Program Budgeting
By Assistant Finance Director Mike McCann

On June 16 the City Council adopted their annual budget for the fiscal year ending June 30, 2011.  Producing a balanced budget in these tough economic times required sacrifices from City staff, capital and neighborhood projects and judicious use of reserves. 
    The budget wheels started turning again the following day, as staff began work on a budget for the next year which is going to require another $5 million in expenditure reductions, based on the best reasonable revenue forecasts. 
     The decisions that are going to have to be made will impact the City's ability to maintain our historic and physical assets and will be felt directly by citizens needing services.
     Program budgeting, outcomes-based budgets, value drivers and legal mandates were all terms tossed around in discussion and presentations leading up to our recent budget adoption.  A little background on these buzzwords may be useful to the reader who does not normally operate inside City budget circles. 
     At the highest level, Legal Mandates are the body of law passed by Federal and State legislation and regulation which requires cities do certain things.  Preventing storm water from entering the bay, and meeting low or moderate income housing targets, are examples.  Beyond mandates and customary city services, many of the City’s efforts are informed by a set of Value Drivers adopted by the City Council.  Each Value Driver is expressed in both specific project initiatives and in on-going services and programs. 
     Program budgeting is a process used to match on-going program expenses and revenues to mandates and/or value drivers so Council and citizens can more easily trace the relationship between benefits received and costs incurred.  The next annual budget, for 2011-12, will be presented as a set of program budgets.
     Outcomes-based budgeting is a philosophy of budget design that starts with defining goals, then works to allocate resources to achieve those goals.  The key is goals that are important to the Council and citizens, are realistic and can be measured objectively over time.  Clear goals open the door to constructive discussion of delivery options, service levels and the relative importance of competing goals.    
     A balanced budget is the ultimate end-product of the budgeting process.  Defining a balanced budget may not be so obvious or simple.  First, the budget has to align current resources with current expenditure (i.e. meet the payroll and pay the bills).  However, as any business person knows, if that is all you do you will not be in business for long.  The City has been here a long time and will be here a long way into the future.  Our budget must both pay today’s bill, and build financial resources for the future.  All the City’s (that is, the people’s) assets require maintenance, overhaul and eventual replacement.  For example, if we had a current appraisal done of City owned buildings, parks, roads, sewers, storm drains, wharves and other facilities, it would add up to $100’s of millions of assets.  How fast do they wear out? If we say fifty years on average and have a value of $500 million, prudent business practice would require an on-going investment of $10 million per year – every year in replacement reserves, just to stay even.  That is beyond daily maintenance and before any allowance for growth or inflation. While we accommodate these interests to some degree, the City does not invest nearly enough to be proper stewards of our facilities and infrastructure.
     We have a long year ahead to craft a way forward.  Success is going to require all of the skills and talents of the City’s professional staff, careful deliberation by Council and constructive imaginative input by our citizens.  Please be thinking about what you want the future of your City to look like and watch for opportunities to participate and make your voice heard over the next few months.