Analyze This! Priority Based Budgeting w/ ELGL, CPBB + South Jordan City, UT!

"Priority-driven-budgeting is a common sense, strategic alternative to budgeting."   - South Jordan City Mayor David Alvord

ELGL and CPBB are proud to partner in an innovative webinar training series, "I Want to be Your Analyst." This series, consisting of a monthly blog and training webinar, is intended to provide case studies, introductions to unique analytic tools, and expertise into the hands of all local government (emerging) leaders.

 
This ten part series will pair proven CPBB concepts and tools with one of our partner local government communities who are actively implementing (or have implemented) our innovative trends. This will provide key insights into how communities actually utilize these tools.

The January Training Webinar

With I Want to be Your Analyst, local government professionals will gain an introduction and key
insights into the CPBB war chest of cutting-edge online tools. On January 13th at noon PST, join ELGL, CPBB and South Jordan City Executive Leadership, including City Manager Gary Whatcott, CFO Sunil Naidu and Budget Director Don Tingey as we explore and discuss Priority Based Budgeting (PBB). In this training webinar, we'll specifically discuss:

• What is Priority Based Budgeting
• How to implement PBB
• Advanced implementation (Online Priority Based Budgeting)
• Successes and challenges in how South Jordan City implemented PBB

Register here!

Message from South Jordan City Mayor David Alvord

Some of you may know that in preparing for the 2015-2016 fiscal year budget the City Council, City Manager, senior staff and I engaged in a new priorities based budgeting format. Priority-driven-budgeting is a common sense, strategic alternative to budgeting. The philosophy of priority driven budgeting is that resources should be allocated according to how effectively a program or service achieves the goals and objectives that are of greatest value to the community. As those needs are identified and prioritized through discussion, a very clear picture of where to allocate resources emerges. As a result the City will once again have a balanced budget in 2015-2016.

One of the budget priorities for me since I became interested in local government has been seeing  that taxes reflect our actual needs. I am pleased to announce that after working with our City Council and city staff, that the 2015-2016 budget will include further reductions in tax revenue, meaning that the City will be taking less taxes. This accomplishment could not have happened without the cooperation of our excellent staff and employees.  

Priority-based budgeting also requires elected officials to make fiscal decisions which benefit the long term financial health of the City. To that end, the City will be paying off $4,000,000 in debt from the bond used to purchase the Mulligan’s property. Reducing our debts improves our already well regarded credit ratings and improves the overall fiscal health of South Jordan.

Purpose of Priority Based Budgeting

South Jordan’s residents and elected officials disagree about a wide variety of political positions. That’s part of the political freedoms we share in the United States. Our shared commitment to efficient governance, however, will focus all of us on working together to find solutions that benefit our common good. Thank you for the privilege of serving as your Mayor. It’s great to live in South Jordan!

Webinar Training Prep

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 100 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.

 

Register here!  January 13th at noon PST, join ELGL, CPBB and South Jordan City Executive Leadership as we explore and discuss priority based budgeting, the power of the online priority based budgeting tools and a case study of PBB implementation from South Jordan City, Utah!

City of Kalamazoo, MI Evolves the Way They "See, Think & Touch" the City's Budget!

"The Priority Based Budgeting process is the tool which injects and integrates our strategic planning into our everyday activities." -  Kalamazoo City Manager James Ritsema

In March of this year, we wrote about two organizations who were empowering citizens with civic engagement through priority based budgeting. One of these organizations we wrote about was the City of Kalamazoo, Michigan.

We wrote, At the Center for Priority Based Budgeting (CPBB), we're constantly impressed and amazed at just how innovative local government communities can be. Through our concepts of Fiscal Health and Wellness through Priority Based Budgeting, we've partnered with communities to define exactly what the community is in business to achieve and then prioritize scarce resources (tax dollars) to meet those community results. This work has allowed nearly 100 cities, counties, school districts and special districts to completely redefine their community.

