Anatomy of a Priority-Based Budget Process

Anatomy of a

Priority-DrivenBudget Process

The Government Finance Officers Associationwww.gfoa.org • 312-977-9700

Credits

This paper was written by Shayne C. Kavanagh, Jon Johnson, and Chris Fabian. Kavanagh is Senior Manager ofResearch for the GFOA’s Research and Consulting Center in Chicago, Illinois; he can be reached [email protected]. Johnson is a Senior Manager, Research and Advisory Services, at the Center for Priority BasedBudgeting; he can be reached at [email protected]. Fabian is a Senior Manager, Research and AdvisoryServices, at the Center for Priority Based Budgeting; he can be reached at [email protected].

The following individuals provided valuable contributions to this paper:

Marcia ArnholdFinance Director, Mesa County, Colorado Mike BaileyFinance Director, City of Redmond, WashingtonKindle BowdenOffice of Management and Budget Manager, City of Lakeland, Florida Steven G Chapman IIDirector of Finance, City of North Lauderdale, FloridaEd Hacker Strategic Planning and Continuous Improvement Manager, City of Lakeland, Florida Stanley Hawthorne Assistant City Manager, City of Lakeland, Florida Anne KinneyDirector, Research and Consulting Center, GFOAFran McAskillDirector, Finance and Strategic Planning, Polk County, Florida Christopher Morrill City Manager, City of Roanoke, Virginia Roger Neumaier, CPAFinance Director, Snohomish County, Washington Jay PanzicaChief Financial Officer, City of Ventura, California Walter C. RossmannAssistant Budget Director, City of San Jose, California Lorie TinfowAssistant City Manager, City of Walnut Creek, California Doug Thomas City Manager, City of Lakeland, Florida Kim WaleshEconomic Development and Chief Strategist, City of San Jose, California Wanda Williams Research and Budget Director, City of Savannah, Georgia

GFOA’s Research and Consulting CenterThe Research and Consulting Center (RCC) is the management analysis and consulting arm of the GovernmentFinance Officers Association. Since beginning operations in 1977, the RCC has provided management and technol-ogy advisory services to hundreds of local, county, and state governments; public utilities; elementary and sec-ondary education systems; and transit authorities.The RCC is nationally recognized for its comprehensive analyti-cal and advisory services, as well as for specialized research on state and local government finance.

You can learn more about us and contact us at www.gfoaconsulting.org or 312-977-9700.

Anatomy of a

Priority-Driven

Budget Process

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Leading the Way to Priority-Driven Budgeting . . . . . . . . . . . . . . . . . . . . . . . . 2

Steps in Priority-Driven Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1. Identify Available Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2. Identify Your Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

3. Define Your Priority Results More Precisely . . . . . . . . . . . . . . . . . . 8

4. Prepare Decision Units for Evaluation . . . . . . . . . . . . . . . . . . . . 10

5. Score Decision Units Against Priority Results . . . . . . . . . . . . . . . . 11

6. Compare Scores Between Offers or Programs . . . . . . . . . . . . . . . 13

7. Allocate Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

8. Create Accountability for Results, Efficiency, and Innovation . . . . . 17

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Appendix 1: Building a Program Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Anatomy of a Priority-Driven Budget Process

IntroductionThe traditional approach to governmental budg-eting is incremental: The current year’s budgetbecomes the basis for the next year’s spendingplan, and the majority of the organization’s ana-lytical and political attention focuses on how tomodify this year’s spending plan based on rev-enues anticipated in the next year.1 An incremen-tal approach is workable, if suboptimal, in peri-ods of reasonably stable expenditure and revenuegrowth because the current level of expenditurescan be funded with relatively little controversy.However, the incremental approach to budgetingis not up to the financial challenges posed by thenew normal of relatively flat or declining rev-enues, upward cost pressures from health care,pensions, and service demands, and persistentstructural imbalances.2

Priority-driven budgeting3 is a common sense,strategic alternative to incremental budgeting.Priority budgeting is both a philosophy of how tobudget scarce resources and a structured,although flexible, step-by-step process for doingso. The philosophy of priority-driven budgetingis that resources should be allocated according tohow effectively a program or service achieves the

goals and objectives that are of greatest value tothe community. In a priority-driven approach, agovernment identifies its most important strate-gic priorities, and then, through a collaborative,evidence-based process, ranks programs or serv-ices according to how well they align with thepriorities. The government then allocates fundingin accordance with the ranking.

The purpose of this paper is to describe factorsthat have led governments to adopt prioritybudgeting and to identify the essential conceptsand steps in such a process, including the adap-tations individual governments have made tocustomize priority-driven budgeting to local con-ditions. The paper is based on the experiences ofthe governments below, which were selected forvariety in organization size, type of government,and approach to budgeting.4 This paper builds onprior publications about priority-driven budget-ing by taking a step back from specific approach-es to budgeting and describing the major steps inthe process and then outlining options for put-ting those steps into operation. It is GFOA’shope that this paper will give those who are newto priority-driven budgeting a solid base fromwhich to get started, and to provide veterans ofpriority-driven budgeting with ideas for furtheradapting and sustaining priority-driven budget-ing in their organizations.

GFOA Research and Consulting / www.gfoa.org 1

Our Research ParticipantsCity of Savannah, Georgia (pop. 131,000)City of Walnut Creek, California (pop. 64,000)Mesa County, Colorado (pop. 146,093)City of San Jose, California (pop. 1,023,000)Polk County, Florida (pop. 580,000)City of Lakeland, Florida (pop. 94,000)Snohomish County, Washington (pop. 683,655)

Leading the Way to Priority-DrivenBudgetingPriority budgeting represents a fundamentalchange in the way resources are allocated. Thegoverning body and the chief executive mustunderstand and support the process and commu-nicate that support throughout the organization.In addition, these officials must be willing tocarry out their decision-making responsibilities ina way that is consistent with a priority-drivenprocess. The change an organization desires tobring about by virtue of implementing priority-driven budgeting won’t happen overnight, sothose leading the move to priority budgetingmust make it clear that this type of budgeting isnot a one-time event – it is the “new normal.” Tosee the change through for the long-term, leadersmust have a passion for the philosophy underly-ing priority-driven budgeting, but at the same

time, they must not be overly committed to anyparticular budgeting technique or process. Theymust remain adaptable and able to respond to thecircumstances while remaining true to the philos-ophy. If the organization doesn’t have this type ofleadership, it might be better to delay priority-driven budgeting or look to another budgetingreform that has greater support. The “Philosophyof Priority-Driven Budgeting” sidebar describesthe philosophy of priority-driven budgeting andits central principles. Use these principles to testthe support among critical stakeholders and tobuild a common understanding of the tenets thebudget process will be designed around.

Of course, not everyone in the organization can beexpected to immediately accept priority-drivenbudgeting with the same enthusiasm. The leader-ship must articulate why a priority-driven budget


The Philosophy of Priority-Driven BudgetingThe underlying philosophy of priority-driven budgeting is about how a government entity should invest resourcesto meet its stated objectives. It helps us to better articulate why the services we offer exist, what price we payfor them, and, consequently, what value they offer citizens. The principles associated with this philosophy ofbudgeting are:

• Prioritize Services. Priority-driven budgeting evaluates the relative importance of individual programsand services rather than entire departments. It is distinguished by prioritizing the services a govern-ment provides, one versus another.

• Do the Important Things Well. Cut Back on the Rest. In a time of revenue decline, a traditional budg-et process often attempts to continue funding all the same programs it funded last year, albeit at areduced level (e.g. across-the-board budget cuts). Priority-driven budgeting identifies the services thatoffer the highest value and continues to provide funding for them, while reducing service levels,divesting, or potentially eliminating lower value services.

• Question Past Patterns of Spending. An incremental budget process doesn’t seriously question thespending decisions made in years past. Priority-driven budgeting puts all the money on the table toencourage more creative conversations about services.

