Challenges facing local governments today literally requires a new way to see. It’s as if our vision has been blurred by the extraordinary stress of managing in this complex economic environment. Whether attempting to rebuild in a post-recession climate, or persevering through another year of stagnating or declining revenues, the challenge remains: how to allocate scarce resources to achieve our community’s highest priorities. Through the new lens of priority-based budgeting, which provides powerful insights, local governments are making significant breakthroughs.
The June 2008 edition of PM magazine introduced this new budgeting process, which unveiled a way for local governments to spend within their means by continuously focusing on the results most relevant to their communities and the programs that influence those results to the highest possible degree.
The concept involved leveraging each tax dollar so programs with the greatest impact on results were distinguished from programs with a lesser influence. Four years later, priority-based budgeting has proven to be successful in more than 30 communities that have chosen to follow this initiative. Communities that have embraced it have redefined the notion of return on investment—it’s a “return on results,” a societal return, where each dollar is evaluated in terms of its influence on the community.
As more communities began reaping the anticipated benefits of this new way of seeing, however, something unexpected also happened. Surprising and new conversations began to emerge. The data assembled by communities to help evaluate their programs’ overall priority opened up fascinating revelations about the programs themselves, all of which has created a vast new perspective.
Putting the scoring criteria to use, in particular the criteria having less to do with the program’s influence on results and more to do with additional reasons that programs are relevant to the community, raises such questions as: Are the programs mandated? Are there other entities providing a similar service, do they pay for themselves?
Here are more intriguing questions:
And these were just the beginning of the new conversations created by looking through this new budgeting lens.
Priority-based budgeting enables local governments to truly see more clearly which programs are of the highest relevance. The wealth of data about individual programs obtained through the program scoring process also causes endless new conversations about programs to occur. All will contribute to the local government’s ability to allocate its resources to its highest priorities and focus on delivering high-quality services that reflect what the community expects from it.
One of the criteria in addition to community results against which a program’s priority is evaluated is whether or not that program is mandated to be provided. For most organizations that are striving to balance their budget in order to address fiscal reality, simply uttering the word mandate strikes a note of terror and inflicts immediate paralysis.
How often in budget meetings do we hear the words: “It’s mandated, we have no choice”? Sometimes this is applied to a program and oftentimes to an entire department. At that moment, this program (or department) is off the table for discussion in terms of its continued level of funding.
Wouldn’t it be fantastic to have a conversation about those mysterious and sacred mandated programs, including questions like: What are they exactly? How much do we spend to provide them? How important are they to our community? What does the mandate truly require?
These conversations are now occurring in local governments that have embraced the new budgeting system. The process recognizes that a mandate is a critical reason for offering a program and should be a differentiator in terms of that program’s level of importance, but it should not be used as a get-out-of-jail-free card. The process also recognizes that there are varying degrees of mandate that a local government is dealing with, which are taken into account as each program is evaluated.
To be considered a mandate, there must be written evidence of a formally adopted action by an official governing body or agency that calls for the program to be provided. Once that is established, the program is then evaluated against the degree of that mandate, that is, whether the program is required to be offered by:
By understanding the degree of mandate associated with each program, including the criterion of no mandate, the local government can begin to clearly make a distinction between those requirements imposed by a higher authority, which are more difficult to change, and those mandates that are truly self-imposed and much less difficult to change. It can also see how much it is spending on highly mandated programs contrasted with the cost of those that are self-imposed.
For priority-based budgeting implementers, there is clearly a new lens through which to study programs that have previously been out of view because of the belief there is no choice and thus no discussion. Surprisingly, when evaluating mandates at the program level and requiring evidence of what the mandate truly says, most local governments have discovered that what they are mandated to provide is far less than they believed.
Imagine identifying all the programs a local government offers and prioritizing them from highest to lowest in terms of importance to the community. Then, being able to explore the degree of mandate associated with each program and to uncover a host of opportunities for policy discussions about mandated programs.
For programs that are highly mandated (federal or state legislation, city charter, or related) but are of low relevance or importance to the community, communities can now discuss whether they are potentially over-delivering on these programs based on what the statute actually requires.
State law, for example, requires Colorado counties to issue vehicle license plates, but Jefferson County evaluated this program using the priority budgeting process and found it to be of low importance in terms of achieving that county’s stated results.
In evaluating the exact wording of the mandate, it was clear that the only requirement was to issue the license plates. The statute said nothing about offering that service in seven convenient locations across the county with a wait time of five minutes or less.
Where previous conversations about this mandated program were off the table, now there can be a conversation on the level of service required to meet the letter of the law and how resources can be either shifted to programs that are of higher importance to the community or reduced to help the local government balance its budget.
The process also allows for the separation between programs that are mandated by a higher level of government and programs that are required because the local government chooses to operate an enterprise that involves regulatory compliance measures.
Programs that have a regulatory compliance component are not mandated in the true sense of the word since the local government could opt not to operate that enterprise entirely and eliminate the need for the regulatory programs. In most local governments, for example, there is no mandate from above to operate an airport, provide wastewater treatment, or operate a water utility.
While there are programs that then have to be offered to address regulatory compliance issues established by an external regulatory agency, these could be eliminated entirely if the community decided to cease operation. To represent that an airport, solid-waste disposal site, or a water utility is federally mandated in most communities is not accurate. If these types of enterprises are determined to be of a low priority to the community, the mandated card simply can’t be played, and the local government should seriously discuss whether or not to continue operating these enterprises at all.
Finally, what about programs that, at best, have a self-imposed mandate (i.e., local legislation) or adopted policies and practices? For programs that have been evaluated through priority-based budgeting as a low priority to the community, isn’t it worth discussing whether or not that self-imposed requirement should be lifted?