When implementing the priority based budgeting (PBB) process, civic leaders have the option of engaging residents in an effort to define the results the community wishes to achieve.... or not. The citizen engagement component to this process can be time consuming and challenging, but often lead to a more robust set of community results that are fully supported by the community residents.

The City of Kalamazoo, Michigan, is deep in the process of implementing priority based budgeting while engaging with citizens in an effort to collaboratively define the future of the community. This program, Imagine Kalamazoo, is the city's citizen engagement platform where citizens can weigh in and help define the future of Kalamazoo.

Priority Based Budgeting in Kalamazoo 2.0

Just last week, the City of Kalamazoo released their proposed budget for fiscal year 2016-2017. This is the first budget for the city since implementing priority based budgeting (Kalamazoo implemented PBB in 2015 after their budget was developed and approved).

In the Fiscal Year 2016 - 2017 Proposed Budget Transmittal Letter, City Manager James Ritsema

writes: "Priority-Based Budgeting (PBB): the administration has instituted Priority-Based Budgeting for the first time in the Proposed Fiscal Year 2016 - 17 Budget. This will evolve the way that we see, think and “touch” the City’s budget. Instead of abstract line items, compartmentalized, bureau-centric thinking, and incremental budget cuts, PBB provides a tool that refocuses decision-making around well-defined programs, which are prioritized to maximize scarce resources towards achieving the Community’s desired and required results, including a safe community, effective transportation systems, environmental stewardship, and so on.

PBB also involves continuous improvement in efficiencies by way of new technologies, better organization, and leveraging partnerships or handing off functions to other overlapping entities, in order to lower costs and improve outcomes. In 2016, the City will be identifying meaningful and accurate measurements to ensure that high-priority programs are achieving results. The City is retasking an analyst position in the Management Services Department to serve as our new Budget Manager, a position which will provide transformational leadership to fully realize the promise of Priority Based Budgeting, as well as promoting best practices in citywide budgeting."  

City Manager Ritsema also discusses how to bring "visions and values of our organizational leadership and community into focus in the form of strategic plans." The following is quoted from the "From a "Priority-Driven" to "Vision-Driven" Trajectory" section of his Proposed Budget Transmittal Letter.

From a “Priorities-Driven” to “Vision-Driven” Trajectory

Our budget is the natural result of continued negotiation between the expected role that the City plays in promoting and preserving the quality of life that our citizens desire and deserve, in the context of the realities presented by our economic and cultural environment. In order that our activities remain fresh and relevant, and our budgeting process propels continuous improvement in our outcomes, we need to constantly reground ourselves in the vision and values of our organizational leadership and the community at large. The City utilizes a number of collaborative bodies and processes to bring these visions into focus in the form of strategic plans. 

In 2016, the City will be engaging all of its planning resources to “reset” the City’s vision under the auspices of the Imagine Kalamazoo 2025 project. As the name suggests, the result of this process will be a new shared community vision, expressed through the many strategic plans that the above graphic depicts.

This upcoming year presents us with an opportunity to move beyond transitional management tactics and fully engage the organization and the environment with our new strategic tools. This includes identifying sustainable revenue for ongoing operations and programs, building on the high-performance organization model that is sparked with innovation and fueled by an ethos of continuous improvement. The Priority Based Budgeting process is the tool which injects and integrates our strategic planning into our everyday activities, by aligning the allocation of resources with the vision and values of the Imagine Kalamazoo 2025 initiative.  

One of the things that stands out to us about Kalamazoo's implementation is their complete dedication to infusing PBB into the culture of the City, and the fabric of the community. When we first met their implementation team, City Manager Jim Ritsema brought his senior leadership team along with City Council members in a passenger van, traveling all the way to Ann Arbor for a Michigan Municipal League day-long training. From that moment, it was clear that their dedication level was extremely high, and so were there expectations for how this process could help transform the community.

