Thursday, January 15, 2015

Town of Bourne, MA Exploring Different Method To Budgeting through Priority Based Budgeting

This is a way to really get to know your municipality as to where your dollars are going.” Town Administrator Thomas Guerino

Looking for a better way to analyze and develop Bourne’s annual budget, town administrator Thomas M. Guerino has introduced town leaders to a different approach to the budgeting process.

Mr. Guerino said that the new process, known as priority based budgeting, is a way of “drilling deeper” to determine where budget cuts would be most effective. He said the system would not be a part of this year’s budget planning process, but he would like to incorporate it in the near future.

“If we can implement this over the next two to three years, it will become a matter of course on how we do business, and I think you’ll see that we are able to really hone down on expenditures,” he said.

Mr. Guerino said he first became aware of priority based budgeting when he attended a town managers conference in Seattle, Washington, last year. Members of the Bourne Board of Selectmen, Bourne Finance Committee and the Bourne School Committee were introduced to the new budgeting approach Tuesday night, January 13, during the first part of a two-night workshop at Bourne Middle School.

The workshop was taught by Christopher E. Fabian, co-founder of the Lakewood, Colorado-based Center for Priority Based Budgeting. Mr. Fabian and his partner, John M. Johnson, founded the organization back in 2010.

Mr. Fabian explained that there is a five-step process to priority based budgeting that begins with the simple question: Why is a given organization, in this case the Town of Bourne, in business? In essence, what would be the result of the town not being in business? Subsequent questions include how to determine if the town is achieving its desired results; what to do to achieve those results and how much does it cost; and which programs and services have the greatest impact on the results the town is trying to achieve?

The questions are applied to each department and each program or service provided by that department. A score is then applied to that offering. After the department does it own self-review, programs go through a peer review process that results in a final composite score. With all the programs scored, a four-line bar graph is then created which displays the number of programs having the highest impact on the town’s desired results down to those having the lowest impact. Decisions can then be made as to which programs are crucial and which may have become obsolete.

Mr. Fabian said that priority based budgeting is a more effective alternative to measures towns often resort to when crafting a budget, including implementing an across-the-board cut. Admittedly, the advantage to an across-the-board cut is that no one department feels more pain than another. It is also easier than attempting to justify why one department or program should get more money than another, he said.

However, an across-the-board cut on a municipal level would be the same as a homeowner applying a similar cut to their household expenses. The example he drew would be cutting the amount paid to a monthly mortgage bill by the same amount as the Netflix bill. That, he suggested, is not something the average homeowner would do.

"If we would never do it in our own house, why do we do it in our organizations?” he said.

The idea behind priority based budgeting is to determine which services provided by the town are “mortgage” expenses versus “Netflix.”

“What we’re trying to do with priority based budgeting is understand your best investments, understand the Netflix, where you can perhaps rechannel some of the resources to something that’s getting better results,” he said.

Mr. Fabian said the process does allow for identifying programs or services that are mandated by either the federal or state government, or the town itself. In those cases, if the mandated program falls within the category of lowest impact, the suggestion would be to seek an outside, independent source of funding, he said.

He also noted that priority based budgeting can reveal misperceptions that all the programs offered by a single department, such as police and fire, are of highest priority. He mentioned programs in both Boulder, Colorado, and Chandler, Arizona, that the police chiefs in each city felt were not achieving the desired results. Funding for each was rerouted to other programs, he said.

Mr. Guerino said he does not know the cost of the program yet, but “we’re not talking huge money.” Whatever the cost is, however, it will be shared by all the town’s departments. He admitted that it is a very involved process, and that it would take anywhere from three to five years before it is up and running fully. During the first several years, it would be a continual process of evaluation. After that, department heads would examine programs on more of a quarterly basis to see how services are matching up with expectations and needs, he said.

“This is a way to really get to know your municipality as to where your dollars are going,” he said.

This article was originally published in

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Monday, January 12, 2015

What Makes Local Government Managers (and their Council) Sleep Well at Night

"What assumptions do we hold so firmly and that so calcify our thinking to convince us that changing fiscal conditions represent our crisis?"


"...the crisis facing local governments is not fiscal. It's the choices we make to address the fiscal challenges."

In a recent Governing article, national experts in government management and policy Katherine Barrett and Richard Greene co-authored the article What Keeps Government Managers Up at Night. In this piece, the authors discussed polling senior city and county leaders at the recent International City/County Management Association (ICMA) Annual Meeting last Fall.

Barrett and Greene asked several questions to approximately 200 of the nations top local government leadership. These include, "When you think of the future financial stability of your government, what worries you the most?” And question two asked, “What routes to the future financial stability of your government are you most optimistic about?

Barrett and Greene go on to say, "We got 127 responses. While we aren’t pretending that this was any kind of scientific survey, the results seemed more than sensible and worth sharing. To begin, the biggest worry in the crowd pertained to revenues. Even though about half the states have seen their revenues return to pre-recessionary levels, the number is far smaller among municipalities. In fact, 1 in 4 who sent us their responses indicated that oncoming revenue problems and shortfalls are significant sources of concern to them.

As you would expect, a fair number of attendees are placing their faith in a steady return of the economy to set things right again and put revenues neatly in line with expenditures. But the theory of rising tides lifting all boats wasn’t enough to keep the audience from coming up with a schooner full of concerns.

Other major elements mentioned by our respondents regarding revenue instability included decreasing state and federal funding, overreliance on property taxes given the potential of the housing market to crash again, and increasing demands for new programs.

