Wednesday, February 5, 2014

The Antithesis of Across-the-Board Budget Cuts

"Targeted cuts require a serious discussion of community values, relative benefits of different services, and long-term implications." - Moody's

"Making targeted cuts can demonstrate a more strategic approach to managing a fiscal crisis." - Moody's

"Across the board cuts spreads the pain evenly and also evenly spreads the mediocrity." - Budget Director for the State of Louisiana

In a recent article Across-the-Board Budget Cuts Punish the Efficient, Harvard Kennedy School Executive-Education Chair and Lecturer Robert D. Behn argues the fairness and efficiency of "across-the-board budget cuts." Behn states, "the problem with across-the-board budget cuts is not that they are unfair. For every possible budget cut, there exists an argument for it being, somehow, unfair to someone. The problem with across-the-board budget cuts is that they penalize the efficient."

Behn adds, "Even worse, across-the-board budget cuts reward the inefficient--both those that are incompetently inefficient and those who are cunningly so. Yet, legislators seem incapable of rewarding efficiency."

While we at the Center for Priority Based Budgeting (CPBB) agree that across-the-board budget cuts are, for some mystifying reason, still the scalpel of choice for many communities, examples abound of innovative and proactive communities who are implementing much more strategic and proactive budgeting methods.

We recently reported on how the City of Boulder, Colorado, has successfully implemented priority based budgeting (PBB) into their budget process (City of Boulder, CO Budget Built Upon Priority Based Budgeting). CPBB has successfully partnered with the City of Boulder in implementing PBB into their annual budget process for the last four years. 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 fourth consecutive year of budget development, Priority Based Budgeting is the framework for which all budget decisions are made."

Not only is priority based budgeting a far more strategic method of budgeting, but CRA's are now incorporating municipal fiscal stewardship into their assessments and, ultimately, a community's municipal bond rating! Take Douglas County, Nevada. Douglas County has been one of the most successful implementers, and now practitioners, of priority based budgeting. In fact, they were the first county in the nation to implement PBB.

In 2012, the County embarked on a priority based budgeting process. Through a multi-year effort, the County's bond rating was just recently adjusted to AA. Per the press release, "the rating upgrade is a significant event for the County and reflects recent efforts to implement several fiscal health practices, including long-range financial forecasting, revenue and expense stabilization and priority based budgeting." Read the full article Strong Municipal Bond Ratings Propelled by Priority Based Budgeting).

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.

Priority Based Budgeting has now been successfully implemented in over 60 local government
communities coast-to-coast. We take pride in our partnership with these CPBB communities in an effort to improve a community's fiscal health for the benefit of the entire community. 

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.
Keep an eye on the CPBB blog for further updates. Sign-up for our social media pages so you stay connected with TEAM CPBB!

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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.


"DATA VISUALIZATION" for Local Government

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