Led by Laura Lam, Community Planning and Development Director, Patsy Moore, Deputy City Manager, and Jeff Chamberlain, Deputy City Manager, the City successfully implemented one of the most comprehensive and extensive citizen engagement initiatives associated with PBB. Chief Financial Officer Tom Skrobola led the City's Fiscal Health modeling initiative, and then turned around to lead the PBB process. And all throughout the process, the City's elected officials were involved and engaged, participating in the strategy and guidance of the process.

Hats off to Kalamazoo for all that they endeavored to achieve, and their dramatic success in executing such a comprehensive implementation in a single year. We at CPBB are proud to be associated with your tremendous leadership in local government!

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

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.

  

 

CPBB Fiscal Mission Control Center 

 

Analyze This! CPBB Program Costing with ELGL + Shayne Kavanagh of GFOA

"Connecting costs and outcomes associated with specific services is critical to communicating value to citizens."

 

"Program Budgeting is at the forefront of GFOA's priorities right now!"

 

ELGL and CPBB are proud to partner in an innovative webinar training series, "I Want to be Your Analyst." This series, consisting of a monthly blog and training webinar, is intended to provide case studies, introductions to unique analytic tools, and expertise into the hands of all local government (emerging) leaders.

This ten part series will pair proven CPBB concepts and tools with one of our partner local government communities who are actively implementing (or have implemented) our innovative trends. This will provide key insights into how communities actually utilize these tools.

The November Training Webinar

With I Want to be Your Analyst, local government professionals will gain an introduction and key

insights into the CPBB war chest of cutting-edge online tools. On November 18^th at noon PST, join ELGL, CPBB and  Senior Manager of Research Shayne Kavanagh with the Government Finance Officers Association (GFOA) as we explore and discuss the concept of Program Costing. Register here!

It goes without saying that the vast majority of local government's No. 1 priority is to establish a vibrant and productive community by establishing and delivering great results to its citizens. This outcome is typically met by efficient resource utilization and delivering high-quality services that exceed citizen expectations.

Sounds simple, right? But how exactly do you connect available resources, costs, and outcomes associated with specific services to communicating value (results) to citizens? 

Does your local government specifically know, for example, the true cost of your curbside recycling program (including all fees, rates and charges)? With what data would you work with, if you were tasked with analyzing outsourcing (or in-sourcing) vehicle maintenance? What if your organization was approached with a proposal to consolidate inspections services with another jurisdiction - what program data would you have on hand to evaluate and execute the right decision?

Assuming detailed program-by-program level cost data actually exists within your organization, where would you find it? In the budget, on a separate spreadsheet in the Budget Director's or Mayor's office? And again assuming this data exists, what else could you do with it? 

Could you make ready comparisons to other public-sector, or private sector service providers (to evaluate the efficiency or the appropriate sourcing of your programs); could you bring departments into the process of understanding and communicating better what they do, and how much it costs, on a program level; could you see clearly how your workforce is associated with programs (do you have retirement eligible staff serving a particular program, and are you aware of how you'll address succession planning?, for example); and will it allow you to transition your approach (or the department's approach) from line-item budgeting to program budgeting?

Data-Focused Decisions

The truth is that  very few governments are able to meet their No. 1 priority because they don't have the hard data required to make smart and transparent decisions throughout their organization.

Nor do they have the internal structure, a fiscal command center, where the critical data flows together and provides a visual platform for intelligent, transparent, data-focused decisions to be made.

To make smart, proactive decisions, municipal leaders need a fiscal command center for data-creation, data analytics and data-driven decision making. This command center presents an intuitive user-interface to identify the programs and services your organization provides, and translates your line-item budget into a program budget. The development of a program inventory and program costs is the foundational data-set to bring clarity and understanding, data-focused decision-making, in a time when it’s never been so crucial. And it’s never before been so easy to do…

As GFOA’s Shayne Kavanagh enthusiastically relayed to us, “program costing is at the forefront of GFOA’s priorities right now” – and CPBB has been doing Program Inventory and Program Costing in nearly 100 organizations since 2009!

