THE PROCESS OF BUDGETING
INTRODUCTION
One of the essential organizing ideas of Rethinking Budgeting is that it should help local government budgeteers “be chefs, not cooks.” This means we will help budgeteers understand the underlying challenges of budgeting, the principles for addressing those challenges, ideas for how the principles can be applied under different circumstances...and how to do all of this while building trust and serving the public.
We will not provide hard-and-fast rules for how budgeting should be conducted. The process we present is not a “brand name” budget process that provides detailed instructions for every step along the way. Rather, we describe design principles that can be used to design a budget process that is a fit to local needs and that addresses the main reasons why we budget. We also supply links to detailed examples and stories about how to put the principles into action.
The process we describe has the following major components: The bedrock of the budget process puts in place policies and practices that encourage savvy and wise decisions during the budget. The steps of the budget process are the actions needed to arrive at savvy and wise resource allocation decisions each budget cycle. It is then necessary to communicate the adopted budget to stakeholders to give them confidence that local government is using public money wisely. Finally, monitoring the budget involves observing the extent to which what happens during the fiscal year matches what was planned for in the budget. This allows decision-makers and the public to see that what was promised is what was delivered.
THE BEDROCK OF THE BUDGET PROCESS
Local governments need to establish a solid foundation for an effective budget process. This can be achieved through 6 key elements. Strategic planning in public budgeting embraces uncertainty by prioritizing the definition of problems and maintaining focus through constraints. A service baseline creates an inventory of government services, detailing their costs, performance, and demand. Financial policies set crucial boundaries for budgeting, ensuring reserves are used wisely, fees cover costs, and revenues align with expenditures. Long-term financial forecasting helps governments identify risks and anticipate future trends by establishing tailored time horizons, assessing financial risks, and linking forecasting to strategic planning processes, such as capital investment and land use. Finally, local governments can address complex community challenges more effectively by fostering collaborative networks with public, private, and nonprofit organizations, requiring teamwork that extends beyond the budget officer’s role.
THE STEPS OF THE BUDGET PROCESS
This section of Budgeting as Envisioned by Rethinking Budgeting outlines key strategies for improving the local government budget process. One of the central themes of this section is the role of the budget officer as a "decision architect." This means the budget office must design a process that encourages self-skepticism, highlights trade-offs, and avoids focusing on trivial issues, all while ensuring decisions align with long-term financial sustainability. By applying best practices from behavioral economics and research on shared resources, the budget process can foster informed, collaborative, and wise decisions that advance public goals without overburdening future generations or causing burnout. The steps outlined include: reaffirm the bedrock, determine the best role for public engagement, architecting the budget process, design questions for architecture of the budget process, build the budget process, develop a revenue forecast, and make the necessary choices to adopt a budget.
COMMUNICATE THE ADOPTED BUDGET
An adopted budget must be effectively communicated to the public, elected officials, and staff. The primary goal of this communication is to instill confidence that local government is using public funds wisely, while also building credibility and ensuring accountability. At its core, the budget transmits legally required information, including the government's authority to tax and spend, the dates it covers, the components of government it addresses, and the dollar amounts appropriated. While this information is essential, it may not be sufficient to fully reassure stakeholders that wise decisions have been made.
This is section of Budgeting as Envisioned by Rethinking Budgeting outlines strategies for streamlining the reporting of basic information, thereby freeing up more time and resources to focus on producing the kinds of data and analysis that will truly bolster stakeholders' confidence in the budget process.
MONITOR THE BUDGET
Monitoring the budget ensures that spending stays within approved limits. Since local government revenues are generally fixed, expenditures must align with projected income. This process also ensures that the government receives the services and goods it has paid for. In addition, budget monitoring allows for adjustments in response to changing circumstances—whether it’s shifting expectations, emerging opportunities, or unforeseen challenges. A budget must be flexible enough to adapt to an evolving environment.