Financial Management Series
Number 9
Local Government Budgets:
Approaches & Traits
Alan Probst
Local Government Specialist
Local Government Center
UW-Extension
What is the Purpose of a
Budget?




An accounting document (record & control
expenditures)
A management document (determines who
can spend how much)
Decision-making document (basis for sound
decision-making by council & staff)
Communications document (informing public
of how their money is being spent)
Budget Approaches

Line-Item Budgets

Program Budgets

Performance Budgets

Zero-Based Budgets
Line-Item Budgets

Most common format

Connects & reports information on inputs
used to produce government services

Emphasizes control & oversight

Downplays trust, communication & flexibility
Line Item
Operating
Budget
Line-Item
GENERAL FUND
FY 09/10
100
Administration
Description
101
101-1
101-2
Dept 100
FY04 Budget
Wages & Salaries
FY04 Actual
Comments
$1,513,880
$152,420
$1,609,210
$82,000
$82,000
$84,525
$84,525
$95,000
Board directed
increase
$46,000
$46,293
$47,000
$47,442
$49,816
Increase per labor
contract
$111,967
$114,816
Office Staff
Secretary
$12.75 per hour
$26,520
Insurance clerk
$11.20 per hour
$23,296
$49,816
$108,000
Benefits
FY06 Budget
$1,461,320
Total
102
FY05 Project
$1,463,450
City Manager
Total
FY05 Budget
$108,293
$111,525
Program Budgets

A Program Budget allocates money to major
program areas or activities rather than to
specific line items

More centralized than other approaches

Focuses on program goals

Examines all alternatives that may achieve
program goals
Program Budgets
Program budgets include both revenue and expenses
for the major activities of an organization. Helps
managers focus on sources of profits and losses of
programs that could be expanded or discontinued.
($000’s)
Oncology
Rhinoplasty
Cardiac
Total
Revenues
$40,000
$ 8,150
$50,000
$ 98,150
Expenses
37,000
17,000
46,000
100,000
$ 3,000
$(8,850)
$ 4,000
$(1,850)
Profit/(Loss)
Program Budgets


Program budgets allocate money to major
program areas or activities rather than
specific line items
A Police Department might be broken down
as such:
1.
2.
3.
4.
Administration
Patrol
Investigation
Community support
Instead of by line items
Program Budget Challenges




Goals can be difficult to formulate and
define
Goals are subject to change; program
structure must be changed in response
Sometimes difficult to obtain objective
measures of benefits
Can be difficult to determine interprogram efficiency
Performance Budgeting

Under a performance budget approach,
a program budget format is adopted to
the existing organizational structure

A performance budget is essentially a
program budget with performance
measurement methodology used to
make budget decisions.
Performance Budgeting




Initiative in budget preparation lies with
performance unit
Government activities are divided into major
functions
Each activity must yield an identifiable
output
Management, administration, and overhead
costs are distributed among the various
activities of the performance unit
Purposes of Performance
Budgeting



Better evaluates results of program
operations
Provides decision-makers and public
with better information on quality of
public services
More popular as citizens lose
confidence in government
Zero-Based Budgeting
Zero-Based Budgeting (ZBB) organizes
information into decision packages, i.e.
incremental spending levels that reflect
varying levels of effort and costs
Zero-Based Budgeting
In theory, each department prepares at
lest three (3) packages:

A base-level, meeting the program’s minimum
requirements

Current-level funding

Enhanced package – to address unmet needs
Zero-Based Budgeting

Packages from all departments are then
ranked according to perceived need for
the package

Unlike PBB, which uses more objective
criteria, ZBB relies on subjective
judgment of decision-makers in ranking
packages
Incremental vs. Zero-Based
Budgeting
Incremental budgeting starts with current
revenues and projects next year by
adjusting for inflation, volume,
efficiency, technology, etc.
Incremental vs. Zero-Based
Budgeting
Zero-Based Budgeting:
 calls for a total re-evaluation of all
programs and activities
 requires that decision packages be prepared
for each separable activity or level of activity
 Ranks the packages
 Selects packages for adoption or rejection
Why the “zero” in ZBB?



In theory, decision-makers conduct an
annual evaluation on each program’s
purpose and priority, weighing it against all
other spending possibilities
As a result, decision-makers may decide not
to renew funding for existing program and
shift those funds to another, possibly entirely
new, program
In reality, this reallocation rarely occurs
References
“Management Policies in Local Government Finance” Fifth
Edition, ICMA, 2004
MPA 752 “Public Budgeting and Finance” Professor Craig Maher,
University of Wisconsin-Oshkosh
“Performance Measurement: Getting Results” Harry P. Hatry, The
Urban Institute Press, 2006