According to GFOA: “Program budgeting is an underlying assumption to many of GFOA's budgeting best practices, and being able to connect costs and outcomes associated with specific services is critical to communicating value to citizens. However, very few governments actually do this fundamental piece well for a number of reasons, including poor definition of programs and technical challenges in accounting for programs.”

Make no mistake, program costing is not easy! As so many leaders know, engaging in the exercise itself is often the result of controversial questions around “sourcing”, assessing fees and charges as they measure against the “true cost of doing business”, privatization, running government “like a business”, public-private partnerships, efficiency analysis and financial transparency.

And yet, therein lay the most exciting realization! Just as GFOA has identified: if you can measure Program Costs, you can answer these questions, and so many more!

The only way to get to the answer of questions like "can we do this program more efficiently," or "are we the best source to provide this service," or "are we recovering the costs for providing this service, both direct and indirect costs"  requires a complete understanding of what the program is, and how much it costs.

The key is a user-friendly, web-based Program Inventory & Program Costing user-interface. It links directly with your line-item budget, translates your line-item budget into a program budget, flows through your payroll data, and generates easy to update Program Costs. Your worksheets are protected and stored on the cloud, providing web accessibility to your organization!

We at the CPBB have seen it again and again – the way to diffuse politics, to temper emotionally-driven decision making in favor of data-focused decision making, can come about with great data. And Program Costing is a center-piece to data-driven decision making!

We at the CPBB have spent our careers delving into the kinds of controversial discussions that have, until now, polarized politicians – whether to outsource, to insource, to raise fees, to lower taxes, to privatize or partner or divest the organization of a service.

We’ve been attracted to these contentious debates NOT because we’re crazy, but because the answers to these questions are so important to get RIGHT! Or, to put it another way, CPBB’s founders designed tools specifically to resolve these kinds of debates, because throughout our careers, like so many of you, we experienced the emotional struggles and misunderstandings that accompany data-less debate!

“Painless program costing” presents an intuitive user-interface to identify the programs and services your organization provides, and translate your line-item budget into a program budget. The development of a program inventory and program costs is the foundational data-set to bring clarity and understanding, data-focused decision-making in a time when it’s never been so crucial. And it’s never before been so easy to do…

Introducing CPBB’s web-based Program Inventory and Program Costing Tool! 

We created this innovative new web tool because our partner organizations wanted an easy to use, web-based tool that would easily connect to your financial system and give you:

• a tool that allows you to evaluate the fees, rates and charges that you have on a program-by-program basis,
• a tool that allows you to make ready comparisons to other public-sector, or private sector service providers, to the extent that you want to evaluate the efficiency or the appropriate sourcing of your programs,
• a tool that brings departments into the process of understanding and communicating better what they do, and how much it costs, on a program level,
• a tool that can allow you to see clearly how your workforce is associated with programs (do you have retirement eligible staff serving a particular program, and are you aware of how you'll address succession planning?, for example),
• and ultimately a tool that helps transition your approach (or the department's approach) from line-item budgeting to program budgeting

The GFOA Best Practice for "Measuring the the Full Cost of Government Service" was created over a decade ago... At a time when this data-driven practice, this "evolution" from line-item budgeting is so valuable, so vital to our community's success, we wanted a Tool to make this far easier. We wanted to make it accessible. We wanted it in everybody's hands!

Register here!  November 18th at noon PST, join ELGL, CPBB and GFOA Senior Manager of Research Shayne Kavanagh as we explore and discuss the concept of program costing and the program cost analyzer tool!

A “New Lens” on Fiscal Transparency – The Promise of GFOA’s Best Practice of Program Budgeting

"There are many reasons to consider adopting program budgeting, but perhaps the most important is its ability to create a more transparent budget. A program budget shows exactly what the government does and how much it costs." This quote is from an article recently published in GFOA's October 2015 Government Finance Review authored by CPBB's Chris Fabian and Jon Johnson in addition to GFOA's Shayne Kavanagh.

