How local governments can use the budgeting process to increase transparency and trust
COVID-19 has deepened many citizens’ relationship with their local governments. In the United States, citizens are focused on both the federal government’s response and that of their local governments, which have been highly influential on the overall pandemic response in any given part of the country. In the short term, this focus led to a surge in public trust. Yet, while times of crisis might momentarily bring about more trust between citizens and the government, local governments can’t count on this public trust to last long without additional efforts.
For example, while many governments saw a surge in public trust at the outset of the Coronavirus pandemic in 2020, a global survey by Deloitte shows that by January 2021, the trust in government had fallen by 8 points, highlighting challenges in sustaining trust for extended periods.
This deficit in trust is not just a theoretical concept; it has real-world implications. It can directly affect a government’s long-term goals, including re-election and implementation of policies that were promised during elections. Yet, citizen trust is highly influenced by how governments use their tax dollars. That’s why the COVID-19 pandemic has highlighted the need for governments to rethink how they plan and execute their budgets, with a new commitment to transparency. So, how can governments change their approach to budgeting to create new layers of transparency and sustain public trust?
From reactive to proactive budgeting
First, state and local governments will have to adopt a more proactive strategy when it comes to improving budgeting transparency. The key is to implement a continuous approach to financial management instead of budgeting solely on an annual basis. Government organizations can start by preparing five- and 10-year plans, emphasizing how short-term decisions will impact those longer-term plans. Continuous budgeting is critical to ensuring a strategic approach to public sector budgeting. This includes all the activities that occur in a financial planning cycle: executing and reporting on financial plans, adjusting those plans, and repeating the process. This enables more informed decision-making and more transparency during reporting.
Technology in the form of budgeting and performance management software can help automate many of the cumbersome administrative processes while improving operational efficiencies. For example, modern budgeting software can facilitate a virtual chart of accounts while providing access to each team member, allowing for more collaboration during the process wherever team members are physically located.
Forecast budgeting and scenario planning can help make budgeting more impactful
Forecast budgeting and scenario planning can be used to understand and measure the long-term impacts of government budgets. Once implemented, government units can then forecast the upcoming five to 10 years while accounting for changes in other variables.
For example, the tourism industry was highly impacted by the COVID-19 travel bans and many cities that depended on tourism lost significant sources of revenue. In cases like these, the forecasting method, coupled with modern, collaborative budgeting software, is especially beneficial as governments can quickly pivot, getting a handle on their expected deficit and quickly making the necessary changes to adjust for anticipated revenue loss.
Scenario planning in these uncertain times
With the ongoing pandemic causing so much uncertainty today, it’s impossible to determine the trajectory of economic recovery. That’s why, when it comes to budgeting, scenario planning will be critical. It’s essential in helping governments identify which plans to implement during times of crisis or during more stable periods. State and local governments need to start developing their own scenarios as well as action plans according to each scenario, such as another wave of COVID-19 and its impact on the economy. Then, if a crisis occurs, they’ll be prepared to respond to any scenario quickly and appropriately.
Having these scenarios and subsequent actions at the ready will be vital to short- and long-term economic recovery. They can help make more informed responses instead of reactionary decisions that result in unnecessary furloughs, layoffs, loss of livelihoods—all of which can have devastating consequences for surrounding communities—as well as subsequently decrease public trust.
Continuous, agile budgeting
Today, citizens’ documented lack of trust in local government clearly highlights the urgent need for governments to change how they conduct financial planning. Implementing a strategic approach to government budgeting, one that emphasizes scenario planning and continuous, proactive, and agile budgeting, will help ensure increased transparency, and ultimately improve citizen engagement and trust.
Charlie Francis has 40+ years of municipal financial management experience in both the public and private sector, including 20 years of experience as a chief financial officer (CFO). Prior to his current role at Questica, he held positions at the Town of Colma, Calif., and the Cities of Indian Wells and Sausalito, Calif., and Treasure Island, Fla. Francis also taught Governmental Accounting and Budgeting at the University of California, Riverside campus, and has published numerous books on municipal budgeting and finance.