While the recession has been declared officially over by most economists, local governments continue to feel the impact of the 2008 global financial meltdown and housing crisis. Unlike downturns of the past, the current recovery looks much different from anything experienced before. It is clear many of us will never return to life as we knew it before the recession.

Today, local governments are facing a future shaped by fewer resources, reduced workforces, negative public opinion, and accelerated pressure for redesign and innovation in the delivery of public services. In this perfect storm of financial uncertainty, successful managers and officials must approach the business of running cities, villages and towns differently than in the past.

At the forefront of our efforts should be the critically important work of determining our community’s priorities, developing the financial discipline to best meet those priorities, and understanding and measuring the results. At a time when many local governments are expending all their efforts to simply keep the doors open and the lights on, looking at such a comprehensive approach to financial management may seem daunting. Yet, this is the type of work and accountability that citizens are demanding and that will eventually position us for financial health in the future.

The following steps draw upon the concepts of Priority Based Budgeting, an innovative approach identified by the International City/ County Management Association as a leading budgetary practice. It offers a road map of a comprehensive budgetary management program, which local governments can follow.

Understand your mission and set priorities.

It is critical that we understand the vision of the community, what we are in business to do, what the public expects and how results are evaluated, and then budget accordingly. If programs or services are offered that do not contribute to your mission, eliminate them or allow another entity to offer the service.

Take a more comprehensive approach to the budget.

• Devote more time to revenue analysis. Understand your revenues and what factors drive revenue streams at a micro, rather than a macro, level. If you know more about what factors impact revenues, you can improve your ability to foresee changes before they happen.
• Understand the true cost of delivering a program or service. Make sure that direct costs, as well as all the administrative and indirect costs, are identified.
• Align budgets to the spending plan. It sounds simple, but inflated budgets in a time of flat or declining revenues could lead to unnecessary staff reductions, program eliminations and service reductions. Do a better job with salary and benefit projections, don’t budget for contingencies that have a slim chance of occurring and don’t pad the budget to offer too comfortable a cushion for projects/services.
• Expand your view by examining the impact of spending five years into the future. Focusing on the financial picture one year at a time creates tunnel vision and prevents us from seeing potential future impacts that might cause us to pause and make a different choice.
• Establish cash reserves. Maintain a level of reserved cash to fund services during a natural disaster or other emergency, even when finances are tight. Establish reserves through a written policy and monitor reserve balances to ensure they are maintained.
• Be transparent. For the benefit of elected officials, staff and the public, find creative, clear and non-technical ways to portray the budget so that it is understandable and demonstrates the financial picture over the next five to 10 years.
• Don’t just balance your budget, spend within your means. Develop a philosophy that the organization will always spend within its means. Ensure that ongoing operational expenses are funded through ongoing revenue streams. Using onetime monies, such as fund balances or grants, to support ongoing operations is an unsustainable practice.
• Make hard decisions. If you understand your mission, have clearly-established priorities and the budget still must be reduced, take steps to eliminate programs you may still be offering that have a lower priority to the organization/community and focus on those that accomplish your vision/mission. Most governments offer hundreds of services; there are bound to be some that are not as important in terms of achieving our results, even in the traditionally untouchable areas of public safety. This will help avoid across the board cuts, which only make a city mediocre at delivering everything it does rather than excelling at delivering those programs that are clearly of a higher priority.

The “perfect storm” that has plagued local governments these past five years has clearly identified the need for a new approach to budgeting that will force governments to live within their means and restore the faith of the public in our government institutions. We can look to this as something negative that has happened to us, or more appropriately, step up to the challenge to do things differently. Let’s choose the latter! ^{1 Center for Priority Based Budgeting, Denver, Colo.}

Cheryl Hilvert is the director for the Center for Management Strategies at the ICMA. The center assists local governments through education and technical assistance in proven innovative strategies, including Priority Based Budgeting to increase organizational efficiency and effectiveness. For more information, visit icma.org/management strategies.