Inside the Crisis of Municipal Budgeting

The problems that underlie traditional budgeting are not new. Cities have operated under this scheme for decades. What is new is that limits of the traditional budget approach are being tested. Processes and techniques—and even some budget managers—that appear to do well when the organization is growing are insufficient for today’s challenges. The zero-sum tradeoffs and difficulties in weighing relative priorities are manageable when the organization is deciding how much to increase the budgets of each department. But those same elements of the budgeting process become paralyzing when city officials are faced with what and how to roll back. The traditional annual budget creates the illusion of control over spending—and the presence of the finance director creates the illusion of a controller who regulates that spending. Meanwhile, the GASB can require municipalities to report all of their assets and obligations; but it cannot require those municipalities to maintain their assets or properly fund their obligations. The GFOA can recommend, and state governments can demand, balanced budgets; but the budget is not where the organization’s financial course is set.