Local Government Cutback Budgeting: Since the 2008 Financial Meltdown, Local Governments Continue to Scramble to Develop Sustainable Budgets

Article excerpt

Local government cutback budgeting refers to reducing operations below the current level. It forces organizations to realign expenses with revenues. The larger the gap between expenses and revenues the greater the cutback required to restore a balanced budget.

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Cutback budgeting also may target a general policy theme or a specific agency or department. For instance, a city may deemphasize libraries and parks in favor of more law enforcement or fire protection. In that circumstance, funding for libraries and parks may be reduced, held flat, or curbed from growing at a previous rate. This results in a cutback budget for those departments. Concurrently, resources may be diverted to preserve or grow public safety programs.

Chief Reasons for Cutbacks

Many local agencies find themselves dealing with cutbacks periodically when economic conditions negatively influence local expenses and revenues, such as during a recession. Some other chief reasons for cutbacks include

* specific revenue shortfalls tied to a program or series of programs

* unfunded mandates from another governmental level

* unusual or unanticipated fiscal issues such as public protection concerns, unemployment, and natural disasters

* shifting public service demands (for example, street repair reductions to fund more animal control services)

* changes in political ideology (for example, demands for less government and more privatization).

Local Budgeting Environment

Several characteristics of the local budgeting environment influence approaches to cutback management. First, local governments mostly provide public goods and services unprofitable for the private sector. Frequently, these represent goods and services that exhibit efficiency through economies of scale with costs distributed community-wide.

Market measures of efficiency and effectiveness find little use during bud-get hearings as service beneficiaries argue to protect their favored programs. Further, supply-and-demand market rules become moot because many local service recipients do not directly pay for services received and only one service provider usually exists.

Second, taxpayers generally represent "involuntary" resource providers to government. Given the option of not paying for governmental services, many would forgo payment. The absence of the "no-pay" option fosters intense transparency and accountability pressure from citizens. In essence, they want to know how their money is spent and who is responsible for spending it.

Third, "incrementalism" continues as the most influential budgeting approach. Incrementalism recognizes that most governmental budgets build on factors already in place. Basically, this approach boils down to the notion that financial plans for a subsequent year typically involve incremental additions or subtractions to that base budget. It respects past commitments while easing political angst.

Unfortunately, incrementalism skirts comprehensive analysis of the entire budget annually. Depending on the spending or revenue gap, downsizing may call for overall scrutiny, performance evaluation, and radical surgery, not just an incremental adjustment.

Cutback Planning

The severity of a cutback budget is relative. Planning strategies must be tempered by three factors:

1| size

2| duration

3| urgency.

Initially, the relative size of the budget reduction demands determination. A reduction of $100,000 from a $1 million budget may signify a devastating 10 percent hit with immediate layoffs and service reductions However, a reduction of $100,000 from a $10,000,000 budget results in a 1 percent budget decrease.

This may mean only a six-month delay in filling three vacant positions out of a staff of 100. Obviously, the proposed $100,000 cut poses drastically different challenges to the comparison agencies. …