• Spend Within the Organization’s Means. Priority-driven budgeting starts with the revenue available tothe government, rather than last year’s expenditures, as the basis for decision making.

• Know the True Cost of Doing Business. Focusing on the full costs of programs ensures that fundingdecisions are based on the true cost of providing a service.

• Provide Transparency of Community Priorities. When budget decisions are based on a well-definedset of community priorities, the government’s aims are not left open to interpretation.

• Provide Transparency of Service Impact. In traditional budgets, it is often not entirely clear howfunded services make a real difference in the lives of citizens. Under priority-driven budgeting, thefocus is on the results the service produces for achieving community priorities.

• Demand Accountability for Results. Traditional budgets focus on accountability for staying withinspending limits. Beyond this, priority-driven budgeting demands accountability for results that werethe basis for a service’s budget allocation.

is something worth actively supporting and votingfor, rather than just a “least-worst” outcome in atime of revenue scarcity.5 The leadership must alsocreate a sense of urgency behind priority-drivenbudgeting by showing the financial forecasts,analysis, and other information that supports theneed for a new approach to budgeting. Ensuringthat a priority-driven budgeting process is suc-cessfully adopted requires organization-wideacceptance and a shared understanding of theentity’s financial condition. For example, the Cityof Savannah, Georgia, shared trends in major rev-enue sources, reserves, and long-term forecasts toshow that the city’s revenues were entering a peri-od of protracted decline. Of course, the case neednot hinge on financial decline. A case can also bemade based improving the value the publicreceives from the tax dollars government spends.

Two groups in particular that must be recruitedto support priority-driven budgeting – electedofficials and senior staff. Elected officials need toshow consensus and support for priority-drivenbudgeting to make it through the challenges inthe budget process that will inevitably occur.Ideally, at least one or two elected officials will beattracted to the philosophy so they can championthe idea with other officials. Elected officials maybe particularly drawn to the fact that priority-driven budgeting allows them to set the organiza-tion’s key priorities and see how services align ordon’t align with their priorities. This puts electedofficials in an influential policy-making role – per-haps more powerful than under a traditionalbudgeting system. Elected officials who haveexperienced priority-driven budgeting consistent-

ly say one of the main reasons they endorse it isbecause it allows them to achieve what inspiredthem to run for office in the first place – identify-ing the results and implementing the policies thatare most important to their community.

Senior staff must support the process as wellbecause priority-driven budgeting requires a sig-nificant time commitment from staff. If the boardand CEO are behind priority-driven budgeting, itwill go a long way toward getting senior staffengaged. Staff members who have experiencedpriority-driven budgeting say they support itbecause it gives them a greater degree of influ-ence over their own destinies. Staff no longerpassively awaits judgment from the budgetoffice; instead, they create their own solutionsbecause priority-driven budgeting invites themto articulate their relevance to the community.

To raise awareness about the move to priority-driven budgeting and to build support for itamong all stakeholders, the governments thatshared their experiences for this paper emphasizethe importance of a communications and risk mit-igation strategy. The strategy identifies majorstakeholders, their potential concerns, and mes-sages and actions that can assuage those concerns.For example, employees might want to know iftheir job tenure will be affected, and citizensmight want to know the implications for serviceofferings. The need for transparency in the processcannot be emphasized enough – many organiza-tions create a specific Web page to provideemployees and citizens with regular and timelyupdates on the process as it unfolds. Involving keystakeholders – such as the Chamber of Commerce,labor union leaders, editorial staff from the media,and leaders of community groups and neighbor-hood groups – at appropriate stages in the processoften provides the best form of “informal” commu-nication to the rest of the public. In communitiessuch as Boulder, Colorado, and Fairfield,California, a town hall format was used as a com-munication device. The first group was asked toinvite others to subsequent meetings, and not onlydid they invite friends and family, but theybrought them to the event.


Do You Have a Strategic Plan?If you already have a strategic plan that identifiescommunity priorities, you may be able to use it aslaunching pad for priority-driven budgeting. Electedofficials will likely be interested in a budget systemthat promises to decisively connect resource use totheir priorities. In fact, some officials might be frus-trated with an incremental budget system thatdoesn’t effectively align resources with evolvingstrategic priorities. This dissatisfaction with the sta-tus quo provides a natural segue to priority-drivenbudgeting.

Perhaps the primary risk to successful priority-driven budgeting that officials and other stake-holders might reject of the process because theysee it as insufficiently legitimate – the process isthought to be flawed in some way that makes it apoor basis for allocating resources. Mitigate thisrisk by conferring “democratic” and substantivelegitimacy onto priority-driven budgeting.6

Democratic legitimacy means that the process isconsistent with the will of the public. Engage theelected officials, the public, and employees in theprocess to achieve democratic legitimacy. Whena budget process is seen to have democratic legit-imacy, it gives elected officials permission toresist narrow bands of self-interest that seek tooverturn resource allocation decisions that arebased on the greater good.

Substantive legitimacy means that priority-drivenbudgeting is perceived to be based on sound tech-nical principles. Use Government Finance OfficersAssociation (GFOA) training and publications to

demonstrate that this kind of budgeting is consis-tent with best practices, but, most of all, devotetime to intensely study priority-driven budgeting.Some of the research participants for this articlestudied it for two years before moving forward.While two years of study will not be necessary forevery government, becoming fluent in priority-driven budgeting allows the leadership to speakconvincingly on the topic and lead an honest dis-cussion about the feasibility of priority-drivenbudgeting for the organization. If the organizationdecides to move forward, the leadership’s expert-ise will allow it to design a credible process, definethe roles of staff in priority-driven budgeting, leadothers through it, and adapt to the pitfalls andcurveballs that will be encountered.

The next section describes the major steps in apriority-driven budgeting process and providesoptions for answering the six questions – listedbelow – for customizing priority-driven budget-ing to your organization.


Be AdaptableSnohomish County, Washington, met with some resistance from the County Court. To move the process forward,the county designed a separate but parallel version of priority-driven budgeting for the courts. With time andthe delivery of a consistent, transparent message, it effectively became the “new normal” in making resourceallocation decisions.

Designing a process that is fair, accessible, transparent, and adaptable is a challenge. However, it is also anopportunity to customize a priority-driven budgeting process that fits your organization best. This research hasidentified six key customization questions you should answer as you design a process:

1. What is the scope of priority-driven budgeting? What are the fundamental objectives of yourprocess? What funds and revenues are included? What is the desired role of non-profit and private-sector organizations in providing public services?

2. How and where will elected officials, the public, and staff be engaged in the process?Engagement is essential for democratic legitimacy. Giving stakeholders a clear understanding oftheir role in the process gives them greater confidence in the process and eases the transition.

3. What is the decision-unit to be evaluated for alignment with the organization’s strategic priorities?Functional units, work groups, programs? Something else?

4. How will support services be handled? The research participants agreed that budgeting for supportservices like payroll and accounting was one of the foremost challenges of designing a process.Support services need to be perceived as full participants in priority-driven budgeting, but at thesame time, accommodations must be made for the fact that they potentially exist to achieve differ-ent results than those services that have a direct impact on the public.

5. How will decision-units be scored, and who will score them? The scoring mechanism and processis key implementing priority-driven budgeting successfully.

6. What is the role of priority-driven budgeting in the final budget decision? What method will beused to allocate resources to services? Will the methodology lead to “formula-driven” allocations orallow for flexibility and discretion in formulated recommendations?

Steps in Priority-Driven BudgetingThere are eight major steps in a priority-drivenbudget process. Exhibit 1 provides a map for howthe eight steps fit together, and the steps aremore fully described in the following pages.7 Asthe exhibit shows, the eight steps are not com-pletely linear. Steps 1 and 2 can begin at the sametime, and Step 8 comes into play at many differ-ent points of the process.

