"The Congressional Budget Office expects the economy to grow at an even slower rate than it has in the past."
"Get comfortable because the nation's economic output won't pick up any time soon. "
What the CBO’s Latest Predictions Mean for States and Localities, author Liz Farmer states, "For those who have wondered whether we've reached a "new normal," or whether these years of slow economic growth are just a blip on the radar, the Congressional Budget Office (CBO) has officially called it. Its new economic and budget outlook contains a sobering prognosis: Get comfortable because the nation's economic output won't pick up any time soon."
She goes on to write, "The recent CBO report anticipates that output will grow slower than it has in the past..... State budgets have reflected that weakness. Accounting for inflation, this fiscal year's total general fund spending of $748 billion is still 2 percent below the pre-recession peak, according to the National Association of State Budget Officers (NASBO). Even not accounting for inflation, this year's 3.1 percent spending increase over 2014 is far below the 5.5 percent year-over-year average recorded over the 37 years NASBO has been conducting its budget survey.
So what does all this mean for state and local governments as the 114th session of Congress kicks
Additionally, Watchdog.org recently published another piece on the CBO report titled, State, local governments face massive, growing budget gaps in 2015 and beyond. Author Eric Boehm states, "As the calendar flips to 2015, fiscal pressures will continue to tax the budgets of state and local governments.
Projections released this month by the Government Accountability Office show that state and local governments will see current gaps between revenues and expenditures continue to widen in 2015 and beyond. In aggregate, those governments are already underwater, and the amount of red ink will continue to grow over the next 50 years, unless changes are made, the GAO says.
Closing the gap will require aggregate budget cuts or tax increases of 18 percent."
"Translation: governments will continue to stare down the question of cutting budgets or raising taxes."
Disrupting the "New Normal"
But are governments budget options strictly limited to cutting budgets or raising taxes? While we at the Center for Priority Based Budgeting (CPBB) agree that tax increases are the default mechanism for revenue increases and across-the-board budget cuts are, for some mystifying reason, still the scalpel of choice for many communities, examples abound of innovative and proactive cities and counties who are implementing much more strategic and proactive budgeting methods.
What assumptions do we hold so firmly and that so calcify our thinking to convince us that changing fiscal conditions represent our crisis? Would higher revenues and lower expenses allow us to operate crisis free? Or does the true crisis exist when, despite our fiscal realities, we don’t focus on those priorities and objectives that ensure the success of our communities?"
Perhaps the biggest concern we face is not a fiscal crisis. Fiscal trends and conditions are by and large out of our control and simply represent a reality with which we need to cope. The real crisis on our hands is whether our organizations have the capabilities to address current fiscal realities and still meet the objectives of government and the expectations of our constituents.
We recently reported on how the City of Boulder, Colorado, has successfully implemented priority based budgeting (PBB) into their budget process for their fifth straight fiscal year (High Five to Boulder, CO)! The city adopted PBB in 2010. During this time, the city has become a "leading practitioner" of PBB and utilizes this process in all of their short and long-term financial decisions. Per Boulder's Annual Budget Policy Document, "Now integrated into its fifth consecutive year of budget development, Priority Based Budgeting is "the cornerstone of the city's budget process," and "the framework within which all budget decisions are made."
We also have the Town of Christiansburg, VA (A Unique Approach to Budgeting). Per the Town's website, "Since late 2010, the Town of Christiansburg has been working with the Center for Priority-Based Budgeting, based in Denver, CO, on a radically different budget process that evaluates and prioritizes the programs and services provided by the town. Like so many other municipalities across the country, Christiansburg enjoyed many years of prosperous economic conditions. Most capital projects were paid for in-full and residents have long enjoyed a relatively low real estate tax rate for decades. However, the economic downturn of the past few years had a significant impact on revenues and the town found itself in a budget deficit situation.
When faced with a budget deficit, the common approach in many localities is to take “emergency-room measures,” such as across-the-board cuts, pushing back replacement schedules for vehicles and construction equipment, or implementing furlough days or even layoffs. These steps, while effective in cutting spending in the short-term, can have long-term implications on a town’s ability to provide the level and type of service citizens desire."
