The Budget Process

Public managers can't control many of the factors that affect their budgets. Managers in government can't control the broader economy. Non-profit managers can't do much to affect the financial health of the foundations that grant them money or individuals who support them through donations. Managers across the public sector can do little to affect rising costs for employee health care, new technology, wages and salaries, and a variety of other factors that drive growth in expenses. The best we can do is understand these trends, forecast them to the best of our ability, and help policymakers understand the trade-offs these trends put in play.

But public managers can control how they make their budgets, also known as the budget process. In fact, process is perhaps the only part of budgeting that public managers can control. In particular, you alone can answer many of the key questions surrounding each of the three main budget process concerns:

  1. Who proposes the budget? Do you develop and propose your budget on your own? When developing your initial assumptions do you solicit input from program managers or other subordinates, your board/council or other policy leaders, outside funders, or other key stakeholders? Do you ask department heads or other subordinates to develop and submit their own budgets?
  2. What information is introduced into the budget process, and when? Do you share the key budget assumptions with program managers, line staff, and other stakeholders? Do you connect budgeted spending with key performance targets? If so, do you make those targets available to other stakeholders? If your budget calls for cuts, do you share when and how those cuts will happen? Do you explain why you chose the cuts you chose? Do you share that information with the entire organization at once, or through meetings with individual program managers/department heads/etc.?
  3. Who decides on final budgeted revenues and spending? Do you afford program managers/department heads/etc. the latitude to propose their own final budget? Does your council/board approve the budget in one action, or in stages? If you have the authority to make budget amendments or re-appropriations? Do you use it, and when? Does your budget include both operations and capital projects, or just operations?

Operating vs. Capital Budgeting

Most state and local government budgets include both an operating budget, or a budget for recurring spending items, and a capital budget for revenues and spending related to long-term assets like buildings, equipment, and infrastructure. Most day-to-day operations of core programs are covered in the operating budget. The capital budget is often part of a three to ten year capital improvement plan (CIP) that identifies long-term capital spending needs. In a well-designed budget process, the operating budget includes spending related to debt service, maintenance, and other near-term parts of the capital budget. Capital budgeting is challenging because it's less visible, but incredibly expensive. Consider, for instance, that 70% of infrastructure assets are underground, but that it costs $140,000/mile/year to maintain roads

For this and many other reasons it's important to understand some of the main features of public organizations' budget processes. This discussion is focused on governments' budget processes, mostly because those processes are most comparable and are often prescribed by state or federal law. That said, many of the basic features of those processes can also apply to non-profits. Moreover, it's important for non-profit managers to understand how government budgets are made, given the centrality of government funding to many non-profit budgets.