1. Identify Available ResourcesBefore embarking on priority-driven resource allo-cation, the organization must undergo a fundamen-

tal shift in its approach to budgeting. This shift,while subtle, requires that instead of first havingthe organization identify the amount of resources“needed” for the next fiscal year, it should firstclearly identify the amount of resources that are“available” to fund operations as well as one-timeinitiatives and capital expenditures.

As their first step in budget development, manyorganizations expend a great deal of effort incompleting the analysis of estimated expendi-tures to identify how much each organizationalunit will need to spend for operations and capital


Exhibit 1: Process Map for Priority-Driven Budgeting

1. Identify AvailableResources

2. Identify YourPriorities

3. Define YourPriority ResultsMore Precisely

4. Prepare DecisionUnits forEvaluation

5. Score DecisionUnits AgainstPriority Results

6. Compare ScoresBetween Offersand Programs

7. AllocateResources

8. CreateAccountability forResults

8. Create ServiceEfficiencies andInnovation

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in the upcoming fiscal year. Once that “need” isdetermined, then the organization looks to thefinance department or budget office to figure outhow these needs are to be funded. An integralpart of the priority-driven budgeting philosophyis to spend within your means, so the first step indeveloping a budget should be focusing on gain-ing a clear understanding of the factors that driverevenues and doing the requisite analysis todevelop a reasonably accurate and reliable rev-enue forecast in order to understand how muchis available to spend for the upcoming fiscal year.

Resources must also be clearly differentiated interms of ongoing revenues versus one-timesources. The organization must be able to identi-fy any mismatch between ongoing revenues andongoing expenditures (operations) as well asbetween one-time sources and one-time uses(one-time initiatives, capital needs, fund balancereserves). This analysis will ensure that the enti-ty can pinpoint the source of its structural imbal-ance and address it in developing its budget. Thiswill also ensure that a government does notunknowingly use fund balance (a one-timesource) to support ongoing expenditures.

Once the amount of available resources is identi-fied, the forecasts should be used to educate andinform all stakeholders about what is truly avail-able to spend for the next fiscal year. The organi-zation must understand and believe that this istruly all there is as it begins developing the budg-et. Sharing the assumptions behind the revenueprojections creates a level of transparency that

dispels the belief that there are “secret funds”that will fix the problem and establishes the levelof trust necessary to be successful.

In the first year, an organization might choose tofocus attention on only those areas that do not havetrue structural balance. For most organizations, thiswill often include the general fund, but the jurisdic-tion might decide to include other funds in theprocess. Both Polk County, Florida, and the City ofSavannah took steps to limit the scope of imple-mentation. For example, Polk County concentratedon the general fund, and Savannah excluded capitalprojects from the process.

2. Identify Your PrioritiesPriority-driven budgeting is built around a set oforganizational strategic priorities. These priori-ties are similar to a well-designed mission state-ment in that they capture the fundamental pur-poses for which the organization exists and arebroad enough to have staying power from year toyear. A critical departure from a mission state-ment is that the priorities should be expressed interms of the results or outcomes that are of valueto the public. These results should be specificenough to be meaningful and measurable, but notso specific as to say how the result or outcomewill be achieved or become outmoded after ashort time. Below are the five priority resultsdetermined by Mesa County, Colorado. Noticehow these results are expressed in the “voice ofthe citizen.”

A strategic plan, vision, and/or mission statementcan serve as the ideal starting point for identifyingthe priority results. If you have an existing strate-gic plan, it might be helpful to ground the priorityresults in these previous efforts to respect theinvestment stakeholders may have in them and to


The Price of GovernmentThe “price of government” is a concept originated byDavid Osborne and Peter Hutchinson.8 Governmenttakes economic resources from the community toprovide services and, hence, the total revenue thatgovernment receives is really the “price of govern-ment,” from the perspective of the citizen. This canbe a useful concept in the first step of priority-drivenbudgeting because it asks decision-makers to thinkabout the total tax and fee burden they are willing toplace on the community to fund services – thus, put-ting revenues before expenditures.

Step 1 Intended Result: Adopt a “spend withinyour means” approach – meaning there is a com-mon understanding of the amount of resourcesavailable and that there is a clearly establishedlimit on how much can be budgeted for theupcoming fiscal year.

give the priorities greater legitimacy. If you don’thave an existing plan, developing one as a preludeto priority-driven budgeting can provide astronger grounding for the priorities. It might alsohelp increase the enthusiasm of elected officialsand senior staff for priority-driven budgeting, asthey seek a way to connect the new plan to deci-sions about annual resource allocations.

The governing board also needs to be closelyinvolved in setting the priorities. The prioritiesare the foundation of priority-driven budgeting,

so that the governing board must fully supportthem. The role of an elected official is to set theresults the organization is expected to achieve.Developing the priorities might also be a goodplace to involve citizens. Some communities haveused traditional means of doing this, such as citi-zen surveys, focus groups, and town hall meet-ings to engage citizens in helping establish theexpected results for their community. Others arebeing innovative. The City of Chesapeake,Virginia, recently asked citizens viewing a result-setting exercise on their public access channel to


Are Support Services a Priority?Our research subjects offered two alternatives for prioritizing support services. Most commonly, entities createda “good governance” priority that addressees high-quality support services. This gives support services a clearplace in priority-driven budgeting and allows the relevance of these services to be tested against the organiza-tion’s priorities. Here is how the City of Walnut Creek, California, defined its governance goals.

• Enhance and facilitate accountability and innovation in all city business.• Provide superior customer service that is responsive and demystifies city processes.• Provide analysis and long-range thinking that supports responsible decision making.• Proactively protect and maintain city resources.• Ensure regulatory and policy compliance.

Alternatively, other participants envisioned moving to a system that would fully distribute the cost of supportservices to operating programs so support services would be affected according to how the operating servicesthey support are prioritized.

participate online and share their thoughts on“what does the city exist to provide.” Cities suchas Walnut Creek, California, and Blue Ash, Ohio,set up kiosks in city facilities and asked citizensto participate in a brief survey that helped vali-date the city council’s established results and to“weight” the relative importance of those resultsto the community.

3. Define Your Priority Results MorePrecisely The foundation of any prioritization effort is theresults that define why an organization exists.Organizations must ask, “What is it that makesus relevant to the citizens?” Being relevant – pro-viding those programs that achieve relevantresults – is the key purpose and most profoundoutcome of a priority-driven budgeting process.

The challenge with results is that the terms canbe broad, and precisely what they mean for eachindividual community can be unclear. Forinstance, take a result like “Providing a SafeCommunity,” which is shared by most local gov-ernments. Organizations talk about public safetyor providing a safe community as if it is an obvi-ous and specific concept. But is it?

In the City of Walnut Creek, citizens and cityleadership identified building standards for sur-viving earthquakes as an important influence onproviding a safe community. In the City ofLakeland, Florida, however, not a single citizenor public official discussed earthquakes to definethe very same result. In the City of Grand Island,Nebraska, the city highlighted communityacceptance and cohesiveness as intrinsic toachieving a safe community (acknowledgingtheir initiatives to help integrate a growing andimportant population of their community –immigrant farm workers). However communityintegration was not a relevant factor that would

contribute to the safety of the community inWalnut Creek. Hence, the specific definitions ofthe community’s results is where the identity ofyour community and the objective meaning ofwhat is relevant is revealed.

A powerful method for defining results was estab-lished in Strategy Maps by Kaplan and Norton.11

Strategy mapping is a simple way to take a com-plex and potentially ambiguous objective – likeachieving a safe community – and creating a pic-ture, or map, of how that objective can be achieved.Sometimes referred to as cause-and-effect diagramsor result maps, strategy maps provide an effectiveway for an organization to achieve clarity aboutwhat it aims to accomplish with its results.Strategy maps should be developed using cross-functional teams. Teams consist primarily of staff(both with subject matter expertise relating to thepriority result and without), but they can alsoinclude elected officials and citizens.

