Identifying budgeting processes
Local authorities around the world, and even those within the same country, use various methods to organize their budget. There is also wide variation in how open or closed the budget process is to public contributions and public scrutiny. Understanding how your local authority structures the annual budget and whether or how the public already engages in the budget-making process can help you tailor the feedback loop to be the most efficient and effective to suit your needs.
Consider how open your local authority’s budget development process is to the public. In many communities, the budget is drafted behind closed doors through inputs from local finance department staff, internal lobbying on department priorities and final decision-making by leadership. Introducing public participation in this process can provide several benefits, such as increasing public knowledge and trust in local institutions, enhancing public understanding of the capabilities and limits of the local authority, and strengthening transparency of the process and accountability. For powerful interests, public accountability and the introduction of new and potentially competing priorities may be viewed as a threat to their influence. Revisit your stakeholder analysis and consider ways to mitigate any conflict or obstacles that may arise; buy-in from leadership may be needed to navigate political challenges. Budget discussions are always politically costly1 because they are negotiations about “what government ought to be doing” – what services and values matter the most – and how financial resources can be harnessed to serve those purposes.2
If you are using the budget process as the focus of your feedback loop, we recommend starting with the following questions:
- Review last year’s budget (or the budget from two or more years ago): Examine revenues and expenses. Huddle with your local finance department to understand their projections – can you expect similar revenue levels and similar expenses this year compared to previous years? Does your local authority customarily overspend, underspend or hit your targets? If you customarily end up with savings, how are savings reallocated?
- Use this information to understand what priorities or concerns are already funded and how well. Priorities sourced from the feedback loop can fill the gap or give direction on cuts.
- How much spending is decided on locally? Does the central or higher-order government attach strings or requirements to transfers or other chunks of funding?
- Use this information to understand how much funding is discretionary (how much is “up for grabs” and could be directed to priorities) and the issues or topics where priority-setting can be useful.
- Consider the politics, including internal and public negotiations that surround the local budget. Is there difficult or amicable negotiation between departments? What role does the council play in these debates and negotiations? What sources of information or justifications are common in these internal (to city hall) budget discussions?
- Use this information to understand and anticipate internal conflict or pushback within city hall, questions and lobbying by local elites, and other roadblocks in the budget process. A feedback loop, by relying on public voices, can be a useful guidepost to organize and limit the contentious internal debate, which may not accurately represent community needs and interests.
Simulations, scenarios and games can be deployed during public engagement or education efforts to educate residents about costs and trade-offs. Take, for example, the Balancing Act software used by city governments in the United States (such as Charlotte, North Carolina) to allow residents to view revenues and expenditures, and then see the impact of increasing and decreasing expenses.
Consider as well the type of budget your local authority uses. This will help you frame your questions to ensure public responses can be directly inserted into the public budgeting process. There are four main types of public budgets: line-item budgeting, program-based budgeting, performance budgeting and zero-based budgeting.
Line-item budgeting: This budgeting is the most basic and common format. Budgets are subdivided by department or agency, with different expenses (personnel, supplies, etc.) enumerated accordingly. Developed to exert managerial and legislative control over administrative departments, the line-item budget is widely used. It is clear and easy to create, understand and monitor. But the method has several weaknesses: (1) it focuses on what will be purchased, rather than efficiency or the quantity or quality of service being purchased; (2) it pays little attention to policy or meeting local needs and objectives, and usually preserves a status quo (departmental budgets tend to stay static or increase slightly); and (3) it is difficult to set priorities because the size of allocation may not relate to the importance of the service or function. In addition, line-item budgeting can encourage end-of-fiscal year spending sprees (as departments that underspend may get less funding the next year).3
A line item will list general, high-level allocations on a department-by-department basis, with some general categories of expenses. For example:
Local Authority 1: | |||
Department A: | |||
Personnel: | $100,000 | ||
Supplies: | $20,000 | ||
Maintenance: | $15,000 | ||
Program-based budgeting: Program-based budgeting or program-planning budgeting (PPB) differs from line-item budgeting in that it provides more details on the costs for each of the activities, services or programs the departments perform. For example, the emergency services department would create “mini-budgets” for each subcategory based on their functions, such as fire-fighting services, flood prevention and control, emergency medical and ambulance services, or police.
