COMPARING RETHINKING BUDGETING TO THE TRADITIONAL BUDGET

INTRODUCTION

Our goal is to provide a compelling trade-off where Rethinking Budgeting becomes an attractive alternative to traditional budgeting.

Rethinking Budgeting addresses challenges that local government budgeting often cannot respond to effectively. Local government leaders can choose to follow the Rethinking Budgeting’s guidance instead of the current approach to budgeting.

Traditional budgeting endures because it has certain strengths. We should ask how Rethinking Budgeting compares to these strengths. In this document, we compare how Rethinking Budgeting compares to the strengths of traditional budgeting. The strengths of the traditional budget are taken from the classic article “A budget for all seasons? Why the traditional budget lasts” by Aaron Wíldavsky.

After we review the strengths, we highlight the advantages of Rethinking Budgeting that are unmatched by the traditional budget.

STRENGTH 1: SIMPLICITY

Because traditional budgeting is done incrementally, it is easy to understand and calculate. Because it does not address larger strategic issues, the budget process is less demanding of participants’ time and attention.

RETHINKING BUDGETING'S ALTERNATIVE:

  • Rethinking Budgeting identifies three design principles for efficient budgeting: 1) Use leverage points. 2) Take smart shortcuts.  3) Avoid burnout. Though these steps do not make Rethinking Budgeting as simple as traditional budgeting, they invite a different philosophy than past alternatives to incremental budgeting. Past alternatives, like zero-base budgeting, attempted to examine the entire budget rationally and comprehensively.  This is time and resource intensive.
  • Rethinking Strategic Planning encourages local governments to focus planning on specific concerns rather than a broad array of concerns. Though strategic planning requires an up-front investment of time and energy, it can result in better communication and coordination that leads to lower costs later.
  • Finally, Rethinking Budgeting presents several benefits that offer a compelling trade-off to the simplicity of traditional budgeting.

STRENGTH 2: CONTROL

Line items of the traditional budget provide easy-to-understand accountability: Did the line item get overspent? Also, incrementalism means the budget is not subject to radical changes each year. Radical change risks getting out of control.

RETHINKING BUDGETING'S ALTERNATIVE:

Rethinking Budgeting recognizes the risk of overspending and budgetary imbalance as the risk decision-makers are most concerned about. The control offered by line items is not abandoned but is enhanced by other perspectives. This offers a holistic way to consider and mitigate risks to public budgeting.

  • Rethinking Budgeting recommends identifying the highest priority community concerns, carefully defining the problem government is trying to address, and then identifying the most promising strategies.
  • Because these community concerns will not be addressed overnight and should be aligned with elected officials’ priorities, that may promote stability in spending priorities, at least for the officials’ term of office.
  • True control over the budget requires more than spending controls. Rethinking Budgeting advocates for self-skepticism but recognizes diminishing returns from applying the same perspective year after year. Because Rethinking Budgeting is not advocating for comprehensive self-skepticism each year, it preserves some spending stability. Further, Rethinking Budgeting recognizes that incremental budgeting could be useful and a wise strategy in some cases. For example, a service that is valuable and performing adequately could have its budget continued from year to year.
  • Rethinking Budgeting is designed to answer the most important question of control in budgeting: Who gets what and why?

STREGTH 3: PREDICTABILITY

Historical precedent is often an accepted justification for decisions. Relying on historical precedent sets the expectations of participants in the budget process. The value of predictability is to reduce conflict.

RETHINKING BUDGETING'S ALTERNATIVE:

  • Rethinking Budgeting promotes fair and inclusive decision-making to reduce short- and long-term potential for destructive conflict. Rethinking Budgeting anticipates the need for fast and fair conflict resolution. It offers mechanisms for a process to discuss and resolve conflict.
  • Historical precedent is a stand-in for fairness when it comes to justifying how resources are  distributed. Rethinking Budgeting shifts to a nuanced and wholistic concept of fairness that is a better fit for the conflicts local governments must face.
  • Rethinking Budgeting stresses the importance of open communication between stakeholders. With open communication, people can better understand the interests of others and shape their expectations for how the budget process will unfold. Rethinking Budgeting promotes good decision architecture. It advocates for communication of the rules of the game to participants so they know how to effectively participate.
  • Rethinking Budgeting recognizes that conflict is not always a bad thing. Reasonable parties can disagree, and those disagreements must be brought up and resolved for local government to be most effective. Rethinking Budgeting offers better ways to work through conflict, find compromises, and/or build consensus.
  • Rethinking Budgeting widens the circle of participants in the budget and the depth of participation. If people are deeply involved in the process, they will know what to expect.

STRENGTH 4: FLEXIBILITY

Because the traditional budget is not oriented toward overarching strategic objectives, public officials can easily change their goals. In other words, public officials have flexibility to declare new policies because the budget has not been committed to a strategic direction.

RETHINKING BUDGETING'S ALTERNATIVE:

  • The flexibility of the traditional budget addresses the human need for autonomy. Rethinking Budgeting promotes “local autonomy” but does so through different mechanisms than the traditional budget.
  • Flexibility offers the ability to adjust to changing and unexpected circumstances. Rethinking Budgeting promotes a rolling strategic plan to adapt to changing conditions by updating strategies and tactics. It also promotes strong reserves and a budgetary contingency to deal with unplanned, unavoidable expenditures.
  • Rethinking Budgeting advocates for strong public engagement, which may help elected officials be more confident in their strategic direction. If that direction has strong democratic legitimacy, then elected officials may be less likely to feel the need to change it.

RETHINKING BUDGETING'S COMPELLING TRADE-OFFS

Rethinking Budgeting can offer some comparable strengths to traditional budgeting. However, Rethinking Budgeting will never be a perfect substitute. It is not as simple as taking last year’s budget, making a few changes at the margin, and adopting it as next year’s budget.

  1. Maximize progress toward important goals. Rethinking Budgeting is inspired by the need for local governments to be active participants in helping the community solve complex and pressing problems. The traditional budget process is unsuited to address emerging and complex community challenges. Rethinking Budgeting helps local governments translate an ambitious vision and service priorities into reality. It also helps identify and mitigate long-term risks to the local government and its community.
  2. Reduce persistent financial stress. The traditional budget process is plagued by a collective action problem that results in overuse of public resources. This leads to ongoing financial stress. Rethinking Budgeting is organized around methods for solving collective action problems to help reduce financial stress.
  3. Address pain points associated with traditional budgeting. Though traditional budgeting has its advantages, it can be confusing and frustrating for participants. These sources of dissatisfaction with traditional budgeting can be addressed by Rethinking Budgeting motivating changes in the budget process.
  • 3a Reduce suboptimal decisions. Rethinking Budgeting is focused on helping local governments produce savvy and wise decisions through the budget by recognizing the role of budget staff in producing good decision architecture.
  • 3b Minimize “budget games.” The traditional budget process results in unhealthy “budget games,” with zero-sum gaming being the most prevalent. Many department heads realize that these budget games do not advance the public good, but they feel the need to go along with how the game is played. Rethinking Budgeting changes the game.
  • 3c Elected officials feel like passive participants in budgeting. Rethinking Budgeting allows elected officials to better access and understand the financial structure of the local government and helps them see their input as substantial. Rethinking Budgeting gives elected officials agency to set the strategic direction of the budget, set guiding policies, and local autonomy for them to remain comfortable and connected with the budget process.
  • 3d Community members do not understand the budget. Rethinking Budgeting takes new and different approaches to public engagement and communicating the budget. Highlighting service goals and the results produced by government allows the budget to tell a compelling story to the public.