Budgeting and Forecasting

Priority Based Budgeting Creates Community Alignment in Duluth

Page from April 2021 issue of GFR

Budgeting is just as much about values and priorities as it is about dollars. In times of fiscal distress, however, we often ignore those principles in favor of just getting the budget balanced. But in times of fiscal stress, it’s even more important for governments to communicate their priorities and values to improve budget transparency, demonstrate fairness, and help justify difficult decisions. In this section, we will look at practical strategies to help you prioritize your organization’s values and develop a framework to make those tough decisions and communicate them to those who are most affected.

The City of Duluth, Minnesota, is a beautiful, long city built narrowly on a hillside next to the world’s largest freshwater lake, Lake Superior. Because of its dramatic landscape and geographic location, Duluth experiences a lot of weather extremes from heavy snowfalls to powerful storms. Duluth’s scenic location and 23-mile length make it challenging to provide core government services (public safety) and operate utilities (water, natural gas, stormwater, sewer, and steam), and to manage other community assets.

More than 70% of the city’s general fund revenues comes from three sources, the largest of which is local government aid from the State of Minnesota— approximately a third of the city’s budget. The formula for local government aid is determined by the state, and it compares the city’s spending needs to its ability to fund services. The amount of local government aid is relatively fixed, with no growth factor built in. Property tax is the city’s second-largest revenue source, followed by sales tax. These three sources make up 70% of general fund revenues, and costs of services have a higher rate of appreciation than their revenue increases.

The only revenue source Duluth can control is property tax, which we try to keep as low as possible. The challenge is that while 70% of its revenues aren’t projected to keep pace with inflation, over 84% of Duluth’s expenditures are, creating a structural imbalance and a budget gap.

As the City worked to solve the 2018 budget deficit, they had recently adopted a land use plan called Imagine Duluth 2035: Forward Together. Imagine Duluth 2035 was a very community-oriented process. The community’s priorities outlined in the land use plan included economic development, energy and conservation, housing, open space, and transportation. While they had a land use plan, they didn’t have a way to align the budget and resources to the plan. Faced with two options: shelve the Imagine Duluth 2035 plan or start putting it into action.

  • Publication date: April 2021