Strategic Local Government Budgeting: How to Determine Which Method is Best for Your Community

Traditionally, local government budgeting has not been directly tied to outcomes in the community. Instead, incremental amounts were shifted based on previous use and separated by department. Although intentions were good with this method, it generally meant the budget was disconnected from actual impact on the community it served. Today, combine the desire to budget more strategically with requirements from federal funds, such as the American Rescue Plan Act (ARPA) and the Infrastructure Investment and Jobs Act (IIJA), and local government budgeting is experiencing a huge transformation. In fact, the Rethinking the Budget initiative from GFOA and ICMA encourages local governments to, “Move away from ‘incremental, line item budgeting’ by taking advantage of new ways of thinking, new technologies, and to better meet the changing needs of communities with a limited budget.” But, with all the strategies out there, how do you know which one to choose? Read on for more information about the types of strategic budgeting and tips on deciding which one is best for your community.

Five Types of Strategic Local Government Budgeting

1. Program-based
2. Priority-based
3. Performance-based
4. Outcome-based
5. Evidence-based
6. BONUS

BONUS

Program-based Budgeting

So long to department organization. In program-based budgeting, the budget is built from proposals submitted by programs instead of departments. This means cross-collaboration is a must between departments to coordinate services and budget proposals.

Priority-based Budgeting

Start ranking. This form of strategic budgeting uses predetermined budget priorities and criteria in a pre-screening of proposals before they are added to the budget process. Finance leaders ask the same set of questions against all proposals to rank them and evaluate them as a team.

Performance-based Budgeting

What do we get for what we are budgeting? That’s the basic question this method asks. When building a budget with a focus on performance, inclusion of historic and anticipated performance metrics and ROI in the proposal details help evaluate what proposals to fund.

Outcome-based Budgeting

Time to focus on strategic initiatives, AKA outcomes. Regardless of structure, outcome-based budgeting links proposals to strategic goals to ensure money is going to fuel the desired results. Proposals are evaluated and prioritized based on how they impact the broader strategic plan.

Evidence-based Budgeting

We like to think of this one as performance-based budgeting on steroids. With evidence-based budgeting, leaders track the actual outcome of investments and adjust budget accordingly. It’s not just historical data and projections, it’s active monitoring if the investment yielded the intended result and making changes based on progress.

BONUS: Participatory Budgeting

Regardless of the strategic budgeting method you choose, participatory budgeting is a powerful tool in strategic planning. It means finance leaders and budget decision-makers bring the voice of the community into every key decision. But, be careful, it is really easy to accidentally mis-step and damage community trust.

Determining Which Local Government Budgeting Method is Right for Your Community

When deciding which strategy to adopt, ask yourself these questions.

Do you have a desire to change to or are currently using a program-based budget structure as opposed to a department-based program structure? If so, you may be interested in program-based budgeting

Would you like your team to submit proposals based on standard evaluation criteria and a developed process for approving proposals? Priority-based budgeting may be the way to go.

Is ROI and historical performance important to determine how we spend funds next year? Then consider performance-based budgeting.

Is tying your strategic plan to your budget a goal for next year’s budget? Then look no further than outcome-based budgeting.

Do you need to improve how you show the need for your activities? If you’re a state agency and asking this, evidence-based budgeting is for you.

And don’t feel like you have to align to a single strategy. Your government may want to start by building a program inventory, evolve into tying the budget to the strategic plan the next year, and then go back and implement a prioritization process the year after that. These approaches are not mutually-exclusive!

Shifting the Budgeting Conversation

It’s time to shift the local government budgeting conversation from automation towards strategy. For more on transforming your processes, let’s talk. The OpenGov Cloud offers solutions to streamline the budgeting process, while driving outcomes, improving decisions, and engaging the community.

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