As touched upon in a previous posting, “The Ideal Politician” (found under From the Hip), the motives and application of management principles and practices in the private and public sectors often diverge. This can be observed, for example, in their respective budgeting processes. Common to both is the role of the budget, namely, that of being a multifaceted management tool. Ideally a budget will accomplish a number of things: reflect an organization’s values, guide its’ administrators and hold them accountable, maintain financial accountability, identify future goals and expectations, determine the allocation of resources, improve performance, and meet the informational needs of its’ diverse stakeholders and auditors. (If you are interested only in my recommended approach to budgeting, skip forward to PART II.)

PART I: THE BUDGETING ROLE. It is not the role of a budget within each sector that differs, but the reason for which each sector exists that makes the budgeting process a little different and more complex in government. Businesses in the private sector target differentiated segments within a community. Their goods and services are sold in the marketplace to those who are willing to pay for them. A private business and, consequently, its budgeting process are driven by marketplace profit. The result is that private sector costs and benefits are restricted, accruing to individual entities and persons, not to all. Because citizen needs and demands afford the means for income, the private business model, other than charitably, does not provide goods or services which yield little or no profit.

Enter the public sector. Citizens and communities have needs and expectations for particular goods and services that the private sector does not supply. These are collectively, that is, publicly financed and provided instead of being sold to customers in the marketplace. In a government agency the budgeting process is driven by service, not marketplace profit. The result is that public sector costs and benefits accrue to all citizens (e.g. police protection). The needs and demands of citizens do not afford a means of income for government agencies. But income there must be if the demanded goods and services are to be provided. Enter the public business model – taxes. Because the level and cost of a public good or service is determined by demand, and not the quest for profits, public demand affects the level of taxes that need to be imposed on all, even though the tax cost to each citizen will not correlate to the amount of goods or services each citizen receives (e.g., not all will directly require police protection).

This reality of individual/personal cost in the form of taxes motivates individuals and groups within a community to influence the budgeting process in such a way as to maximize their own benefits while minimizing their share of cost. The public/government budget is, as a result, inherently and unavoidably political. Complicating things further, social and demographic conditions and changes such as population, age distribution and personal income also impact the public budgeting process. And we cannot forget about the burgeoning legal and intergovernmental constraints that are major factors in the process (e.g. tax and expenditure limitations; unfunded mandates; cutbacks). This combination of factors not only demonstrates the more complex nature and functions of budgeting in the public sector, they create enormous fiscal stress at the local level where government is closest to the people. Add to this the rising demand for improving the quality and efficiency of service delivery in government, and it becomes imperative that local government resources and budgets be innovatively and strategically managed.

PART II: STRATEGIC BUDGETING. In addition to the widespread utilization of line-item budgeting, various developments have enabled executives to not only improve the use of the budget for its standard accounting and financial functions, but also to implement strategic plans (the most recent developments being the Balanced Scorecard and outcomes budgeting). As with my most recent post, “Smart Growth,” what follows is not intended to assess our current budgeting process, but only to suggest a strategic approach to budgeting that would draw upon various aspects of these developments. In the end I believe that the budget must fit and serve the identified strategic priorities of a community and not the other way around.

Everything must begin with a clear mission statement for Town government, one which references the execution of duties conferred and imposed by law, as well as that of promoting outstanding services to our citizens and community. In the light of such an overarching mission and subsequent to assessing the needs and expectations of our citizens and community, a vision, core values and a number of strategic priorities should emerge, along with their attendant and targeted goals or outcomes, objectives and initiatives whereby that vision and set of priorities will be met. Here we would have the core of a strategic plan for Town governance. The Town’s plan would then become the basis for each department developing their own strategic plans which would be linked to and whereby they would contribute to the achieving of the Town’s (master) strategic plan. The budgeting process for the Town and each department would then plan for and fund the identified target goals/outcomes, objectives and initiatives, both annually and in the long-term.

Thus the Town’s budget could become the action plan I referenced above. Moreover, this kind of a strategic approach to budgeting would contribute to the managing and improvement of service delivery within our community. Strategic plans evolving out of an assessment of community needs and expectations can not help but be more responsive and targeted in addressing them. Assessments and plans would also promote more accurate budgetary forecasts (vis-à-vis known goals, objectives and initiatives) and, as a result, budgetary requests, allocations, transparency and accountability, both in the short- and long-terms. Interdepartmental and public communication, as well as analyses of outcomes and processes, would be enhanced, thereby promoting greater awareness, control and learning.

Even though what I am suggesting involves a top-down goal setting and bottom-up planning approach for our Town budget, I believe it would prove to be more empowering for department heads. In accord with its governing function the Town Board should establish strategic priorities and direction, while management should figure out how to allocate their resources so as to deliver on those targets. And even though transforming the budgeting process in some such manner as I have lain out represents a weighty challenge, I am unable to think of a reason not to develop and link the budget to a strategic plan.

In the strategic plan I have written, under Goal 3, you will find some specific objectives I suggest for managing the Town’s budget.

Next week – Labor-Management Relations.