Understanding the Budgeting Process in the Public Sector

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Business People Meeting using laptop computer, calculator, notebook, stock market chart paper for analysisA municipal or county budget is the foundation on which all local government services and initiatives depend.

As such, local government budgeting is an essential responsibility for public administrators, one that requires both financial and political skills. During the budget process, administrators need to consider financial limitations and constituents’ interests, among other factors, while also ensuring accountability and transparency in the final document.

“The operating budget is probably a municipality’s most important work product,” according to the Municipal Research and Services Center (MRSC), a nonprofit organization that provides information and assistance to local governments across Washington State.

“In most jurisdictions,” MRSC continues, “the budget has evolved to include more than just financial data. Mission statements, goals, and objectives convey how budget decisions relate to a wider vision for the future of the municipality.”

Public-sector budgeting is integral to the curriculum in Ohio University’s online Master of Public Administration. With concentrations including Public Leadership and Management and State and Local Government Management, Ohio’s MPA program helps prepare professionals for the financial duties inherent in a range of public service careers.

Inside the Budget Process

A budget, the National League of Cities (NLC) notes, has to balance a government’s policies against public resources, spell out the strategies for providing programs and services, and establish both program costs and criteria for evaluating their efficiency and effectiveness.

According to the NLC, the budget also “provides transparency by which the government may be held accountable at the end of each budget cycle or political term.”

The NLC offers these insights into the specifics of the budgeting process:

What’s in a city or county budget

Most budgets consist of two components: the operating budget, which contains current-period expenditures, and the capital budget, which spells out plans for long-term improvements, facilities, and equipment.

“The two budgets may be consolidated in order to indicate the amount of total estimated revenues available for the current period and the amount of new debt to be incurred for projects in the capital budget,” the NLC says.

Where budgeting authority lies

In some cities, mayors have independent authority to develop budgets and recommend them to the city council. In other locations, a city or county manager may initiate the process before passing the proposed budget on to elected officials.

A city or county’s elected bodies are always responsible for budget review and approval. When the budget is approved, it becomes a legally binding document that the city or county manager (or, in some cases, the mayor) has the duty to administer. Many state laws and local charters require independent financial audits at the end of the fiscal year.

How local governments arrive at a budget

Most cities and counties have a four-step procedure:

  1. Preparation: Departments develop estimates of expenditures while considering available revenues.
  2. Approval: The city council or other designated body reviews the proposed budget. Citizen input is often considered.
  3. Implementation: City or county departments provide services as spelled out by the budget.
  4. Evaluation or audit: Officials monitor city/county and departmental performance throughout the year and use those findings to determine efficiency and inform the budget process for the following year.

Dealing with Budget Crises

Budgets, by definition, are future-looking documents. But no matter how carefully prepared, they can be affected by crises and unforeseen events. This year’s coronavirus pandemic has left governments across the country facing unprecedented revenue shortfalls.

“Here’s the problem in a nutshell,” a Baltimore Sun editorial notes. “Government at every level relies on revenue estimates when planning budgets. More than a year in advance, council, commissioners, and county executives anticipate how much the economy will grow, how much the usual taxes … will rake in, and then authorize spending.

“The abruptness and jaw-dropping scale of the current downturn could surely never have been anticipated even weeks ago.”

While the newspaper predicts that “the resulting economic downturn and its effects on local government spending will be felt much, much longer,” even with federal financial help, the accounting and business advisory firm Plante Moran sees an opportunity to address short-term COVID-19 budget impacts.

“Municipalities will need to make difficult decisions about how to prioritize spending and cuts to balance their budgets,” the firm acknowledges in “Municipal budgeting amid COVID-19.” The article then goes on to offer a range of suggestions, including:

  • Delaying or reprioritizing projects. Put projects that have not reached the contracting phase on hold until the economy picks up and modify the scope or approach of those already in progress.
  • Leveraging loan programs and borrowing money. Take advantage of assistance through the CARES Act and consider borrowing for capital projects originally budgeted as pay-as-you-go.
  • Reducing discretionary spending. Reduce travel and training costs. Cutting back shows both policymakers and constituents that you are focusing on essential services.
  • Using your fund balance. Tap into reserves or emergency funds to address short-term issues such as reductions in tax revenues.
  • Furloughing employees or implementing a hiring freeze. Furloughs are common for services – building inspections, for instance – that depend on a business cycle. You can also postpone filling empty positions.

Plante Moran’s advice for addressing more structural COVID-related changes includes:

  • Setting targets for reducing departmental budgets
  • Restructuring debt to reduce interest payments
  • Offering early retirement options while also “rightsizing” your workforce by examining management-to-staff ratios

“Taking a realistic, transparent approach to both short-term and structural fixes will go a long way,” the Plante Moran article says. “Local governments that combine best-in-class budgeting techniques and a long-term outlook tend to, over time, create a sustainable decision framework to manage through — and emerge from — crisis.”

About Ohio University’s Online Master of Public Administration (MPA) Program

Ohio University’s online MPA program is dedicated to preparing professionals for a career in public administration. Through the university’s prestigious Voinovich School of Leadership and Public Affairs, students gain an understanding of public-sector budgeting while also building skills in policy, leadership, business, management, and communications. The school occupies the No. 18 spot in the SR Education Group’s 2020 Best Online Colleges Offering MPA Programs ranking.

The program, which is 100% online, offers four concentrations: Public Leadership and Management, Nonprofit Management, State and Local Government Management, and Crisis and Emergency Management. Students can finish their degree programs in as few as two years.

Recommended reading:

Public Administrators and Taxes
Citizen Engagement in Public Administration
Gender Equality in Public Administration


Municipal Research and Services Center, “Introduction to Budgeting”
National League of Cities, “Public budgets”
Baltimore Sun, “State and local governments have painful budget choices ahead”
Plante Moran, “Municipal budgeting amid COVID-19: Tactics to prioritize spending and cuts”