor |
Accounting & Outsourced Solutions |
A local government’s budget establishes its vision, strategy, and priorities, and communicates those to its employees and citizens. It could easily be considered one of the most critical tasks appointed and elected officials in cities, villages, and townships are charged with undertaking.
Yearly local governments must approve a budget before the end of their fiscal year. The Uniform Budgeting and Accounting Act (PA 2 of 1968) outlines the minimum requirements for a budget in the State of Michigan, which sets a low bar. Local governments can leverage the budget document to help ensure they achieve their strategic goals, use public resources judiciously, and maintain their fiscal health for the short and long term.
A successful budget document is developed first with an understanding it is not about the numbers but the process. This process should begin many months before the end of the fiscal year and continue after the budget is adopted into the next.
This helps ensure trust is built through engagement with internal and external stakeholders and that the developed document is thorough and well thought out. By following a strategic methodology, the budget becomes more than the legal adoption of your appropriations. It sets expectations and can be used as a communication tool with all stakeholders to ensure maximum transparency.
How to Develop an Effective Local Government Budget
A structured process to develop and adopt a solid budget typically involves the following steps:
Preparation. This may seem like a no brainer. Preparation is key to developing a successful plan – but investing time upfront will set your team up for success.
- Begin by establishing a budget timeline and updating templates and documents used in the budget development.
- Take some time to review programs and services to identify funding priorities.
- Update your government’s wage and benefits estimates, gather relevant financial data, and analyze trends.
- The Multi-Year Budgeting Projection Tool from the Michigan Department of Treasury can be a helpful tool to analyze future trends.
Stakeholder Engagement. Get the public, key stakeholders, and department heads involved early in the budget development process. Solicit input and feedback on budget priorities and develop consensus around potential funding decisions. This engagement helps people feel heard and valued – it also builds trust.
- Departments should be given instructions and expectations on completing their budget request. Additionally, the planning commission should update the capital improvement plan as required by the Planning Enabling Act (PA 33 of 2008).
A local government’s budget is the tool by which elected officials implement their priorities. With that in mind, it’s critical for the elected board to update or create a strategic plan during this step of the budget process. Without a finalized strategic plan, a local government cannot systematically move the organization forward in achieving its mission and vision, nor can they implement the board’s priorities.
Development. You’ve got a timeline, updated data, relevant stakeholder feedback, and a strategic plan in hand. Now it’s time to put together the draft budget using the information gathered in the first two steps.
A few important details to consider early in the development process:
- The budget should be based on a detailed review of revenue projections and expense estimates.
- It’s best to review the current fund balance and compare it to the adopted fund balance policy. The need to grow or spend the fund balance may impact current year’s budget decisions, so do this before you dig into the documentation.
A practical budget includes appropriations and significant other supporting documentation including:
- A budget narrative explaining trends and major changes impacting the budget,
- A primer that details the government accounting process. This will help citizens and stakeholders unfamiliar with the details understand how it all works.
- The board’s updated strategic goals and priorities
- An organization chart and approved position counts
- Performance metrics used for monitoring trends
- Fund and department descriptions that explain the role and function of different areas
- Charts and graphs that visualize and explain the numbers
Input. Many communities set up a separate work session for a detailed review of the proposed draft budget. This allows the board a chance to educate the public on past and future trends in the community and to explain significant changes that impact the new budget. It also gives departments an opportunity to provide additional background on proposals in their budgets, discuss short- and long-term fiscal health of the government and recommend any changes.
Hosting a separate workshop session sets the stage for more in-depth discussion and review of the budget details. It’s also another chance to gain the public’s trust by being transparent about how and why the numbers included in the budget are there.
Adoption. After reviewing the feedback gathered from the input session, the budget should be updated and presented to the elected board for adoption.
We suggest completing this step well in advance of fiscal year-end to ensure any unexpected situations don’t impede the budget from being adopted on time. Confirm the budget complies with the minimum established in Section 15 of the Uniform Budget and Accounting Act and sets the millage rate as required in Section 16.
The local unit must also hold a public hearing in compliance with the Budget Hearings of Local Government Act. (PA 43 of 1963), so the earlier you’re able to schedule this, the better.
Implementation. You’ve made it to the final step and you can now celebrate – but the hard work isn’t over. It’s just begun. Since the budget has been approved, you can begin to legally undertake expenditures beginning on the first day of the fiscal year. But you don’t have a free pass to go forth and execute everything from Day 1.
Department heads can begin to implement plans established in the budget, but some items may still require additional board approval. For example, the budget may have identified a new position, but the board may need to approve the job description to hire someone new.
Even after the budget has been approved, the board still has the responsibility to review specific projects and adjust plans as necessary. It’s also important to remember to follow all local procurement and other policies before proceeding with expenditures.
Monitoring. Throughout the year, appointed and elected officials must monitor the budget to ensure progress is made on identified priorities. Additionally, budget adjustments must be made in a timely way if any expenses are expected to be over budget.
This can be done during the board’s monthly review of the revenue and expenditure reports, but at a minimum, make sure you are making budget adjustments once a quarter.
Don’t underestimate the impact and importance of the monitoring stage. Each board member has a fiduciary responsibility to monitor the organization’s fiscal health and make necessary adjustments. It’s an important step that can lead to significant issues if skipped.
Recapping the Highlights
- By leveraging a thoughtful, transparent and collaborative process, local governments can create a budget that is aligned with the community’s priorities and values.
- Your local government’s budget is more than a document – it’s a tool to help your community implement its strategic direction, monitor its success and ensure short-term and long-term fiscal resiliency.
- Take the opportunity to make minor improvements to the information provided in your budget and improve the associated process annually. Learn from challenges that came up during the year and lean into your successes.
Developing a budget can be a painstaking investment in resources and time, but it’s worth it to see your local community achieve its goals.
Updating Your Local Government’s Budget a Challenge? We Can Help.
As you evaluate your budget, the government consulting team at Maner Costerisan is here to help ensure you are meeting your fiduciary responsibility. Whether you need help outlining the process or support to execute it, we’re here to help.
Contact Rod Taylor, Senior Governmental Consultant, at email@example.com or firstname.lastname@example.org to learn more.