Overview of Budgeting for Outcomes

(Prepared by Roseville City Finance Director, Chris Miller 4-24-06)

Historically, local governments approached the budgeting process by determining an acceptable percentage increase and then allocating that increase proportionally to existing programs and services. For example, if a 3% budget increase was acceptable overall, then generally speaking each program received a 3% increase across the board. This process however is lacking in many regards, most notably there is no deliberate attempt to align available resources to desired outcomes. Also, it relies on the assumption that current budget is the 'right' budget.

By contrast, 'Budgeting for Outcomes' acknowledges that last year's budget decisions may be inadequate for today's needs. It also tries to measure what level of taxation is acceptable to property owners given the services they receive. Finally, through a prioritization process, budgeting decisions are made that ensures that the programs and services that matter the most get funded at an appropriate level.

Process

Budgeting for Outcomes follows the following steps:

1) Set the price of government

2) Set the priorities of government

3) Price the priorities, i.e. allocate available resources

4) Develop a purchasing plan for each result

Each of these steps is described further below.

Step 1 - Setting the Price of Government

Determining the acceptable level of taxation can be measured in a number of ways. One particular measure is to look at the total taxes and fees that property owners pay as a percentage of their income. It's been observed that property owners, over time, demonstrate that they are willing to spend a relatively stable percentage of their personal income for government services. As their incomes rise, they're generally willing to pay more. Government's role is to recognize what this amount is, and then make resource allocation decisions within that finite amount.

Over the last 10 years Roseville citizens have paid on average, 3% of their income for City programs and services. Therefore, 3% is the local 'price of government'.

Step 2 - Setting the Priorities of Government

In this step, the City undertakes a process of prioritizing or ranking all of the programs and services provided by the City. This process ensures that programs that are highly valued by citizens are ranked higher than lower-valued programs. These priorities are then 'stacked' one on top of the other with the highest priority at the top, and the lowest priority at the bottom. It's important to recognize that the priorities at the bottom of the list are without question, important and valued by citizens. However, they are relatively less valued than those at the top.

Step 3 -  Pricing the Priorities of Government

After the Council has set the priorities of government, it must then establish a price, or the amount of budget monies that are needed to achieve each priority or desired outcome. The question becomes; "How much should we spend to achieve this outcome?" Once this determination has been made, you then systematically begin allocating available resource dollars to the highest priority, then the second highest priority and so on. Once you've exhausted the funding, you stop. Typically you run out of money before you run out of priorities. This process is shown below using a hypothetical $100 budget.

Priority #1 $50

Priority #2 $25

Priority #3 $10

Priority #4 $10

Priority #5 $5

Stop! The $100 budget has been allocated.

Priority #6 $0

In this example, priority #6, while important, doesn't get funded. However, this process has ensured that the programs that matter the most, get funded at an appropriate level.

Step 4 - Developing a Purchasing Plan

Once it's been decided on which priorities to fund, the City must then decide how to provide those programs. At this point, we throw out the assumption that the way we currently provide it is the 'right' way. We may find that some of the programs we currently outsource could be done more effectively in-house. For others, we might conclude just the opposite. We might also conclude that a different City department, team, or group might be better suited to provide the service.

To arrive at this conclusion, a 'Results Team' is created to evaluate proposals that are submitted by both City Staff and outside contractors. The Results Team evaluates the proposals based on pre-established criteria and makes recommendations to the Council on how to proceed. The City Council then "buys" the desired result at some agreed-upon price, and then "awards" a contract to the bidder.

Final Comments

To date, most local governments that have tried 'Budgeting for Outcomes' have reported success. In many cases cities found that their budget decisions didn't match the outcomes that were most desired by the citizens. And when it came to eliminating lower-priority programs, citizens weren't all that upset once they learned how the decision was arrived at.


[Webmaster note]

The RCL Budget Committee has been assessing the Roseville city budget process, looking for ways that citizens can be involved in that process. The city currently constructs itís budget in the manner of most cities. The RCL endorses the concept of outcome based budgeting. We also endorse the visioning process now being developed by the Council for its multitude of benefits to the city which would include the prioritization of city services which is required for outcome based budgeting.

City Finance Director, Chris Miller, has made several presentations to the City Council regarding a process called budgeting for outcomes. It was decided to explore that method of budgeting by using it to develop some of next years budget.

Chris also met with the RCL Budget Committee to explain the program. We were all impressed with the logic and common sense of the process. He agreed to have a 3 hour seminar that city staff recently watched which explains the process and also includes comments from city, county and state officials where it had been successfully implemented, shown on the city's cable channel. Some of the government officials shown in the seminar found that they could eliminate up to 25% of their programs without getting citizens in an uproar presumably because the process allowed people to see how the decision process worked to allocate a limited amount of money in the most equitable fashion. He agreed to scheduled the seminar to run on the city's cable channel - Channel 16 at the following times:

Scheduled showings of Budgeting for Outcomes on cable channel 16:

May 2 @ 10 am

May 12 @ 10 am

May 24 @ 6 pm

May 29 @ 6 pm

June 4 @ 6 pm