Local governments continue to face previously unknown financial and political pressures as they struggle to develop meaningful and fiscally prudent budgets. Revenues are at best stable (or even declining), while demand for services continues to increase. Citizens believe that government budgets are "fat" and that there is ample waste to "cut". Civic leaders more often than not focus on "across the board" cuts that spreads the pain equally - but also encourages mediocrity rather than excellence.
Priority Based Budgeting is a unique and innovative approach being used by local governments across the Country to match available resources with community priorities, provide information to elected officials that lead to better informed decisions, meaningfully engage citizens in the budgeting process and, finally, escape the traditional routine of basing "new" budgets on revisions to the "old" budget. This holistic approach helps to provide elected officials and other decision-makers with a "new lens" through which to frame better-informed financial and budgeting decisions and helps ensure that a community is able to identify and preserve those programs and services that are most highly valued.
The underlying philosophy of priority based budgeting is about how a government entity should invest resources to meet its stated objectives. It helps us to better articulate why the services we offer exist, what price we pay for them, and, consequently, what value they offer citizens. The principles associated with this philosophy of priority based budgeting are:
• Prioritize Services. Priority based budgeting evaluates the relative importance of individual programs and services rather than entire departments. It is distinguished by prioritizing the services a government provides, one versus another.
• Do the Important Things Well. Cut Back on the Rest. In a time of revenue decline, a traditional budget process often attempts to continue funding all the same programs it funded last year, albeit at a reduced level (e.g. across-the-board budget cuts). Priority based budgeting identifies the services that offer the highest value and continues to provide funding for them, while reducing service levels, divesting, or potentially eliminating lower value services.
• Question Past Patterns of Spending. An incremental budget process doesn’t seriously question the spending decisions made in years past. Priority based budgeting puts all the money on the table to encourage more creative conversations about services.
• Spend Within the Organization’s Means. Priority based budgeting starts with the revenue available to the government, rather than last year’s expenditures, as the basis for decision making.
• Know the True Cost of Doing Business. Focusing on the full costs of programs ensures that funding decisions are based on the true cost of providing a service.
• Provide Transparency of Community Priorities. When budget decisions are based on a well-defined set of community priorities, the government’s aims are not left open to interpretation.
• Provide Transparency of Service Impact. In traditional budgets, it is often not entirely clear how funded services make a real difference in the lives of citizens. Under priority based budgeting, the focus is on the results the service produces for achieving community priorities.
• Demand Accountability for Results. Traditional budgets focus on accountability for staying within spending limits. Beyond this, priority based budgeting demands accountability for results that were the basis for a service’s budget allocation.
The core CPBB concepts of Fiscal Health and Wellness through Priority Based Budgeting are truly inspiring a new wave of municipal fiscal stewardship. A complete revolution in how local governments utilize their limited resources to the benefit of the communities they serve.
This "New Wave," the fundamental paradigm shift in municipal financial stewardship, must be accepted if local governments are to be financially viable and able to create the types of communities their citizens are proud to call home.
Local government communities must consider a completely different perspective. In order to achieve success and accept the challenges that are ahead, we must see more clearly how to manage, use, and optimize resources in a much different way than has been done in the past.
This new environment demands a new (economic) vision of the future. And that vision is created through priority based budgeting.
And don't forget! The Priority Based Budgeting Resource Alignment Diagnostic Tool is going web-based! We've already built the basic model, but are now invited leading local government priority based budgeting implementers to assist us in crafting the final product. With the launch of this powerful new public finance technology tool, we now have 10 communities already signed up to define the future of on-line local government budgeting! If your community is interested in contributing to the final development of this disruptive new tool, and being among the first to utilize on-line priority based budgeting, contact us!
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If you're thinking of jumping into the world of Fiscal Health and Wellness through Priority Based Budgeting we would certainly like to be part of your efforts! Contact us to schedule a free webinar and identify the best CPBB service option(s) to meet your organization's particular needs.