Bringing Local Government Budgeting Up to the Speed of Change

A budget is an unfiltered statement of a government’s intent and capabilities. It’s been the norm to build them around past expenditure categories and numbers, making adjustments according to expected revenue streams.

Recent years have made it clear that a “past as prologue” approach can fall short in the face of novel challenges. Extreme heat events, floods, large wildfires and powerful storms are occurring more often than in the past, and in communities that have not previously experienced them. A dangerous viral pandemic had long been predicted, but 100 years had passed since the Spanish flu and public health wasn’t a funding priority for decades.

Artificial intelligence (AI) has come of age, opening the door to the transformation of jobs, industry and education. Its development is “as fundamental as the creation of the microprocessor, the personal computer, the Internet and the mobile phone,” Bill Gates has written — but the innovations and changes it brings will come even faster.

How can local governments stay a step ahead in a future of surprises? The Government Finance Officers Association (GFOA) is urging them to reconsider their budgeting processes.

In January 2022, GFOA launched a “Rethinking Budgeting” initiative in partnership with the International City/County Management Association and the National League of Cities. Basing budgets on historical precedent “is not well suited to handle big-picture and/or emerging issues,” warned the first white paper from the initiative.

Missing Feedback Loop

Governments don’t have the feedback loop that private-sector companies do, says Shayne Kavanagh, GFOA’s senior manager of research. A product or service sells and makes a profit, or it doesn’t. Local government investments can go on indefinitely without such feedback, another liability of a “backward-looking” approach to budgeting.

Technology can give local governments greater power to track outcomes from expenditures, gather public input on budgeting priorities and offer transparency that builds public trust.

Wise financial decisions depend on institutional capacity, says Kavanagh, and in 2023 institutions are equal parts electrons and atoms. There are values encoded in the software systems on which they run, and GFOA would like for these values to be explicit and to support a forward-looking and resilient budgeting process.

GFOA is actively engaging with the technology sector, hoping to encourage the development of tools that match the needs of government finance. Software won’t prevent local leaders from making off-the-cuff decisions, Kavanagh says, but it can provide a consistent account of how funds are being spent and what expenditures are accomplishing.

“It’s an institutionalized, repeatable way of making budget priorities visible,” he says, “as opposed to the old way — implicit in line items and departments, but no one could really tell you what is being spent.”

Jesse Muñiz, the associate director of budget and finance for Albuquerque, N.M.’s City Council, has first-hand experience of the ripple effect from better data practices.

The Right Data

Muñiz reviews and analyzes the budget submitted every other year to the council. One of the biggest challenges, he says, is providing enough information for elected officials to be comfortable with their budget decisions.

“A couple of years ago, we started an initiative to revamp the performance measures in our budget book,” says Muñiz. The measures in place were more like data points — important data points — but they didn’t reflect whether the city’s goals were being achieved.

The council addressed the lack of context by going to departments, asking them about the core services they provide and working out ways to measure what the services accomplish. There was initial resistance to these conversations out of a sense that another layer of work was being added.

The tension began to resolve when it was made clear this wasn’t an audit or a search for “gotcha” moments. On the contrary, outcome tracking could give departments a way to show the council the results of their work to defend or expand their funding.

“If there is one thing I would have done differently, I would have started talking to the departments a good six months in advance of trying to implement this,” says Muñiz.

These efforts led to the development of a public dashboard which lays out Albuquerque’s year-to-year objectives and provides detailed accounting of program goals, progress toward them and key indicators of this progress.

In Fiscal Year 2023, the city began a pilot project with priority-based budgeting software. The public safety departments were selected for the pilot, because their concerns demand the most attention from the council and because there are unique challenges in sharing information about the sector.

The new software created an opportunity to dig deeper into this area, says Muñiz, offering something beyond an accounting baseline, filtering high-level data into a more decipherable view. “City Council can start to see units you could never see in the budget, like the mounted unit or the air support unit; if you start to see services at that level, you can see where we are doing well and where we need to pivot.”

Better measurement of outcomes and greater transparency are to the good even if they show “red” trends, Muñiz believes. “Now you understand where you need to improve.”

Trust Deficit

Several software companies that have engaged with GFOA — Envisio, Euna and Balancing Act by Polco — recently published a white paper, A Roadmap for Real Collaboration in Budgeting. In it, they explore the potential for technology to connect budget processes, provide data that better reflects the priorities of residents, and inform strategic planning and outcome tracking.

Balancing Act, which develops online budget simulation tools for local governments, recently merged with Polco, a company that specializes in data science and web-based surveys and benchmarking. There’s a need for a stronger connection between budget and planning, says Balancing Act President Chris Adams. Insight into public sentiment and values that relate to government spending is critical to this, but it’s in short supply.

This disconnect has consequences, says Mike Bell, co-founder and CEO of Envisio. “Lack of trust is the biggest problem confronting local government today, and in our world the only way to improve trust is to be more transparent.” (Albuquerque’s dashboard was built using the Envisio platform.)

Budget transparency isn’t expected from private companies (not beyond stockholders at least). It’s a different matter in the public sector, says Martin Lind, vice president, business development and strategic partnerships at Euna Solutions.

Local governments aren’t typically able to provide a “360-degree” view of budgeting to the public, but Lind and his colleagues are working with GFOA to remedy that. Euna’s cloud-based Questica software moves budgets past spreadsheets, offering a multidimensional, cross-departmental resource that allows data-driven budgeting and integrates with Balancing Act’s budget simulation capabilities.

None of these technologies, nor those developed by other companies working with GFOA, will mean that local governments no longer face tough decisions about spending, or that these decisions won’t sometimes be out of sync with public desires. But they do provide opportunities for “massively better” communication to residents about the challenges and trade-offs behind them, says Adams.

Aimee Kaslik is chief strategy officer for the city of Denton, Texas. As far as she’s concerned, the “voice of the customer” is integral to budget strategy and planning.

A Full Circle

Kaslik came to Denton last December. “There were efforts to have performance measurement and data to understand what was happening operationally in place, but they were spotty — a few departments excelled at it, others not so much,” she says.

Some departments weren’t using software at all; some were using programs that weren’t built for the purpose for which they were being used. Some data was being collected “for the sake of collecting data” without relevance to desired outcomes, according to Kaslik.

One of Kaslik’s first moves was to acquire a software resource (in this case, the one from Bell’s company) that could serve as a single point for performance metrics and strategic plans. She began a series of workshops with departments to home in on what they should be measuring to help them tell their stories.
Denton created a public dashboard for the strategic plan, and Kaslik is now hearing from both City Council members and residents. “Apparently, they look at that plan pretty frequently.”

It's not possible to achieve the full benefits of such technology if the technology itself is seen as a solution, Kaslik says. “The first mistake is not having that bigger picture of the organization and making decisions based on a single department’s needs.” Denton works to avoid that mistake through a data governance committee.

Kaslik came to Denton after more than two decades with the nearby city of Irving and brought considerable budget experience to her new role as chief strategy officer. The emphasis “Rethinking Budgeting” places on marrying budget, strategic planning and public input makes sense to her.

“It’s a full circle, one informing the other and helping guide the direction of the organization.”