Program budgeting has long been a cornerstone of best practices in public budgeting. Simply put, a program budget organizes a budget into service areas, rather than just, departments, objects-of-expenditure, and line items. A program budget is more meaningful to the governing board and the public because programs are directly relevant to how they experience public services – budget discussions about police patrols and tree services are more meaningful than discussions about salaries, benefit, commodity, and contractual service costs. Program budgets also make trade-offs between different spending options clear. If the budget for police patrols is to be increased, than a trade-off discussion about resource reallocation could be approached (ie the budget of another program, like tree services, could be proposed to offset the costs).  Service goals and performance measures can also be associated with programs, making for a much richer conversation about the costs and benefits of different resource allocation strategies.

Given these merits, it’s surprising that program budgeting is still not as commonplace as it should be. As of a 2011 survey, only about one-third of the winners of GFOA’s Distinguished Budget Presentation Award used program budgeting. It is safe to assume that program budgeting is even less common among other local governments (although becoming more common among high performing local governments).

So, why is program budgeting not a common practice even if it is a best practice? Certainly, part of the reason is that the increased clarity brought about by program budgeting can also bring about increased conflict. When the tree service program budget is reduced in favor or increasing the police patrol budget, the community’s tree-aficionados will come to out to public meetings to make their displeasure known. However, if only the salary line item in the police budget goes up and the salary line item in the public works budget goes down, it may not draw the same level of public attention. However, as budgets tighten, public skepticism of government’s motivations increases, and the need for higher quality public services goes up, obscuring tough decisions behind a veil of line items is no longer a tenable strategy. Program budgeting is as needed as it ever was – in fact, program budgeting is more needed than ever.

Program Budgeting 101: A "How to Guide"

Financial constraints have forced many local governments to take a hard look at the services they offer. A fundamental step is to develop an inventory all programs in order to clarify the breadth of services it provides and, ideally, inform all stakeholders (i.e. staff, elected officials, constituents) exactly what the organization “does”.   How often do we engage in long and stressful conversations about “line-items” or about a total department budget?  Are these conversations as meaningful as they could be if we were focused on individual programs?  When we prioritize or when we have to “cut”, discussions about which department is a priority or which line item to reduce are sometimes subjective and circular (i.e. they just go “round and round”).  It is hard to gain agreement or even consensus at these levels. When confronted with the question “Is Police more important that Parks?” or “Is Public Works more important than the Library?”, are those conversations productive?  Do we all really know what “Public Works” is?  The inventory provides the basis for better, more meaningful, discussions about what services are more of a priority and how to understand the budget at a “programmatic” level than just viewing it from the line item or “org chart” perspective.

But what is a program?  Programs are  a set of related activities or tasks intended to produce a desired result. The objective is to identify something that is in between the “department or division” level and the “line item or task” level.  Think of a program inventory as a menu of services.  If you went to a restaurant and the menu offered only “Entrees, Side Dishes and Beverages”, it would be impossible to order a meal (like at the department or division level)  Similarly if the menu listed the full recipes for everything (ingredients and all), it would be difficult to order as well (perhaps like line items or tasks!)  Is the Police Department or the Public Works department “one thing”.  Of course not!  Each offers a large variety of programs and services that we don’t articular very clearly at all.  While the staff in the department know what they do, staff in other departments, elected officials and especially citizens do not know or understand the number of things each department provides. 

Here are some things to consider when identifying programs

·      Do you “advertise” you provide a service? -  if your webpage, departmental brochures, telephone directory or other published materials represent you offer a program, then it needs to be included in your program inventory.  This is the first place to look when preparing a list of programs.  If you say you do something, then it’s clearly something that needs to be listed

·      Does someone “tell you” to provide the service? -  if there is a legislative requirement mandated by a level of government “above you” or if there is a section of your own code,  local ordinance or an officially adopted policy that states you have to provide a specific service, then this also represents a program to be included in your program inventory. 

