Magazine article Government Finance Review

Are All Public Spending Programs Equal? Priority Setting Approaches for Government Budgeting

Magazine article Government Finance Review

Are All Public Spending Programs Equal? Priority Setting Approaches for Government Budgeting

Article excerpt

Governments are using formal priority-setting systems in lieu of ad hoc methods to make better operating and capital budgeting decisions. This article presents highlights from the new GFOA publication Priority-Setting Models for Public Budgeting.

Priority setting is a process by which a government articulates the functions or programs considered most important to the attainment of service goals and objectives to be pursued in the forthcoming fiscal year. [1] Simply put, priority setting helps determine what goods and services will be delivered to which persons and at what cost.

Why set priorities? Because there are far too many activities to fund with the limited resources of governments. Citizens often simultaneously demand an increase in the quantity and quality of services and a decrease in the taxes and fees needed to pay for those services. Given the inherent structural imbalance between government's supply of resources and the public demand for services, all jurisdictions must set priorities during the budgetary process, whether by formal or informal methods.

Best Practices in Public Budgeting and Priority Setting

Promoting budgeting that takes a long-term strategic and financial planning perspective is the overarching theme of the 59 recommended practices developed by GFOA in conjunction with the National Advisory Council on State and Local Budgeting (NACSLB). A key component of that long-term focus is the promotion of the use of formal models of priority setting in lieu of traditional ad hoc or incremental methods.

Priority setting furthers the goals of long-term planning by conducting an evaluation of possible options and then suggesting choices in light of environmental and resource constraints. That is, priority setting evaluates projects and programs in relation to one another in terms of need, scope, cost, and other criteria. Thus, priority-setting systems use a rational process to provide policymakers with the objective information they need to make informed resource allocation decisions. In sum, priority setting is a key component of an effective long-term budgeting process.

Five NACSLB Recommended Practices apply to setting priorities. They focus on two different aspects of a "best practice" budget process: establishing the goals that are the framework of a well-planned budget process, and incorporating internal and external stakeholder input into the budget process itself.

Informal Priority-setting Methods

Priorities can be set by informal or formal methods. "Informal" approaches allocate resources based on "gut feelings," political concerns, traditions or customs, the preferences of leaders and managers, and the influence exerted by key stakeholders. They neither follow a standardized set of procedures nor do they make any claim of objectivity.

Informal priority setting will always play an important role in shaping governmental resource allocation decisions because they are rooted in the political process. However, there are several problems with relying exclusively on informal priority-setting procedures.

* They depend heavily on the judgment or intuition of key individuals. There are few opportunities to incorporate different viewpoints or concerns from a broad range of stakeholders. The inherent lack of discussion and deliberation makes it easy for decision makers to become insulated and isolated from stakeholder concerns. Thus, they do not necessarily have access to the best or even good information about options and opportunities.

* They lack transparency. Because the public doesn't know how or why decisions are made and priorities set, their already high levels of mistrust and suspicion are increased. Citizens today are demanding greater levels of accountability from their public officials and their governments. They want to know exactly what they're getting for their money.

* They are inconsistent and lack standards. …

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