The Dynamics of Public Sector Budgeting - Who is the Constituency?

As local government officials begin the process of developing their 2017 budgets, they face an environment of increased uncertainty: an uncertain economy, uncertain levels of inflation and wage demands, changing consumer behavior and revenue yields, and uncertainty regarding the demand for services. These are ongoing uncertainties that elected officials encounter annually when reviewing budgets and making fiscal decisions. More often than not, those officials perceive of those fiscal decisions as meeting the needs of their current constituents, and not necessarily those of the next generation.

This article is designed to broaden the budgetary discussion so as to encourage local officials to recognize the need to concurrently address the longer term needs of their jurisdiction when adopting budgets.

Why Look at the Future?

Budgeting has been characterized as one of the most delicate “balancing acts” that local officials engage in during the year. They must balance competing demands for scarce resources; they must balance the interests of those opposed to new taxes with those encouraging expanded services; they must balance the demands for capital improvements and replacement with those for maintaining on-going services. Finally, they must balance their stewardship roles owed to current constituents with those of future generations. It is this last balancing element that the media has in recent months been most critical of state and local officials. They’ve railed about lead in Flint, Michigan’s water, and subsequently closer to home in Washington communities. They’ve blasted state and local elected officials for significantly underfunding legacy burdens, pensions and post-retirement medical benefits, and have singled out Detroit, Chicago, Illinois, California, Pennsylvania and New Jersey as jurisdictions that have kicked the ball down the road and thereby shifted those burdens to future generations.

One area that has recently received attention is that of the poor condition of public infrastructure: roadways, utility systems, public buildings, and other forms of public capital. The American Society of Civil Engineers' (ASCE) latest report card gave America's infrastructure an overall grade of D+. ASCE concluded that the inadequacies of our systems of public capital have contributed to significant losses in gross domestic product, substantial job losses and failing infrastructure systems.

During periods of economic stress, characterized by shrinking revenues, elected officials have tended to maintain current services at the expense of necessary capital expenditures. However, when upturns have occurred there has been a hesitancy to allocate increased revenues to compensate for previous underinvestment in infrastructure systems. Ultimately the burdens have been shifted to future legislative bodies and generations.

This tendency to address current needs at the expense of long-term responsibilities has not been limited to just underinvestment in infrastructure. The under-funding of retiree medical benefits, the erosion of reserves during economic downturns, the inadequacy of utility system replacement funding are further examples of where many local officials have failed to be good stewards of their intertemporal responsibilities.

What is the “Prudent” Approach?

County, city, and special purpose district officials must recognize that they have dual responsibilities. First, they must provide an array of stable, cost effective, and affordable services to their citizenry. They should concurrently strive to enhance the quality of life within their jurisdiction. They must concurrently recognize that citizen’s service priorities change and must be reflected in the budget. Secondly, elected officials should leave the next generation as least as well off as that of the current generation. The next generation should not be burdened with undersized and failing utility systems; crumbling roads and structurally deficient bridges; inordinate pension obligations for already retired public employees; and inadequate public reserves to weather the next economic downturn.

Elected officials can help put their jurisdiction’s long-term fiscal house in order. They should step back and assess both their current and future fiscal needs. They may have to make hard decisions as to whether consolidation of utility systems with other jurisdictions may be the desirable course of action, whether to contract out services currently provide in-house, whether to reduce ongoing services so as to build up necessary reserves, and even whether to reduce ongoing services, raise taxes, or increase utility rates.

At the end of the day, local officials must develop a duality of budgeting, balancing current constituents’ needs with those of the next generation. In order to achieve that balance, good research will be vital as well as an open mind. At the end of the day, these types of decisions should not be the result of a crisis, but rather that of a well-reasoned deliberative process.