Priority Based Budgeting’s Growing Impact
October 14, 2024 by Chris Fabian
As a frequent speaker on priority-based budgeting, I continue to be struck by the level of interest in reimagining budgeting. That interest was evident during my recent National Association of Counties (NACo) webinar conducted with Florida’s Collier County Commissioner Chris Hall.
The reasons behind that interest are clear — as federal stimulus funding winds down, state and local governments face the twin challenges of balancing tighter budgets and aligning scarce resources with key initiatives. To meet these challenges, local governments are adopting priority-based budgeting methodologies and software to fund ambitious goals while still saving money.
If governments can thoughtfully change their business and revenue models through priority-based budgeting, we can build the communities we want without falling short because of resource scarcity. And government leaders need a budget that's aligned with those priorities to fulfill their commitments.
Unlike traditional line-item budgeting models, priority-based budgeting aligns resources and funding with community priorities and outcomes.
- It gives government leaders tools to analyze spending, reallocate funds to initiatives their community values most, and build for the future with the right programs in place.
- It examines programs and services holistically across departments to determine their broader impact, enabling leaders to make better-informed budget decisions.
- It takes the line-item budget and translates it to the organization’s priorities.
- It helps leaders in challenging fiscal conditions allocate resources strategically and create new funding models for lower-priority programs.
The limitations of existing financial systems also pose barriers. Governments must preserve the line-item budgeting found in these systems while aligning expenditures with cross-cutting priorities.
We want to maintain a line-item budget, which existing systems do well but also have the flexibility to connect programs and services to higher-level priorities in ways that might not fit into a general ledger account.
Strategies, Not Slashing
Government leaders should use priority-based budgeting to make strategic decisions, not slash budgets. The first choice is not to cut lower-priority programs and eliminate staff. In order to accomplish a priority-based budget, all departments must see a way to win.
Instead of cutting or eliminating programs, priority-based budgeting can encourage departments to develop new revenue sources, creative partnerships, and alternative funding models.
For example, one Wisconsin county’s parks and recreation department used priority-based budgeting to shift a range of programs to fee-based models and cost-sharing approaches with private, public, and nonprofit partners. This approach enabled the department to maintain service levels and make its programs 100% self-sustaining, which allowed the county to reallocate general fund resources to other priorities.
The county called it its fiscal independence plan. The key for the department was the feeling of empowerment — opening up possibilities on how the programs were funded allowed them to control their destiny.
Using AI for Budgeting Impact
A priority-based budgeting solution will integrate with existing financial systems to analyze budget data and help government leaders make evidence-based decisions. In addition, an advanced priority-based budgeting application will use artificial intelligence (AI) and machine learning (ML) capabilities to automate the correlation of budget line items and staffing to programs, cost, and impact.
For example, a solution using AI/ML could help police departments see how staff devoted to areas such as patrol, investigations, and administration also support broader goals — and connect the budget line items for personnel and other expenses to those priorities.
Solutions that leverage AI provide a playbook and implementation guidance based on the experience of others in the priority-based budgeting community. That’s a tremendous first step in terms of saving time and energy.
Finally, governments can use consultants to navigate the transition to priority-based budgeting. Some providers offer fractional staffing, allowing a jurisdiction to work with a priority-based budgeting expert part-time to implement new budgeting processes.
Budgeting for Impact
Priority-based budgeting is already making a difference for state and local governments. Many communities, like Collier County, are using priority-based budgeting to optimize expenditures in challenging fiscal environments.
- A major city in the Pacific Northwest is piloting priority-based budgeting in key departments to reallocate resources and identify new revenue streams in the face of a projected $250 million budget shortfall.
- Another community in the Mid-Atlantic region is using priority-based budgeting to implement a cross-cutting climate action plan that was adopted by city leaders but not directly funded.
With priority-based budgeting, governments can focus on the real-world value of programs instead of line-item budget minutiae.
What organizations want out of the budget transformation is to get the juice from the squeeze — to focus on the impact of programs with sound quality data. The goal is to provide maximum benefit with limited resources, which creates innovation and ingenuity to meet the community's needs.