In my experience as both a local government manager and adviser, I have found the best way to understand a local government’s annual budget process is by using the systems approach to management. This approach recognizes the interdependence of all major activities within an organization, especially public ones like local governments.

It could be that local government managers think of this systems approach in terms of piecemeal parts, when in fact they are all related to the development, approval, implementation, and feedback processes.

A public organization is viewed as an open system that includes six basic sub-systems, which are highlighted and explained here as they relate to the annual budget process:

1. Input

This includes available revenues to finance public services for the coming fiscal year. A local government's revenues typically include non-restricted funds, restricted funds, and other possible funding sources as allocated and approved by its elected officials.

The services provided by a public organization are based on the available revenues from all sources as approved in its annual budget, which is a result of the annual budget development process that is explained below.

Read "A New Framework for Budgeting: Involving Customer Service, Innovation, and Employee Engagement in the Process" »

2. Preparation

The budget preparation process includes four typical steps followed by public officials, both elected and appointed. These steps include administrative preparation, legislative approval, financial implementation, and annual year-end accounting and financial reporting, which is usually performed by an independent outside auditor.

This process is in the best interest of everyone—residents, their elected officials, as well as the employees of a public organization.

3. Output

The output of the budget process is determined based on the available revenues and approved allocation of these revenues to pay for projected departmental services for the coming fiscal year. Available funds are allocated to finance the public services provided by the departments in a local government, as well as its approved capital projects, for the coming fiscal year.

The common types of public budgets include line-item budgets, program budgets, performance budgets, zero-based budgets, and other evolving budget formats. Most local government budgets use a line-item format, with possible program performance measurements, where they have been developed.

Read "A Century of Budget Innovation" »

4. Feedback

The financial feedback on the adopted budget is provided to both elected officials and administrators, based on an annual audit that is typically conducted by an outside independent auditor.

This is usually required by a city’s charter approved by its voters. This financially objective feedback is provided to the organization’s major stakeholders for both the operating and capital budgets, including its elected officials, management staff, and residents.

It is typically placed online on a local government’s public website;, copies are also placed in the public library to accommodate those residents who wish to review a hard copy of this annual report.

5. Operating Environment

The annual budget process is influenced by several factors that are composed of a public organization’s operating, or organizational, environment. These factors include its political environment, its economic environment, its social environment, and its legal environment.

All of these factors are interrelated and greatly influence all phases of the organization's annual budget process. While elected officials and their administrators have an influence on their internal environment, they have little control over their external environment.

6. The Future

Elected officials typically create the political orientation of their organization, its political environment. While some local governments are liberal and others are conservative, many represent both political perspectives. Yet others change their political perspective over time.

While the political portion of a local government’s environment may change, the other components of a local government’s budget process generally remain the same. They unfold annually and continually influence the organization’s political, economic, social, and legal subsystems, all of which influence its annual budget process. Most of these other, primarily external, sub-systems change slowly over time.

Many aspects of a local government’s environment are influenced by higher levels of government too, primarily their state government and the federal government. Local public officials, both elected and appointed, generally have little influence over these levels of government and usually only react and adapt to their respective mandates, available grants, and legal requirements.

Read "Rethinking Budgeting: Are We Ready for a New Approach?" »

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