National Advisory Council on State and Local Budgeting Practice

Table of Contents
A FRAMEWORK FOR IMPROVED STATE AND LOCAL GOVERNMENT BUDGETING AND
RECOMMENDED BUDGET PRACTICES............................................................................................ 3
PREFACE....................................................................................................................................... 3
DEFINING AN IMPROVED BUDGET PROCESS .............................................................................. 3
A DEFINITION OF THE BUDGET PROCESS ................................................................................... 4
THE MISSION OF THE BUDGET PROCESS ................................................................................... 4
COMMUNICATION AND INVOLVEMENT......................................................................................... 4
PRINCIPLES OF THE BUDGET PROCESS ..................................................................................... 5
ELEMENTS OF THE BUDGET PROCESS ....................................................................................... 5
BUDGET PRACTICES .................................................................................................................... 6

PRINCIPLE 1- ESTABLISH BROAD GOALS TO GUIDE GOVERNMENT DECISION MAKING............. 9

Element 1 - Assess Community Needs, Priorities, Challenges and Opportunities........................ 9
1.1 Identify stakeholder concerns, needs, and priorities.............................................................. 9
1.2 Evaluate community condition, external factors, opportunities and challenges...................... 10
Element 2 - Identify Opportunities and Challenges for Government Services, Capital Assets, and
Management .................................................................................................................. 10
2.1 Assess services and programs, and identify issues, opportunities, and challenges ............... 11
2.2 Assess capital assets, and identify issues, opportunities, and challenges ............................ 11
2.3 Assess governmental management systems, and identify issues, opportunities, and
challenges ................................................................................................................................. 12
Element 3 - Develop and Disseminate Broad Goals................................................................... 12
3.1 Identify broad goals.......................................................................................................... 12
3.2 Disseminate goals and review with stakeholders ................................................................ 13

PRINCIPLE 2 - DEVELOP APPROACHES TO ACHIEVE GOALS...................................................... 13

Element 4 - Adopt Financial Policies........................................................................................... 13
4.1 Develop policy on Reserve funds ...................................................................................... 13
4.2 Develop policy on fees and charges .................................................................................. 14
4.3 Develop policy on debt issuance and management ............................................................ 14
4.4 Develop policy on debt level and capacity if not defined in statutes ..................................... 15
4.5 Develop policy on use of one-time revenues ...................................................................... 15
4.6 Evaluate the use of unpredictable revenues....................................................................... 16
4.7 Develop policy on balancing the operating budget.............................................................. 17
4.8 Develop policy on revenue diversification .......................................................................... 18
4.9 Develop policy on contingency planning ............................................................................ 18
Element 5 - Develop Programmatic, Operating and Capital Policies and Plans........................... 19
5.1 Prepare policies and plans to guide the design of programs and services ............................ 19
5.2 Prepare policies and plans for capital asset acquisition, maintenance, replacement, and
retirement .................................................................................................................................. 20
Element 6 - Develop Programs and Services That Are Consistent with Policies and Plans........ 20
6.1 Develop programs and evaluate delivery mechanisms ....................................................... 20
6.2 Develop options for meeting capital needs and evaluate acquisition alternatives .................. 21
6.3 Identify functions, programs, and/or activities of organizational units ................................... 22
6.4 Develop performance measures ....................................................................................... 22
6.5 Develop performance benchmarks.................................................................................... 23
Element 7-Develop Management Strategies................................................................................ 24
7.1 Develop strategies to encourage attainment of program and financial goals......................... 24
7.2 Develop mechanisms for budgetary compliance................................................................. 24
7.3 Develop the type, presentation, and time period of the budget ............................................ 25

PRINCIPLE 3 - DEVELOP A BUDGET CONSISTENT WITH APPROACHES TO ACHIEVE GOALS ... 25

Element 8 - Develop a Process for Preparing and Adopting a Budget ........................................ 26

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8.1 Develop a budget calendar ............................................................................................... 26

8.2 Develop budget guidelines and instructions ....................................................................... 26
8.3 Develop mechanisms for coordinating budget preparation and review................................. 27
8.4 Develop procedures to facilitate budget review, discussion, modification, and adoption ........ 27
8.5 Identify opportunities for stakeholder input ......................................................................... 28
Element 9 - Develop and Evaluate Financial Options .................................................................. 28
9.1 Conduct long-range financial planning............................................................................... 28
9.2 Prepare revenue projections ............................................................................................. 29
9.3 Analyze major revenues ................................................................................................... 30
9.4 Evaluate the effect of changes to revenue source rates and bases...................................... 30
9.5 Analyze tax and fee exemptions........................................................................................ 31
9.6 Achieve consensus on a revenue forecast......................................................................... 31
9.7 Document revenue sources in a revenue manual............................................................... 32
9.8 Prepare expenditure projections........................................................................................ 32
9.9 Compare revenue and expenditure options........................................................................ 33
9.10 Develop a capital improvement plan.................................................................................. 34
Element 10 - Make Choices Necessary to Adopt a Budget.......................................................... 35
10.1 Prepare and present a recommended budget .................................................................... 35
10.2 Describe key policies, plans and goals .............................................................................. 35
10.3 Identify key issues ........................................................................................................... 36
10.4 Provide a financial overview.............................................................................................. 36
10.5 Provide a guide to operations ........................................................................................... 37
10.6 Explain the budgetary basis of accounting ......................................................................... 37
10.7 Prepare a budget summary .............................................................................................. 38
10.8 Present the budget in a clear, easy-to-use format............................................................... 38
10.9 Adopt the budget ............................................................................................................. 39

PRINCIPLE 4 - ASSESS PERFORMANCE AND MAKE ADJUSTMENTS........................................... 39

Element 11 - Monitor, Measure, and Assess Performance .......................................................... 39
11.1 Monitor, measure, and assess program performance......................................................... 39
11.2 Monitor, measure, and assess stakeholder satisfaction ...................................................... 40
11.3 Monitor, measure, and assess budgetary performance....................................................... 40
11.4 Monitor, measure, and assess financial condition............................................................... 41
11.5 Monitor, measure, and assess external factors .................................................................. 41
11.6 Monitor, measure, and assess capital program implementation........................................... 42
Element 12 - Make Adjustments as Needed ................................................................................ 42
12.1 Adjust the budget ............................................................................................................. 42
12.2 Adjust policies, plans, programs and management strategies ............................................. 43
12.3 Adjust broad goals, if appropriate...................................................................................... 43

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A FRAMEWORK FOR IMPROVED STATE AND LOCAL GOVERNMENT

BUDGETING AND RECOMMENDED BUDGET PRACTICES

PREFACE
The National Advisory Council on State and Local Budgeting (NACSLB) was formed in the spring of
1995. The Council was established with a three-year mission to improve state and local government
budgeting through identification and dissemination of good budget principles and practices. The Council
is composed of representatives from the eight original co-founding organizations as well as
representatives from academic institutions, public employees' organizations, and the public finance
industry.
This document presents a framework describing critical issues that must be addressed to improve the
budgeting practices of state and local governments. It provides a definition and a mission of a good
budget process. It also defines principles and elements of the budget process that serve as a means to
categorize budget practices. The recommended budget practices identified by the NACSLB are essential
components of each budget element. These practices may change over time in response to changing
conditions and experience, and should be periodically reviewed and updated as necessary. It is intended
that these practices will assist governments in evaluating and improving their own budget policies and
procedures and provide a foundation for further budget research and experimentation.

DEFINING AN IMPROVED BUDGET PROCESS

Governments allocate scarce resources to programs and services through the budget process. As a
result, it is one of the most important activities undertaken by governments. As the focal point for key
resource decisions, the budget process is a powerful tool. The quality of decisions resulting from the
budget process and the level of their acceptance depends on the characteristics of the budget process
that is used.
A budget process that is well-integrated with other activities of government, such as the planning and
management functions, will provide better financial and program decisions and lead to improved
governmental operations. A process that effectively involves all stakeholders—elected officials,
governmental administrators, employees and their representatives, citizen groups, and business
leaders—and reflects their needs and priorities will serve as a positive force in maintaining good public
relations and enhancing citizens' and other stakeholders' overall impression of government.
The National Advisory Council on State and Local Budgeting (NACSLB) was created to provide tools for
governments to improve their budgeting processes and to promote their use. In fulfilling that role, the
NACSLB has set forth a framework that has provided the context for development of a set of budget
practices for state and local governments. The budget practices identified by the NACSLB take into
account, and respect, the differences in state and local laws, the impact of the political aspects of
government, and the management needs of government. The practices are appropriate for a variety of
management and political styles.
As a result of the evolving nature of good budgeting practice, these practices are not intended as
mandatory prescriptions for governments. Rather, practices are set forth as recommendations only, and
can serve as a blueprint for governments that want to make improvements to their budget processes.
Implementation of these practices is expected to be an incremental process that will take place over a
number of years.
The framework presents a definition and mission statement for the budget process. It also presents a
structure for the overall budget process consisting of principles and budgetary elements. Budgetary
elements are essential components of each principle. This structure allows practices to be categorized in
a useful manner. The framework and the compendium of good budget practices are intended to serve as
tools to assist governments in improving their budget process. Among the benefits are:
• Educating governments and budget participants about the potential of budget systems,

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• Helping governments assess the adequacy of their own budgetary systems,

• Providing guidance to governments that want to improve their budget processes, and
• Promoting education, training, and further experimentation and research on techniques that work.

A DEFINITION OF THE BUDGET PROCESS

The budget process consists of activities that encompass the development, implementation, and
evaluation of a plan for the provision of services and capital assets. A good budget process is far more
than the preparation of a legal document that appropriates funds for a series of line items. Good
budgeting is a broadly defined process that has political, managerial, planning, communication, and
financial dimensions. The following definition recognizes the broad scope of the budget process and
provides a base for improvement of the budget process.

The budget process consists of activities that encompass the development, implementation,
and evaluation of a plan for the provision of services and capital assets.

Several essential features characterize a good budget process. A good budget process:
• Incorporates a long-term perspective
• Establishes linkages to broad organizational goals
• Focuses budget decisions on results and outcomes
• Involves and promotes effective communication with stakeholders
• Provide incentives to government management and employees
These key characteristics of good budgeting make clear that the budget process is not simply an exercise
in balancing revenues and expenditures one year at a time, but is strategic in nature, encompassing a
multi-year financial and operating plan that allocates resources on the basis of identified goals. A good
budget process moves beyond the traditional concept of line item expenditure control, providing
incentives and flexibility to managers that can lead to improved program efficiency and effectiveness.

THE MISSION OF THE BUDGET PROCESS

The mission statement below identifies the central goal of the budget process. It incorporates both
political and managerial aspects, as well as a responsibility to report and account for the provision of
services and use of resources. Communication and involvement with citizens and other stakeholders is
stressed. The broad nature of the mission allows issues to be addressed that have limited the success of
budgeting in the past.

The mission of the budget process is to help decision makers make informed choices for the
provision of services and capital assets and to promote stakeholder participation in the
decision process.

COMMUNICATION AND INVOLVEMENT

A company is not likely to remain in business if it does not stay in touch with its customers. While
governments that are not in touch and do not have involved citizens may remain in business, the results
are often not pleasant for the citizens or the government. Apathy is a serious illness of government. It is in
the best interests of government to have involved "stakeholders."
The term "stakeholder" refers to anyone affected by or has a stake in government. This term includes, but
is not limited to: citizens, customers, elected officials, management, employees and their representatives
(whether unions or other agents), businesses, other governments, and the media.
It is vital that the budget process include all stakeholders. The budget process should accomplish the
following:

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• Involve stakeholders,
• Identify stakeholder issues and concerns,
• Achieve stakeholder buy-in to the overall budgeting process,
• Achieve stakeholder buy-in to decisions related to goals, services, and resource utilization,
• Report to stakeholders on services and resource utilization, and
• Serve generally to enhance the stakeholders' view of government.

The importance of this aspect of the budget process cannot be overstated. Regular and frequent
reporting is necessary to provide accountability, educate and inform stakeholders, and improve their
confidence in the government. Communication and involvement is an essential component of every
aspect of the budget process.