Exhibit 2 (on the following page) provides anexample of a strategy map from the City ofSavannah for “high-performing government”(Savannah’s equivalent of the “good governance”result described in the earlier sidebar). Savannah’smap includes performance indicators to helpgauge if the priority result is being achieved.

Exhibit 3 (on the following page) is a picture of aslightly different style of strategy map from theCity of San Jose, California, for its “Green,Sustainable City” priority result. The center ofthe map is the result, and the concepts around


Step 2 Intended Result: A set of prioritiesexpressed in terms of measurable results that areof value to citizens and widely agreed to be legiti-mate by elected officials, staff, and the public.

Staff Teams in Priority-DrivenBudgetingCreating strategy maps is the first significant role forcross-functional staff teams in the process. Such teamshave repeated and important uses, so their membersneed to be highly skilled and sufficiently supported. Anumber of our research subjects engaged consultants totrain and/or directly assist the teams. Many organiza-tions use that as an opportunity to involve the “up andcoming” leaders in the process to ensure its long-termsustainability.

the result are the definitions – they help the cityclearly articulate its priorities: “When the City ofSan Jose __________ (fill in the blank with any ofthe result definitions), then we achieve a Green,Sustainable City.”

Consider San Jose’s result map relative to yourown community. Would your community definethe relevance of your organization by its ability toachieve a green, sustainable community? Wouldyour community define a result like a green, sus-tainable community in a similar or different way?

One of the challenges local governments face istrying to address what can seem like a growing(and seemingly limitless) expectation for pro-grams and services. One of the benefits of devel-oping strategy maps is that local governmentscan give citizens a more precise description of


Exhibit 2: High Performing Government Strategy Map from the City of Savannah

High Performing Government

Leadership Fiscal Responsibility

Human Resources

Management

Public Resources Management

• Accountability and Integrity • Long Range Strategic Planning • Transparency • Intergovernmental Advocacy

• Competitive Recruitment • Workforce Development • Creativity and Innovation • Succession Planning and

Engagement

• Balanced Budget • Long Range Fiscal Planning • Professional Best Practices

• Asset Planning and Management • Capital Strategy and Investment • Sustainability • Collaboration

Citizen Engagement and Customer

Service

• Communication • Accessibility • Responsiveness • Professionalism

Indicators: • Credit Rating • Citizen Satisfaction with Citywide Service Delivery • Per Person Cost of Government • Employee Retention Rate • Citizen Satisfaction Survey

Exhibit 3: Green City Strategy Mapfrom the City of San Jose

the results that make local government relevant.This will establish a shared foundation, a com-mon context for evaluating and prioritizing theprograms and services the jurisdiction offers. Aservice’s relative priority can be evaluated onlythrough a common belief about the results localgovernment is striving to achieve.

The City of Walnut Creek knew that citizensand community stakeholders needed to beinvolved in defining the priority results. Therationale was that the city’s priority resultswould be legitimate only if community memberswere responsible for establishing the results andtheir definitions. The city reached out to thecommunity on the radio, in the newspaper, andthrough the city’s newsletters and Web site toinvite any citizen to participate in one of severaltown hall meetings. At the meeting, citizenswere asked to submit answers to the question:“When the City of Walnut Creek _____________,then they achieve [the result the citizen wasfocused on].” The response from citizens wastremendous and generated a host of answers.City government staff members (who participat-ed in the meetings) were then responsible forsummarizing the citizen’s responses by develop-ing strategy maps.

Lastly, when defining the priority results, consid-er whether some results might be more impor-tant than others. This could have an impact onhow programs are valued and prioritized. Electedofficials, staff, and/or citizens can participate inranking exercises, where each participant isgiven a quantity of “votes” (or dollars, or points,etc.) and can allocate their votes among all thepriority results to indicate the relative value ofone result versus another. It is important to make

clear to participants that this ranking process isnot a budget allocation exercise (whereby thebudget of a certain result is determined by thevotes given to a result). Through such a ranking,participants can express that certain results (andtherefore the programs that eventually influencethese results) may have greater relevance to thecommunity than others.

4. Prepare Decision Units for Evaluation The crux of priority-driven budgeting is evaluat-ing the services against the government’s priorityresults. Thus, the decision unit to be evaluatedmust be broad enough to capture the tasks thatgo into producing a valued result for citizens, butnot so large as to encompass too much or be toovague. Conversely, if the decision unit is toosmall, it may only capture certain tasks in thechain that lead to a result and might overwhelmthe budget process with details. Our researchsubjects took one of two approaches to thisissue: “offers” or “programs.”

Offers. Offers are customized service packagesprepared by departments (or perhaps designedby cross-functional staff teams or even privatefirms or non-profits) to achieve one or more pri-ority results. Offers are submitted to evaluationteams (typically comprising a cross functionalgroup of staff, but possibly citizens as well) forconsideration against the organization’s priorityresults. Often, the evaluation team will first issuea formal “request for results” that is based on thestrategy map and defines for departments, orothers who are preparing offers, precisely whatthe evaluation team is looking for in an offer.


Define Your Priorities: A Quick WinIf the organization has not already clearly defined itspriorities, just getting through this step could be amajor accomplishment. Knowing the priorities can helpan organization make better resource allocation deci-sions, even in the absence of a true priority-drivenbudgeting system.

Step 3 Intended Result: Reveal the identity ofyour community and the objective meaning ofwhat is relevant to it through the process of defin-ing priority results.

How Many Offers Are There?Our research participants who used the “offer”approach averaged one offer for every $1.5 million inrevenue that was available to fund offers.

Offers are purposely intended to be differentfrom existing organizational subunits (likedepartments, divisions, programs) to make adirect connection between the decision-unitbeing evaluated and the priority results, toencourage outside-the-box thinking about whatgoes into an offer, and to make it easier for out-side organizations to participate in the process.For example, multiple departments can cooper-ate to propose a new and innovative offer toachieve a result instead of relying on past ways ofdoing things. A private firm could submit anoffer to compete with an offer made by govern-ment staff.

The drawback of offers is that they are a moreradical departure from past practice and may betoo great a conceptual leap for some. This couldincrease the risk to the process, but if the leader-ship’s vision is for a big break from past practice,then the risk might be worth taking. For exam-ple, Mesa County’s board is very interested inhaving private and non-profit organizations par-ticipate fully in its budget process at some pointin the future, so the offer approach makes sensefor Mesa County.

Programs. A program is a set of related activitiesintended to produce a desired result.Organizations that use the “program” methodinventory the programs they offer and then com-pare those to the priority results. Programs arean established part of the public budgeting lexi-con and some governments already use programsin their approach to financial management, sothinking in terms of programs is not much of a

conceptual leap, or perhaps not a leap at all. Thismeans less work and process risk. However, evenwhen the concept of programs is familiar, be surethe “programs” (or offers) are sized in a way thatallows for meaningful decision making. Programsthat are too big are often too vague in their pur-pose to be accountable for results, and it can bedifficult to fairly judge the impact of a programthat is too small. Generally speaking, if a pro-gram equates to 10 percent or more of totalexpenditures of the funds in which it is account-ed for, then the program should probably be bro-ken down into smaller pieces. If a programequates to either 1 percent or less of total expen-ditures or $100,000 or less, it is probably toosmall and should be combined with others.

Also, be aware that using programs might pro-vide less opportunity for outside organizations toparticipate in the budgeting process because thestarting point is, by definition, the existing port-folio of services. For that same reason, radicalinnovation in service design or delivery method isless likely.

5. Score Decision Units Against PriorityResults Once the organization has identified its priorityresults and more precisely defined what thoseresults mean, it must develop a process to objec-tively evaluate how the program or offer achievesor influences the priority results. Scoring can beapproached in several ways.

