Things Only Budgeteers Understand
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Andrew Kleine
February 12, 2024
“If you love budgeting, raise your hand!” Say that loudly in a crowded room almost anywhere and you will be met with sideways looks and snickers. When ordinary people hear the word “budgeting,” they don’t think “strategically investing scarce resources.” No. They picture numbers, spreadsheets, denial, deprivation and general unhappiness.
Budgeteers are a rare breed. You might say they have a decimal in the wrong place, but they are the unsung heroes of local government, where budgets must be balanced year after year, through a yo-yoing economy, ever-changing priorities and hand-to-hand political combat. What do they know that other people don’t? I asked the LinkedIn budgeteer hive mind to share secrets they wish everyone understood. From a deluge of responses, I picked a handful of favorites.
A balanced budget may not really be balanced
Every local government I know of requires its budgets to be balanced, by charter, ordinance or policy. They don’t all require structural balance, which is when current revenue equals or exceeds current expenses. Budgets that are balanced by using one-time revenue, reserves, borrowing, pay freezes or furloughs, and other such stopgaps are not sustainable.
Baselines matter, and not just in tennis
A budget baseline is a projection of future revenue and the cost to maintain current service levels. Baseline costs can increase due to inflation, pay raises, rising pension obligations, population growth and other factors, which explains why holding a budget flat is actually a cut to its spending power. Local governments can measure budget surpluses and deficits using a baseline projection, not the previous fiscal year’s numbers.
Infrastructure is a liability, not an asset
Any civil engineer will tell you that the longer you neglect a roadway, the more it costs to repair, repave or reconstruct. Cities and counties that underspend on road and street maintenance are building a large liability that doesn’t show up on the balance sheet. Urban planning experts point out that even “nice” suburban neighborhoods aren’t self-supported by the property tax revenue they generate. Local governments may need to measure the net per-acre financial impact of every parcel and adjust zoning and tax policy to ensure ends will meet over the long-term.
One-time expenses are never one-time
A cardinal rule of budgeting is that one-time revenue should not be used for ongoing expenses. It sounds like common sense, but following this rule is tricky. First of all, what seem like one-time investments have “hidden” costs. Many capital projects – libraries, sidewalks, pickleball courts and the like – have to be operated and maintained long after the ribbon is cut. Similarly, new technology often comes with licensing, support and refresh costs. A second complication is that any expense can be labeled one-time by enterprising local leaders, but may prove difficult to end when money goes away. As American Rescue Plan funding expires at the end of 2024, cities, counties and school districts will contend with public pressure to continue popular (and possibly even effective) new programs to provide rental and food assistance, tutoring, job training and more.
Tax incentives are expenditures in disguise
Many local governments use tax abatements to promote economic development or other goals. These abatements take many forms. They include reduced property tax rates for newly constructed housing units, historic preservation or office-to-residential conversions; income tax offsets for job creation; and payments in lieu of taxes for business retention or expansion. Abatements can cost cities and counties tens of millions of dollars over decades, yet they don’t show up as budget line items alongside new fire trucks or expanded homeless services, and therefore don’t get the same scrutiny. Until 2015, they weren’t even reported in annual financial statements.
According to a recent report from Baltimore’s Bureau of the Budget and Management Research, the cost of development tax credits grew from $13.6 million in 2010 to $62.6 million in 2021. An analysis of these credit programs found that they favored wealthy neighborhoods, benefited developers more than homeowners, were awarded “by right” without proof of need or merit, were more generous than needed to achieve the desired results, were in some cases overlapping and were unrestricted by budgetary controls. Other local governments would be wise to take a closer look at their tax expenditures.
Lapse is not how many times you swim back and forth in a pool
Budgeteers are often accused of “hiding” money. A better way to describe what they do is “ensuring flexibility in the event of unexpected budget fluctuations.” One way budgeteers build flexibility into the budget is through something called the lapse rate, a factor applied to reduce budgeted employee pay and benefit costs due to vacancies and turnover. Cities and counties I work with have recently enjoyed large year-end surpluses, in part because they maintained conservative lapse rates even as vacancies grew during the pandemic-driven Great Resignation.