·      Is someone willing to pay a fee or offer a grant to provide the service? -  if the ultimate end user of a service or a granting agency is willing to cover all or part of the cost to provide a program, then this specific service should be established as a “stand-alone” program in your program inventory.

·      Are you offering the service to a particular group or demographic?  - if the program is meant to serve or benefit or specific constituency (residents, businesses, visitors, neighborhoods, etc.) or population (preschoolers; youth, adults, seniors, non-residents, etc.) then it would be beneficial to list these types of things as “stand-alone” programs

·      Where to “to what” are you providing the service?  - does the service directly impact a building or a vehicle; a park or a pool; a street or a storm sewer; an outdoor trail or an indoor recreation center?   For a better understanding of the variety and complexity of the services offered, being specific about the type of asset (as opposed to the generic term “infrastructure”) or the where the activity takes place (air quality is above ground; sewer line repair is below ground; median maintenance is on the ground; trail maintenance is outdoors; exercise classes are indoors, etc.)

·      What “type” of service is being provided? – differentiated between activities that are “preventative” or “proactive” verses “responsive” or “reactive” could be helpful in comprehended the nature of the program.  Fire Safety Education or Community Policing are more “preventative” and are offered for a different reason that “Fire Suppression” or “Patrol Response to Emergency Calls” which are more about “reactive” and protective.

·      Is there a public agency or a private sector business that does something similar?-   to respond to questions about partnerships, shared services, outsourcing or privatization, it’s critical we can articulate where services are the same and where we are not comparing “apples to apples”.  Making sure programs are clearly identified can better ensure these conversations are supported with objective data and not subjective assumptions.

In order to translate your line item into an effective program budget, the first tip is to characterize and categorize the various types of line items in your budget, and decide which of these costs are best expressed in terms of ongoing programs and services.

·      Tip #1: Distinguish between “ongoing (operational)” costs, and “one-time” costs – as you consider how you want to frame conversations using program budgets rather than line-item budgets, it’s helpful to portray your organization’s ongoing program costs based on your organization’s ongoing, operational costs (salaries, benefits, insurance, office supplies, materials, etc.). While programs absolutely incur one-time costs (capital improvements, unique projects, contracted services), differentiating the one-time, more sporadic costs will help you create program costs that have an ongoing, reliable base cost, with the potential for fluctuations of a one-time nature. Especially as your organization uses program budgeting for the purposes of discussing ongoing efficiency, or sourcing comparisons, be clear what are the ongoing costs of a program as distinct from the one-time costs.

With your line items categorized as either ongoing or one-time in nature, the second tip is to organize your costs further in terms of “personnel-related” versus “non-personnel related” costs. An easy way to imagine this is to consider any cost that can be associated with a person, or a position – these are “personnel-related” costs. Everything else that can’t be associated with a person or a position is non-personnel.

·      Tip #2: Distinguish between “personnel” and “non-personnel” costs (and associate personnel costs with the people and positions within your organization)– the purpose of this step is to develop “fully-loaded personnel costs” for each person or position within your organization. Sometimes organizations have compiled this information within their Human Resources department for the purposes of compensation studies, or to show employees how they are valued in the organization beyond their salaries. As you associate every personnel-related cost to an actual person or position, you have taken the biggest step in program budgeting (as most public service organizations, being service driven, are driven mostly by the costs of personnel).

With the program inventory that you’ve created, the next task is simple: associate each person (or position) with the programs they support. Recognizing that each person may support more than a single program through the year, allow for an individual to be spread to multiple programs.

