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Municipal Budgeting Systems: Fad Management Tools or Strategic Methods of Innovation?

June 23, 2017

Municipal budgeting systems must be cautiously chosen and strategically implemented. These systems are simply tools, though they can be innovative solutions to funding issues. If employed inadequately, these tools can backfire and result in inefficiencies, consuming more resources than the systems conserve.

Philadelphia is a prime example of a city discovering the pros and cons of implementing a new budgeting system. After an ordinance was passed by City Council in 2013, Philadelphia was required to begin implementing performance-based budgeting, a tool to help city departments make more informed decisions about the allocation of resources, as well as to better understand programmatic goals and measure how programs are performing against those goals. The process Philadelphia is undertaking provides insight into the challenges and opportunities that arise when on the brink of a transition to a new system. It is just one of many systems that municipalities across the U.S. have implemented in recent years to help themselves better leverage data and technology. By modernizing budgeting practices, many cities believe that more streamlined, data-informed decisions will be made and residents will be able to understand and participate in the budget process.

Budgeting Tools in Peer Cities

Uri Monson, the Chief Financial Officer for the Philadelphia School District, is an expert in transitioning budget systems. He asserts that, “in public finance, tools are used to process fiscal operations, monitor revenues and expenditures, and identify economic trends. While these tools can provide information to inform decision makers, they do not magically make policy decisions or increase efficiency and effectiveness.” In an article about budgeting systems, Elaine S. Povich for Governing.com writes that these tools can be merely fads that governments try out somewhat haphazardly. What one city calls “rolling budgeting,” for example, may differ in practice in another city. Examining a few options of budgeting systems in some of Philadelphia’s peer cities reveals some of the budgetary options that exist domestically.

Phoenix, Arizona uses a zero-based budget, one of the most widely used practices among municipalities. This is a process whereby a budget is developed at the program level and restarts the budget each year by starting at zero. The budget identifies the resources required to complete a particular mission, then determines what these resources cost. The process includes the identification of potential reductions and additions, which are ranked in priority order. San Francisco has a rolling budget, whereby many departments have fixed cycles of two fiscal years, but if there are significant increases or decreases from year–to–year, a budget may be amended. This system is focused on flexibility and consistency at the same time.

Finally, Baltimore has one of the most innovative and successful new systems: outcome-based budgeting. This system is organized at the service level around seven priority outcomes. Instead of beginning from what was spent previously, the budget begins examining where certain outcomes are being met. It is heavily reliant on performance data and matching results with funds. These systems demonstrate how budget systems can truly be methods of innovation and transparency, if implemented with public buy–in and support from government leadership. Philadelphia’s own transition to program–based budgeting provides additional in–depth comparison.

Philadelphia on the Brink of Transition

The City of Philadelphia’s Office of Budget and Program Evaluation (OBPE), the entity that is managing switch to the new budgeting system, defines a program–based budget as showing the costs of a program, along with any non–tax revenues that the program generates. A program–based budget also evaluates a program’s effectiveness and outputs through performance metrics. The system is intended to be a more transparent, more accountable, and more data–driven than a traditional budget.

Providing Additional Budgetary Information Can Increase Government Transparency

For this first year of program–based budgeting implementation, OBPE worked with 20 departments—just over one third of the city’s total departments—to prepare their fiscal 2018 budgets. The FY18 Budget Detail provides detailed information on the proposed operating budget within each City department or agency. This year, the document has been updated with new forms for program–based budgeting, providing greater detail and transparency to elected officials and the public. This information is intended to provide a clearer picture of the programs and services that the City delivers to Philadelphians, including how much is being spent on each program, whether the program generates revenue, and how well it is performing.

Recommendations for Municipalities

Municipalities considering transitioning to a new budgeting system should consider a few essential questions:

  • Why are we considering making a budgeting change?
  • Do we have the staff to execute this project?
  • What is our timeline?
  • What is our change management plan?
  • What data is available?

It is fundamental to remember that change is not always better, it is simply different. Asking and answering integral questions can help cities properly implement budgeting practices that have the potential to foster innovation. 

Contact Information

Fels Institute of Government
University of Pennsylvania
3814 Walnut Street
Philadelphia, PA 19104

Phone: (215) 898-2600
Fax: (215) 746-2829

felsinstitute@sas.upenn.edu