To those who say these surpluses represented missed opportunities, just watch as local governments face the loss of Rescue Plan funding and a return to pre-pandemic employment levels. Budgeteers can be transparent about their lapse assumptions, and budget watchers can appreciate the wisdom of erring on the side of surplus vs. deficit.
The amount budgeted for a service is not its full cost
How do you measure the value of a government service? My definition of value is results per dollar spent. To calculate this equation, you need to know how a service is performing and how much it costs. As a budget director, I analyzed the full cost of street resurfacing and found it to be 70 percent higher than what was shown in the budget. The budgeted number was missing costs for landfill tipping fees, facilities, overhead, some employee benefits and other categories. These costs were elsewhere in the budget, but not where they were being incurred. A full accounting of service costs can lead to efficiencies and even change the math on outsourcing. It also informs better budget decisions.
Spending money is harder than you think
The looming deadline to spend Rescue Plan funding is waking up non-budgeteers to this reality. When these funds were distributed in mid-2021, three-and-a-half years seemed like plenty of time to get them obligated for evidence-based projects and programs to help their communities recover from the pandemic. Today, many cities are fretting that they will have to give money back or take the option of spending it on regular government services. Why do we find ourselves here? Because executing public dollars responsibly is a multistep process that involves people agreeing on priorities, experts designing effective programs, hiring and training employees and contractors, awarding grants and so on. Shortcuts are not easy to find.
Next time you see a budgeteer, please say thanks (or apologize) and tell them, “Now I get it.”
Author: Andrew Kleine is Senior Director – Government & Public Sector at EY-Parthenon, Ernst & Young LLP. He is the author of City on the Line: How Baltimore Transformed Its Budget to Beat the Great Recession and Deliver Outcomes (Rowman & Littlefield, 2018) and has served as Baltimore’s budget director. His email is [email protected], and his X/Twitter handle is @awkleine. The views reflected in this article are the views of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.
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Things Only Budgeteers Understand
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Andrew Kleine
February 12, 2024
“If you love budgeting, raise your hand!” Say that loudly in a crowded room almost anywhere and you will be met with sideways looks and snickers. When ordinary people hear the word “budgeting,” they don’t think “strategically investing scarce resources.” No. They picture numbers, spreadsheets, denial, deprivation and general unhappiness.
Budgeteers are a rare breed. You might say they have a decimal in the wrong place, but they are the unsung heroes of local government, where budgets must be balanced year after year, through a yo-yoing economy, ever-changing priorities and hand-to-hand political combat. What do they know that other people don’t? I asked the LinkedIn budgeteer hive mind to share secrets they wish everyone understood. From a deluge of responses, I picked a handful of favorites.
A balanced budget may not really be balanced
Every local government I know of requires its budgets to be balanced, by charter, ordinance or policy. They don’t all require structural balance, which is when current revenue equals or exceeds current expenses. Budgets that are balanced by using one-time revenue, reserves, borrowing, pay freezes or furloughs, and other such stopgaps are not sustainable.
Baselines matter, and not just in tennis
A budget baseline is a projection of future revenue and the cost to maintain current service levels. Baseline costs can increase due to inflation, pay raises, rising pension obligations, population growth and other factors, which explains why holding a budget flat is actually a cut to its spending power. Local governments can measure budget surpluses and deficits using a baseline projection, not the previous fiscal year’s numbers.
Infrastructure is a liability, not an asset
Any civil engineer will tell you that the longer you neglect a roadway, the more it costs to repair, repave or reconstruct. Cities and counties that underspend on road and street maintenance are building a large liability that doesn’t show up on the balance sheet. Urban planning experts point out that even “nice” suburban neighborhoods aren’t self-supported by the property tax revenue they generate. Local governments may need to measure the net per-acre financial impact of every parcel and adjust zoning and tax policy to ensure ends will meet over the long-term.