·      Tip 3: Associate people (positions) with the programs they serve - How do you allocate people to one or more programs? Some organizations support a culture where employees track their working hours associated with the programs they serve. In many organizations that do not track their time, consider leading employees through a simple exercise in which, given the programs identified in their program inventory, on a percentage basis, how would they answer the following questions:

o   How much of your time, during a given week do you spend on these programs?

o   How much of your time, during a given month do you spend on these programs?

o   On average, during a given year, how much of your time is spent on these programs?

o   Are any of the programs you serve impacted by seasonal, or other sporadic issues?

And finally, with all personnel costs now associated with programs, the only costs you have remaining to allocate are your non-personnel costs. With this final tip, you will have successfully translated your line-item budget to a program budget!

·      Tip #4: Associate (allocate) non-personnel costs to programs – in many organizations, since personnel related costs are often the highest percentage of a program’s cost, it isn’t necessary to be overly laborious in the approach to allocating non-personnel related costs. Be reasonable. Be accurate. Be as precise as possible. But recognize there is a point of limiting return, and less value in spending too much time considering how to cost-allocate a less costly, non-personnel line item from your budget. And at the same time, consider appropriate allocation methodologies for the line-item cost you are considering. Is it appropriate to allocate evenly based on the number of FTE in a program? Is it appropriate to directly allocate certain costs to certain programs? These are important questions, and cost-allocation methodology is an important consideration.

At this point, your organization will have successfully, accurately translated your line-item budget into a program budget. But don’t stop here. Up until this point, we’ve solely focused on the costing side of the equation; it is here, with the “true cost of doing business” established, that it is most interesting to explore revenues and how programs recover their costs through fees, charges for service and grants. This is what we refer to as Program Revenue.

·      Tip #5: Associate “program revenues” with programs – traditionally, programs offered by the organization are funded through the general revenue streams being collected from entire community that the agency serves.  Property Taxes, Sales Taxes Franchise Fees, Fines, and Investment Earnings are all examples of revenue sources that the legislative body allocates to pay for the services being provided.  There are instances, however, where there is a revenue source that is specifically meant to offset the cost of offering a particular program – these are considered to be “program revenues”.  In an era where we are eager to seek more diversified sources of revenue, Charges and Fees for Service as well as Grants are examples of ways we can have the specific user or beneficiary of the service help defray the cost of provided it.  It’s important that there is a clear understanding of those programs for which general government revenues are not used to fund the program but that there is a specific revenue stream that partially or fully offsets the cost to provide it. When developing the budget, it needs to be clear that making chances to programs that have a specially associated revenue stream will warrant a different type of discussion.  Reducing the costs of a program with a fee or grant, won’t impact the total budget  - if the program goes away so do the revenues. When developing the costs of a program, it is essential that any revenue source that is meant to recover the costs of that program is clearly identified

Applications – With Program Budgeting, a Whole World of Opportunity Opens up

Program budgeting is an underlying assumption to many of GFOA's budgeting best practices, and being able to connect costs and outcomes associated with specific services is critical to communicating value to citizens.

As we’ve outlined in this article, while program budgeting methodology may not be so entirely daunting, the kinds of conversations central to program budgeting, can be! As so many leaders know, engaging in the exercise itself is often the result of controversial questions around “sourcing”, assessing fees and charges as they measure against the “true cost of doing business”, privatization, running government “like a business”, public-private partnerships, efficiency analysis and financial transparency.

And yet, therein lay the most exciting realization! If you can measure Program costs, you can answer these questions.

Case Study #1: Program Budgeting in the City of Cincinnati: Confronted with the 'new normal' of flat or declining revenues, spiraling health care and pension costs, persistent structural imbalances, and a $34 million deficit, the City of Cincinnati embarked upon Priority Based Budgeting an alternative to the traditional incremental budgeting approach that automatically makes this year's budget the basis for next year's spending plan. A primary goal of the process was to to engage a large and diverse segment of the community, creating an open and transparent window into every program and service offered by the City, a thorough description of each service, and most interestingly, complete openness as to the cost of each program. The City’s elected officials held to the belief that the very legitimacy of their plan to identify $34 million worth of savings, depended on an authentic attempt to offer citizens a completely clear perspective on how resources were currently allocated. Ultimately, the City identified over 500 individual programs, totaling $972million dollars. And to achieve their objective of transparency, the City posted their Program Inventory, complete with Program Costs on the City’s website and in their budget document (the complete program inventory is accessible here). The resounding response from citizens was that they’d never been given such access to program-level data, thus fulfilling the City’s objective of true transparency.

