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Does your organization grow weary of an eight- month long budgeting process ? Does the budgeting pr ocess help y our organization find v alue, or is everyone just recycling budget r equests from pr evious y ear s? By tying budget to str ategy , you can help st aff bet ter under stand how decisions are made and create connections to the big pictur e as you work towar d shared goals. No matter what approach you tak e to budgeting, you have an opportunity to link it to str ategy to help people see the v alue in your budgeting process. When you link budget to str ategy , you can stop dreading the process and instead, get inspired by bud geting! With regular management and meetings, a link ed budget and str ategy allow s your organization to achieve its long-term pri orities. In 2020, we conducted a sur vey amongst local governments to learn more about their budget and str ategy alignment, reporting, and results, and synthesized our findings in this paper . The insights shared show the impact of close alignment between budget and strategy as well as consist ent, r egular reporting pr ocesses. Her e's how to align str a tegy and budget in y our or g aniz ation: 1 . Start by clearly defining long term goals (the first step in building y our str ategic plan ). 2 . Define the budgeting process and develop a g ame plan. Four options for approaching y our budg e t : a . Priori ty-based budgeting (PBB) b . Zero-based budgeting (ZBB ) c . Budgeting f or outcomes (BFO) d . Base budg e ting 3 . Communicate str ategy and budgeting pr ocess clearly to departments. a . Ensur e department budgets link to s trategy . 4 . Compare previous budget to plans (n ot to continue previ ous budgeting process, but to check y our assumptions). 5 . Consider creating a Str atEx budget. a . This is a separ ate part of the bigger budget. b . This type of budget is cr oss-departmental and designates str ategic pr oject funding. 6 . Manage y our budget within a str ategy management cadence . a . Be aware of str ategy reporting, str ategy decision making, et c. b . Adapt and change at appr opriate times (revisit budgets after str ategy meetings). c . Pr ovide appropriate reporting f or decision making. 7 . Look to your peer s for best pr actices. a . Bet ter Budgeting in Olathe, K S b . Budgeting Str ategic Progr ams and Services in Fort Collins, CO c . Al ig n in g th e Bu dget in Ral ei g h, NC 8 . Balance y our budget. a . Budget balancing approach es

Start by

linki

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udget to lo

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m goals

Just lik e y our str ategy , your budget needs to be link ed to y our long-term goals. Once you’ve developed those long term goals, you can st art to build your 3-5 year str ategic plan and a 1-2 year associated budg e t . When building your str  ategic plan, it’ s important to involve your stak eholder s, including staff and residents. It’ s also important to set bold, but realistic goals that t ak e into account your or g anization’ s str eng ths and weaknesses. When creating the plan, ensuring alignment between departments and the overall str ategy is critical. Each department should support the over all str ategy , and departmental plans that tie departmental eff orts to or g anizational strategic goals can mak e this alignment clear . Diff erent budgeting pr ocesses mak e linking budget to long-term goals eas y . Any of the below approaches to budgeting can link to your str ategic plan. One siz e does not have to fit all; however , some ar e more comf ortable fits depending on your or g anization:

Define

the

budget

ing pr

ocess

Diff er ent budgeting pr ocesses mak e it eas y to link y our budget to your long-term goals.

Prior ity-ba sed bud get ing Priority-based budgeting (PBB) involves linking budget priorities to your str ategic plan goals. PBB is driven by the idea that the initiatives and progr ams that support an organization’ s priorities are those that should be funded by the budget. This data driven appr oach ensures that all funding dollar s help the or g aniz ation work tow ar d its s tr at egic goals.

Budget in g in sum Are you starting to see a pattern in these budgeting approaches? W e’ re not sa ying they are the same; cert ainly , diff er ent or ganizations hav e seen diff er ent r esults and benefits from each. But with a little creative thinking, you should be able to guide your organization to linking its budgeting approach to the s tr at egy managemen t process.