Around the world, governments at all levels have generally shifted to this budgeting model, allowing them to demonstrate in greater detail to their constituents where their priorities lie and how those priorities are being funded. The challenges of this model are that (1) the quantity and quality of services being purchased are still unclear, and (2) programs and activities may overlap between departments. In addition, it is more administratively difficult to collect and organize this quantity and level of information.4 However, this information can be clearly published for accountability purposes – see the online budget webpage of the City of Nitra, Slovakia, as an example.5
Performance budgeting: The difference between this kind of budgeting and program-based budgeting is the performance budget includes an estimate of the level of service provision being purchased. For example, a budget for a public works department would indicate the amount (in miles or kilometers) of road being paved or maintained in a given year. The council could use this information to determine, in actual currency, how much it would cost to pave an additional kilometer, or how much would be saved by postponing paving activity. It also allows leaders to measure the performance of local departments – i.e., did they hit their targets? This kind of budget poses a few challenges: (1) estimates of performance are very difficult to calculate and depend on a variety of factors, and (2) many public goods are difficult to quantify, such as education or public safety (i.e., you cannot budget for a percentage decrease in crime).6
Zero-based budgeting: In this budget, which builds on performance budgeting, the local authority begins building its budget “from zero,” requiring each department to justify its continued existence and budget allocation every year. In this system, local departments are requested to provide a variety of funding scenarios for consideration by the local council. For example, what is the impact and expected service provision in the event of (1) no funding, (2) funding at current levels, (3) funding at 75 percent of current levels, and so on? This process provides decision-makers with a great deal of information to weigh impacts and various funding scenarios. However, this kind of budget process can be politically contentious and requires intense administrative activity to collect information, conduct analysis, develop justifications and advocate internally.7
Asking the right questions
It will be helpful to work backward based on your budgeting process to ensure the responses to your questions can be used and fed directly into your budget process. Imagine you have already collected public feedback – how will that feedback be used in your process? What is the most helpful format or structure for public responses to take?
“What are your budget priorities?” or “Where should the government increase spending?” are often too broad. Consider focusing on particular services, objectives or other ways to focus feedback.
If your local authority uses a line-item budget process, you could organize your feedback loop process to contribute to or generate specific line items. Your line items may be at a high level of generality, meaning specific priorities may disappear, lose meaning, or appear “business as usual” if simply siphoned into more or less funding for general departments, services, or programs. In this instance, you should try to be as specific as possible to point to particular line items (new or expanded) when you report back to the public on whether their stated priorities were met.
Imagine you won an election on a campaign platform to improve transportation in the city center, but you have limited funds and need to know where to start this year to show some progress.
Consider the following ranking list that may be shared with community members. Each of the priority options could be further broken down depending on how specific or detailed you want to get:
- “On the topic of local transit options, what is your greatest priority for improvement:
- Sidewalks/pedestrian safety
- Bicycle lanes/bike racks
- Parking/Personal vehicle access
- Buses
- Train station/metro
- Why or what about this issue or topic makes it your greatest priority:_______”
The responses with the greatest number of answers are your list of priorities. The open-ended responses from these answers will help you to frame codesign sessions. Note: Open-ended answers are extremely time-consuming to compile and analyze, and teams should prepare for this process ahead of time.
At codesign sessions, you can get a deeper understanding of the issue. Is it that more sidewalks are needed in a specific area, they are not wide enough, they are in poor condition, road crossings are poorly marked or something else? All of these topics will involve expenditures within a limited number of departments – ideally one – such as your local department of transportation. This will make the line-item allocation clear, as well as the line of accountability clear. Work with them to determine what corresponding line items in the coming budget will look like.
If your local authority uses a program-based budget process, you can seek feedback from residents on a broader set of objectives or the means or approach the local authority will take to deliver on objectives.
In this instance, especially within larger communities, gathering public feedback via open-ended answers will be time-intensive to analyze; avoid it unless you have the skills and capacities to put it to use. Using a higher level – where residents offer a basic ranking of objectives or programs will be easier to analyze. For example:
- “Of the following programs and objectives, which are your highest priorities (select up to 2):
- Crime and public safety
- Clean energy and green projects
- Road, sidewalk and biking infrastructure
- Childcare and kindergartens
- [And so on . . .]”
Drawing on these rankings (which priorities rank highest compared with which rank lowest), you can plan your codesign engagements to dive deeper into one or two priorities and understand what makes people interested. Given they are priorities, you should also be able to attract residents’ attention and participation.
If your local authority uses a performance-based budget, or even a zero-based budget, you likely have the administrative capacity to delve more into the values of residents and examine public perspectives of trade-offs between services. This expands the kinds of questions you can ask – i.e., your local authority can go beyond asking residents to rank their highest priority or indicate their favorite among a selection of proposed projects. Understanding where your residents perceive the local authority is delivering effectively, and where it is failing to meet their expectations, can help set the agenda for the coming year beyond budget allocations.
You can ask particular questions relating to the performance of specific agencies (see Step 4’s discussion of surveys, including the concerns survey). For example:8
“Of the following topics within the responsibility of the local authority, what is your view?
- Crime and public safety services:
- How satisfied are you with how this issue is currently addressed? (5) Very satisfied; (4) Satisfied; (3) Neutral; (2) Dissatisfied; or (1) Very dissatisfied
- How important is this issue to you? (5) Very important . . . (1) Very unimportant
- Road, sidewalk, and transportation infrastructure:
- How satisfied are you . . .
- How important is this issue . . .
- [And so on…]”
Analysis of these responses can then be fed into your local authority’s budget process. Analyzing the responses into percentage scores (all 5s would be a score of 100 percent, while all 1s is a score of 0 percent) will indicate “trouble spots” in the local administration. Those with high importance (mostly 5s) and low satisfaction (mostly 1s) are your top priorities. “Throwing money at the problem” is not always the solution, however – consider options for dialogue and codesigning solutions (Step 7) with the public that may reveal no or low cost means of improving resident satisfaction.