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Reshaping state and local budgeting.

Budgeting is the key to just about everything that governments do, but not much is known about what makes for successful budgeting. Recent political and economic events suggest that what has proved successful in the past may no longer be effective. Against this backdrop, GFOA has formed an interorganizational task force to investigate ways to improve state and local budgeting.

It is shortsighted to think of the budget as merely a yearly decision concerning the source of funds and their allocation. The budget is, in fact, more than its sterile image -- a management tool that is legally required to be adopted by a certain date; it is the embodiment of a litany of decisions that flow to and from the budget process at the state and local levels. Government functions and programs are sustained or foiled through budget decisions:

* tax burdens, reflected in tax rates, are modified to meet budgetary needs;

* programs and services, their expansion, contraction and performance, receive their sustenance from the budget;

* management initiatives and reorganizations are hostage to budget decisions;

* employee compensation and labor contracts yield to budget limitations;

* infrastructure, its buildup and its neglect, springs from the budget;

* debt, and its refinancing, affects the budget in terms of shares devoted to debt service;

* the shifting of service burdens from federal to state governments and from state to local governments reveals itself in the budget dilemmas faced by those at the bottom of the fiscal food chain; and

* economic growth and decline show up in new demands for funding.

How budgets are developed and implemented has a substantive effect on what governments do. Although considerable evaluation has been done of budgetary reforms, such as zero-based budgeting, as they have gained in popularity, not much research has been done on what constitutes successful budgetary practices, or on what works over time and across jurisdictions. As a result, public officials and budget professionals struggle with devising budgetary solutions on their own without the benefit of knowing what has worked elsewhere under similar circumstances. Simply stated, guideposts for effective budgeting are nonexistent at the state and local levels of government.

Identifying yesterday's budget success stories will not be enough. State and local governments are facing increasing pressure to better manage the provision of public services with limited resources. These pressures are expected to continue throughout the 1990s due to projected slow economic growth, new spending requirements, increasing federal and state mandates, deteriorating capital infrastructure and demands for improved service quality. How effectively governments respond to these pressures depends to a large extent on the quality of their budgetary practices.

The economic recession of the past few years has underscored the inadequacy of current budgetary practices in addressing these challenges. The need for fundamental budgetary change at state and local levels is evident and has prompted the GFOA's standing committees on Governmental Budgeting and Management and on Debt and Fiscal Policy to initiate an associationwide effort to identify good budgetary practices and develop a debate on the value of budgetary guidelines.

The GFOA Budget Symposium

In January 1993, the GFOA hosted a national symposium to examine the budget process at the state and local levels. Approximately 40 individuals were invited to attend, representing a wide range of interests in the budget process. Among those attending were finance officers, elected officials, chief administrative officers and representatives from various interest groups, including the Governmental Accounting Standards Board, the rating agencies, bond insurers, accounting firms, the academic community and other national associations concerned about governmental budgeting.

Three issues provided the focus for discussion. First, what problems exist with the way budgeting is currently done? Second, what are the specific elements that constitute good budget practice? Finally, what are the advantages and disadvantages of alternative approaches to guidelines? Each of these questions was addressed in separate working sessions.

Participants in the symposium concurred that a number of problems exist with the way state and local governments are preparing and implementing their budgets. The problems they cited include the following:

* lack of long-term perspective,

* failure to integrate operating and capital budgets,

* unrealistic revenue forecasts,

* inadequate consideration of service delivery alternatives,

* lack of performance measures to assess results,

* inability to measure the cost of services and

* political pressures to maintain or increase service levels.

Many of the good budgetary practices identified in the second working session were solutions to the problems pinpointed in the earlier session. Moreover, a high degree of consensus emerged on the characteristics of good budgeting practice. Practices on which there was widespread agreement are:

* integration of long-term planning with the budget;

* establishment of measures for and on-going monitoring of performance;

* obtaining citizen and other stakeholder involvement early in the budget process;

* effective communication of goals, assumptions and tradeoffs to citizens and other stakeholders;

* provision of incentives and a sense of empowerment to managers and other government employees to implement effective practices and achieve goals; and

* incorporation of realistic revenue and expenditure forecasts.

Considerable debate occurred on the subject of budgetary guidelines the third major topic addressed in the symposium. Guidelines are, by definition, principles that define performance expectations. They take shape as criteria employed to meet desired results and may be established by law, by a profession (as with CPAs and lawyers) or by prevailing practice.

The third working session was intended to identify advantages and disadvantages of alternative approaches to guidelines representing varying degrees of external control. The types of guidelines ranged from those established internally by individual jurisdictions to more stringent standards imposed by an outside regulatory body. Most of the debate centered on an approach, somewhere between these two extremes, which would promote uniform guidelines yet encourage voluntary, not mandatory, compliance. Among the advantages noted for these types of guidelines is their ability to:

* provide greater comparability of budgetary data across jurisdictions,

* marshall support of elected officials,

* promote high quality and consistent information,

* serve as a check list for finance officers and

* offer greater flexibility than mandatory guidelines.