Case Study #2: Program Budgeting in the City of Shawnee, Kansas: A comprehensive review of existing services, or ‘programs’, was conducted in the City of Shawnee, Kansas, including allocating costs to each Program (based on the 2014 Budget). The City launched into this effort (in conjunction with a Priority Based Budgeting process) to reassess spending, and ensure sound, long-term funding decisions – to view a list and description of each city program, please visit the City’s Program Inventory page. As in Cincinnati, city leaders were intent on extending information to citizens to open up a dialogue about the full breadth and scope of services offered, and the cost of these services, and built an interactive online tool to allow citizens to drill-down into each of the City’s departments to a division level, and ultimately down to a program level to see every program offered.

Case Study #3: Program Budgeting in Broward County, Florida: The largest full-service, fully accredited public safety agency in the United States - the $700 million Broward County Sheriff’s Office (BSO) in south Florida - provides full–time law enforcement services in 14 Broward County cities and towns.  As the local economy tightened, the leadership among several of the cities came together to raise an important question: are we getting a fair deal for the services we pay for from the County, or would we be better off forming our own local law-enforcement agencies?

Program Budgeting was key to this analysis. Both the County and the towns and cities came to the table with a common objective to be fair, to transparently analyze their service contract, and agreed to an approach to costing each program that led to a decrease in the overall cost of service provided by the County, and increased trust and satisfaction from the cities.

Conclusions

It’s been demonstrated again and again – the way to diffuse politics, to temper emotionally driven decision making in favor of data-focused decision making, can come about with great, accurate data. Program Budgeting is a centerpiece to data-driven decision making.  Many of you have spent your careers delving into the kinds of controversial discussions that have, until now, polarized decision-makers – whether to outsource, to insource, to raise fees, to lower taxes, to privatize or partner or divest the organization of a service.

In your field, we’re attracted to these contentious debates NOT because we’re crazy, but because the answers to these questions are so important to get RIGHT! Or, to put it another way, the authors of this article present methodology and tools specifically to resolve these kinds of debates, because throughout our careers, like so many of you, we experienced the emotional struggles and misunderstandings that accompany data-less debate!

The development of a program inventory and program costs is the foundational data-set to bring clarity and understanding, data-focused decision-making in a time when it’s never been so crucial.

There are some clear objectives in undertaking the development of a program inventory which always should be communicated clearly to the departments as develop these listings. The major reasons for creating a comprehensive listing of all services (both externally and internally focused) is that it:

·      Offers a better understanding of  “what we do” for staff, administration, elected officials, citizens and other community stakeholders;

·       Offers a framework to better understand the types of resources needed to support the things that we do

• Offers a better way to evaluate the fees, rates and charges that you assess on a program-by-program basis,
• Offers a more reliable way to make ready comparisons to other public-sector, or private sector service providers, to the extent that you want to evaluate the efficiency or the appropriate sourcing of your programs,
• Offers a tool that allows you to see more clearly how your workforce is associated with programs and integrate succession planning more specifically in the budget process

·      Offers a valuable tool to use when faced with budgetary choices about how limited funds are to be allocated to provide services

·      And ultimately, program budgeting offers a way to discuss the budget at a “programmatic” rather than a “line item” level.

The GFOA Best Practice for "Measuring the Full Cost of Government Service" was created over a decade ago... At a time when this data-driven practice, this "evolution" from line-item budgeting is so valuable, so vital to our community's success, let program budgeting be the way to drive better resource allocation decisions in your organization.

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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.