Budget Systems


The finish line for the city government budgeting process in Iowa is clear, with state law requiring cities to approve and file their budgets by March 15 of each year. How a city reaches that point can vary as different techniques and strategies are employed to complete a budget. There are numerous budget systems available to cities, each with their own advantages and disadvantages. Some cities may use one of the following systems or different aspects, choosing strategies that best fit their needs to aide them throughout the budget process.

Line-Item Budgeting

The majority of city governments use some form of line-item budgeting, where revenues and expenditures are listed in a straightforward manner. Under such systems, the focus is primarily on the inputs or resources needed to provide the services offered by the city. Items such as wages, equipment and supplies are broken out to show expenditures within each department. The city council then appropriates funds for each of the departments and allows city employees to purchase the items necessary to provide services.

One of the main advantages of the line-item system is that its simple approach to tracking revenues and expenditures is easily understood by city council members, city employees and citizens. Such systems do not typically require advanced financial software or knowledge and can be implemented in a relatively short amount of time. Line-item systems also make it easier to review the ongoing financial condition of the city and quickly see where any deviations to the budget have occurred.

While line-item systems provide a clean look at the city budget, they fall short in measuring the effectiveness and efficiency of service delivery and are unable to tell budget managers where more or less funding is needed. As such, these systems are not helpful to cities when setting priorities or targets, as it is hard to know how much funding would be required to improve a particular service.

Zero-Based Budgeting

The term, “zero-based budgeting,” (ZZB) was introduced by Peter A. Pyhrr in 1970, as a way to drill into the very detailed aspects of all expenses and revenues in both the public and private sectors. But it was former President Carter that tried to use it at the federal level after some success in Georgia while he was governor there. However, when the system was applied in its purist form to governmental budgeting, it failed. This failure was due to the great amount of effort and time required for development and implementation. Since that time, however different aspects of the system have been seen as beneficial.

Some organizations favor at least some version of the zero-based budget system because it requires managers to develop and refine programs and activities from scratch (zero). The ZZB has three major characterizations:

  1. The process begins with nothing in terms of budgeted dollars. The manager has to justify or prove the need to spend money on each activity or project for each dollar requested which includes an analysis of cost, purpose, alternative courses of action, measures of performance, consequences of not performing the activity, and the benefits.
  2. New and old problems are treated equally.
  3. Even managerial activities are included in this analysis. These alternatives are then ranked and priorities are established.

One of the ways the ZBB approach is different from the traditional budgeting techniques is the required analysis of alternatives. In addition, managers must identify different service levels for performing each alternative method of the proposed activity. This means establishing a minimum level of spending, often 75 percent of the current operating level, and then developing an analysis that include the costs and benefits of additional levels of spending for that activity. A distinct disadvantage to ZBB is the time it takes to go through the process of reviewing operations in enough detail to justify costs for each budget cycle.

Program Budgeting

Program budgeting grew in popularity during the 1960s as organizations searched for a way to include policy initiatives into budgeting decisions. These systems arrange the budget and city services into different program areas with each having stated goals and objectives. City officials then identify the alternatives to achieving objectives, the costs and benefits to each of the alternatives, and the best option available to deliver the service.

Program budgeting offers city officials and citizens a more robust system that incorporates goals and benchmarks for different services. Collecting data on the quality of service and the efficiency in which it is provided can be very helpful when determining future funding levels. It is also integral to goal-setting or priority-setting discussions that direct the efforts of the city government.

A major drawback of program budgeting is that it requires significant time and effort to develop, implement and maintain. Many discussions are needed to set the goals and objectives for the different programs before reaching the budget process, where even more deliberation must occur to decide the funding levels for each program. This can lead to a slow process with potential for conflict.

Performance Budgeting

Performance budgeting shifts the focus from inputs to outputs by reviewing how well a service is delivered or how productive a certain function is. While performance budgeting first gained notoriety in the 1950s, it became popular in the 1990s as a tool used by the Clinton administration. The main idea behind performance budgeting is the evaluation of programs and services to determine efficiency levels, productivity levels, whether the desired outcome was achieved, and where improvements can be made. A key component to this system is the collection of quantifiable data that helps inform stakeholders as to whether resources are being used well.

Performance budgeting offers council members and city employees more data when making funding and service delivery decisions, hopefully leading to a more informed budget process. Such systems can show important information on how much of a particular service was provided, how efficiently it was provided and how much the delivery of service cost, all of which are useful during budget discussions.

It is challenging for many city governments to implement a performance budgeting system, as collecting data can be difficult and cumbersome. Additionally, some city programs and services are not easily quantified for measuring purposes. And while having data on programs and services can be helpful to decision makers, it does not make budget decisions any easier, as it can be hard to set appropriate benchmarks for certain services.

Priority-Based Budgeting

A relatively new concept, priority-based budgeting systems incorporate performance measurement with fundamental decisions of what services the city needs to focus on providing (and providing well). As the name suggests, the basis for this system is setting strategic priorities that are most important to citizens and then ranking services that achieve the priorities. The rankings are carefully put together by reviewing existing services to determine why they exist, the value and benefits they provide to citizens, the cost to provide the service, and how well they achieve objectives. Funding is then appropriated to the respective services that will best achieve the strategic priorities.

Priority-based budgeting is a comprehensive system that ensures council members and city employees are continually focusing on the services most important to achieving community goals. Programs and services are measured by their importance in addition to their efficiency and efficacy, which can be helpful when making tough budget decisions.

As with program and performance systems, priority-based budgeting requires time and effort to be used well. Setting priorities can take multiple meetings in which citizens, council members and city employees weigh in on what is most important for the community.

The budget process is one of the most important aspects of municipal governance as the elected leaders, city employees and citizens must come together to determine how to best fund the services the community needs. There are numerous ways to effectively budget a city government’s revenues and expenditures, whether it is using one of the four systems described above, a hybrid of those or other methods. No matter how it is done, the budget process must incorporate the needs of the citizens and ensure that city services are being delivered in the best way possible.




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