The budget process can often prove to be an arduous task, especially during difficult economic times. While there is a limited amount of money that cities use within the state budget, a large majority of the funds that are used by cities is received at the local level. These funds must be budgeted annually according to O.C.G.A. § 36-81-3 and used as prescribed as much as possible. Though amendments can be made to the annual budget, city leaders should attempt as realistically as possible to anticipate the revenues to be generated and specifically budget them for the year. This article, containing multiple citations from publications of the Government Finance Officers Association (GFOA), will help to answer questions about how best to create a budget that can provide the greatest benefit to the residents of your city.
What are the first steps to creating a successful budget?
The first step to creating a successful budget is determining what goals the city has for the future. In order to determine these goals, the city leaders must first know the condition of the city currently. According to a National Advisory Council on State and Local Budgeting (NACSLB) document entitled, “Best Practices in Public Budgeting,” “Goals are developed after undertaking an assessment of community conditions and other external factors and a review of the internal operations of the government, including its services, capital assets and management practices” (Principle 1).”
This assessment must include a realistic examination of the needs of the residents and stakeholders of the city. Once these evaluative measures have been completed, city leaders must then work to set broad ranging goals for all aspects of the city. This process is made easier through effective community planning, but the objectives of comprehensive community plans must be reviewed at the beginning of each budget cycle to ensure that the goals of the plan continue to coincide with the goals of the stakeholders, residents and city leaders.
Once my city’s goals are reviewed and established, what is the next step in the process?
Following the establishment of long-term, broad goals, it is important to create opportunities for the city to reach these goals. This can be done by establishing a framework of policies and procedures that will lead to the completion of the objectives that have been set forth. The NACSLB document referenced above makes these statements regarding this step of the budgeting process,
While broad goals set the general direction of a government, it is the policies, plans, and programs that define how the government will go about accomplishing these goals. As such, the development of policies and programs must explicitly consider how they contribute to the achievement of the government’s broad goals. Policy and program goals should relate, where appropriate, to broad goals. Measures should be developed to determine the progress being made by the government in achieving goals (Principle 2).
During this stage of the process, it is important to begin looking at ways to take long-term, broad goals and create from them a number of smaller objectives that can be realized quickly along the path to the larger goals. This diffusion will allow city staff members to be able to more easily create measures to ensure that the city stays on the path to reaching its goals.
How does my city financially plan for these goals?
The next step in the budgeting process is the creation of financial plans that align with the goals that were established within step one. These financial plans should be long ranging to ensure that the city will be able to stay on track with meeting its goals. This is a difficult process for some government leaders due to terms in offices. These plans often look forward up to 20 years while city officials serve terms of office that are on average four years in length. Elected officials must be able to look beyond their term and see the investments that they can make in the future of their city.
Principle 3 of the “Best Practices in Budgeting” document states, “A financial plan and budget that moves toward achievement of goals, within the constraints of available resources, should be prepared and adopted.” It continues by explaining that, “Development of a long-range financial plan is essential to ensure that the programs, services and capital assets are affordable over the long run. Through the financial planning process, decision makers are able to better understand the long-term financial implications of current and proposed policies, programs and assumptions and decide on a course of action to achieve its goals.”
The creation of these long-term financial plans makes annual budgeting easier because a guiding framework has already been established. While fiscal conditions over the short-term may vary, it is unlikely that the long-term fiscal outlook will differ dramatically except is cases of major changes in the composition of the city. These major changes can most likely be avoided through proper comprehensive planning.
How does my city develop our required annual budget?
Annual budget development should be based upon policies that are established prior to work of the budget document. These policies should be reviewed from time to time to ensure that they prescribe the efficient and effective processes; however, they should remain a source of long-term guidance for the budgetary process. The NACSLB document states,
A government should establish an administrative structure that facilitates the preparation and approval of a budget in a timely manner. Procedures should be established for ensuring coordination of the budget process. A process is also needed to develop and communicate the policies and guidelines that will guide budget preparation. In order for the budget to be adopted in a timely manner, processes should be developed to assist stakeholders in understanding tradeoffs and to help decision-makers make choices among available options. The processes should include reporting to, communicating with, involving and obtaining the support of stakeholders (Element 8).
The government leaders who approve a final annual budget have an enormous responsibility to many different stakeholders of the city. City leaders must accurately anticipate revenues and appropriate those scarce resources in such a way to ensure to the greatest benefit possible for all of the stakeholders. This can only be done by following objective policies that are in place prior to the budgeting cycle. These policies should include interactive meetings with all stakeholder groups to ensure that long-term goals are being pursued through the short-term budget.
How should we go about evaluating our progress toward our long term goals?
Once the budget document is approved, the process is far from complete. The budget must be administered in such a way to ensure that objectives are being attained. This requires diligent work on the part of city staff and leaders every day to monitor the use of funds. Principle 4 of the NACSLB document states, “Program and financial performance should be continually evaluated, and adjustments made, to encourage progress toward achieving goals.” This monitoring will lead to the preparation of the budget for the next fiscal year as well as to the development of other long-term goals.
Where can we obtain a copy of the NACSLB document entitled “Best Practices in Public Budgeting?”
This document is available free of charge at the GFOA website. For more information about local government budgeting in the state of Georgia, please access the GMA publication entitled, “A Budget Guide for Georgia's Municipalities.”