The first variation to consider is if a program oroffer will be scored against all the organization’spriority results or just the one it is most closelyassociated with. The cities of Lakeland, WalnutCreek, and San Jose scored against all of the prior-ity results. The belief was that a program thatinfluenced multiple results must be a higher prior-


Program Inventory: A Quick WinIf the organization does not have a sense of the pro-grams it provides, then simply developing a fully costed(direct plus indirect costs) program inventory shouldprovide immediate benefits. A program inventory canbe used to help decision-makers understand the fullbreadth of services provided and their costs, and mighthelp the organization recognize immediate opportuni-ties for efficiency. Appendix 1 provides additional infor-mation on how to build a program inventory.

Step 4 Intended Result: Prepare discrete decision-units that produce a clear result. Think about eval-uating these decision units against each other andnot necessarily about evaluating departmentsgainst each other.

ity – every tax dollar spent on a program thatachieved multiple results was giving the taxpayerthe “best bang for the buck.” Alternatively, organi-zations like Mesa County, the City of Savannah,Polk County, and Snohomish County matchedeach program or offer with only one of the priorityresults and evaluated it against its degree of influ-ence on that result. Under this scenario, guidelinesshould be established to help determine how toassign a program or offer to a priority area as wellas provide some sort of accommodation for thoseprograms or offers that demonstrate importanteffects across priority result areas. Both of theseapproaches have been used successfully, so theright choice depends on which approach resonatesmore with stakeholders.

In addition to scoring the offers or programsagainst the priority results, some organizationshave included additional factors in the scoringprocess. Examples include mandates to providethe service, change in demand for the service,level of cost recovery for the service, and relianceon the local government to provide the service(as opposed to community groups or the privatesector). The governments believed that a pro-gram should be evaluated more highly if therewas a mandate from another level of government,

if there was an anticipated increase in demandfor the program or that program received fees orgrant dollars to significantly cover the costs toprovide it. Finally, if the citizen had to rely solelyon the government to provide the program orservice and there was no other outside optionavailable, then a program was believed to be of aslightly higher priority.

The next variation is how to actually assignscores to programs or offers. One approach is tohave owners of the programs or offers (e.g.,department staff) assign scores based on a self-assessment process. This approach engages theowners in the process and taps into their uniqueunderstanding of how the programs influence thepriority results. Critical to this approach is aquality control process that allows the owner’speers in the organization (other departments)and/or external stakeholders (citizens, electedofficials, labor unions, business leaders, etc.) toreview the scoring. The peer review group chal-lenges the owner to provide evidence to supportthe scores assigned. A second approach to scor-ing establishes evaluation teams that are respon-sible for scoring the programs or offers againsttheir ability to influence the priority results.Owners submit their programs or offers for the


What about Capital Projects?For most organizations, outlays for capital projects and one-time initiatives are a significant part of their budget-ing process. A priority-driven budgeting process can be used to prioritize these major one-time expenditures inthe same way it is used to evaluate ongoing programs and services. The starting point is a capital improvementplan (CIP) that includes all the potential capital projects from across the organization. Ideally, it should includenot only major capital construction, capital improvement, or capital equipment purchases, but also significantone-time expenditures items such as major studies, comprehensive plan updates, and software upgrades that areplanned for the next five years. In addition to the strategic results, other evaluation factors for capital projectsmight include:

• Is the project mandated by some other governmental agency?• Is it a continuation of an existing project that has already been approved?• Is it an integral component of the organizations Comprehensive Plan for future community growth?• Is it being fully or partially funded by another agency or private interest?• Is the project responding to an emergency situation or critical need of the organization?

When evaluated in this way, projects that are of a higher priority have assurance of funding in the next five-to-ten year period over those that are of a lower priority, especially when there are limited one-time resourcesavailable to fund them. This method also avoids funding a current-year project that is of a low priority instead ofsetting aside funds to ensure the successful completion of the higher-priority capital need in a future year.

teams to review, and the teams score the pro-grams against the results. The priority-drivenbudgeting process becomes more like a formalpurchasing process, where the departments areanalogous to vendors and the evaluation teamsare like buyers. Evaluation teams could be madeup entirely of staff, with representation bothfrom staff members who have specific expertiserelated to the result being evaluated and otherswho are outside of that particular discipline. Analternative team composition would include bothstaff and citizens, to gain the unique perspectivesof both external and internal stakeholders. Thissecond approach brings more perspectives intothe initial scoring and encourages cross-function-al teamwork via the evaluation teams.

Another consideration is the particular scoringmethod to be used. For example, will evaluatorshave to use a forced-ranking system where pro-grams/offers are fit into a top-to-bottom rankingor will each program be scored on its own merits,with prioritization as a natural byproduct? Eachsystem has its advantages, but the importantthing is to make sure the scoring rules are clearto everyone and applied consistently.

The role of the elected governing board in thisstep is another point of potential variation in thescoring. In some organizations, the board is heav-ily integrated into the process and participates inthe scoring and evaluation step. They have theopportunity to question the scores that havebeen assigned by the owner or the evaluationteam, ask for the evidence that supports thatscore, and ultimately request that a score bechanged based on the evidence presented and

their belief in the relative influence that programor offer has on the priority results it has beenevaluated against. In other organizations, theprocess can be implemented as a staff-only toolthat is used to develop a recommendation to thegoverning body. Snohomish County uses thisapproach, as its culture and board-staff relationsupports it.

Regardless of which variations are selected, thereare three important points to establish. The firstis that to maintain the objectivity and trans-parency of the process, programs or offers mustbe evaluated against the priority results, as theywere defined collectively by stakeholders (seestep 3). Secondly, scores must be based on thedemonstrated and measurable influence the pro-grams or offers have on the results. Finally, theresults of the scoring process will be provided asrecommendations to the elected officials, whohold the final authority to make resource alloca-tion decisions.

6. Compare Scores Between Offers orProgramsIt is a “moment of truth” in priority-driven budg-eting, when the scoring for the offers or programsis compiled, revealing the top-to-bottom compar-ison of prioritized offers or programs. Knowingthis, an organization must be sure that it hasdone everything possible up to this moment toensure that the final scores aren’t a surprise andthat the final comparison of the offers or pro-grams in priority order is logical and intuitive.

The City of San Jose engineered a peer reviewprocess through which the scores the depart-ments gave to their programs were evaluated,discussed, questioned, and sometimes recom-mended for change. The city established a reviewteam for each of its priority results. The teamfirst reviewed the strategy map to ensure thateach member of the team was grounded in the


Scoring Support ServicesAs mentioned earlier, a number of our research sub-jects established a priority result for “good gover-nance.” Those programs that provided internal serviceswere scored against these governance results in a par-allel evaluation process. These governments believedthat internal services were important, but were expect-ed to achieve different results than those programs oroffers intended for citizens.

Step 5 Intended Result: Each decision unit (offeror program) should have a score that indicates itsrelevance to the stated priorities.

city’s specific definition of the result. Next, thereview teams were given a report that detailedevery program scored for the particular resultunder review. The teams met to discuss:

• whether they understood the programs theywere reviewing;

• whether they agreed with the score given bythe department (the departments scoredtheir own programs);

• whether they required further testimony orevidence from the department to help thembetter understand the score given; and

• whether the score should stand, or if theteam would recommend an increase ordecrease.

All programs were evaluated in this manner untila final recommendation was made on programscores.

The city invited the local business community,citizens representing their local neighborhoodcommissions, and labor leaders to review the

scores. Walter Rossman, from San Jose’s CityManager’s Office, described their effort this way:“The participants found the effort informative asto what the city does; they found it engagingwith respect to hearing staff in the organizationdiscuss how their programs influence the city’sresults; and, most interesting, they found it fun.”