PRINCIPLES OF THE BUDGET PROCESS

The budget process consists of several broad principles that stem from the definition and mission
described above. These principles encompass many functions that cut across a governmental
organization. They reflect the fact that development of a budget is a political and managerial process that
also has financial and technical dimensions.
The functions or activities covered by these principles generally are sequentially ordered, but they can
often be performed concurrently to some extent. Moreover, information obtained from one activity or
function can aid in achieving an earlier one. The process can be iterative, and is intended to be so. Some
functions may also be accomplished by linkage to other processes rather than as an explicit part of a
formal budget process. For example, developing broad goals and identifying the services that are needed
to accomplish the goals could be part of a separate strategic planning process. As long as there is an
appropriate linkage, these functions do not need to be a formal component of the budget process.
Governments do need to give adequate attention to these linkages, however, and ensure that those
affected are appropriately involved. The budget should be the centerpiece of a thoughtful, ongoing,
decision-making process for allocating resources and setting priorities and direction.
The principles of the budget process are shown as follows:

DEVELOP BROAD GOALS TO GUIDE GOVERNMENT DECISION MAKING

A government should have broad goals that provide overall direction for the government and
serve as a basis for decision making.

DEVELOP APPROACHES TO ACHIEVE GOALS

A government should have specific policies, plans, programs, and management strategies to
define how it will achieve its long-term goals.

DEVELOP A BUDGET CONSISTENT WITH APPROACHES TO ACHIEVE GOALS

A financial plan and budget that moves toward achievement of goals, within the constraints of
available resources, should be prepared and adopted.

ASSESS PERFORMANCE AND MAKE ADJUSTMENTS

Program and financial performance should be continually assessed, and adjustments made, to
encourage progress toward achieving goals.

ELEMENTS OF THE BUDGET PROCESS

Each principle of the budget process comprises a number of elements that represent achievable results.
These elements help translate the guiding principles into action components. Individual budgetary
practices are derived from these elements and are a way to accomplish the elements. The elements of
each guiding principle are identified below. The principles and elements provide a structure to categorize

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budgetary practices. A more detailed explanation of the principles and elements is provided in the
appendix.

ESTABLISH BROAD GOALS TO GUIDE GOVERNMENT DECISION MAKING

1. Assess community needs, priorities, challenges and opportunities

2. Identify opportunities and challenges for government services, capital assets, and
management
3. Develop and disseminate broad goals
DEVELOP APPROACHES TO ACHIEVE GOALS
4. Develop financial policies

5. Develop programmatic, operating, and capital policies and plans

6. Develop programs and services that are consistent with policies and plans

7. Develop management strategies

DEVELOP A BUDGET CONSISTENT WITH APPROACHES TO ACHIEVE GOALS
8. Develop a process for preparing and adopting a budget
9. Develop and evaluate financial options

10. Make choices necessary to adopt a budget

ASSESS PERFORMANCE AND MAKE ADJUSTMENTS

11. Monitor, measure, and assess performance

12. Make adjustments as needed

BUDGET PRACTICES
Definition of a Budget Practice
A budget practice is a procedure that assists in accomplishing a principle and element of the budget
process. It is appropriate for all governments and in all circumstances and situations. Budget practices
can be hierarchal—that is, one practice can help accomplish another practice. The Council has avoided a
practice hierarchy of more than one level. A budget element typically has multiple practices associated
with it.
Budget practices must be clearly related to activities identified in the budget process definition. A practice
is not a budget practice unless it specifically contributes to the development, description, understanding,
implementation and evaluation of a plan for provision of services and capital assets. For example, a
policy statement on debt capacity is included in a set of budget practices since debt is a component of the
budget and the budget decision making. However, a practice encouraging competitive sales of debt is not
a budget practice. More specific methods of accomplishing a budget practice are usually categorized as
tools and techniques. There also may be alternative ways to accomplish a practice. Different
governments may find one tool or technique works better for them than another. Budget practices do not
identify a specific time frame, but tools and techniques may do so. See the section on Budget Tools and
Techniques for a more detailed description of these items.

Format of a Budgetary Practice

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The budgetary practice format used by the NACSLB is concise and normally fits on one page. Practice
examples are in addition to the one page description. The format includes the following:
Name - A short phrase naming the practice that can be used to succinctly describe the practice.
Principle and Element - Name of the principle and element with which the practice is associated.
Component Practice - Name of the practice to which this practice is hierarchically related, if any.
Description - A brief description of the practice. It should be no more than two or three sentences.
Rationale - A short one to three sentence explanation of the need for the practice and why it is
important. It describes the generally applicable benefits.
Output - A brief description of communications and outputs. It identifies what is to be produced and
who is the audience.
Notes - Additional information with regard to practice implementation, roles, and optional features.
Award program requirements and sources may also be provided.
Examples - The NACSLB generally has tried to provide one or more examples with each practice to
make the practices compendium more useful. The Council may experiment with the format of
practices. It is hoped that practices and corresponding examples will eventually be available on CD-
ROM or the Internet.

Comprehensiveness and Categorization of Budget Practices

The NACSLB considers that the recommended budgetary practices are representative of the range of
issues raised by each budgetary element. However, the NACSLB also recognizes that there may be
additional practices that can be associated with each element and that practices may be added or
changed in the future. As a result, this classification is intended to be dynamic and periodically reviewed
and updated.
The budgetary practices are categorized using the principle/element/practice/example hierarchy
described in this budgetary framework document. Practices help to accomplish a budgetary element
which in turn is a component of a budgetary principle. In the future, the Council may consider additional
categorization of examples. The Council may also provide examples that identify developing initiatives.

Budget Tools and Techniques

Budget tools and techniques are specific methods of accomplishing a practice. Budget tools and
techniques assist in some situations or governments, but may not in all. The NACSLB has not developed
tools and techniques. Tools and techniques supporting each practice may be better left to the NACSLB
member associations and others to develop.

Issues Affecting Budget Practices

There are numerous issues affecting the successful implementation of budget practices. Failure to
address these issues will, at a minimum, be an impediment to improving the budget process, but could
have a more severe, adverse impact on the budget process and the quality of the budget results. The
NACSLB feels the practices it has developed respect the problems a government may have in
implementing a good budget process. The following issues need to be taken into account in the tools and
techniques that support budgetary practices:
• Managing the budget process and changes to budget practices.
• Dealing with differences between governments, including size and legislative processes.
• Adjusting for organizational structure and issues.
• Addressing the organizational culture with regard to the budget process.
• Election campaign issues. Desire to have change or to prevent change.
• Level of resources available for programs.
• Available level of technical system and support.
• Dealing with high (or low) expectations.
• Legal requirements.
• Ensuring citizen processes work.
• The level of stakeholder understanding.
• Accuracy of projections and assumptions.
• Level of disclosure.

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Practices Are Recommendations, Not Requirements

The budget practices have been developed to provide guidance to governments that want to make
improvements to their budget processes. The NACSLB endorses the practices and considers them a
component of good government. These practices should not be regarded as standards or requirements,
however. The complex, evolving, and political nature of the budget process make it certain that some
governments will find alternative approaches to good budgeting. These approaches may well become
additions to or provide the basis for modifying practices identified by the NACSLB.
Success in implementing the principles, elements, and practices should not be measured by how rapidly
they are incorporated into the budget process. Successful implementation is likely to take a number of
years in order to build the necessary level of understanding among all participants, institute support
systems, and make modifications to accommodate the unique nature of each government.

Conformance of Recommended Practices with Statute

The recommended practices are intended to supplement existing statutes controlling a government's
budget process. The recommended practices should rarely, if ever, be directly in conflict with statute. A
conflict can usually be resolved by simply having official materials meet statutory requirements and
preparing additional materials conforming to the recommended practices. If there ever is unresolvable
conflict, then statutory requirements should take precedence.

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APPENDIX
An Outline of Recommended Budget Practices of the National Advisory Council on State and
Local Budgeting
This appendix sets forth a set of recommended budget practices formulated by the National Advisory
Council on State and Local Budgeting (NACSLB). These budget practices address all aspects of the
budget process as defined by the principles and elements described herein. Practices identified in this
outline are essential components of the element with which they are associated. However, there may be
practices within each element that have not been currently identified and practices may be added or
changed in the future. This list of recommended budget practices is intended to be dynamic and
periodically reviewed and updated.
As a result of the evolving nature of good budgeting practice, these practices are not intended as
mandatory prescriptions for governments. Rather, practices are set forth as recommendations only, and
can serve as a blueprint for governments that want to make improvements to their budget processes.
Implementation of these practices is expected to be an incremental process that will take place over a
number of years.

PRINCIPLE 1- ESTABLISH BROAD GOALS TO GUIDE GOVERNMENT

DECISION MAKING
This principle provides for the development of a set of broad goals that establish a general direction for
the government. These goals serve as the basis for development of policies and programs, including the
service types and levels that will be provided and capital asset acquisition and maintenance. Goals are
developed after undertaking an assessment of community conditions and other external factors, and a
review of the internal operations of the government, including its services, capital assets, and
management practices. Based on the assessment of current and expected future conditions, and
opportunities and challenges facing the community and the government, broad goals are established that
define the preferred future state of the community. Other principles address the development of strategies
and allocation of resources to achieve these goals.

1 Element 1 - Assess Community Needs, Priorities, Challenges and

Opportunities
A government should develop an understanding of the condition of the community, and trends and
issues that may affect it in the future. This process requires an examination and assessment of
stakeholder issues, concerns, needs, and desires. Also, factors that affect the community,
stakeholders, and the government should be identified. These include the state of the economy, the
composition of the population, technology, legal or regulatory issues, intergovernmental issues, and
physical or environmental issues.

PRACTICES

1.1 Identify stakeholder concerns, needs, and priorities

1.1.1 Practice: A government should develop mechanisms to identify
stakeholder concerns, needs, and priorities.
1.1.2 Rationale: The limited resources of a government should be directed in a
manner consistent with the concerns, needs, and priorities of
stakeholders; hence, a government must be aware of those concerns,
needs, and priorities.
1.1.3 Outputs: This practice provides for a series of mechanisms to promote
stakeholder participation in discussing and communicating values and
issues that are of concern to them. Among the mechanisms that might
be considered are public hearings, surveys, meetings of leading citizens
and citizen interest groups, government strategic planning processes,

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meetings with government employees, and workshops involving

government administrative staff and/or the legislative body.
1.1.4 Notes: This practice is integral to practices addressing the development
and dissemination of broad goals. This practice is also related to
practices that assess stakeholder satisfaction with programs and
services and progress toward achieving goals. (See practice entitled
Monitor, Measure, and Assess Stakeholder Satisfaction.)

1.2 Evaluate community condition, external factors, opportunities and

challenges
1.2.1 Practice: A government should regularly collect and evaluate information
about trends in community condition, the external factors affecting it,
opportunities that may be available, and problems and issues that need
to be addressed.
1.2.2 Rationale: A government must have an understanding of the issues and
trends affecting a community in order to establish the most appropriate
goals.
1.2.3 Outputs: A variety of mechanisms should be considered to gather
information about the community and to report on the results. Some
mechanisms will involve data gathering from preexisting sources or
through opinion surveys. Other mechanisms will be subjective, such as
observing physical characteristics of geographic areas within the
community or talking to residents, experts, business and community
leaders, and legislative bodies. Formal studies of particular issues or
trends may also be undertaken.
1.2.4 Notes: The intent of this practice is for a government to have up-to-date
information with which to evaluate community conditions and major
issues that are integral to the development and achievement of goals. In
evaluating community condition, a government may want to consider
local, regional, national, and global factors affecting the community,
including:
• Economic and financial factors,
• Demographic trends,
• Legal or regulatory issues,
• Social and cultural trends,
• Physical (e.g., community development) or environmental
factors,
• Intergovernmental issues, and
• Technological change.