Disadvantages of voluntary, uniform budgetary guidelines cited by symposium discussants include:

* loss of local flexibility,

* difficulty in gaining widespread support,

* the potential for voluntary guidelines to become mandatory standards,

* unexpected or unintended outcomes and

* the difficulty of establishing guidelines for a process that is still evolving.

While no clear consensus emerged on the nature of budgetary guidelines, or even whether or not guidelines are appropriate in a budgetary environment, participants were generally receptive to further discussion of these topics.

Budgeting Task Force

To capitalize on the momentum that was created at the symposium, GFOA's Executive Board approved the formation of a national task force to further explore ways to improve state and local budgeting. The task force's charge is to develop specific recommendations on actions that could be taken to develop new approaches to budgeting. Its membership, listed in the accompanying sidebar, continues the diversity of interests and perspectives represented at the symposium and includes elected officials, budget and finance professionals, chief administrative officers, academics and representatives of the public finance industry. The national associations of state and local government shown on the adjacent list are represented on the task force and will be involved in developing task force recommendations. Initially, the role of the task force will be to:

1) affirm the need to improve state and local budgeting practices;

2) determine if budgetary guidelines are appropriate and, if so, what form they should take;

3) identify other actions that might be taken to improve state and local budgeting;

4) develop a plan, including suggested financing, to implement the task force's recommendations.

The task force is expected to issue its recommendations by end of the year. Its work represents the beginning of a much larger effort to develop recommended practices in a wide range of areas, including revenue and economic forecasting, operating budgets, strategic and financial planning, capital improvement planning and performance measurements (e.g., service efforts and accomplishments). It is the first step in reshaping state and local budgeting to fit the fiscal and political realities of the 90s and beyond.


Kevin Anderson, Senior Manager, Deloitte & Touche, Sacramento, California

David Bean, Director of Research, Governmental Accounting Standards Board

Neil Budnick, Senior Vice President/Director, Municipal Bond Investors Assurance Corporation

David Covintree, Director of Risk Management, Financial Guaranty Insurance Company

Claire Cohen, Executive Vice President, Fitch Investors Service

Philip Dearborn, Director of Government Finance Research, U.S. Advisory Commission on Intergovernmental Relations

Aahron Estis, Manager, KPMG Peat Marwick, Vienna, Virginia

Dall Forsythe, Lecturer in Public Policy, Kennedy School of Government, Harvard University

The Honorable Edward C. Goodhart, III, Township Supervisor, Manor Township, Pennsylvania

Timothy Grewe, Director of Financial Planning, City of Portland, Oregon

John Gross, Director of Finance, City of Aurora, Colorado Daniel Heimowitz, Executive Vice President, Moody's Investors Service

Hank Huckaby, Director, Office of Planning and Budget, State of Georgia

Lynn Kirkhofer, Assistant County Administrator, San Bernardino County, California

Richard Larkin, Managing Director, Standard & Poor's Corporation

Warren Likens, Business Administrator, Bucks County Schools Intermediate Unit No. 22, Doylestown, Pennsylvania

Thomas D. Lynch, Professor, Florida Atlantic University and President, American Society for Public Administration

Allen Proctor, Executive Director, New York State Financial Control Board

William Raftery, Controller, State of Wisconsin

Bruce Romer, City Manager, City of Rockville, Maryland

Ron Snell, Fiscal Program Director, National Conference of State Legislatures

The Honorable Paul Soglin, Mayor, City of Madison, Wisconsin

Andrea Tevlin, Budget and Research Director, City of Phoenix, Arizona

A. John Vogt, Assistant Director, Institute of Government, University of North Carolina at Chapel Hill

Karen Washabau, Director, Department of Planning & Budget, Commonwealth of Virginia

The Honorable Kay Whitmire, former mayor, City of Houston, Texas

Roberta Wilson, Director of Finance, Denver Water Department


Association of School Business Officials International

Advisory Commission on Intergovernmental Relations

American Society for Public Administration

Government Finance Officers Association

International City/County Management Association

National Association of Counties

National Association of State Auditors, Comptrollers, and Treasurers

National Association of State Budget Officers

National Association of Towns and Townships

National Conference of State Legislatures

National League of Cities

U.S. Conference of Mayors

Authors DENNIS STRACHOTA and PATRICIA TIGUE are, respectively, director of GFOA's Educational Services Center and manager with the GFOA's Government Finance Research Center.
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Author:Strachota, Dennis; Tigue, Patricia
Publication:Government Finance Review
Date:Aug 1, 1993
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