But that’s just the beginning of the story. Many attendees were concerned about escalating employee costs, largely from pensions and other post-employment benefits. A good number of respondents told us that they were worried about pressing infrastructure needs and costs -- more pointed us in that direction than those who brought up health costs, the next most commonly mentioned item. Finally, though they described the phenomenon in a variety of ways, many respondents were concerned about rising citizen expectations in their cities for additional services now that the recession is allegedly over.

Inasmuch as we’ve spent the majority of our adult lives researching and reporting about state and local management, we found it particularly intriguing to note that the causes for optimism cited by the group largely fell into the area of managerial changes. More than 1 in 5 suggested that they were hanging their hopes on a variety of ways to prioritize services, control spending and inaugurate efficiency improvements. Tom McCarty, county administrator of Eau Claire County, Wis., was one of a number of people who recommended a focus on results-based performance measures to decide priorities. Others suggested that shared services and local government consortiums “will,” in the words of Caitlin Humrickhouse, a consultant at Baker Tilly Virchow Krause LLP, “provide a new operating environment that can help relieve some fiscal pressures.”

While we at the Center for Priority Based Budgeting certainly understand why so many local government managers remain sleep deprived (the challenges facing today's local governments are massive), what's so interesting about Barrett and Greene's findings is the revelation that the nightmare of the great recession still plagues so many of us. We have not yet awakened to the possibility that our crisis is not a fiscal crisis, but instead a crisis in the way we frame and define the challenges before our communities - the way we redefine the very role of local government. This is what keeps us at the Center for Priority Based Budgeting awake all night - working to solve this problem so that organizations like the nearly eighty who have implemented Priority Based Budgeting, their elected officials leadership, staff and citizens can rest a little easier.

These city and county leaders are able to rest because of the tools they use to utilize economic forecasting, economic scenario building and budget prioritization. Otherwise known as Fiscal Health and Wellness through Priority Based Budgeting.

The Crisis is Not Fiscal

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.

The budget book, the certified annual financial report (CAFR), and reports out of the financial system are great tools for finance professionals, but they prove insufficient to clearly and simply answer the question: is the organization in "good shape" or is there trouble on the horizon? Furthermore, in a world of rapidly changing economic variables, the answer to that question today might not be the answer to that question tomorrow.

First and foremost, local governments must be clear and transparent about what truly is their picture of fiscal health. Communicating that picture simply and clearly without volumes of numbers, spreadsheets, tables, and an endless series of charts is frankly a challenge that has plagued financial managers for years. If local governments are going to be able to demonstrate financial reality internally to elected officials and staff, and externally to residents, they have to find better ways to make fiscal situations understandable and transparent to everyone.

The key breakthrough in this area has been "data visualization" which allows for the easiest way of creating a common view, a common perspective that is simple and that everybody can agree on. Part of the reason that financial problems can be obscured or hidden is because many times decisions makers have no idea how to understand finances to begin with. 

Data Visualization allows us to create a common view of the financial situation that is simple to understand and interpret, describes the clearly defined variables that can impact the financial situation, allows for "live" and "real-time" changes in these variables, and offers the ability for "dynamic" modeling of "what-if" scenarios - this is how transparency is created, and this is the essential first component of the paradigm shift required.

                                                                                  CPBB "Fiscal Health" Espresso Blast

Innovative and proactive communities are implementing much more strategic and proactive budgeting methods

The second component of the paradigm shift is changing the way that resource allocation discussions take place. Financial problems are also effectively hidden and obscured because the budget process allows for it. Line item budgeting, incremental budgeting, zero-based budgeting were each attempts to better understand "how" money is spent, but these methods fail to address a more fundamental question: "why" money is spent.

The question of whether or not public dollars are being used effectively is not answerable with the tools currently available to elected officials, decision makers, staff and citizens.

Priority Based Budgeting provides a comprehensive review of the entire organization, identifying every program offered, identifying the costs of every program offered, evaluating the relevance of every program offered on the basis of the community's priorities, and ultimately guiding elected and appointed officials to the policy questions they can answer with the information gained from the Priority Based Budgeting process, such as:
  • What is the local government uniquely qualified to provide, offering the maximum benefit to citizens for the tax dollars they pay?
  • What is the community truly mandated to provide? What does it cost to fulfill those mandates?
  • What programs are most appropriate to fund by establishing or increasing user-fees?
  • What programs are most appropriate for establishing partnerships with other community service providers?
  • What services might the local government consider “getting out of the business” of providing?
  • Where are there apparent overlaps and redundancies in a community because several entities are providing similar services?
  • Where is the local government potentially competing against private businesses within its own community?
Only the most innovative public entities have made strides in changing their structural approach to long-term fiscal health. And with the economy showing some signs of improvement, many will continue to operate as if to preserve the status quo and vainly wish for increased revenue. This approach represents a philosophy of wishful thinking that will only lead to failure.

The "New Wave" represents efficiency and innovation in this Era of Local Government. The new wave represents a golden opportunity for local government communities. Finding creative, clear, and transparent ways to demonstrate what the next 5 to 10 years might look like is a must if local government professionals are going to address fiscal concerns.  

All too often, local governments are unable to make sound, timely decisions regarding investing in new resources, starting new programs, or initiating major capital projects because elected officials, local government managers, and staff members are paralyzed by the uncertainty of whether they actually have enough money to appropriate for these purposes.

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.  

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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.