2 Element 2 - Identify Opportunities and Challenges for Government Services,

Capital Assets, and Management
A government should undertake an assessment of its own operations, including the services it
currently provides, the assets it owns, its management structure, and the opportunities and
challenges that may affect them. A government should review existing services and assess how well
services address community needs and changes that may be necessary to respond to opportunities
and challenges. There should also be a corresponding review of existing capital assets. Note that this
element provides only for an evaluation of services and capital assets and does not address
decisions as to whether to provide or maintain them. Since internal management practices can affect
achievement of goals, issues such as organizational structure, information flow, and employee
motivation should be reviewed to determine whether changes will be needed to achieve goals.

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PRACTICES

2.1 Assess services and programs, and identify issues, opportunities,

and challenges
2.1.1 Practice: A government should identify and assess the programs and
services that it provides, their intended purpose, and factors that could
affect their provision in the future.
2.1.2 Rationale: Changes in community conditions or other factors may result
in a program or service no longer addressing the needs it was intended
to serve. Also, changes in the operating environment may affect the cost
or effectiveness of service delivery in the future. These changes must be
understood before an assessment can be made of whether existing
programs should be continued or whether adjustments should be made.
2.1.3 Outputs: A government should have a process for inventorying and
evaluating programs and services to determine the relationship of these
programs to the needs and priorities of the community. The review
should include an assessment of the programs' purposes, beneficiaries
and needs served, and issues, challenges, and opportunities affecting
their provision in the future. The inventory of programs and services
should identify the organization responsible for service delivery if it is not
the government itself. An evaluation of factors affecting service delivery
also should be undertaken, such as funding issues; changes in
technology; economic, demographic or other factors that may affect
demand; and legal or regulatory changes. These reviews will typically
utilize a variety of information sources. Stakeholder involvement in these
reviews should be encouraged.
2.1.4 Notes: The intent of this practice is to ensure that a government
understands the programs and services that it provides.

2.2 Assess capital assets, and identify issues, opportunities, and

challenges
2.2.1 Practice: A government should identify and conduct an assessment of its
capital assets, including the condition of the assets and factors that could
affect the need for or ability to maintain the assets in the future.
2.2.2 Rationale: The capital assets of a government and their condition are
critical to the quality of services provided, and hence are important in
determining whether the needs and priorities of stakeholders can be met.
2.2.3 Outputs: A government should have a process for inventorying its capital
assets and assessing the need for and the condition of these assets. The
assessment should include an evaluation of issues, challenges, and
opportunities affecting the provision of capital assets in the future, such
as community needs and priorities; funding issues; changes in
technology; economic, demographic, or other factors that may affect
demand; and legal or regulatory changes. This review may be
undertaken in conjunction with an evaluation of the program or service
utilizing the particular assets. The assessment of capital asset condition
should consider the impact of any deferred maintenance and needed
improvements.
2.2.4 Notes: Reviews of the condition of a capital asset and how well it is
meeting its intended purpose may not be undertaken very often,
particularly if there is little change occurring. However, the information
obtained from these assessments can be an important component of an
overall evaluation of community needs and issues. Capital assets that
have shorter lives or require more maintenance should be examined

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more frequently than longer-lived assets or assets requiring little

maintenance. Governments should stay abreast of developments that
may affect their major capital assets, such as regulatory changes,
population movements, or technological advances, and consider the
impact of such issues in the goal-setting process.

2.3 Assess governmental management systems, and identify issues,

opportunities, and challenges
2.3.1 Practice: A government should identify and analyze its organization and
management systems, including system strengths and weaknesses and
factors that could affect these systems in the future.
2.3.2 Rationale: The support systems established to manage a government
are integral to the achievement of goals.
2.3.3 Outputs: A process should be instituted to routinely identify, analyze, and
address issues related to a government's organization and management
systems and the environment in which these systems operate. This
process includes an examination of strengths and weaknesses of the
organizational structure, interdepartmental communication and
cooperation, communication of goals and directives, motivation of staff,
conflict management, and provision of other internal needs and support
systems. The review also should include an assessment of management
policies, procedures, and systems that support achievement of goals.
These reviews should involve stakeholders, as appropriate, including
legislative bodies; government managers, employees and/or their
representatives; and business and community leaders.
2.3.4 Notes: The intent is that a government have a workable process for
reviewing its internal management systems. The process identifies the
changes necessary to respond to perceived opportunities and challenges
and to achieve particular goals.

3 Element 3 - Develop and Disseminate Broad Goals

A government should identify and disseminate broad goals. Broad goals should be related to the
needs, challenges, and opportunities confronting the government and take into account the services
operated by the government, its capital infrastructure, and its organization and management systems.
A government should also provide for dissemination and review of goals to ensure stakeholder
understanding of the direction in which the government is moving.

PRACTICES

3.1 Identify broad goals

3.1.1 Practice: A government should identify broad goals based on its
assessment of the community it serves and its operating environment.
3.1.2 Rationale: Broad goals define the priorities and preferred future state of
the community or area served. They provide a basis for making resource
allocation decisions during the budget process and serve as a focal point
for assessing and coordinating various long-range or strategic plans.
3.1.3 Outputs: Goals should be expressed in written form and should reflect
stakeholder concerns, needs, and priorities as well as factors affecting
the community and the government. They must be sufficiently specific to
help define the services to be emphasized and make difficult resource
allocation decisions in the budget process.

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3.1.4 Notes: This practice builds on work accomplished through elements

addressing the identification of community needs and priorities, and
evaluation of community condition and the government's operating
environment. Goals should be developed proactively rather than
reactively and with the involvement of all levels and units of government.
Broad goals may be prioritized. Care must be taken to minimize conflict
when goals are prioritized so that the government has a clear
understanding and general consensus on the direction in which it is
heading. Once goals are established, more detailed action plans can be
developed and integrated with management and budget processes.

3.2 Disseminate goals and review with stakeholders

3.2.1 Practice: A government should disseminate broad goals and review them
with stakeholders.
3.2.2 Rationale: Disseminating and reviewing goals helps foster participation,
awareness, consensus, pride, and a sense of direction.
3.2.3 Outputs: Dissemination may occur by conducting public forums and by
publishing goals in key public documents, such as strategic and other
planning documents and budget documents. Electronic media may also
be used. Opportunities should be provided to review goals periodically. If
necessary, they should be updated to reflect the general desires of
stakeholders.
3.2.4 Notes: To be effective, broad goals need to be actively discussed on an
ongoing basis. Stakeholders also need to understand how these goals
relate to policies, action plans, and resource allocation decisions. In
disseminating goals, a government should encourage feedback from
stakeholders, both on the goals themselves and on related policies and
practices.

PRINCIPLE 2 - DEVELOP APPROACHES TO ACHIEVE GOALS

This principle provides for the establishment of specific policies, plans, programs, and management
strategies necessary for the government to achieve its long-term goals. While broad goals set the general
direction of a government, it is the policies, plans, and programs that define how the government will go
about accomplishing these goals. As such, the development of policies and programs must explicitly
consider how they contribute to the achievement of the government's broad goals. Policy and program
goals should relate, where appropriate, to broad goals. Measures should be developed to determine the
progress being made by the government in achieving goals.

4 Element 4 - Adopt Financial Policies

A government should develop a comprehensive set of financial policies. Financial policies should be
consistent with broad government goals and should be the outcome of sound analysis. Policies also
should be consistent with each other and relationships between policies should be identified.
Financial policies should be an integral part of the development of service, capital, and financial plans
and the budget. All other adopted budgetary practices of a government should be consistent with
these policies.

PRACTICES

4.1 Develop policy on Reserve funds

4.1.1 Practice: A government should develop policies to guide the creation,
maintenance, and use of resources for financial stabilization purposes.

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4.1.2 Rationale: Governments should maintain a prudent level of financial

resources to protect against reducing service levels or raising taxes and
fees because of temporary revenue shortfalls or unpredicted one-time
expenditures.
4.1.3 Outputs: The policies should establish how and when a government
builds up reserve funds and should identify the purposes for which they
may be used. Development of a policy on minimum and maximum
reserve levels may be advisable. Policies on reserve funds should be
publicly available and summarized in materials used in budget
preparation. They also should be identified in other government
documents, including planning and management reports.
4.1.4 Notes: Reserve funds are called by many names including rainy day
funds, unreserved, undesignated fund balances, and contingency funds.
These funds may be used at a government's discretion to address
temporary cash flow shortages, emergencies, unanticipated economic
downturns, and one-time opportunities. They provide flexibility to
respond to unexpected opportunities that may help a government
achieve its goals. Policies on the use of these funds may also be tied to
an adverse change in economic indicators (such as declining
employment or personal income) to ensure that the funds are not
depleted before an emergency arises. The minimum and maximum
amounts to be accumulated may be based on the types of revenue, the
level of uncertainty associated with revenues, the condition of capital
assets, or the government's level of security with its financial position.
Reserve funds may be constrained by state or local laws. Legally
required reserves should be distinguished from discretionary reserves.

4.2 Develop policy on fees and charges

4.2.1 Practice: A government should adopt policies that identify the manner in
which fees and charges are set and the extent to which they cover the
cost of the service provided.
4.2.2 Rationale: Policies that require identification of both the cost of the
program and the portion of the cost that will be recovered through fees
and charges allow governments and stakeholders to develop a better
understanding of the cost of services and to consider the
appropriateness of established fees and charges.
4.2.3 Outputs: Policies may address a requirement to review all fees and
charges, the level of cost recovery for services and the reason for any
subsidy, and the frequency with which cost-of-services studies will be
undertaken. Stakeholders should be given an opportunity to provide
input into formulation of these policies. Policies on fees and charges
should be publicly available and summarized in materials used in budget
preparation. They should also be identified in other government
documents, including planning and management reports.
4.2.4 Notes: Costs of service include direct and indirect costs such as
operating and maintenance costs, overhead, and charges for use of
capital (depreciation and debt service). A government may choose not to
recover all costs, but it should identify such costs. Reasons for not
recovering full costs should be identified and explained. State and local
law may govern the establishment of fees and charges.

4.3 Develop policy on debt issuance and management

4.3.1 Practice: A government should adopt policies to guide the issuance and
management of debt.

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4.3.2 Rationale: Issuing debt commits a government's revenues several years

into the future, and may limit the government's flexibility to respond to
changing service priorities, revenue inflows, or cost structures.
Adherence to a debt policy helps ensure that debt is issued and
managed prudently in order to maintain a sound fiscal position and
protect credit quality.
4.3.3 Outputs: Elements of policies on debt issuance and management
include: purposes for which debt may be issued; matching of the useful
life of an asset with the maturity of the debt; limitations on the amount of
outstanding debt; types of permissible debt; structural features, including
payment of debt service and any limitations resulting from legal
provisions or financial constraints; refunding of debt; and investment of
bond proceeds. Legal or statutory limitations on debt issuance should be
incorporated into debt policies. Debt policies should be made available to
the public and other stakeholders. Because these policies are essential
to budget decision making, particularly capital budgets, they should be
reviewed by decision makers during the annual budget process and
summarized in the budget document. The legislative body should
formally adopt debt policies and compile them with other financial
policies.
4.3.4 Notes: Debt policies should be integrated with other financial policies,
particularly operating and capital budget policies. The policies should
reflect statutory and legal requirements as well as the government's
financial condition and philosophy. The GFOA has adopted a
recommended practice on the development of a debt policy.

4.4 Develop policy on debt level and capacity if not defined in statutes
4.4.1 Practice: A government should adopt a policy on the maximum amount
of debt and debt service that should be outstanding at any one time.
4.4.2 Rationale: Policies guiding the amount of debt that may be issued by a
government help ensure that outstanding and planned debt levels do not
exceed an amount that can be supported by the existing and projected
tax and revenue base.
4.4.3 Outputs: A government should develop distinct policies for general
obligation debt, debt supported by revenues of government enterprises,
and other types of debt such as special assessment bonds, tax
increment financing bonds, short-term debt, variable-rate debt, and
leases. Limitations on outstanding debt and maximum debt service may
be expressed in dollar amounts or as ratios, such as debt per capita.
Policies on debt level and capacity should be incorporated into other
debt policies and adopted by the legislative body.
4.4.4 Notes: Policies on debt level and capacity should be developed in
accordance with an analysis of debt capacity. Factors that are
recommended in evaluating debt capacity include current financial
capacity, projected future capacity, statutory and constitutional
limitations, and bond covenants. The GFOA has adopted a
recommended practice on analysis of debt capacity. Also, the
International City/County Management Association publication
Evaluating Financial Condition provides a set of indicators that can be
used to evaluate debt capacity.

