It’s Not Too Early to Think about Laying the Foundation for Your Next Budget
I know, I know. Budget already? You just adopted your budget (or if you are like us and have a biennial budget, you just finished the mid-biennium review). But wait! If you want to have a great budget experience next fall (and who doesn’t), then it is not too early to think about how to lay the best foundation. Building a budget starts with a strong policy discussion and early policy guidance. If you are a larger, or more sophisticated government organization, that policy foundation conversation should start pretty soon.
Strong Fiscal Management
I’ll use our experience here in Redmond as an illustration. We aren’t overly large as cities go (approaching 60,000) but we have enjoyed a history of strong fiscal management at the policy level. In their most recent review of our finances, Standard and Poor’s said:
We view the city's management as very strong, with "strong" financial policies and practices under our methodology, indicating financial practices are strong, well embedded, and likely sustainable. Key policies include using historical trends in the region, including sales tax and property tax trends, to project future revenues, quarterly reports of the city's budget-to-actuals to city council, a formal five-year financial forecast maintained and updated at least once a year; maintenance of a formal six-year capital plan with all funding identified and updated at least once a year, a formal investment policy with investment results and holdings reviewed by city council at least quarterly, a formal debt management policy that includes limitations on the types of debt issued and limitations on amount of debt issue, and a formal reserve policy…
These policies didn’t happen overnight and aren’t limited to staff’s copying ideas from neighboring cities. Our council starts each budget cycle (again, every other year for us) with a review of our “Long Range Financial Strategy” (LRFS). We are just now completing that review in anticipation of the 2017-2018 biennial budget. Council will formally adopt this strategy (as they have in year’s past) as a key policy foundation to start the budget process. In our case, the council’s Public Administration and Finance Committee (PAF) did the bulk of the work supported by recommendations and questions from staff. Following that, the full council was briefed on the proposed changes at a study session. You can find the updated document on our website.
Another great example is found in the City of Renton. Their policy foundation starts with the 2016-2021 Vision, Mission, Business Plan, which is a joint effort between the city council and staff. The business plan is reviewed and updated as part of their annual planning retreats. This process has also evolved over an extended period of time. It may seem like a daunting task to those who are just starting out, but after years of refinement Renton’s business plan shows what can be accomplished.
Budget Process – A Cooperative Approach
I am often asked, “as a council member, why aren’t I more involved in the budget before we get it from the mayor (or county executive/city manager)?" Elected mayors in mayor-council cities, county executives in charter counties, and city managers in council-manager cities all have the prerogative, responsibility, and executive authority to prepare and present a balanced preliminary budget to their respective legislative bodies. The preliminary budget is their best recommendation on how to balance the needs of the community with the limited resources of the organization.
That said, the best budget processes are based upon a cooperative approach where the administrative and the legislative branches of government work together in pursuit of the best outcome. As appointed officials, city managers probably have a greater incentive to work closely with members of the city council as they prepare their preliminary budgets. We are fortunate in Redmond in this regard. The city council respects the boundaries of the administration and in turn, the mayor works closely with the council to seek their input into the budget he develops long before they see it in October. As I said, that cooperation starts for us with the “LRFS,” which then leads to a review of our specific financial policies (you will find our current financial policies in our budget starting on page 436 and great information about financial policies in general on MRSC’s website). These policies are more about good financial management ground rules and not about specific budget/program issues or concerns. However, it is good to get the ground rules clear before the budget process starts.
While these activities are occurring we are also seeking input from our community about their views, perspectives, and priorities. We do this a couple of different ways. First is our statistically valid, annual citizen survey. You can find our past surveys here (we’ll post the 2016 survey results soon). The second way we get feedback from our community is with our online input tool. After one-too-many underwhelming community budget meetings we decided to try an online approach for the last budget cycle. This resulted in 1,400 participants in that budget process! We already have more the 500 responses for this upcoming budget. There are a variety of tools available for both the survey and the online tool at little or no cost to you.
You can find good information about conducting your own surveys on the State Auditor’s Local Government Performance Center site for your use.
Next we update and communicate about the financial forecast. As S&P points out in their comments, we update our six-year financial forecast every year. About mid-year we will review the forecast with city council, as well as speculate about what rate changes would be needed to sustain the current expenditure trend for our utility operations. (Note: this isn’t a rate recommendation yet as the utility operations still have to go through the scrutiny of an internal budget process. Our experience is that the rate changes won’t be as high as is presented in this early view).
It is also about this time that we will have our first public hearing on the upcoming budget. For many, the public hearings are limited to the requirements of the RCWs (RCW 35A.33.055 and RCW 35A.33.070 - also note that a hearing is required for the levying of property taxes). However, in my view, this approach is usually too little and too late. By this point the budget is already proposed by the administrative branch. To avoid this, many local governments will have an opportunity for formal input into the budget (a hearing) earlier in the year, before the administration’s budget proposal takes shape. This hearing can be staff’s opportunity to share with council some of the issues that the administration anticipates addressing in the upcoming budget.
We propose, and council adopts, a budget planning calendar at the beginning of each budget cycle which clarifies these elements and sets key dates.
So, while there is a lot of administrative work, analysis, and decision making that goes into a well thought out budget, it should all begin with an early discussion on the big policy issues that a budget might address. This can be a long range financial strategy, a review of your financial policies, an update to organizational goals, and/or a list (a manageable list) of key community projects or a discussion of “focus areas.” The form can vary, but the benefit of an early, policy level, discussion on the upcoming budget process will pay dividends this summer and fall when the challenging work of balancing these interests with limited resources will occur.
MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.