Intr

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S

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In an eff ort to bett er understand how local gov ernments align budget and str ategy and r eporting out on their results, we sur veyed 100 local governments in 2020 to learn more abou t their processes. In our survey gr oup, 72% of organizations use base budgeting. While base budgeting emerged as the most common form of budgeting, it may also be the hardest to align with str ategy because what ha s alwa ys been funded continues to get funded. This mak es it hard to drive change. The survey also revealed that when approaching building the budget, 71% of base budgeters rely heavil y on the budgeting process and/or the budget management team. For th ose that do not use ba se budgeting, 100% of these organizations in volve str ategy either fully or partially in their budgeting pr o cess. For those not using base budgeting, it’s important to remember that a local government’ s strategic plan may not include ever y service; some ser vices are man dated and must be funded despite n ot being par t of the strategic plan. So wh ile some of the other budgeting opti ons outlined b elow—including priority- based budgeting and budgeting f or outcomes—at tempt to “nudge” funding in mor e str ategic dir ections by assigning funding in tiers, base budgeting won’t create the same driver to push in a more str ategic direction. Since this system of budgeting won’t naturally assist in our goal of funding the strategic plan, it’ s important to use conversations, discussion, and reporting to help nudge people in the right direction.

Managi

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Once you create your budget and tie it to your priorities or outcomes, y ou still f ace the challenge of actually managing that budget (and your str ategy along the way). Budgets are spent at the department level and at the project level. Someti mes projects are neatly contain ed within departments (and thus your entire report can be at the department level), and other times, the projects are cross -functional, and thus you need a project report. Y ou want to k eep an eye on your projected ver  sus actual spending, plus see how departmental plans ar e progressing over time. In our survey , we found that 87% of the org anizations that use measures in their str ategic plan to tr ack how things are progressing also link their budget to the str ategy . This shows that if measures are commonly adopted in your or ganization, then ther e is often a link between budget and str ategy . These two best pr actices of aligning str ategy and budget and tr acking progress towar d your goals over time via measures or K PIs clearl y go han d in han d.

There was no diff erence in e xternal r eporting between those that r eport internally more fr equently ver sus less frequently . Our hypothesis is that external reporting come s more fr om a communication department and internal reporting from a str ategy , finance, or budget department. Since there is no external decision-making resulting from external reporting, the demand for k eeping it updated is low .

Loo

k to y

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peer

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It’ s easy for the wide range of options for how to approach, manage, and balance your budget to become over whelming , especially as local governments face unprecedented challenges and work to serve varying communiti es and goals. So how can you make sens e of your opti on s and figure ou t the best appr oach for your City or County? Look to your peer s! The case studies shared b elow from Ol athe, KS, Fort Collins, CO, and Raleigh, NC, describe h ow three very diff erent but high performing local governments all adapted their own approaches to aligning str ategy and budget. While Olathe uses priority-based budgeting, Fort Collins follows budgeting f or outcomes, and Raleigh uses a modified version of base budgeting, all three local governments k eep community pri orities aligned with budgetar y spending for th e greater good of thei r communities.

Balance

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When the budget is affected by une xpected shocks—such as natur al disast er s or economic downturn— governments and or g anizations often need to update their budgets to adapt and respond appr opriately . Though local government “rainy da y” fund balances exist as a saf ety net in crisis, relying on the gener al fund is unsustainable as well as costly in the long ter m. Not only does reliance on the general fund ris k impacting b ond ratings, it can also increase the cost of borrowing down the line. By looking f or ways to enhance revenue and minimize reliance on the gener al fund, governments can build up funds needed to a dapt and respond to any circumstanc e and maintain long term financial s t ability . Budget bal anc ing approaches Balancing a budget is never easy , but it is even more difficult during economic downturns. When these shocks occur and local governments are f aced with declining revenues, they have limited options to respond. Local governments’ big revenue str eams include pr operty tax and sales tax, but governments do not ha ve much control over these streams of revenue unless pr operty t ax es are adjusted. During economic downturns, a property t ax increase is a politically volatile path towards balancing. Local governments ma y want to look at their f ee structures to determine if they can adjust f ees to r aise additional revenue. However , this will generate minimal revenue and hav e a r egressive impact to vulner able communities. Both routes gener ally end up in the same place regardless: expe nditure r eductions. Reducing expenditures is a painful and messy way to respond to budget balancing needs, but it is often the best path given statutory deadlines to balance. With your budget link ed to your str ategy , you need to consider your goals and priorities. Is your workf or ce your top priority? If so , lay off s and t ar geted reductions in workfor ce ma y not be the best str ategy . Do you have fle xibility within maintenance and oper ations budgets f or t ar get ed reductions? There is not a magic bullet way to balance a budget d uring downturns, but keep your goals and pri orities close by and have conv er sations about how reductions may impact your ability to deliv er your str ategy . St a y nimble, avoid across the boar d reductions, and be cr eative. The illustr ation below , which display s data from the N orth Caroli na League of Municipalities survey of me mber cities in 2009, shows h ow

Do consider

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o Y et another benefit of g athering input from a wide range of stak eholders is the opportunity to hear and accommodate concerns about social equity , fairness or access. For example, businesses moving to no-cash options ma y disadv antage those without access to credit car ds.

