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The traditional incremental approach to budgeting is not up to the financial challenges posed by the Great Recession. An incremental approach is workable (but not optimal) in periods of revenue growth because the new revenue increments can be distributed among departments and programs with relatively little controversy There is much more potential for acrimony, though, when allocating revenue decrements during times of revenue decline. Hence, the popularity of across-the-board cuts - they are perceived as equitable and thus attenuate conflict. But by definition, across-the-board cuts are not strategic. They do not shape and size government to create value for the public.
Priority-driven budgeting (PDB) is a natural alternative to incremental budgeting. Using PDB, the government identifies its most important strategic priorities. Services are then ranked according to how well they align with the priorities, and resources are allocated in accordance with the ranking.1
This article identifies the essential steps in a PDB process and the major levers that can be pushed and pulled to customize PDB to local conditions. The following organizations contributed to the Government Finance Officers Association's research on PBD: the City of Savannah, Georgia; Mesa County, Colorado; Polk County, Florida; County, Washington; City of Walnut Creek, California; City of San Jose, California; and City of Lakeland, Florida.
MAKING THE PROCESS YOUR OWN
Designing a process that is fair, accessible, transparent, and adaptable is a challenge. However, it is also an opportunity to customize a PDB process that fits your organization best. The GFOAs research has identified five key customization questions that need to be answered as you design a PDB process:
* What is the scope? What funds and revenues are included? What is the desired role of non-profit and private-sector organizations in providing public services?
* What is the role of PDB in the final budget decision? Is it one perspective that will be considered among many, or is it the primary influence? By what method will resources be allocated to services?
* What is the organizational subunit that will be evaluated for alignment with the organization's strategic priorities? Departments, divisions, programs? Something else?
* How will subunits be scored, and who will score them? The scoring mechanism is central to PDB.
* How and where will elected officials, the...