4.5 Develop policy on use of one-time revenues

4.5.1 Practice: A government should adopt a policy limiting the use of one-time
revenues for ongoing expenditures.

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4.5.2 Rationale: By definition, one-time revenues cannot be relied on in future

budget periods. A policy on the use of one-time revenues provides
guidance to minimize disruptive effects on services due to non-
recurrence of these sources.
4.5.3 Outputs: One-time revenues and allowable uses for those revenues
should be explicitly defined. The policy should be publicly discussed
before adoption and should be readily available to stakeholders during
the budget process. The policy, and compliance with it, should be
reviewed periodically.
4.5.4 Notes: Examples of one-time revenues include: infrequent sales of
government assets, bond refunding savings, infrequent revenues from
development, and grants. These revenues may be available for more
than one year (e.g., a three-year grant), but are expected to be non-
recurring. Examples of expenditures for which a government may wish to
use one-time revenues include startup costs, stabilization (e.g., to cover
expenditures that temporarily exceed revenues), early debt retirement,
and capital purchases. Uses that add to the ongoing expenditure base
should be carefully reviewed and minimized, e.g., capital expenditures
that significantly increase ongoing operating expenses without a
sustainable and offsetting long-term revenue plan. Certain variable
components of major revenue sources are similar to one-time revenue
sources. While they may be addressed in a one-time revenue policy,
they also may be considered separately. (See practice entitled Evaluate
the Use of Unpredictable Revenues.)

4.6 Evaluate the use of unpredictable revenues

4.6.1 Practice: A government should identify major revenue sources it
considers unpredictable and define how these revenues may be used.
4.6.2 Rationale: Unpredictable revenue sources cannot be relied on as to the
level of revenue they will generate. Particularly with major revenue
sources, it is important to consider how significant variation in revenue
receipts will affect the government's financial outlook and ability to
operate programs in the current and future budget periods.
4.6.3 Outputs: For each major unpredictable revenue source, a government
should identify those aspects of the revenue source that make the
revenue unpredictable. Most importantly, a government should identify
the expected or normal degree of volatility of the revenue source. For
example, revenues from a particular source may fluctuate, but rarely, if
ever, fall below some predictable minimum base. A government should
decide, in advance, on a set of tentative actions to be taken if one or
more of these sources generates revenues substantially higher or lower
than projected. The plans should be publicly discussed and used in
budget decision making.
4.6.4 Notes: Many of the most important revenue sources relied on by state
and local governments are unpredictable to some degree. Examples
may include intergovernmental revenues, inheritance taxes, taxes on
mineral production, interest income, sales and use tax, lottery revenues,
and revenues subject to future judicial rulings. These revenues are often
used to fund ongoing programs. A financial plan for governments should
take into account the unpredictable nature of key revenues. This ensures
that a government understands the potential impact on its ability to cover
service costs and develops contingency plans in advance to address
unpredictable revenue fluctuations. Specific allocation and contingency
plans do not have to be developed for all unpredictable revenues, but
become increasingly necessary as the size or unpredictability of the

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revenue source increases. This practice may address or refer to a

separate policy on the use of stabilization funds. (See practices entitled
Develop Policy on Stabilization Funds and Develop Policy on
Contingency Planning.)

4.7 Develop policy on balancing the operating budget

4.7.1 Practice: A government should develop a policy that defines a balanced
operating budget, encourages commitment to a balanced budget under
normal circumstances, and provides for disclosure when a deviation from
a balanced operating budget is planned or when it occurs.
4.7.2 Rationale: A balanced budget is a basic budgetary constraint intended to
ensure that a government does not spend beyond its means. At a
minimum, balance should be defined to ensure that a government's use
of resources for operating purposes does not exceed available resources
over a defined budget period. A more stringent definition requires that a
government maintain a balance between operating expenditures and
operating revenues over the long term, not just during the current
operating period. This latter definition of balance is referred to as
structural balance, and is the goal of this practice.
4.7.3 Outputs: The policy should provide clear definition as to how budgetary
balance is to be achieved. Definitions of items to be counted as
operating resources (e.g., revenues) and operating resource uses (e.g.,
expenditures) should be explicitly identified. All funds should be included.
Statutory and other legal "balanced" budget requirements should be met,
but this practice recommends additional policies and practices, if
necessary, to achieve and report on structural balance. The policy
should explicitly note and, if necessary, explain the relevant
constitutional, statutory, or case law provisions that impose a balanced
budget requirement upon the government. The policy also should identify
the circumstances when deviation from a balanced budget may occur.
The policy should be written in nontechnical language or have a
nontechnical summary. Because of its importance in budget decisions, it
should be readily available to stakeholders and publicly discussed at key
points in the budget process. Compliance with the policy should be
reviewed and disclosed during each budget period.
4.7.4 Notes: Some states and local governments define resources and
resource uses to include fund balance or changes to fund balances.
There may be statutory or other requirements that a budget must be
balanced based on this definition. These types of statutory balanced
budget requirements are a component of and not in conflict with the goal
of achieving structural balance. Additional or even separate reporting
may be required to demonstrate that both statutory balance and
structural balance have been achieved.
This practice does not directly apply to capital budgets. Capital budgets
are often funded at least partially from one-time resources. However, the
ongoing maintenance or replacement of capital equipment or facilities is
an important part of the budget process. Such items, particularly
maintenance or equipment replacements, are often defined as operating
items to ensure their inclusion in operating budget decisions.

A balanced budget policy may include the following:

• Identification of and rationale for what operating resources and resource
uses are included or excluded from the definition of a balanced budget
calculation. For example, does the calculation include operating
revenues and expenditures only; does it include capital maintenance or
replacement; does it include interfund transfers; and does it include

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highly variable components of ongoing revenues (such as the volatile

component of sales tax revenues or development-related revenue).
• The circumstances when fund balances may be used as a resource.
• The point(s) at which the budget must be balanced, e.g., upon adoption,
throughout the year, or at year-end.
• The accounting basis (cash, accrual, other) that is used to define
revenues and expenditures.
• The circumstances in which noncompliance with the balanced budget
policy is permitted (e.g., during the early stages of an economic
downturn so that services can be reduced in an orderly fashion).
• The official, agency, or legislative body (or combination of authorities)
responsible for making any necessary decisions on whether or not a
budget is in balance.
• The authority that must take action to bring the budget into balance if
adjustments are needed in the course of a fiscal period.

4.8 Develop policy on revenue diversification

4.8.1 Practice: A government should adopt a policy that encourages a diversity
of revenue sources.
4.8.2 Rationale: All revenue sources have particular characteristics in terms of
stability, growth, sensitivity to inflation or business cycle effects, and
impact on tax and rate payers. A diversity of revenue sources can
improve a government's ability to handle fluctuations in revenues and
potentially help to better distribute the cost of providing services.
4.8.3 Outputs: The policy should identify approaches that will be used to
improve revenue diversification. An analysis of particular revenue
sources is often undertaken in implementing the policy. This analysis
should address the sensitivity of revenues to changes in rates, the
fairness of the tax or fee, administrative aspects of the revenue source,
and other relevant issues. The policy and the approach to
implementation should be periodically reviewed.
4.8.4 Notes: Over time a government should strive to improve its revenue
diversity to the extent feasible. When a government is statutorily or
otherwise limited as to the types of revenues it may raise, it should
consider options to enhance flexibility within the constraints of available
revenue sources. For example, governments that must rely heavily on
property taxes may seek to diversify the tax base on which the property
tax is levied. A government should recognize that changes in the
diversity of revenue sources can affect the relative tax burden on
different stakeholders.

4.9 Develop policy on contingency planning

4.9.1 Practice: A government should have a policy to guide the financial
actions it will take in the event of emergencies, natural disasters, or other
unexpected events.
4.9.2 Rationale: When emergencies or unexpected events occur, having a
policy that can be applied, or at least serve as a starting point, for
financial decisions and actions improves the ability of a government to
take timely action and aids in the overall management of such situations.
4.9.3 Outputs: This policy should identify types of emergencies or unexpected
events and the way in which these situations will be handled from a
financial management perspective. It should consider operational and

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management impacts. The policy should be publicly discussed and

reviewed periodically.
4.9.4 Notes: Policies on contingency planning are used as a general guide
when an emergency or unexpected event occurs. A set of actions and
strategies will be identified for each type of situation. Examples of
financial emergencies that require contingency plans are sudden and
severe decreases in locally collected revenues or intergovernmental aid,
and unexpected major capital maintenance requirements. Development
of a contingency plan in advance of such situations may be viewed
positively by the rating agencies when evaluating a government's credit
quality. It can also help expedite relief efforts when an emergency does
occur and allow the government to recover funds more quickly or more
effectively in the event of a natural disaster. (See practice entitled
Develop Policy on Stabilization Funds.)

5 Element 5 - Develop Programmatic, Operating and Capital Policies and Plans

A government should develop policies and plans to guide service provision and capital asset
acquisition, maintenance, replacement, and retirement. These policies and plans give direction to the
government regarding the level of services and types of capital assets to be provided, and the
manner in which the services and capital assets will be provided. They should be integrated with the
government's broad goals and its service and capital needs. They may include the development of
standards for service provision and capital asset condition and maintenance. Policies and plans also
should be consistent with each other. The practices associated with this element and those of
Element 6 are closely related and will involve an iterative process.

PRACTICES

5.1 Prepare policies and plans to guide the design of programs and
services
5.1.1 Practice: A government should develop and adopt policies and plans to
guide the design of specific programs and services.
5.1.2 Rationale: Service and program policies and plans translate broad goals
into strategies for achieving goals. These policies and plans provide the
basis for designing specific programs and services.
5.1.3 Outputs: Program and service policies and plans may address items
such as: groups or populations to be served, service delivery issues,
examples of possible programs, standards of performance (including
level of service standards or other measures to gauge success),
expected costs, time frames for achievement of goals, issues pertaining
to organizational structure, and priorities for service provision. Policies
and plans should be adopted by the governing body and made publicly
available.
5.1.4 Notes: A clear, well-documented statement of policies and plans in broad
program and service areas becomes particularly important when goals
cross organizational and program lines. For example, a goal to revitalize
the downtown or to promote rural development could result in multi-
departmental programs addressing job creation, transportation, housing,
and health care.

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5.2 Prepare policies and plans for capital asset acquisition,

maintenance, replacement, and retirement
5.2.1 Practice: A government should adopt policies and plans for capital asset
acquisition, maintenance, replacement, and retirement.
5.2.2 Rationale: Policies and plans for acquisition, maintenance, replacement,
and retirement of capital assets help ensure that needed capital assets
or improvements receive appropriate consideration in the budget process
and that older capital assets are considered for retirement or
replacement. These policies and plans are necessary to plan for large
expenditures and to minimize deferred maintenance.
5.2.3 Outputs: Policies may address inventorying capital assets and evaluating
their condition, criteria for acceptable condition, criteria for continued
maintenance versus replacement or retirement of an existing asset, and
identification of funding for adequate maintenance and scheduled
replacement of capital assets. Plans should be developed to establish
ongoing, multi-year replacement and renewal schedules, and should
recognize the linkage of capital expenditures with the annual operating
budget. Stakeholders should have an opportunity to provide input as
capital asset policies and plans are formulated. Once adopted, the
policies and plans should be made publicly available, particularly as set
forth in budget, management, and planning documents. Policies and
plans should be incorporated into decision making in the budget process.
5.2.4 Notes: Capital asset acquisition, maintenance, replacement, and
retirement policies provide a basis for formulating long-range plans to
address capital needs. These policies should be realistic if they are to be
used in decision making. Information gathered through processes
described in the practice entitled Assess Capital Assets, and Identify
Issues, Opportunities, and Challenges can be helpful in formulating the
policies and plans.