Don’t institute a “hard fr

eez

e”

o Hiring freez es hurt high priority areas as well as low-priority areas and ma y also dev astate turnov er-heavy departments, even if their services are v ery import ant. Rather than instituting a hard freez e on all hiring, using a diff erent approach for high priority (e. g. public health) or high turnover departments can ensure consistency of ser vices and public wellness. A soft freez e, which is selective and allows f or ex ceptions f or high priority or high turnover departments, can allow for better st ability over all.

Don’t treat every se

rvice

/function the same

o Building upon the advice above, it ’s important to not treat all ser vices and functions as identical wh en instituting changes. By grouping servi c es and functi ons into functi onal categories lik e those below , maintaining appropriate service levels is simplified. Service level increase: We must k eep providing this progr am, and lik ely expand it (e.g. health, fir st responders). Status quo: W e’ll continue to provide this service as bef ore (e.g. utilities). Service level decrease/ temporary suspension: We will tempor arily cease providing this ser vice or d ecrease ser vice levels (e.g. recreation, swimming po o ls ). Internal partnership: W e’ll look to consolidate functions for this service. This is a good option f or fleet management, for ex ample. R egional partner ships: W e’ll look to provide this program with a regional partner in order to maintain current level of ser vices. A regional fleet would be one example of a regional partnership to cut expenditures.

Don’t hold out for feder

al stimulus

o During the financial crisis of 2008, the federal govern ment provided stimulus funds to loc al go vernmen ts for sho vel-r eady projects. Howev er , f eder al funds in the current crisis have been designated to in dividuals and businesses. This decreases the likelihood of significant fiscal funding or bail-out to local government from the f eder al government moving f orw ar d.

Don’t r

ely on the gener

al fund r

eserve

o Not only d oes reliance on the general fund risk i mpacting bond ratings, it can als o up the cost of borrowing down the line. By taking st eps to instead decrease e xpenditures and incr ease revenues, governments can work toward st ability now and in the long term. Budget -balan cin g in crisis In times of crisis and/or economic upheaval like th e recession of 2008 and the COVID-19 pandemic of 2020, alignment between budget and strategy is more important than ever , but also more challenging.

In S

um: Ti

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or s

uccessful b

udgeti

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At the end of the day , there is much more to successful budget and str ategy alignment than having a f ew budgeting charts and tr acking spending over time. There are sever al other k ey f actors that go into determining successful budget allocation and str ategy ex ecution, specifically— Great internal communication: Withou t a clear way of communicating priori ties and helping individuals and teams under stand how their work contributes to the or g anization’ s over all goals, successful str at egy ex ecution will be a struggle. T r ansparency: By opening up inf ormation about spending acr oss the organization, st aff and residents alik e can g ain insight into how funds are being used and pr ogress made toward the community’ s goals. R egular budget r eview meetings: By fostering continued discussion and eng agement with the budget, you can ensure adaptability as circu mstances change and new needs arise. Regular budget review meetings also give stak eholder s the opportunity to have their concerns addr essed. Inclusivity: Mak e people f eel in volved because they are involved, and as mentioned above, giv e them the abilit y to have th eir voices heard.

A T OOL LIKE CLE ARPOINT CAN RE ALL Y HE LP ClearPoint can serve as the centr al hub for all data and inf ormation about your budget and str ategy . Our Data Loader tool allows y ou to import budget dat a from a v ariety of s y stems and can updat e your dat a live in ClearP oint from y our e xisting dat a sour ces aut omatically . (Plus, we’ll help you get it all set up. From there, it’ll run automatically .) With your data load ed in the tool, you can easily upd ate all d epartments on their progress and aggreg ate up to show budget and strategy across the org anization. (And with our permissioning f eatures, you can ensure each user and department only accesses the information r elevant to their particu lar pri oriti es a nd needs). Y ou can also bring qualit ativ e and quantitative information side by side to tell a story about the pr ogress of your str ategy and updates to your budget, plus chart budget perf ormance against an a ver age of previous y ears to see how you’ r e doing over time. To learn more, visit www  .clearpointstr  ategy  .com.