GFOA Best Practices
in Budgeting
Government Finance Officers Association of Arizona
Thursday, October 25, 2012
Eric R. Johnson
Hillsborough County, (Tampa) FL
A GFOA best practice identifies specific policies and
procedures as contributing to improved government
management. It aims to promote and facilitate
positive change rather than merely to codify current
accepted practice.
Partial implementation is encouraged as progress
toward a recognized goal.
GFOA has established standing committees to develop
best practices in six functional areas – one of which
is the Committee on Budgeting and Fiscal Policy.
Nine best practices are highlighted here.
Public Participation in Planning, Budgeting
and Performance Management (2009)
Background. Good public participation practices can help
governments be more accountable and responsive, and can also
improve the public’s perception of governmental performance and
the value the public receives from the government.
Public Participation in Planning, Budgeting
and Performance Management (2009)
Recommendation. GFOA recommends that governments
incorporate public participation efforts in planning, budgeting, and
performance management results processes; and that to ensure
effective and well implemented public participation processes,
governments include the following considerations in designing
their efforts:
Purposes for involving the public; assurances that they are getting
the public’s perspective rather than only that of a small number of
highly vocal special interest groups; approaches to eliciting public
participation and the points in the planning-budgeting-performance
management cycle those approaches are likely to be most
effective; information that the process will be incorporated into
decision making; communication to the public regarding how the
information collected will be and was used; and buy-in from top
government officials.
The Overview of Performance Management:
From Measurement and Reporting to
Management and Improving (2011)
Background. GFOA has long urged state and local governments
to incorporate performance measurement as an integral part of
their budget process, as recommended by the National Advisory
Council on State and Local Budgeting. Likewise, the GFOA is
persuaded that the full benefit of performance measurement can
only be achieved when performance measures and performance
reporting are further integrated into an overall framework of
performance management. The National Performance
Management Commission, representing eleven national public
interest organizations of elected and appointed state and local
government officials (including the GFOA), issued a report in
2010, A Performance Management Framework for State
and Local Government: From Measurement and Reporting
to Management and Improving.
The Overview of Performance Management:
From Measurement and Reporting to
Management and Improving (2011)
The National Performance Management Commission:
 Association of School Business Officials International
 Council of State Governments
 Government Finance Officers Association
 International City/County Management Association
 National Association of Counties
 National Association of State Auditors, Comptrollers, and
Treasurers
 National Center for State Courts
 National Association of State Budget Officers
 National Conference of State Legislatures
 National League of Cities
 United States Conference of Mayors
The Overview of Performance Management:
From Measurement and Reporting to
Management and Improving (2011)
Background. The framework developed by the Commission is
flexible and provides an overview for use by all state, provincial
and local entities – cities, counties, special districts, schools, and
the judiciary. It is conceptual, based on principles the Commission
agreed are the foundation of sustainable and sound public-sector
performance management systems.
The Overview of Performance Management:
From Measurement and Reporting to
Management and Improving (2011)
Background. The framework developed by the Commission :
 A results focus permeates strategies, processes, the organizational
culture, and decisions.
 Information, measures, goals, priorities, and activities are relevant to
the priorities and wellbeing of the government and the community.
 Information related to performance, decisions, regulations, and
processes is transparent — easy to access, use, and understand.
 Goals, programs, activities, and resources are aligned with priorities
and desired results.
 Decisions and processes are driven by timely, accurate, and
meaningful data.
 Practices are sustainable over time and across organizational
changes.
 Performance management helps to transform the organization, its
management, and the policymaking process.
The Overview of Performance Management:
From Measurement and Reporting to
Management and Improving (2011)
Recommendation. The purpose of public-sector performance
management (shown throughout the commission’s report) is to
provide a systematic approach to managing performance through
concepts, practices and processes that align governments’ efforts
to achieve the best possible results for the public within available
resources. Performance management emphasizes the importance
of continuous learning, improvement, and accountability for
results.
Therefore, the GFOA strongly endorses the work of the National
Performance Management Commission and encourages state
and local governments to implement performance management
systems consistent with its recommendations.
The Overview of Performance Management:
From Measurement and Reporting to
Management and Improving (2011)
http://www.pmcommission.org/APerformanceManagementFramework.pdf
Appropriate Level of Unrestricted Fund
Balance in the General Fund (2002 and 2009)
Background. It is essential that governments maintain adequate
levels of fund balance to mitigate current and future risks (e.g.,
revenue shortfalls and unanticipated expenditures) and to ensure
stable tax rates. Fund balance levels are a crucial consideration,
too, in long-term financial planning.
Appropriate Level of Unrestricted Fund
Balance in the General Fund (2002 and 2009)
Recommendation. GFOA recommends that governments
establish a formal policy on the level of unrestricted fund balance
that should be maintained in the general fund. Such a guideline
should be set by the appropriate policy body and should provide
both a temporal framework and specific plans for increasing or
decreasing the level of unrestricted fund balance, if it is
inconsistent with that policy. The adequacy of unrestricted fund
balance in the general fund should be assessed based upon a
government’s own specific circumstances. Nevertheless, GFOA
recommends, at a minimum, that general-purpose governments,
regardless of size, maintain unrestricted fund balance in their
general fund of no less than two months of regular general fund
operating revenues or regular general fund operating expenditures
– based on which is more predictable.
Replenishing Fund Balance in the
General Fund (2011)
Background. It is essential that governments maintain adequate
levels of fund balance to mitigate risks and provide a back-up for
revenue shortfalls.