6 Element 6 - Develop Programs and Services That Are Consistent with Policies
and Plans
A government should develop and evaluate programs, services, and capital assets. Because there
may be times when a government's policies and plans are best achieved by having other entities
besides the government provide services or capital infrastructure, an analysis of service delivery and
capital acquisition alternatives is an integral part of the program evaluation process. Performance
measures should be developed to determine whether program and service goals are being met.

PRACTICES

6.1 Develop programs and evaluate delivery mechanisms

6.1.1 Practice: A government should develop programs and services that are
consistent with policies and plans and should evaluate alternative
delivery mechanisms.
6.1.2 Rationale: Programs and services are the means by which a government
addresses priorities established through its policies and plans. An
evaluation of delivery alternatives for services and programs helps
ensure that the best approach is selected for delivering a service.
6.1.3 Outputs: A government should institute a process to develop new
programs and services and review existing ones in the context of how
well they meet programmatic and operating policies and plans. All
programs should have measurable goals that relate to goals established
for the more general policies and plans. The process should include an

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examination of how a government traditionally provides the service. It

also should consider whether the service could be delivered more
effectively or more efficiently if provided in a different way, either by the
government itself or by entities outside of the government.
6.1.4 Notes: Ideally, programs and services will be developed after the
adoption of program policies and plans. Once a program has been
developed, however, periodic review is necessary to ensure that it
remains consistent with a government's general policies and plans.
Considerations in evaluating service delivery mechanisms, whether
provided directly by a government or contracted out, include:
• Cost of service, including short- and long-term direct costs, costs to
administer and oversee the service, impact on rates and charges,
and impact on costs of other government services.
• Service quality and control, including safety and reliability, ability to
control service levels and who receives the service, ability of the
government to make internal changes to improve its own
performance, ability to change the delivery mechanism in the future,
and risk of contractual nonperformance and default.
• Management issues, including the quality of monitoring, reporting,
and performance evaluation systems, public access to information,
and ability to generate or sustain competition in service delivery.
• Financial issues, including impact on outstanding debt and grant
eligibility. Impact on stakeholders, including government employees,
customers, and taxpayers.
• Statutory and regulatory issues, including impact on federal and
state legal and regulatory requirements, and liability.

6.2 Develop options for meeting capital needs and evaluate acquisition
alternatives
6.2.1 Practice: A government should develop specific capital project options
for addressing capital needs that are consistent with financial,
programmatic, and capital policies and should evaluate alternatives for
acquiring the use of capital assets.
6.2.2 Rationale: Capital project planning is necessary to give adequate
consideration to longer-range needs and goals, evaluate funding
requirements and options, and achieve consensus on the physical
development of the community. An evaluation of alternative mechanisms
helps ensure that the best approach for providing use of a capital asset
or facility is chosen based on the policies and goals of the government.
6.2.3 Outputs: A government should have a process that identifies capital
projects that are needed to achieve goals and a general time frame in
which these assets will be needed. This assessment should consider
need, life cycle costs (including operating costs), impact on services,
beneficiaries of the project, financing issues, and other impacts. Plans for
acquiring capital assets should be part of or consistent with land use,
transportation, or other long-range plans of the community or area.
Options for acquiring the use of capital assets and facilities should be
examined. In some cases, the process for evaluating capital acquisition
alternatives is linked with a corresponding process for evaluating service
delivery alternatives.
6.2.4 Notes: This practice is intended to encourage a government to consider
whether capital project proposals (including retirement of assets) meet
policies and plans. Periodic reviews of existing projects and facilities in
relation to goal attainment also should be undertaken when deciding

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whether to maintain, renovate, replace, or abandon those facilities.

Considerations in evaluating acquisition mechanisms include:
• Costs, including both capital and operating costs, impact on rates
and charges, and impact on costs of other government services.
• Effects on service, including technical and financial capabilities of the
entity that owns the asset, ability to control the use of the asset
(including expanding or contracting the facility), ability to maintain the
asset, and risk of contractual nonperformance and default.
• Management issues, including maintaining oversight of the asset and
related services and operations, impact on economic growth and
development, impact on service coordination, and public access to
information.
• Financial issues, including availability of cash, budgetary impacts,
impact on outstanding debt, and grant eligibility.
• Impact on stakeholders such as government employees, customers,
and taxpayers.
• Statutory and regulatory issues, including impact on federal and
state legal and regulatory requirements, and liability.

6.3 Identify functions, programs, and/or activities of organizational

units
6.3.1 Practice: The functions, programs, and/or activities of the government's
organizational units should be identified.
6.3.2 Rationale: Clear identification of the functions, programs, and/or activities
of organizational units assists those reviewing or evaluating the
government develop a better understanding of the role of each
organizational unit, and it aids in evaluating the services it provides.
Explicit descriptions of these items also help employees of the
government better understand the tasks for which they are responsible.
6.3.3 Outputs: Descriptions of the purpose and roles of organizational units
should be published using appropriate technology and made available to
policy makers, management, employees, citizens, and other
stakeholders. This documentation should be prepared with stakeholder
involvement and review in order to ensure that employees as well as
other stakeholders understand the responsibilities of each organizational
unit and its relationship to other units. Any organizational unit for which
resources are allocated through the budget process should also have its
basic purpose and roles described in the budget document. Descriptions
of organizational units should include the major functional relationships
to other organizational units.
6.3.4 Notes: Identification of what organizational units do is an important task
of a government. Preparation of these descriptions can be undertaken at
any time and updated when necessary and appropriate.

6.4 Develop performance measures

6.4.1 Practice: A government should develop and utilize performance
measures for functions, programs, and/or activities.
6.4.2 Rationale: Performance measures are used for assessing how efficiently
and effectively functions, programs, and activities are provided and for
determining whether program goals are being met.
6.4.3 Outputs: Performance measures should be linked to specific program
goals and objectives. The measures should be valid, reliable, and
verifiable. Whenever feasible, they should be expressed in quantifiable

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terms. Measures should be reported in periodic reviews of functions and

programs and should be integral to resource allocation decisions. They
also should be reported in the budget document and may be reported in
separate management reports or reports to citizens. Different
aggregations of performance measures may be appropriate for different
audiences.
6.4.4 Notes: There are several types of performance measures: inputs
(resources), outputs, efficiency, and effectiveness (outcomes). Each of
these types of measures serves a purpose, although only the measures
of efficiency and effectiveness truly report on performance. Sources of
data for performance measures include existing records, trained
observer readings, and surveys.
Performance measures can help managers direct and manage an
organization. They also provide tools for managers to determine the
most appropriate tasks to perform. It is often easier to focus on achieving
goals and objectives if they can be expressed as the achievement of
quantifiable measures. Care should be taken to minimize potential
problems such as misinterpretation, misdirection of a program and its
staff as a result of poor or incomplete measures, costly data collection,
and measures that are affected by uncontrollable environmental factors.
A good performance measurement system will avoid the inclusion of so
many measures that they become overwhelming and difficult to interpret.
A government should periodically review its performance measurement
system and make improvements in terms of the measures used, data
collection, analysis, and reporting.

6.5 Develop performance benchmarks

6.5.1 Practice: Performance benchmarks should be developed to aid in
assessing how well a function, program, and/or activity is provided and
how well it meets needs.
6.5.2 Rationale: Performance benchmarks are comparative standards of
performance and provide a frame of reference for evaluating program
and service quality and cost-effectiveness. They are used as a basis
against which to compare performance measures of functions, programs,
and activities.
6.5.3 Outputs: Benchmarks can be developed to allow performance
comparisons with other service providers, whether within the
government, with other governments, or with private providers. External
benchmarks (those providing comparison with outside service providers)
can be beneficial to overall evaluation, especially if valid comparisons
can be made with the best service providers. Internal benchmarks
(comparisons to alternatives within the government) will provide
somewhat less information, but there may be fewer problems with
consistency of data. When selecting any type of benchmark, it is
important to consider how closely it relates to stated program and service
goals. Benchmarks should be consistently defined and measurable.
Performance benchmarks and the measures being compared should be
included in management reports and reports to stakeholders.
6.5.4 Notes: Performance benchmarks, along with an accompanying review of
each chosen provider's service approach, can be helpful in making
improvements. These comparisons may provide valuable information
and insight to policy makers, managers, and other stakeholders that can
be used to guide the direction of a function, program, or activity.
Performance benchmarks also help stakeholders better assess whether
government performance in a particular area is acceptable or could be

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improved. Benchmark comparisons should be undertaken carefully to

avoid misinterpretation resulting from differences in the scope of the
function, program, or activity used for comparison; the environment in
which the service operates; and measurement techniques. The use of
accompanying explanatory information helps avoid invalid comparisons.

7 Element 7-Develop Management Strategies

A government should develop appropriate management strategies to enhance its ability to
successfully execute the budget and to achieve long-range goals. Management strategies are
necessary to facilitate achievement of both programmatic and financial goals, and to promote
budgetary compliance. The choice of budget type and manner of presentation affects the information
available to management and other decision makers, issues that will be raised, and level of control.

PRACTICES

7.1 Develop strategies to encourage attainment of program and

financial goals
7.1.1 Practice: A government should develop an organizational structure and
management strategies to encourage attainment of program and
financial goals.
7.1.2 Rationale: Goals are more likely to be achieved if organizational and
management strategies are developed to support and encourage
organizational and individual performance directed toward goal
attainment.
7.1.3 Outputs: A government should develop, review, improve, and implement
strategies that encourage the organization and its employees to work
toward achievement of goals. These strategies include both positive
incentives and penalties. They also include support systems such as
technology support, education, and training. When developing these
strategies, opportunities should be provided for input from those who will
be affected.
7.1.4 Notes: While this practice is intended to address strategies that focus on
both rewards and penalties, it is expected that emphasizing rewards will
produce more beneficial results for the organization. Each government
may have unique approaches and strategies for goal attainment.

7.2 Develop mechanisms for budgetary compliance

7.2.1 Practice: A government should have mechanisms in place to ensure
compliance with the adopted budget.
7.2.2 Rationale: Appropriate management processes and systems allow a
government to detect and correct significant deviation if it occurs.
7.2.3 Outputs: Mechanisms should be in place to detect and correct deviations
from the budget. These measures may be as simple as a requirement
(supported by appropriate rewards and penalties) that managers not go
over budget. Budgetary compliance is encouraged through use of data
collection and reporting systems that control disbursements of funds and
that facilitate the evaluation of revenue and expenditure trends and
financial projections. Development of a monthly or quarterly revenue and
spending plan against which to compare actual results and contingency
plans to address significant deviation if it occurs should also be
considered. Mechanisms usually also include the assignment of budget
or finance personnel to conduct monthly or quarterly reviews of trends in

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actual expenditures and revenues and actual-to-budget comparisons so

that timely corrective action can be taken. A government should institute
procedures to review the budget periodically (e.g., quarterly) and decide
on actions to bring the budget into balance, if necessary. (See practice
entitled Develop Policy on Contingency Planning.)
7.2.4 Notes: Deviations caused by external factors or "big picture" issues are
not as susceptible to management control and are not the focus of this
practice. However, effective mechanisms to control the financial aspect
of the budget may help detect these external issues so that adjustments
can be made to comply with the adopted budget. This practice is
intended to apply to all components of the organization.