San Jose’s story is important because it demon-strated how stakeholders from various perspec-tives and political persuasions can all productive-ly participate in the priority-driven budgetingprocess. San Jose didn’t ask these stakeholders tocome together and rank programs. They didn’t

ask them to decide which programs should becut or which ones should be preserved. Theyframed the discussion very simply: Evaluate howour programs help us achieve our results, and towhat degree. The outcome of prioritization wastherefore expected and self-evident, based on thecommon understanding of the programs and howthe programs influence results.

Stakeholders could be concerned that theirfavored programs might lose support in thecourse of priority-driven budgeting. Even when aprogram director or a citizen who benefits from aparticular program understands why that pro-gram ranked low, they are not going to bepleased about it. Invite stakeholders from allsides, from within the organization and even thecommunity, to understand the process. Includestakeholders at various points in the process sothey might influence the outcome. Constantlycommunicate progress, throughout the process.Program directors, stakeholders of a particularprogram, organizational leadership, and staffmight not enjoy seeing their program prioritized

below other programs, but if they understand it,if they’ve had a chance to influence the process,and, most importantly, if they are aware ofactions they might take to improve the priorityranking of their program, the process will have agreat chance for success.

Lastly, consider if the scoring of the programs oroffers will be used only to decide where to makebudget reductions. Organizations such as thecities of Lakeland and Walnut Creek have usedprioritization not only to balance their budgets,but also to understand how services that mightappear less relevant to the city government might


San Jose framed the discussion very simply: Evaluate how our

programs help us achieve our results, and to what degree.

be relevant to other community groups. Thesegroups might take responsibility for supportingor preserving a service. There could be greatpotential in engaging other community institu-tions – businesses, schools, churches, non-profits– about partnership opportunities.

Peter Block has focused much attention on thisissue in his book, Community: The Structure ofBelonging.12 Citing the way we sometimes undulyrely on government to meet the community’sneeds, he highlights citizens’ experiences of tak-ing accountability for the results they hope to seeachieved. This occurs when cohesion is builtbetween local government, businesses, schools,social service organizations, and churches. Acomplete and successful priority-driven budget-ing process doesn’t conclude when the budgetsfor low-priority services are reduced – rather, itbrings together otherwise fragmented institu-tions in society to find ways of providing servicesthat may still be relevant to the community, evenif they are less important to the priority results alocal government seeks to achieve.

7. Allocate ResourcesOnce the scoring is in place, resources can be allo-cated to the offers or programs. This can be donein a number of ways. One method is to first allo-cate revenues to each priority result area based onhistorical patterns or by using the priority’s rela-tive weights, if weights were assigned. Allocatingresources to a priority result area can be contro-versial because, as we will see, this allocationdetermines the number of offers or programs thatwill be funded under that priority area (e.g., howmany public safety programs will be funded).There are no easy answers to this issue. As such,the designer of the process should look for waysto mitigate controversies associated with howmuch funding is allocated to one result versusanother and to prevent these allocations frombecoming new types of organizational silos. For

instance, the designer should think about wayspriority result areas can share information duringthe evaluation of programs or offers, and/or waysto jointly fund programs or offers.

Then, the offers or programs can be orderedaccording to their prioritization within a givenpriority result area and the budget staff draw aline where the cost of the most highly prioritizedoffers or programs is equal to the amount of rev-enue available (see Exhibit 4). The offers or pro-grams above the line are funded, and the onesthat fall below the line are not. The board andstaff will have discussions about the programs oneither side of the line and about moving thoseoffers or programs up or down, redesigning themto make more space above the line (e.g., loweringservice levels), or even shifting resources amongpriority results. Variations on the approach arepossible – for example, there could be multiplelines representing multiple levels of funding cer-tainty. In the City of Redmond, Washington,programs above a top line were categorized as“definitely fund,” while programs in between thetop line and a bottom line were open to addition-al scrutiny.

Another method is to organize the offers or pro-grams into tiers of priority (e.g., quartiles) andthen allocate reductions by tier. For example, pro-grams in the first tier might not be reduced, whileprograms in the lowest tier would see the largest


Exhibit 4: Drawing the Line

Step 6 Intended Result: The prioritized ranking ofprograms is a logical and well-understood productof a transparent process – no surprises.

reductions. The programs could be forced tomake assigned reductions, or each departmentcould be given an aggregate total reduction target,based on the programs under its purview (withthe implication being that the department willweight its reductions toward the lower-priorityprograms, although it would have more flexibilityto decide the precise reduction approach than ifthe cuts were not done within the department).This tier approach generates discussion amongboard and staff about how much money is spenton higher versus lower tier services in aggregate,as well as on resource allocation strategies forindividual departments and programs. Exhibit 5presents an example of the value this analysis canprovide. It shows the total amount of money onecity had historically spent on its highest priorityprograms (e.g., the top tier) versus the others.This city was spending significantly less on thetop tier than it was spending on the second tier,and less than it was spending on the third tier, aswell. This raises interesting questions aboutspending patterns in the organization and buildsa compelling case for change.

Organizations also need to consider the fundingof support services. Many of our research partici-pants elected to fund support services based onhistorical costs, making some reduction that wasconsistent with the reduction the rest of theorganization was making. The magnitude of the

reduction applied to any particular support serv-ice was based on its priority relative to othersupport services. A couple of our participantsenvisioned moving to a system wherein the costof support services would be fully distributed tooperating programs so support services would beaffected according to the prioritization of theoperating services they support.

Another question is how to handle restrictedmonies (e.g., an enterprise fund). One option isto handle special purpose funds (where there arerestrictions on how the money can be used) sep-arately. For example, enterprise funds or courtfunds might be evaluated on a different track orbudgeted in a different way altogether. Anotheroption is to rank programs or offers withoutrespect to funding source, but then allocateresources with respect to funding source.Knowing the relative priority of all the offers orprograms might generate valuable discussion,even if there is no immediate impact on funding.For example, if a low-ranking offer or program isgrant funded, is it still worth providing, especial-ly if that grant expires in the foreseeable future?Ideally, participants will become less fixated onfunding sources, realizing that the governmenthas more flexibility than it might think. Forexample, if a low-priority service is funded by aspecial earmarked tax, is there a way to reduce oreliminate that service and its tax, and increase a


Exhibit 5: Spending by Priority Tier

$28,098,598

$54,486,269

$32,821,736

$26,560,418

1

2

3

4

$ (millions) $10 $20 $30 $40 $50 $60

general tax by an analogous amount? As the gov-ernment becomes more proficient at expressingthe value it is creating for the community, itshould be better able to articulate these potentialtrade-offs to the community.

Of course, no matter what method is selected toallocate resources, remember that priority-drivenbudgeting, like any budgeting process, is still apolitical process. As such, it will not and shouldnot lead to “scientific” or “apolitical” allocation ofresources – rather, it should change the tone ofbudget discussions, from a focus on how moneywas spent last year to a focus on how the mostvalue can be created for the public using themoney that is available this year.

8. Create Accountability for Results,Efficiency, and InnovationThe owners of the programs or offers being evalu-ated might over-promise or over-represent whatthey can do to accomplish the priority result. Toaddress this potential moral hazard, create meth-ods for making sure programs or offers deliver theresults they were evaluated on. Many of ourresearch participants anticipate using perform-ance measures for this purpose. For example, aprogram or offer might have to propose a standardof evidence or a metric to be evaluated against, sothe organization can see if the desired result isbeing provided. Exhibit 6 is Polk County’s con-ceptual approach for connecting its priority resultareas to key performance indicators. However,none of the research participants have reachedwhat they would consider a completely satisfacto-ry state in this area. For those just starting out, thelesson is to understand where evidence is neededin your process design, but also to be patient withrespect to when this part of priority-driven budg-eting will be fully realized.

Other issues to consider as part of the priority-driven budgeting design are the efficiency of pro-

grams or offers, and innovation in the design ofprograms or offers. Although priority-drivenbudgeting will identify which programs or offersare best for achieving priority results, it does notspeak directly to the efficiency with which thoseprograms or offers are delivered or to innovativeapproaches to program delivery (although itmight indirectly encourage these things).

