Go to Admin » Appearance » Widgets » and move Gabfire Widget: Social into that MastheadOverlay zone
Over sandwiches in a local pub, a reporter for the Oregonian newspaper interviewed the city manager and finance director of the City of Trillium. In the midst of the worst recession since the Great Depression, this small city in the foothills of Oregon’s Cascades mountain range seemed to be performing an economic miracle. The housing market had collapsed, and other cities were laying off planners and building inspectors. Trillium was not only keeping its small planning and development staff intact, but the department still had a healthy reserve that would allow it to weather several more years of a permit revenue drought. The planners stayed busy updating long range plans, cleaning up the development code, and working with businesses on downtown development. The building official was applying his skills in managing upgrades to city buildings.
Other city councils had just completed a tortuous budget setting process, deciding among the least painful of a set of cuts to staff and programs. In Trillium, programs remained intact, and the city council had actually been able to add to a few programs, confident that the resources would be there in the long term to support them.
While the municipal bond market was in turmoil, Trillium was in the process of issuing a few million dollars in urban renewal bonds (as general obligation bonds, backed by the city’s “full faith and credit”). Standard and Poor’s had just given the bonds a double A rating, the same as for the much larger City of Portland and the State of Oregon itself, and almost unheard of for a city with a population of less than 10,000 people. The rating agency had been impressed both by the level of financial reserves and the city’s financial management policies.
Trillium’s economy was hit as hard as others. In fact, the city had doubled in population in just two decades and much of the local economy was tied to the housing and development industry. That industry was now in shambles. On a per-capita basis, the property tax base (and other revenues) were relatively modest. The only clear difference between Trillium and most other Oregon cities was the way it managed its budget.
The two staff members explained the process to the reporter. Instead of having departments go through the game-playing of a competitive budget request process, the city manager gave each department director a set amount of general tax resources (based on a projection of how much would be available to balance the budget). They were then free to build their own budgets, adding any departmental revenues (fees, grants, etc.) they could, along with 100 percent of any savings carried over from the previous year. They were given complete control over line items and were encouraged to set aside reserves in departmental contingency accounts to handle emergency repairs or cyclical revenues.
Because the operating managers were responsible for both expenditures and their own revenues (including the most volatile sources such as building permits, planning fees, and grants), they were expected to respond directly when expenditures and revenues didn’t behave exactly as projected (the best budget is, after all, nothing more than an educated guess on what the future will hold). This allowed the city to use a 24-month budget period, freeing the staff and city council from the number crunching burden of an annual budget. The city council set overall goals for programs and service levels, but the responsibility for managing the budget was not centralized and was instead delegated to the operating units within the organization.
This made life easier for the city council and executive staff. More surprising, the operating managers liked it, in spite of almost two decades of a fairly severe diet of limited general tax revenues. Rather than spending their energy and creativity figuring out how to out-compete their fellow managers for a share of the budget pie, they instead looked for ways to save money and boost revenues within their own departments. They appreciated having both the responsibility for financial management as well as the authority (and tools) to truly manage their own budgets.
The reporter wasn’t an accountant, but she was familiar with the public spectacle that characterized the budget processes of the state and most other governments. She grasped the way a decentralized budget management system provided built-in mechanisms to monitor and respond to changing economic conditions, and how operating managers had a strong incentive to be as efficient as possible.
“Why,” she asked, “don’t more cities do it this way?”
Why indeed? It is not simply an issue of financial controls and accounting; proper accounting controls can be put in place in both a centralized and decentralized budget management system. It isn’t that local government managers are ignorant of these concepts; several of the principles were highlighted two decades ago in Osborne and Gaebler’s Reinventing Government (under the label “expenditure control budgeting”). It isn’t that city councils enjoy the traditional budget jousting and gamesmanship; most individuals on city councils find the process frustrating and tiresome.
The answer to this question goes to the heart of management theory, and to the history of government management in the United States. To find out why, watch this space for next month’s column.
Author: Scott Lazenby, city manager, City of Sandy, OR and adjunct associate professor, Portland State University. [email protected]