7.3 Develop the type, presentation, and time period of the budget
7.3.1 Practice: A government should choose the type of budget, the manner in
which it will be presented, and time period covered by the budget that
best fit its needs.
7.3.2 Rationale: The type of budget, the time period covered, and the manner
of presenting materials in the budget documents can have a significant
practical impact on a government's approach to planning, control, and
overall management of its programs, services, and finances, and on the
quality of information provided to stakeholders.
7.3.3 Outputs: The outputs of this practice are the type of budget selected
(line-item, program, modified zero-base, other, or some combination),
the time period covered (annual, biennial, multi-year), and the physical
form of the budget and related documents. A formal review should be
undertaken periodically to ensure that the budget type, time period, and
approach to presenting the budget continue to meet the needs and
priorities of the government. Such a review should be broadly focused,
and not directed simply at the format of individual pages.
7.3.4 Notes: The main types of budgets are line-item and program budgets.
Line-item budgets focus primarily on the inputs to be purchased, while
program budgets focus on the outputs and outcomes to be achieved with
a given level of resources. Some governments also present parts of the
proposed budget in a decision package format, displaying varying
amounts or quality of service that can be provided with different amounts
of resources. The choice of budget type and presentation style will
influence the nature of the questions asked during budget review. Legal
and other constraints may partially dictate the approach to presenting the
budget.

PRINCIPLE 3 - DEVELOP A BUDGET CONSISTENT WITH

APPROACHES TO ACHIEVE GOALS
This principle provides for the preparation of a financial plan, a capital improvement plan, and budget
options. Development of a long-range financial plan is essential to ensure that the programs, services,
and capital assets are affordable over the long run. Through the financial planning process, decision
makers are able to better understand the long-term financial implications of current and proposed
policies, programs, and assumptions and decide on a course of action to achieve its goals. These
strategies are reflected in the development of a capital improvement plan and options for the budget.

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8 Element 8 - Develop a Process for Preparing and Adopting a Budget

A government should establish an administrative structure that facilitates the preparation and
approval of a budget in a timely manner. Procedures should be established for ensuring coordination
of the budget process. A process is also needed to develop and communicate the policies and
guidelines that will guide budget preparation. In order for the budget to be adopted in a timely
manner, processes should be developed to assist stakeholders in understanding tradeoffs and to help
decision-makers make choices among available options. The processes should include reporting to,
communicating with, involving, and obtaining the support of stakeholders.
PRACTICES

8.1 Develop a budget calendar

8.1.1 Practice: A government should publish a comprehensive budget
calendar that specifies when budget tasks are to be completed and that
identifies timelines for those tasks.
8.1.2 Rationale: Stakeholders need to be aware of when key budget tasks,
events, and decisions will occur so they have an opportunity to plan and
to participate in the process. The preparation of a calendar helps ensure
that all aspects of the budget process have been considered and that
adequate time has been provided.
8.1.3 Outputs: Multiple calendars will usually need to be produced, each with
different levels of detail and emphasis to meet the needs of the different
types of stakeholders. Calendars should list the dates of key events and
deadlines. At least one calendar should describe the overall budget and
planning process and identify roles, responsibilities, and assignments. To
ensure the greatest impact, calendars should identify when and how
stakeholders can participate in the process.
8.1.4 Notes: Budget calendars are a tool to keep participants in the process on
track. Statutory deadlines should be highlighted. The calendar should
make clear the relationships between various processes and should be
developed to coordinate these processes. For example, a calendar may
illustrate the relationship of the operating and capital budget processes,
or the processes of revenue forecast revision and budget reconciliation.
The development of a budget calendar is typically guided by statutory
deadlines. Calendar development should also take into account other
key organizational dates that affect participants in the budgetary process.
The practice entitled Develop Mechanisms for Coordinating Budget
Preparation and Review addresses the role of the calendar in providing
overall coordination.

8.2 Develop budget guidelines and instructions

8.2.1 Practice: A government should prepare general policy guidelines and
budget preparation instructions for each budget cycle.
8.2.2 Rationale: Budget guidelines and instructions help ensure that the
budget is prepared in a manner consistent with government policies and
the desires of management and the legislative body. Instructions are
necessary so that all participants know what is expected, thereby
minimizing misunderstanding and extra work.
8.2.3 Outputs: Budget guidelines are specific to the particular budget under
development and should incorporate relevant aspects of the
government's financial policies. They may set forth financial constraints
and key assumptions that will be used to guide development of the
budget, as well as policy direction. Instructions often include sample
forms to be completed by operating departments or program heads.
Guidelines and instructions should be prepared in a written format but
may also be presented in an electronic format or through training and/or

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an oral presentation. Involving stakeholders in guideline development,

where possible, helps promote buy-in.
8.2.4 Notes: In developing budget guidelines and instructions, a government
should consider the role played by the various stakeholders such as
departments within the government or other agencies that are involved in
budget preparation. Involving stakeholders may be accomplished by
holding meetings in which administrative staff and selected internal and
external stakeholders help develop the processes and general directions
provided to budget preparers. Given time and resource constraints, full
stakeholder input may not be practical.

8.3 Develop mechanisms for coordinating budget preparation and

review
8.3.1 Practice: A government should develop mechanisms and assign
responsibilities to provide for overall coordination of the preparation and
review of the budget.
8.3.2 Rationale: The complete budget process involves many levels,
departments, and individuals in a government, as well as a number of
distinct processes and disparate groups of stakeholders. Coordination is
needed to ensure that processes move forward as planned, to prevent
confusion and misinformation, and to ensure appropriate stakeholders
are involved.
8.3.3 Outputs: A single point of coordination is often appropriate in local
governments, although individual components of the process may be
coordinated by different individuals or departments. For state
governments, coordination of the executive and legislative processes
may be provided separately. The coordination process involves a
number of tasks: developing a calendar, identifying responsibilities for
completing various tasks, ensuring that various parts of the budget
process are properly integrated, keeping the process on schedule,
producing reports, identifying issues and problems, and ensuring that
other requirements are met and quality standards are maintained. The
person(s) assigned responsibility for coordinating the budget process
should respond to stakeholder issues and concerns that arise in the
context of the budget process.
8.3.4 Notes: The assignment of coordination responsibility does not
necessarily imply overall decision-making authority. However, at a
minimum, the coordinating person(s) should have immediate access to
decision makers, as many issues typically come before the coordinator
for resolution. Coordination mechanisms may be established for inter-
governmental interaction and legislative/executive branch interaction.

8.4 Develop procedures to facilitate budget review, discussion,

modification, and adoption
8.4.1 Practice: A government should develop and implement a set of
procedures that facilitate the review, discussion, modification, and
adoption of a proposed budget.
8.4.2 Rationale: Appropriate procedures are needed to resolve conflicts, to
promote acceptance of the proposed budget by stakeholders, and to
assist in timely adoption of the budget.
8.4.3 Outputs: A series of processes should be developed that permit
stakeholders to satisfy themselves as to the appropriateness of the
budget proposal and to allow the legislative body to achieve consensus
and adopt a budget. These processes should be summarized in budget
materials. Some examples include: small group meetings, hearings,

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workshops, independent analysis, specific decision-making techniques

and procedures, conflict resolution processes, and methods for
presenting portions of the budget.
8.4.4 Notes: Discussion will inevitably be needed regarding the tradeoffs and
choices that need to be made. Issues can be more satisfactorily
addressed to the extent that there are clear and accepted processes for
considering options and reaching the compromise position that most
budgets inevitably represent. Consistency over time in the budget review
and adoption process is important, but it is also essential to recognize
that as the makeup of the administration and legislative body changes,
the process may need to be adjusted.

8.5 Identify opportunities for stakeholder input

8.5.1 Practice: A government should provide opportunities in the budget
process for obtaining stakeholder input.
8.5.2 Rationale: By definition, stakeholders are affected by a government's
resource allocation plans and service and program decisions.
Stakeholders should have clearly defined opportunities to provide input.
This helps ensure that stakeholder priorities are identified and enhances
stakeholder support for the approved budget.
8.5.3 Outputs: Stakeholder input can be obtained in a number of ways,
including public hearings, advisory commissions, informal conversations,
round-table briefings, TV and video presentations, opinion surveys,
neighborhood meetings, office hours, letter writing, telephone calls, and
e-mail. The approaches are likely to differ with the size of the
government. The budget calendar should identify specific opportunities
for citizen input where government officials are available to explain
issues and choices and to receive comments.
8.5.4 Notes: The budget process should include opportunities for all
stakeholders to participate. A general-purpose public hearing shortly
before final decisions are made on the budget is not adequate as the
sole means of soliciting stakeholder input, especially on major issues.
The process developed for obtaining stakeholder input should ensure
that information is gathered in a timely and complete manner to be useful
in budget decision making.

9 Element 9 - Develop and Evaluate Financial Options

A government should develop, review, and update long-range financial plans and projections. The
information obtained from these plans and projections is used in determining the resource and
expenditure options available for the budget period and the implications of those options. This
element does not address decisions on a specific set of programs and services to be funded through
the budget.

PRACTICES

9.1 Conduct long-range financial planning

9.1.1 Practice: A government should provide opportunities in the budget
process for obtaining stakeholder input.
9.1.2 Rationale: Financial planning expands a government's awareness of
options, potential problems, and opportunities. The long-term revenue,
expenditure, and service implications of continuing or ending existing
programs or adding new programs, services, and debt can be identified.
The financial planning process helps shape decisions and permits

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necessary and corrective action to be taken before problems become

more severe.
9.1.3 Outputs: The planning process results in the preparation of a financial
plan consisting of various components such as an analysis of financial
trends; an assessment of problems or opportunities facing the jurisdiction
and actions needed to address these issues; and a long-term forecast of
revenues and expenditures that uses alternative economic, planning,
and policy assumptions. The financial plan identifies key assumptions
and choices related to achievement of goals. The plan may be
summarized in the budget document or in a separate report. It should be
available to decision makers for their review in making choices and
decisions related to the budget process. It should also be shared with
stakeholders for their input.
9.1.4 Notes: A financial plan illustrates the likely financial outcomes of
particular courses of action or factors affecting the environment in which
the government operates. A financial plan is not a forecast of what is
certain to happen but rather a device to highlight significant issues or
problems that must be addressed if goals are to be achieved.

9.2 Prepare revenue projections

9.2.1 Practice: A government should prepare multi-year projections of
revenues and other resources.
9.2.2 Rationale: Projection of revenues and other resources is critical in order
to understand the level of funding available for services and capital
acquisition. Projections for future budget periods help determine the
likelihood that services can be sustained and highlight future financial
issues to be addressed. Preparing revenue projections also enhances a
government's understanding of revenue sensitivity to changes in
assumptions and to controllable factors such as changes to tax rates or
fees.
9.2.3 Outputs: Revenue projections developed for financial planning purposes
should extend over a period of at least three years into the future or
longer if necessary to evaluate how revenues may change over time, to
isolate non-recurring revenues, or to understand the impact of revenues
when fully phased in. A government may produce a single revenue
projection or projections under alternative scenarios; alternatively, the
forecast may be stated in terms of a range of values. Major assumptions
should be prominently identified. Projections should be available to
participants in the budget process before budgetary decisions are made.
One or more updated projections should be available during the budget
period to avoid unintended deviation from balanced-budget
requirements.
9.2.4 Notes: Particular attention should be paid to major revenue sources.
Trend analysis, econometric modeling, and other methods should be
used, as appropriate, depending on the type of revenue being projected,
the availability of data, and the time frame covered by the projections.
Other factors to evaluate are the variance between the previous period's
actual and forecasted revenues and any changes to revenue sources
such as would occur with a rate or base change. Forecasting variances
should be analyzed to improve forecasting in future periods. Preparing
projections under different assumptions (e.g., economic assumptions,
demand), particularly in the development of a financial plan, permits
decision makers to consider the level and mix of taxes, user fees, and
other revenues that would need to be raised to provide various levels of
service.

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Revenue projections should generally strive for accuracy by coming as

close as possible to the actual outcome. However, the forecasting of
sharp turns in national, state, or local economies is problematic. As a
result, actual outcomes may be different from projections, particularly for
revenue streams dependent upon consumption and income.