As such, the designers of the process might needto consider specific techniques for ensuring pro-gram efficiency. A proven model for improvingefficiency helps avoid cost-cutting techniquesthat also cut productivity and degrade the resultsa program produces. For instance, a systematicmethod for reviewing and improving businessprocesses could be implemented along with pri-ority-driven budgeting. One such method thatGFOA research has shown to be effective for localgovernments is “Lean” process review – a systemfor identifying and removing or reducing the non-value added work that can be found in virtuallyany business process. You can learn more aboutLean at www.gfoaconsulting.org/lean.

Business process improvement can also be incor-porated into a more comprehensive approach toreviewing program efficiency. Exhibit 7 (on thefollowing page) provides a sample programreview decision tree that is inspired by workfrom the City of Toronto, Ontario. As the exhibit


Step 7 Intended Result: Align resource allocationconsistent with the results of priority-driven scor-ing.

Exhibit 6: Polk County Concept forKey Performance Indicators

Basic Needs

Priority: People in Polk County who are at risk because oftheir health or economic status will get their basicneeds met, and are as self-sufficient as possible.Indicators:

Poverty Level

Homeless Popluation

County versus State

No Health Coverage

Improving

Maintaining

Improving

Improving

shows, a program is subjected to a series of teststo see if it is being provided efficiently. For exam-ple, can the service be shared with other govern-ments? Can greater cost recovery be achievedthrough fees or fund raising? Can the private sec-tor provide the service more efficiently? Can Leanprocess improvement techniques be applied?Exhibit 7 also shows how the review might belinked to priority-driven budgeting – discre-tionary services are subject to a relevance testthat asks the above questions about each priorityprogram, while non-priority programs gothrough a divestment test.

Finally, innovation tends to be the exceptionrather than the rule in the public sector, so thedesigners of the priority-driven budgeting

process should consider how to encourage newways of structuring programs or offers to bestachieve the government’s priority results. Someresearch argues that innovation is a “discipline,just like strategy, planning, or budgeting.”11

Public managers who want to encourage innova-tion will need to develop and institutionalizededicated processes to generate ideas, select thebest ones, implement them, and spread the bene-fits throughout the organization. Along the way,public managers will need to make use of a vari-ety of implementation strategies, including thosethat rely on the organization’s own resources andthose that seek to harness resources from out-side. Public managers will also have to create anorganizational culture that is not just conduciveto innovation, but actively encourages and even


Exhibit 7: Sample Program Review Decision Tree

Mandate Test

Is the program mandatory?

Yes

Service Level Test

What level of service is required? What do we

provide?

Program Relevance Test

Is the the program a priority for the community?

Divestment Test

Should this program bedelivered by another

organization?

Identify organization & terms of transfer

Assess impact & abandon program

Government Role Test

Does government have to be a direct provider?

Funder? Regulator?

No

No

Yes

No

Discretionary Services(service exceeds mandate)

Mandatory Services(service within mandate)

Yes

Revenue Generation Test

Can the program be more self-sufficient? User fees?

Sponsorships? Fundraising?

Outsourcing Test

Does the program meet the criteria for outsourcing: Task can be specified inadvance? Disappointing contractors

can be replaced? Government is concerned with ends over means?

Community Co-Production Test

Do opportunities exist for sharingservice with other governments, partnering with NGOs, or using

citizen volunteers?

Lean Processing Test

Can the process beredesigned to remove or reduce non-value-added

work?

Program Improvement Plan

Analysis of current situationAnalysis of optionsRecommendation

Policy & Environment Context

Do policies define acceptable levels of subsidization?

Are there changes in demand?Is there willingness to consider lower

service levels?

GFOA Sample Program

Review Tree

demands it. The Public Innovator’s Playbookdescribes one approach to encouraging innova-tion in this kind of systematic way.12

ConclusionPriority-driven budgeting represents a majorshift from traditional budgeting methods. A clearunderstanding of the priority-driven budgetingphilosophy should be in place before proceedingdown this path, along with a strong level of sup-port – especially from the CEO (whose role isnormally to propose the budget) and, ideally, thegoverning board (whose role is to adopt thebudget). Priority-driven budgeting is not aprocess that is brought in to fix a structuraldeficit; instead, it becomes the way an organiza-tion approaches the resource allocation process.It brings with it an important cultural shift –moving from a focus on spending to a focus onachieving results through the budget process.Priority-driven budgeting should be perceived byall stakeholders as a process that improves deci-sion-making and changes the conversationsaround what the organization does (programsand services), how effective it is in accomplishingits priority results, and how focused it is on allo-cating resources to achieve its results. The success of your process design rests on aclear understanding of the principles of priority-

driven budgeting, outlined in the eight steps pre-sented in this paper. A priority-driven budgetingprocess can be approached in several ways, sokeep in mind the major levers and decisionpoints to create a process that works best foryour culture and environment, and that embracesthe concepts of democratic and substantive legit-imacy. The governments that participated in thisresearch show that there are opportunities tointroduce flexibility in the process – but keep inmind that with that flexibility comes risk, ifchanges are made that don’t embrace the basicprinciples of priority-driven budgeting.

Research what other organizations have doneand ask them about their long-term success inshifting to the “new normal” in local governmentbudgeting. Understand that priority-drivenbudgeting is a process that will evolve andimprove over time – don’t expect perfection inthe first year. Engage outside help where neededto design the process, develop successful commu-nication plans, incorporate citizen involvement,and institute a process. Enjoy new conversationsthat were not possible before, and embrace thetransparency in decision-making that accompa-nies the priority-driven budgeting process. Asyour organization adapts to the new normal, theprocess will guide decision-makers in makingresource allocations that fund the programs thatare most highly valued by the organization and,more importantly, by the citizens who depend onthose programs and services for their well being,comfort, and expected quality of life.


Step 8 Intended Result: Make sure that those whoreceived allocations are held accountable for pro-ducing the results that were promised. Find waysto directly encourage efficiency and innovation.

Appendix 1: Building a Program Inventory

IntroductionFinancial constraints have forced many govern-ments to take a hard look at the services theyoffer. A fundamental step is to inventory all theservice programs a government offers. A programinventory clarifies the breadth of services provid-ed and, ideally, highlights key characteristics ofeach program (e.g., the full cost of providing theprogram and the level of revenues that programdirectly generates to support its operations). Theinventory provides the basis for discussion aboutthe services that should be provided.

Steps to Take 1. Define your objectives and goals for the pro-

gram inventory. Identifying a program is asmuch art as it is science – an inescapableamount of subjectivity is involved. Therefore,to make judgments as effectively as possible,make sure you are clear on why you are devel-oping a program inventory. Some of thepotential purposes are: • Understanding the complete scope of

services government provides.• Communicating the scope of services to

the public in a format that is easy to

understand and can be digested by theaverage citizen (i.e., not too detailed).

• Drawing distinctions between the results(that matter to citizens) provided by dif-ferent programs. To achieve this, programscannot to be too large or vague.

• Beginning to show the true cost of doingbusiness by describing what governmentdoes on a meaningful level, and then iden-tifying costs for those programs.

• Laying the groundwork for priority-drivenbudgeting, where programs receive budgetallocations based on their contributions tothe government’s priority objectives.

• Laying the groundwork for programreview, where programs are subjected toefficiency tests to determine if the servicedelivery method employed is optimal.

