Thursday, April 30, 2015

What Are the Most Important Questions in (Local) Government?

"While politicians easily offer policy prescriptions, they often fail to ask how they will be paid for." - Mark Funkhouser, Publisher of Governing Magazine

In a recent Governing article, "The Most Important Question in Government: Where's the Money," author and Governing magazine publisher Mark Funkhouser writes, “Where’s the money?” While that’s the second question in government, it’s also the one that really matters most. The debates that fuel elections and the legislative process are usually about the first question: “What shall we do?” But the answers to that are largely irrelevant if you can’t find the money to pay for what you want to do.

Financial crises are a perennial and perhaps endemic feature of democratic government, in part because so few public officials want to make this connection between money and the policies they advocate. Lois Scott, Chicago’s chief financial officer and the leader of the Municipal CFO Forum, echoes this theme. When a public official says, for example, “I’m for job creation,” Scott wonders, “Who’s opposed to job creation?” Anyone can talk about what government should do. The critical issue is how we will find the money to get these things done."

Allocating Resources Based on Priorities

How fascinating and true! Why do so few public officials make the connection between money and policies? What assumptions do public officials hold so firmly and that so calcify their thinking to convince us that questions such as "what shall we do"and "where will we find the money" should come before "what Results is this community in business to achieve" and "what services are of the highest priority that allow us to meet these community Results."

We at the Center for Priority Based Budgeting certainly acknowledge that times are not easy for government at any level. The recent recession played fiscal havoc on the vast majority of local government communities across the nation. And while the economy has certainly improved, those desperately wishing for a return to the "good old days" will likely find themselves seeking alternative employment prior to the return of pre-recession fiscal conditions.

We, among others, have also been communicating that local government communities are firmly in the economic grasp of the new normal. 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.

We've also been desperately trying to communicate that the (financial) crisis is not fiscal. Why do local government professionals believe 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 question(s) public officials should be asking in lieu of "where's the money" is "do we truly understand our fiscal health position (how much money do we have)." 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 in understanding "how much money do we have?"

The second question public officials should be asking in lieu of "what shall we do" is "how can we best utilize our scarce resources (money) to meet the Results the community desires." Public officials must change the way that resource allocation discussions take place. Financial problems are frequently 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?

"Making the Simple Complicated is Commonplace; Making the Complicated Simple, Awesomely Simple, that's Creative."

Although we love this Charles Mingus quote (above), we readily admit nothing in public finance is simple. However, subscribing to and implementing the proven, scalable and replicable practice of priority based budgeting provides a platform; a map; and best of all a strategy that the most innovative local government communities have already found successful.

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.

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.

And don't forget! The Priority Based Budgeting is now web-based! This powerful new public finance technology tool may very well define the future of on-line local government budgeting! 

If your community is interested in this disruptive new tool, and being among the first to utilize on-line priority based budgeting, contact us!
Center for Priority Based Budgeting
2015 Annual Conference 
Denver, Colorado | August 4 - 6, 2015
Sheraton Downtown Denver Hotel

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