9.3 Analyze major revenues

9.3.1 Practice: A government should maintain an in-depth understanding of its
major revenues.
9.3.2 Rationale: A large unexpected variance in a major revenue source is
usually a major problem, but even a relatively small variance in a major
revenue source can have a significant impact. The better the ability of a
government to predict these changes, or at least their direction, the less
disruptive these changes will be. In addition, improved estimation of
these revenues will enhance the confidence of stakeholders in the
overall revenue projection.
9.3.3 Outputs: An analysis of major revenue sources should identify factors
that have influenced historical collections, forecasting assumptions, and
any problems or concerns. Any trends should also be identified, along
with an analysis of whether or not the trend is likely to continue. The
analysis can be summarized in a separate document or used as an input
into an overall revenue projection. Significant changes to major revenue
sources(projected and actual(should be highlighted in the budget
document.
9.3.4 Notes: Changes in revenue sources may be due to economic, legal,
environmental, demographic, or other reasons. In-depth revenue
analysis for revenue sources that provide a substantial portion of total
resources is often useful for more than budgetary projections. Issues
may be uncovered in advance, permitting the government to develop
options and take action in a timely manner to avoid a crisis. See also
practice entitled Evaluate the Effect of Changes to Revenue Source
Rates and Bases.

9.4 Evaluate the effect of changes to revenue source rates and bases
9.4.1 Practice: A government should evaluate and understand the effect of
potential changes to revenue source rates and bases.
9.4.2 Rationale: Changes in rates and fees of revenue sources and revenue
bases may be made by a government for a variety of reasons (e.g., to
increase or decrease revenue) or may happen outside of the control of a
government. Understanding the effects of such changes, in terms of
expected revenue collections or other impacts, in advance of the
changes will increase understanding about the outcome, enhance
decision making, and provide a better opportunity to plan for the
changes.
9.4.3 Outputs: Analyses of the effect of pending or potential changes to
revenue sources may be undertaken as part of the budget process or
may be undertaken as warranted. The results of these analyses should
be available to stakeholders. In any event, they should be presented as
part of any proposed decision on changes to revenue source rates and
bases.
9.4.4 Notes: Factors to consider in analyzing changes to revenue sources are:
legal and statutory issues; affordability to taxpayers or rate-payers;
political implications; expected revenue impact; and impact on
competitive position, including the effect of the changes on stakeholder
decisions (e.g., location of a business or use of a service). Policies on

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fees and charges, including the percentage of service costs to be

covered by user fees, should be reviewed in adjusting user fees and
charges.

9.5 Analyze tax and fee exemptions

9.5.1 Practice: A government should periodically estimate the impacts and
potential foregone revenue as a result of policies that exempt from
payment, provide discounts and credits, or otherwise favor particular
categories of taxpayers or service users.
9.5.2 Rationale: Periodic review of current or proposed exemptions and fees is
necessary to verify their desirability, their potential benefits and costs,
and the extent to which they benefit certain stakeholders more than
others.
9.5.3 Outputs: Outputs include routine analyses and reports that define each
exemption and estimate foregone revenues. It is important to make the
results of analysis publicly available. Tax and fee exemptions tend to be
politically sensitive issues and often involve highly vocal, well-established
interests. An appropriate context and venue for the release should be
determined that provides an opportunity for review, discussion, and
decision making, while minimizing unproductive discord between
competing views.
9.5.4 Notes: The most efficient tax (one that raises the greatest amount of
revenue with the lowest cost of compliance) is one with the broadest
base and lowest rate. However, exemptions and discounts from taxes
and fees are common for a variety of reasons. Tax and fee exemptions
may be broadly defined, such as a graduated tax (versus a flat tax), or
narrowly defined, such as a homeowner tax exemption. Tax and fee
exemptions that are narrowly defined may be more practical to report on
and analyze, but more broadly defined exemptions are also appropriate
to review occasionally. Analyses and discussions related to tax and fee
exemptions may occur at a different time from resource allocation
decisions to help ensure that issues pertaining to each are given
adequate consideration without competing pressures.

9.6 Achieve consensus on a revenue forecast

9.6.1 Practice: A government should develop a process for achieving
consensus on the forecast of revenues used to estimate available
resources for a budget.
9.6.2 Rationale: A process that provides for developing consensus on the
revenue forecast is more likely to remove the forecast from ongoing
dispute and keep the budget process on track. The process of achieving
consensus helps ensure a critical review of assumptions underlying the
forecast.
9.6.3 Outputs: To achieve consensus, the process for producing the forecast
must be trusted by all parties and be clear, open, and consistent.
Governments may need to reach consensus within one branch of
government, across branches of government (e.g., legislative and
executive/administrative), or across different governments (e.g., in cases
involving intergovernmental coordination on budgetary decisions). The
process developed to achieve consensus should recognize where
problems are likely to emerge and be structured accordingly.
9.6.4 Notes: The process for achieving a revenue forecast consensus will vary
by government. In some cases, representatives of the executive and
legislative branches will collaborate to produce the forecast. Another
approach relies on sources outside the government to produce a

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forecast. The outside sources may be perceived as more objective or

more expert, such as academic and/or private sector economists. A
consensus forecasting process is increasingly being used by state
governments. Despite the benefits of achieving consensus on a forecast,
political realities may not always make it possible to do so for every
aspect of the forecast. Moreover, not all revenues necessarily need to be
included in the consensus forecast. For example, for enterprise types of
operations with revenues driven by service levels, it may not make sense
to achieve consensus on a forecast prior to consideration of expenditure
issues.

9.7 Document revenue sources in a revenue manual

9.7.1 Practice: A government should prepare and maintain a revenue manual
that documents revenue sources and factors relevant to present and
projected future levels of those revenues.
9.7.2 Rationale: The documentation of revenue sources promotes a better
understanding of a government's resources. Revenue documentation is
also important as an administrative function, since budget operations
often experience fairly frequent staff turnover.
9.7.3 Outputs: Documentation of revenue sources in the form of a revenue
manual that uses a consistent format for each revenue source is
suggested. Major revenue sources are the most important to document.
The budget document may also include documentation of major revenue
sources, either as summary material or in lieu of a revenue manual. The
revenue manual or other documentation should be made available to all
interested parties. It should be reviewed and updated at least every
budget period.
9.7.4 Notes: The format for documentation in a revenue manual could include
the following:
• Title and brief description of the revenue source;
• Statute section providing authorization and any limitations;
• Identification of any dedication or "earmarking" of the revenue,
whether legislated or by other means;
• Collection methodology and any collection issues;
• Definition of the revenue base and tax or rate structure;
• Accounting information, such as account and fund numbers;
• Historical information such as legislative history, impact of other
laws, rate changes, exemptions, etc.;
• Historical revenue levels (trends) and projected future levels and the
basis for the future projections, along with graphic presentation of
trends;
• Equity impacts on taxpayers or rate-payers; and
• Effect of changes in economic circumstances or other external
factors.

9.8 Prepare expenditure projections

9.8.1 Practice: Governments should prepare multi-year projections of
expenditures for each fund and for existing and proposed new programs.
9.8.2 Rationale: Expenditure projections provide critical information to
decision-makers and other stakeholders about whether projected
expenditure levels can be sustained, whether new programs are
affordable, and whether a program's current and future costs are
acceptable compared to program benefits and projected revenue
availability.

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9.8.3 Outputs: Expenditure projections should extend several years into the
future. A period of at least three years (or longer if necessary) is
recommended to evaluate how costs may change over time, to isolate
non-recurring costs or savings, and to understand the implications of
costs once fully phased in. Fund level and government-wide expenditure
projections should be prepared and documented so that they may be
linked with the accounting system and integrated into overall financial
projections. All expenditure projections should identify service level
assumptions and key issues that may affect actual expenditures.
Expenditure assumptions should also be described in relation to revenue
assumptions. A single expenditure projection may be prepared based on
one set of assumptions (covering multiple periods); or, multiple
projections using alternative sets of assumptions may be prepared in
order to more clearly identify the impact of different scenarios.
Projections should be available to stakeholders prior to making budget
decisions. Inclusion of multi-year projections in a formal budget
document, at least in summary form, is recommended.
9.8.4 Notes: Assumptions for expenditure projections should be consistent
with related revenue and program performance assumptions. A review of
expenditure projections for individual programs, particularly those with
significant unexpected increases or decreases, is critical. Projections
may identify only direct costs or both direct and indirect costs. However,
if only direct costs are identified, a discussion accompanying the
projections should address indirect impacts. Projections of maintenance
and operating costs for any capital expenditures, as well as debt service
expenditures, also should be prepared. Documentation should clarify key
issues related to expenditures, highlight critical assumptions, and
discuss recurring and non-recurring items. Forecasting variances should
be analyzed to improve projection methodologies.

9.9 Compare revenue and expenditure options

9.9.1 Practice: A government should evaluate revenue and expenditure
options together, and consider the implications for other financial
indicators prior to making specific choices with regard to the proposed
budget.
9.9.2 Rationale: Decision makers and other stakeholders should have an
understanding of the financial implications of revenue and spending
options being considered, including the ability of the government to
sustain programs and services in the long run.
9.9.3 Outputs: A process should be established for undertaking a
comprehensive review of options for program and service levels and
projected funding amounts. The review should also include beginning
and ending fund balances; changes in fund balances at a fund level, for
the government as a whole, and for major programs; and outstanding
debt levels. Financial information, both actual and projected, and
assumptions used for preparing projections should be documented using
appropriate technology to aid this process. At least a summary of the key
materials should be incorporated into formal budget documents. Such a
summary is often included in sections of the budget document
highlighting key issues.
9.9.4 Notes: A key component of this process is determining whether a
package of revenue and expenditure options being considered for the
budget will maintain, erode, or improve a government's financial position
in the budget period and longer term. This process also provides an
opportunity to consider the degree of revenue diversification, to review

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revenues identified as one-time or unpredictable and their uses, and to

evaluate the extent to which program fees cover program costs. This
process does not necessarily involve dedicating revenues to support
specific programs (other than enterprise operations). Before dedicating
revenues, governments should consider any impact such action might
have on financial flexibility and whether it would reduce the level of
scrutiny given to program expenditures and operating efficiency.

9.10 Develop a capital improvement plan

9.10.1 Practice: A government should develop a capital improvement plan that
identifies its priorities and time frame for undertaking capital projects and
provides a financing plan for those projects.
9.10.2 Rationale: The cost of desired capital projects will usually substantially
exceed available funds in most governments. Development of a capital
improvement plan provides a framework for prioritizing projects and
identifying funding needs and sources.
9.10.3 Outputs: A process should exist for evaluating proposed capital projects
and financing options, and developing a long-range capital improvement
plan that integrates projects, time frames, and financing mechanisms.
The plan, including both capital and operating costs, should project at
least five years into the future and should be fully integrated into the
government's overall financial plan. The process for developing the plan
should allow ample opportunity for stakeholder involvement in prioritizing
projects and review. The capital improvement plan should be included in
a budget document, either in a single document describing both the
operating and capital budgets or in a separate document describing the
capital improvement plan and capital budget. The plan should be
approved by the governing body.
9.10.4 Notes: The emphasis of this practice is on ensuring that proposed capital
projects, their timing, and their financing best meet the government's
policies and plans. The capital improvement plan should take into
account overall affordability in terms of both capital and operating costs,
community concerns, available alternatives, coordination with other
projects (including projects being considered by other governmental
entities), impacts on services, beneficiaries of the project, and important
community goals such as those related to economic development or the
environment. The GFOA Distinguished Budget Presentation Award
Program recommends documentation of the impact of proposed capital
improvements on the operating budget. An evaluation of capital financing
alternatives should address equity considerations, or who will pay for the
project in relation to who benefits from it. It should also consider whether
the money will be available when needed, how costly the financing
method is, whether a financing method is legally permissible, and the
administrative requirements associated with the financing option. In
evaluating each funding option, the philosophy of the government
regarding use of debt relative to pay-as-you-go and the acceptability of
the financing method may also be considered. A government should
consult its debt and other relevant policies when deciding how projects
will be funded (see practices entitled Develop Policy on Debt Issuance
and Management and Develop Policy on Debt Level and Capacity).

