Local government budget decision making

The governance equation can help in budget creation.

Annually, local governments are legally required to adopt a balanced budget that indicates what the year looks like financially and where they intend to spend tax dollars from a priority perspective. The budget process can be laborious and detailed and, ultimately, the budget requires a public hearing prior to adoption. The purpose of this article is to describe how a local government body in Michigan can develop a budget with a governance equation in mind. Future articles will address other specific details of the budget process leading up final adoption.

A local government’s budgeting has, as a basic tenant, a specific financial plan for one fiscal year (calendar year or otherwise). As budgets are created, the following equation is something to keep in mind:

The governance equation:

  • The ability to go beyond measuring and discussing fiscal sustainability to implementing fiscally sustainable principles.
  • Requires long-term thinking and the ability to recognize that different versions of the future exist and there is room for debate, discussion and compromise.

In any given year with any given elected and appointed group of public officials, the goal is to develop a budget that relies on sound fiscal practices of the past and looks forward creating new guiding principles that are consistent with fiscal sustainability. In other words, the budget should not only support current operations/service/programs, but also be sustained over time given many different variables (forecasts of revenue, economy, etc.).

Inevitably, differences of opinion are far more important when there is a lack of revenue to pay for the anticipated and/or wanted expenses (mandated or otherwise). Ultimately, the governing body (council, commission, board, etc.) must mitigate those differences. A majority of the governing body’s vote must adopt a balance budget. The governance equation becomes the essential building block or cornerstone to the budgeting process.

The aforementioned governance equation precedes other steps that may include strategies and options, forecasting, communications and compromise. Future articles will address these topics as additional steps that can be taken to develop a sound fiscal sustainable budget model.

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