Rethinking Budgeting Core Principles

Finding the best way to develop a local government budget starts with knowing why local governments create budgets in the first place. Each government is required by law to adopt a budget. Yet, many local governments use budget processes that go beyond what the law requires. This shows us there is value to the budget beyond mere legal compliance. This includes building public confidence and addressing complex community problems.

The traditional budget has long been criticized for being slow to adapt to changing conditions and not doing enough to best size and shape the government addressing the problems it faces. The need for reforms suggests that a wise budget design must correct for the weaknesses of traditional budgeting, while providing enough benefits to offset the costs of moving away from the traditional budget.

The most fundamental reason a local government budget exists is to pool the community’s resources to purchase public goods and services. Pooled resources are often bedeviled by a “collective action problem”. Financial Foundations for Budgeting provides a different mental model for how public finance systems should operate and is, thus, at the foundation for a modern budget.

Decision-making is messy. It is done by humans, so it comes with the myriad well-documented cognitive biases and inconsistencies in human thought. Budget officers can help government officials reduce the negative impact of bias and noise in decision processes. Based on Nobel Prize-winning research, the Budget Officer as Decision Architect describes four skill sets that budget officers should bring to budgeting.

A budget process is the series of steps and actions that lead to a decision on how to allocate resources. The Process of Budget as Envisioned by Rethinking Budgeting describes principles that can be used to design a budget process that is a fit to local needs and addresses the fundamental reasons of why we budget.

Rethinking Budgeting is in competition with a local government’s current method of budgeting. That means that there must be a compelling reason to change the budget process. A Guide for Changemakers provides resources to those looking to make a change in the budget process. This guide includes an interactive needs assessment tool to help you identify the best opportunities for change.