2. Decide what information the program inven-tory should contain, in addition to the basicdescription of the program. Options to con-sider include:• Full cost. The full cost of the program is its

direct cost plus its indirect cost (overheadcharges). Full-cost accounting makes thetrue cost of offering a service transparent,which allows better planning and decisionmaking. It also helps show that the organ-ization is achieving the expected level of


Program Costing TipsPrecise costs for each program might not be achievable without a great deal of work (or a new financial man-agement system). For purposes of priority-driven budgeting, accessible and widely used cost allocationmethodologies allow for relatively accurate costing of each program is possible. If you have a formal cost allo-cation plan, this would be the best place to start assigning program costs. Otherwise, start with direct costs.Remove any one-time costs (e.g., capital) to make sure you are capturing only ongoing expenditures related toa given program. However, you can assign the operating and maintenance costs of the assets employed by aprogram to the direct costs, if doing so is logical and consistent with the way these costs are being handledfor other programs.

Cost allocation plans may be the most cost effective way to produce a reliable overhead allocation figure. Inthe inventory document, displaying the overhead costs separately from the direct costs can provide flexibilityto those who use the information.

In making the transition from department or division budgets to program costs, use an allocation method thatis intuitive and therefore would enjoy legitimacy among the users of the costing system (e.g., the number ofFTEs or percentage of employee time devoted to a program). Whatever the allocation methodology, thefinance or budget staff needs to be able to prepare a reconciliation.

cost recovery for a given service. Full cost-ing is especially important if the govern-ment envisions eventually going to a prior-ity-driven budget process.

• Alignment with strategic goals. Knowinghow programs contribute to priority goalsenables organizations to develop morestrategic cutback strategies.

• Service level. Describe the level of servicesprovided to the public. If service is beingprovided at a premium level, perhaps serv-ice levels can be lowered to reduce costs.

• Mandate review. List and clearly defineany mandates a program is subject to.Then review the current service levelagainst the mandate requirements.Perhaps the service level being provided ishigher than what the mandate requires.

• Demand changes. Is demand for a servicegoing up or down? If demand is goingdown, perhaps the program can be cutback and resources shifted elsewhere. Ifdemand is going up, steps can be taken tomanage demand. For example, perhapsmeans testing can be applied to a socialservices program.

• Support from program revenues. Describethe extent to which the program is sup-ported by its own user fees, grants, orintergovernmental revenues. Is there anopportunity to achieve greater coverage ofthe full costs of the program?

3. Develop forms and templates. Create toolsdepartments can use to describe their pro-grams in a manner that is consistent and thatcaptures the information needed to fulfill thepurpose of the inventory. Consider testing theforms and templates with one or two depart-ments and then distributing them to a widergroup. Also consider providing training andan official point of contact for questions.

4. Differentiate programs from functions.Departments or divisions (i.e., public health,courts, public works, sheriff) are oftendescribed as functions or nouns. These arenot programs, which are more often described

with verbs – programs are action-oriented.For example, programs in a sheriff’s officemight include crime investigations, deten-tions, and court security. However, programsshould not be described in terms of overlydetailed tasks. For instance, “supplying abailiff for court rooms” is a task within thecourt security program, not a program itself.

5. Find the right level of detail. A program is aset of related activities intended to produce adesired result. When constructing a programinventory, it can sometimes be challenging tofind the right level of detail. If a program istoo big or encompasses too much, it will notprovide sufficient information – that is, it willbe very difficult to describe the precise valuethe program creates for the public or to useprogram cost information in decision making.However, if program definitions are too small,decision makers can become overwhelmedwith detail and be unable to see the big pic-ture. In addition, tracking program costs forvery small programs is generally not cost-effective.

Generally speaking, if a program equates to 10percent or more of the total expenditures ofthe fund in which it is accounted for, then theprogram should probably be broken downinto smaller pieces. And if a program equatesto 1 percent or less of total expenditures, or to$100,000 or less, it is probably too small andshould be combined with others. This is just aguideline – there could be valid reasons forgoing outside of these parameters. For exam-ple, a small program could be much moreimportant than its cost suggests. Here aresome other points that have proven helpful inidentifying programs:

• A program is a group of people workingtogether to deliver a discrete service toidentifiable users.

• A program groups all tasks that a cus-tomer of that program would receive anddoes not break one program or service intomultiple items based on tasks.


• As far as possible, a program is individual– a program with its own name, cus-tomers, and staff team. Each programstands alone and is distinct from like pro-grams in a similar service area.

• Programs that are handled by less than 1 FTE

are combined with other existing programs.• A program uses an existing name that is

familiar to customers and staff, and/or ituses a name that could stand on its ownand would be understandable to the aver-age reader.


Examples of Program InventoriesSample Health and Environment Programs Sample Sherriff ProgramsEnvironmental Planning Traffic Air Quality Control Patrol Precincts Water Quality Emergency Management Ambulance Licensing Transportation EIP FoodNet Court Security Compliance & Community Safety Work Release Vital Statistics Inmate Food/Medical Service Immunization Grant Civil/Fugitive/Warrants Emergency Preparedness Response Records Non-grant Immunization Dispatch (Communications Center) Sexually Transmitted Disease (STD) Academy Food Protection Executive Cities Readiness Initiative Directed Operations (DOU) Zoonosis Critical Incident Response Cancer Control Initiative Radio Maintenance Communicable Disease Grants Coordinator Early Periodic Screening, Diagnosis and Treatment West Metro Drug Task Force Radon Crimes Against Children Health Care Program for Children with Special Needs Crimes Against Persons Women, Infants, and Children Victim Services Special Needs Nutrition Services Training and Recruiting Family Planning Patrol Administration Recreation CriminalisticsMaternal & Child Health Block Grant Detentions AdministrationPrenatal Plus Crimes Against PropertyHousing & Institutions Special InvestigationsAdult Substance Abuse Counseling SupportFetal Alcohol Syndrome Laundry/CustodialYouth Substance Abuse Counseling Inmate Worker ProgramHIV Counseling & Testing School Resource Officers (SROs)Nurse Home Visitor Operations/BookingSpecialized Women's Services Animal ControlTobacco Cessation Inmate WelfareNutrition Services EvidenceAdult Health AccreditationHome Visit/Maternity Crime Analysis International Travel Clinic Investigations AdministrationHeart Wise Grant Professional StandardsHealth Education Internal AffairsHealthy Wheat Ridge Staff InspectionPublic Health Communications Volunteer ProgramsHome Visit/Children Community Relations

Notes1 The concept of incremental budgeting was

developed by Aaron Wildavlsky. See, forexample: Aaron Wildavsky, The Politics of theBudgetary Process (Boston: Little, Brown, 1964).

2 Robert Behn discusses the shortcomings ofincremental budgeting in a cutback environ-ment in the following article: Robert D. Behn,“Cutback Budgeting,” Journal of Policy Analysisand Management, Vol. 4, No. 2 (Winter, 1985).

3 Priority-driven budgeting is also known as“budgeting for results” and “budgeting foroutcomes,” although the latter is used todescribe a specific method of priority-drivenbudgeting.

4 Personal interviews were conducted with themanagers who led priority-driven budgetingat these entities.

5 Behn. 6 Mark Moore emphasizes that these two

sources of legitimacy are essential to makingany big public policy change. Mark Moore,Creating Public Value (Boston: Harvard

University Press, 1997).7 Diagram inspired by Eva Elmer and

Christopher Morrill, “Budgeting forOutcomes in Savannah,” Government FinanceReview, April 2010.

8 Budgeting for outcomes was the subject ofThe Price Of Government: Getting the Results WeNeed in an Age of Permanent Fiscal Crisis by DavidOsborne and Peter Hutchinson (New York:Basic Books, 2004).

9 Robert S. Kaplan and David P. Norton,Strategy Maps: Converting Intangible Assets intoTangible Outcomes (Boston: Harvard BusinessPress, 2004).

10 Peter Block, Community: The Structure ofBelonging (San Francisco: Berrett-KoehlerPublishers, 2008).

11 William D. Eggers and Shalabh Kumar Singh,The Public Innovator’s Playbook: Nurturing BoldIdeas in Government (New York: Deloitte,2009).

12 Eggers and Singh.


Anatomy of a Priority-Based Budget Process

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