One-time expenses are never one-time
A cardinal rule of budgeting is that one-time revenue should not be used for ongoing expenses. It sounds like common sense, but following this rule is tricky. First of all, what seem like one-time investments have “hidden” costs. Many capital projects – libraries, sidewalks, pickleball courts and the like – have to be operated and maintained long after the ribbon is cut. Similarly, new technology often comes with licensing, support and refresh costs. A second complication is that any expense can be labeled one-time by enterprising local leaders, but may prove difficult to end when money goes away. As American Rescue Plan funding expires at the end of 2024, cities, counties and school districts will contend with public pressure to continue popular (and possibly even effective) new programs to provide rental and food assistance, tutoring, job training and more.
Tax incentives are expenditures in disguise
Many local governments use tax abatements to promote economic development or other goals. These abatements take many forms. They include reduced property tax rates for newly constructed housing units, historic preservation or office-to-residential conversions; income tax offsets for job creation; and payments in lieu of taxes for business retention or expansion. Abatements can cost cities and counties tens of millions of dollars over decades, yet they don’t show up as budget line items alongside new fire trucks or expanded homeless services, and therefore don’t get the same scrutiny. Until 2015, they weren’t even reported in annual financial statements.
According to a recent report from Baltimore’s Bureau of the Budget and Management Research, the cost of development tax credits grew from $13.6 million in 2010 to $62.6 million in 2021. An analysis of these credit programs found that they favored wealthy neighborhoods, benefited developers more than homeowners, were awarded “by right” without proof of need or merit, were more generous than needed to achieve the desired results, were in some cases overlapping and were unrestricted by budgetary controls. Other local governments would be wise to take a closer look at their tax expenditures.
Lapse is not how many times you swim back and forth in a pool
Budgeteers are often accused of “hiding” money. A better way to describe what they do is “ensuring flexibility in the event of unexpected budget fluctuations.” One way budgeteers build flexibility into the budget is through something called the lapse rate, a factor applied to reduce budgeted employee pay and benefit costs due to vacancies and turnover. Cities and counties I work with have recently enjoyed large year-end surpluses, in part because they maintained conservative lapse rates even as vacancies grew during the pandemic-driven Great Resignation.
To those who say these surpluses represented missed opportunities, just watch as local governments face the loss of Rescue Plan funding and a return to pre-pandemic employment levels. Budgeteers can be transparent about their lapse assumptions, and budget watchers can appreciate the wisdom of erring on the side of surplus vs. deficit.
The amount budgeted for a service is not its full cost
How do you measure the value of a government service? My definition of value is results per dollar spent. To calculate this equation, you need to know how a service is performing and how much it costs. As a budget director, I analyzed the full cost of street resurfacing and found it to be 70 percent higher than what was shown in the budget. The budgeted number was missing costs for landfill tipping fees, facilities, overhead, some employee benefits and other categories. These costs were elsewhere in the budget, but not where they were being incurred. A full accounting of service costs can lead to efficiencies and even change the math on outsourcing. It also informs better budget decisions.
Spending money is harder than you think
The looming deadline to spend Rescue Plan funding is waking up non-budgeteers to this reality. When these funds were distributed in mid-2021, three-and-a-half years seemed like plenty of time to get them obligated for evidence-based projects and programs to help their communities recover from the pandemic. Today, many cities are fretting that they will have to give money back or take the option of spending it on regular government services. Why do we find ourselves here? Because executing public dollars responsibly is a multistep process that involves people agreeing on priorities, experts designing effective programs, hiring and training employees and contractors, awarding grants and so on. Shortcuts are not easy to find.
Next time you see a budgeteer, please say thanks (or apologize) and tell them, “Now I get it.”
Author: Andrew Kleine is Senior Director – Government & Public Sector at EY-Parthenon, Ernst & Young LLP. He is the author of City on the Line: How Baltimore Transformed Its Budget to Beat the Great Recession and Deliver Outcomes (Rowman & Littlefield, 2018) and has served as Baltimore’s budget director. His email is [email protected], and his X/Twitter handle is @awkleine. The views reflected in this article are the views of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.
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