Having recently implemented the new budgeting process, Billings, Montana, is now looking at programs identified as a low priority to its community. It is revisiting local ordinances or adopted practices that have been in place a long time but now may be considered antiquated or irrelevant to the community as it exists today.
Data gleaned will help officials focus on just those low-priority programs with a self-imposed mandate. It will also help determine if the resources being devoted to them are better used elsewhere or if eliminating the program and the self-imposed mandate can help them more effectively balance their budget.
Another evaluation criterion used in priority-based budgeting is the degree of reliance the community has to provide a particular program. Too often, the perception is that there are no other options available for residents, businesses, or visitors to receive a particular service except through the local government they pay taxes to support. If budget cuts require programs to be eliminated, those constituents would be left high and dry.
In these times of fiscal constraint, wouldn’t it be beneficial to talk about programs for which there might be alternatives available so that constituents could still avail themselves of these services, without relying entirely on the limited resources of the local government?
Inarguably, a local government should be the only game in town for many programs. It’s preferable not to give residents a choice as to whom they call to patrol the streets, arrest criminals, collect taxes, or install traffic lights.
But imagine if residents could call anyone to fix that pothole in front of their houses or even do it themselves? Is the city or county the only way someone can take a yoga class, play softball, rent a DVD, participate in an after-school program, have yard- waste removed, or obtain an inoculation?
In determining a program’s overall importance, it seems logical to consider the degree of reliance the community has on the local government and evaluate specifically whether:
With this information at a program level, a local government can talk about the level of dependency the community really has on it to provide specific services, and if there are other options, aggressively explore those opportunities. Think of the conversations that could arise with such questions as: Who else offers something similar? Are there local or regional partnership opportunities to explore? Should we even be in this business if someone else offers it? Are we providing something for free that others are charging for?
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With every level of government and most nonprofit agencies struggling to address declining revenue streams, looking for opportunities to partner to provide services seems to be a win-win proposition. In an era where taxpayers are concerned about the costliness of duplicated and redundant services, being able to identify ways to consolidate programs and share in their delivery is simply common sense.
With the data collected through the program-scoring process in priority-based budgeting, local governments can clearly see where these partnering opportunities exist and then actively pursue those conversations—putting cost-effective service delivery ahead of retaining total control. Adjoining cities, counties, school districts, and special districts can consider consolidating such services as fleet maintenance, information technology, facility maintenance, bomb squads, K-9 units, dispatch, internal audit, recreation programs, and building inspections to name a few.
Partnering with civic organizations to provide after-school programs, welfare programs, and senior programs, as well as sponsoring parades, festivals, fireworks, movies in the park, and other events that bring the community together also provide ways to conserve limited resources without sacrificing programs.
What about those programs for which a private-sector provider has been identified? These are areas truly worth exploring to ensure that the local government is indeed the right service provider and is not in competition with private businesses, especially if one of the community’s stated objectives is to stimulate the local economy.
There needs to be a critical conversation about programs that are offered by the private sector and are also a low priority for the community. These are truly areas where limited resources could be saved and the program turned over to—or at least provided in partnership with—local business.
Even if the local government determines it wishes to continue offering these programs, it’s a sure bet the private sector is not offering them free of charge. At the minimum, there should be a fee that recovers their cost.
For most local governments, it has become a question not of what we want to provide but rather, what can we afford to provide. Simply raising taxes to cover increased costs to offer a program much less add programs is not the answer taxpayers are looking for.
A critical discussion these days surrounds how programs should be paid for—general taxes levied on the community or fees for services charged to the end user? In other words, to whom should we send the bill?
The priority-based budgeting process identifies programs along with their associated costs. It also documents any program revenues, including fees for services, grants, or assessments that are specifically charged to recoup the cost of offering that service. The evaluation criteria allows the local government to identify which programs have some form of full or partial cost recovery and to what level.
This information allows communities to not waste time in budget reduction conversations by considering programs that already experience a substantial level of cost recovery. Reducing or eliminating such programs may successfully reduce expenditures but the revenues also disappear, and the community is back to square one in terms of balancing the budget.
Having the detailed information at the program level in priority-based budgeting allows for a variety of rich conversations among policymakers with such questions as: Are we covering the full cost of the program with the fee being charged and if not, why not? Is it appropriate to charge fees for certain programs? If the fee revenue decreases or the grant funding disappears, should we continue to fund that program at the same level as before?
For programs identified by the process as a low priority, budget discussions can explore several options. Where cost recoupment is appropriate, it seems reasonable to look at fees for services in order to continue offering these programs.
Where a local government knows a low-priority program is at best self-imposed and that there are private businesses offering a similar service, wouldn’t it be obvious to strongly consider charging the end user the program’s full cost, including administrative and overhead costs, in order for the program to continue to be offered?
Some communities have also identified how broad a constituency each program serves, differentiating between those that benefit the entire community versus those that benefit only a small constituency. For these programs, especially ones that don’t advance the community’s goals, shouldn’t the local government at least discuss charging the small group of users for the service instead of funding it with general tax dollars paid by the entire community?
ICMA’s Center for Management Strategies provides education and technical assistance on leading practices in local government management, including the priority-based budgeting model. For more information on the center, visit http://icma.org/en/results/management_strategies/home, or contact Cheryl Hilvert at firstname.lastname@example.org.
It somehow seems fitting that author Henry Miller once wrote that “One’s destination is never a place, but a new way of seeing things.” Miller once lived in Big Sur, which is near the city of Monterey, California, and one of the pioneer implementers of priority-based budgeting.
We in local government are currently under such stress that we long for a destination when the economy recovers, when our resources are abundant, and there is less pressure to find more.
The new lens of priority-based budgeting makes it possible