Replenishing Fund Balance in the
General Fund (2011)
Recommendation. GFOA recommends that governments adopt a
formal fund balance policy that defines the appropriate level of
fund balance target levels. Also, management should consider
specifying the purposes for which various portions of the fund
balances are intended. This additional transparency helps
decision makers understand the reason for maintaining the target
levels described in the fund balance policy. Governments should
also consider providing broad guidance in their financial policies
for how resources will be directed to fund balance replenishment.
Finally, a government should consider including in its financial
policy a statement that establishes the broad strategic intent of
replenishing fund balances as soon as economic conditions allow.
This emphasizes fund balance replenishment as a financial
management priority.
Presentation of the Capital Budget in the
Operating Budget Document (2008)
Background. A government should decide how to best present
major capital program highlights in the operating budget document.
An exceptional capital presentation enhances the transparency and
accountability to citizens. It gives a broader context for citizens to
understand major components of the capital budget and its
relationship to the operating budget.
Presentation of the Capital Budget in the
Operating Budget Document (2008)
Recommendation. GFOA recommends that governments consider
the following guidelines when incorporating information on the
capital budget within the operating budget document. Presentation
of the capital section should include a summary of the multi-year
capital plan as well as detailed information related to the budget.
Each government will need to establish the appropriate balance
between summary-level and detailed information.
Guidelines: Placement of information, definition of capital
expenditures, sources and uses, capital process, recurring vs. nonrecurring projects, project description, operating impact, timetable,
graphics, links to additional information.
Presentation of the Departmental Section in
the Operating Budget Document (2012)
Background. The departmental section traditionally has focused
on accomplishments and detailed financial schedules. Emphasis
is also being placed on describing programs or services and how
their objectives will be met. A well-designed departmental section
can enhance a reader’s understanding of the purpose of funded
programs or services, as well as their cost.
Presentation of the Departmental Section in
the Operating Budget Document (2012)
Recommendation. GFOA recommends that governments consider
the following guidelines when presenting information in the
departmental section of the operating budget document:
The formatting/design; avoiding excessive detail; including a
description of services or functional responsibilities; discussing
challenges, issues, and opportunities; showing revenues that may
include any fees or charges that the department generates;
analysis of expenditures in a broad manner; staffing information;
explaining how services are prioritized; and including performance
measures.
Budgeting for Results and Outcomes (2007)
Background. A growing number of governments use the budgeting
for results and outcomes approach – they begin with available
revenues, continue with a consideration of desired results and
strategies, and then conclude by deciding what activities and
programs can best achieve desired results. Budgeting for results
and outcomes links strategic planning, long-range financial
planning, performance measures, budgeting, and evaluation. It also
links resources to objectives at the beginning of the budgetary
process, so that the primary focus is on outcomes rather than
organizational structure.
Budgeting for Results and Outcomes (2007)
Recommendation. GFOA recommends that governments consider
budgeting for results and outcomes as a practical way of integrating
performance into the budgetary process. The following steps should
help a government in making this successful transition:
Determine how much money is available; prioritize results; allocate
resources among high priority results; conduct analysis to
determine what strategies, programs, and activities will best
achieve desired results; budget available dollars to the most
significant programs and activities; set measures of annual
progress, monitor, and close the feedback loop; check what actually
happened; and communicate performance results.
Managing the Salary and Wage Budgeting
Process (2010)
Background. Accurate expenditure projections are more important
than ever. Since salaries make up the greatest portion of the
expenditure budget, it is logical to apply forecasting techniques
that can provide a true picture of where payroll dollars are headed.
Governments can use various mechanisms to manage headcount
levels in light of cost constraints.
Managing the Salary and Wage Budgeting
Process (2010)
Recommendation. GFOA encourages governments to consider
forecasting procedures that would result in more accurate
expenditure projections, especially as they relate to personnel.
The items shown below provide governments with the areas in
which they should consider adopting practices to more effectively
budget salary and wages. Additionally, in order to analyze total
compensation, benefits need to be considered.
Use a personnel tracking system; adjust for vacancies (start
dates, trends, frozen positions, attrition); recognize the impact of
collective bargaining units; consider the impact of inflation;
determine optimal staffing levels; consider the approach to
compensation (steps vs. merit pay) and personnel categorizations
(e.g., in-house vs. contracted); and monitor expenditures.
Inflationary Indices in Budgeting (2010)
Background. Governments are under considerable pressure to
relate their spending and taxation levels to cost inflation, yet each
local government’s experience with inflation can differ greatly from
a national average. Local governments would benefit from having
a well-constructed index of the changing costs of providing
municipal services, but few governments have attempted to build
and effectively use such a measure. This best practice reviews
some of the options available for creating a municipal price index,
and for dealing with some of the problems inherent in developing a
cost index.
Inflationary Indices in Budgeting (2010)
Recommendation. GFOA encourages every government to
consider using the inflation indices that work best as a predictor.
This may mean the use of different indices depending on the
expenditure category. The government should define the purpose
for using an inflationary index and then select the appropriate
index. Referenced indexes include the Consumer Price Index,
Producer Price Index, Employment Cost Index, Construction Price
Index, Municipal Cost Index, Personal Consumption Expenditures
Index, and the Gross Domestic Product Deflator.
Inflationary Indices in Budgeting (2010)
Municipal Cost Index
August 2012
For a complete list of Best Practices,
go to
www.gfoa.org
and select the link for
“Best Practices and Advisories”
and then select the category
“Budgeting and Fiscal Policy”