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10 Element 10 - Make Choices Necessary to Adopt a Budget

A government should prepare and adopt a budget. The proposed and adopted budget should be a
comprehensive operating and financial plan. The budget document should communicate key fiscal
and policy decisions, issues, and tradeoffs. In order to facilitate stakeholder understanding of the
choices that have been made, it is essential that materials be prepared in format that is clear and
comprehensible.

PRACTICES

10.1 Prepare and present a recommended budget

10.1.1 Practice: A government should prepare and present a recommended
comprehensive program and financial plan (the "budget") for review by
stakeholders and consideration for adoption by the governing body.
10.1.2 Rationale: A complete plan is necessary to allow stakeholders to judge
how well all of the different aspects of the plan fit together and whether
there is an appropriate balance of resources and assigned uses.
10.1.3 Outputs: The proposed budget will consist of a set of recommended
actions regarding programs and services to be funded, including service
level, quality, and goals to be achieved. It will also identify funding
requirements and sources of funds, and provide the supplemental
information necessary to review the plans. The budget should be
consistent with policies and goals set by the government. The
recommended budget must also comply with any statutory requirements;
in some cases, it may be appropriate to produce a separate document to
comply with these requirements.
10.1.4 Notes: The recommended budget should be the government's
considered approach to addressing stakeholder issues previously raised.
As a comprehensive program and financial plan, the budget should
include all programs and funds. Consideration also should be given to
including closely related entities that may not otherwise have their own
budget or whose budget is important to a government, e.g., an urban
renewal authority or a captive capital leasing organization. A proposed
budget consists of one or more separately bound documents. Ideally, the
proposed budget should be a complete and comprehensive document
that includes everything that will be in the adopted budget, except for any
subsequent changes made by the legislative body and a copy of the
appropriations resolution or bills authorizing the budget.

10.2 Describe key policies, plans and goals

10.2.1 Practice: A government should include a description of key programmatic
and financial policies, plans, and goals in its budget documents.
10.2.2 Rationale: Identification of key programmatic and financial policies,
plans, and goals assists stakeholders in determining the appropriateness
of a government's direction and allows stakeholders to develop their own
opinions as to whether the government's programs and decisions
conform to or are likely to achieve those policies, plans, and goals.
10.2.3 Outputs: Budget documents should describe key financial and
programmatic plans and goals. Goals and objectives for individual
programs and/or organizational units included in the budget documents
should also be provided. Organization-wide policies and goals are often
presented in an introductory section of the budget. The goals and
objectives for individual programs and organizational units also should
be described. They usually appear as a part of the narrative for each

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individual unit or program. Key interrelationships of programs and units in

terms of goals to be achieved should be identified.
10.2.4 Notes: This practice is oriented toward identifying those policies, plans,
and goals that most influence the recommended budget. A description of
policies, plans, and goals can help build support among stakeholders for
actions that might not otherwise be understood. It is particularly
important to describe policies pertaining to achieving budgetary balance,
use of fund reserves, and creation and use of stabilization funds. (See
practice entitled Develop Policy on Reserve Funds.)

10.3 Identify key issues

10.3.1 Practice: The budget and the budget deliberation process should
highlight key issues and decisions.
10.3.2 Rationale: Identification of key issues and decisions focuses attention on
the most critical areas, improves the likelihood that an appropriate level
of deliberation will occur regarding decisions in these areas, supports the
notion of government accountability to stakeholders, and promotes trust.
10.3.3 Outputs: Identification and analysis of key issues and major
programmatic and financial changes should be provided as early as
possible in the budget process and also should be identified in the
proposed budget. Summary information should always be provided, with
more detailed information available where appropriate or upon request.
10.3.4 Notes: Key issues and decision areas may be programmatic, financial, or
process-oriented. The goal is to provide for disclosure, appropriate
analysis, and discussion of these issues so that well-considered
budgetary decisions may be made. At times, key decisions and issues
may arise that a government administration or legislative body considers
inappropriate to highlight. In these cases, a government should take into
account practical considerations along with the intent and purpose of this
practice. Good practice requires identification of key issues, even if the
information may cast the government in an unfavorable light.

10.4 Provide a financial overview

10.4.1 Practice: Budget documents should contain a description of the short-
term and long-term financial plan of the government.
10.4.2 Rationale: Stakeholders need to have the financial plan of the
government clearly identified in order to make the best budgetary
decisions.
10.4.3 Outputs: A financial overview typically consists of financial statements
and accompanying narrative, charts, and graphics. The overview should
clearly describe the current and projected financial position and fund
balances, the financial activities and expectations for the budget period,
and the expected implications for future periods. The overview should
provide clear information about capital plans and funding, along with the
impact of capital plans on operating costs and activities. Debt and debt
service issues should also be discussed. Financial data presented in the
budget documents should include comparisons of prior period actual
results, current period budget and/or estimated actual results, and
budget period projected figures. Key assumptions for revenues and
expenditures should be highlighted.
10.4.4 Notes: A financial overview should normally consist of all funds of a
government, whether or not there are statutory requirements for
budgeting those funds. The manner of presenting materials on fund
balances, including available amounts and reserve funds, should be
carefully considered. A clear distinction should be made between total

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fund balance (or reserves), the amount restricted by legislative policy (as
opposed to statutory requirements), and the amount considered
available for expenditures.

10.5 Provide a guide to operations

10.5.1 Practice: Budget documents should include information that provides the
reader with a guide to the programs the government operates and the
organizational structure in place to provide those programs and services.
10.5.2 Rationale: Information concerning programs and the organizational
structure supporting those programs provides context for the proposed
allocation of resources in the budget. This information is necessary in
order to make reasoned decisions about the use of resources and to
make clear the direction of the government's programs.
10.5.3 Outputs: Information provided to the reader in the budget documents and
through other means should include: program descriptions, goals and
objectives, organization charts, means of providing major services (e.g.,
in-house or contracted out), information relating programs to
organizational units, management approaches, multi-period comparative
staffing information by unit, unit sources and uses of funds, and
performance measures. Key functional relationships between
organizations also should be identified.
10.5.4 Notes: The intent of this practice is that a government make available
sufficient information about its operations so that the interested
stakeholder has an understanding of the programs and services
provided, can identify goals and priorities of each program, and can
place resource needs for those programs and services into an
appropriate context.

10.6 Explain the budgetary basis of accounting

10.6.1 Practice: The budget should include a description of the relationship
between the form of accounting used to describe revenues and
expenditures in the budget, and the form of accounting used to prepare
the annual financial report.
10.6.2 Rationale: Explaining the differences between the budgetary basis of
accounting and the basis used in preparing the annual financial report
helps stakeholders understand and interpret the numbers presented in
each document. Documented reconciliations between different bases
can also help prevent errors during preparation or interpretation of the
budget.
10.6.3 Outputs: The relationship between budgetary revenues, expenditures,
and funds available and those presented in financial reports should be
explained by both numerical reconciliations and a written explanation, in
both the budget and the annual financial report. In some cases, the
bases used may be identical.
10.6.4 Notes: There are four basic categories of difference between the
budgetary basis of accounting and the basis of accounting that follows
generally accepted accounting principles (GAAP) for state and local
governments:
• Basis of accounting--"Cash plus encumbrances" and "modified
accrual" are two of the different ways to define revenues and
expenditures;
• Timing--The budget period may differ from the accounting reporting
period, e.g., lapse periods for encumbrances;
• Perspective--The budget and accounting reports may have different
fund reporting structures, e.g., a budget may account for debt service

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in the general fund, while GAAP principles require that debt service
be recorded in a separate fund.
• Entity--The government's financial report may not include all of the
same entities and funds as the budget document.

10.7 Prepare a budget summary

10.7.1 Practice: A government should prepare a summary of both the proposed
and final budget.
10.7.2 Rationale: Most stakeholders do not want to take the time to read and
understand the details of a budget. A concise summary of key issues,
choices, and financial trends is therefore needed to inform and direct the
reader to the appropriate location for additional information.
10.7.3 Outputs: The summary should focus on issues likely to be important to
the public. Contents may include priorities, key issues, and
choices/decisions for the budget period; major changes in tax rates, tax
policy, or projected service levels and priorities and reasons for those
changes; important financial issues, including changes in the economy
and the long-range outlook; and significant use of or increase in fund
balance or retained earnings. The summary should also refer the reader
to additional information available elsewhere about particular issues or
financial details. The summary can take many forms, including a
transmittal letter, budget message, executive summary, or budget-in-
brief. The summary should be available and disseminated in an easily
accessible manner that is likely to be communicated to the public and
generate interest. Preparation of separate documents tailored to different
audiences, including citizens, the media, and elected officials, is
encouraged. Electronic formats should be considered as a means to
disseminate the budget.
10.7.4 Notes: The summary should be as nontechnical as possible and easy to
read. The GFOA Distinguished Budget Presentation Award Program
recommends, at a minimum, the inclusion of summary information in the
budget document and, if feasible, in a separate document as well.

10.8 Present the budget in a clear, easy-to-use format

10.8.1 Practice: Budget documents and related materials made available to
stakeholders should be presented in a clear and readily comprehensible
format.
10.8.2 Rationale: The budget is the guide that determines the direction of
government. It is arguably the single most important document routinely
prepared by governments. To be usable, it not only must contain the
appropriate information, but must also be prepared in a manner that is
clear and comprehensible.
10.8.3 Outputs: Some items in a budget document that will assist the reader
include: a table of contents, summaries, a consistent format, high-level
summary information that describes overall funding sources and the
organization as a whole, a description of the overall planning and
budgeting process and the interrelationships of those various processes,
supplementary information about the government and the area for which
it has responsibility, charts and graphs to better illustrate important
points, succinct and clearly-written summaries, uncluttered pages, and
detailed information placed in appropriate locations so that it does not
overwhelm the reader. Similar requirements apply to the non-written
means (e.g., audio, video) of presenting budget material to stakeholders

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at various times during the budget process. Some governments prepare

summary information in a document separate from the more detailed
budget document in order to avoid overwhelming the reader and to
control overall costs of document preparation.
10.8.4 Notes: To achieve the goal of this practice, multiple formats may be used
that are tailored to the needs of various stakeholders. These may include
brief summaries of important information to be used by different
audiences to enhance their understanding of important budget issues
and tradeoffs.

10.9 Adopt the budget

10.9.1 Practice: A government should adopt a budget that meets all statutory
requirements prior to the beginning of the fiscal year.
10.9.2 Rationale: The timely adoption of a budget permits the government to
proceed with implementing programs and services that further the
achievement of goals.
10.9.3 Outputs: The adopted budget should clearly present the financial,
operating, and capital plan. It should include all operations and funds,
although not necessarily at the same level of detail. Non-appropriated
funds, revolving funds, and any other planned revenues and
expenditures also should be included. Whenever feasible, the adopted
budget should include (though not necessarily in a single document) all
statutorily required materials such as the appropriation ordinance or bills,
tax levies, and rate adjustments. Legally required documents that
otherwise do not contribute to an understanding of the budget may be
included as an appendix.
10.9.4 Notes: If there are delays in adopting the budget, actions should be
taken to minimize uncertainty when the new budget period starts, as
appropriate. A continuing appropriation may be legally required.

PRINCIPLE 4 - ASSESS PERFORMANCE AND MAKE ADJUSTMENTS

This principle identifies practices that are needed to monitor and assess the government's progress in
meeting financial and programmatic goals identified in the budget and through its policies and plans.
Based on this review, the government may need to make adjustments to the budget and to plans and
policies if goals are to be achieved. The review undertaken through this principle feeds back into goal
development and review processes to ensure that goals remain relevant.

11 Element 11 - Monitor, Measure, and Assess Performance

A government should monitor and analyze the performance of its service programs, its capital
programs, and its financial performance. Performance should be based on stated goals and budget
expectations. The analysis should also include customer and other stakeholder satisfaction and
should include the impact of external factors affecting the government such as the economy,
demographic and social factors, intergovernmental changes, weather, and other relevant factors.
PRACTICES

11.1 Monitor, measure, and assess program performance

11.1.1 Practice: A government should periodically evaluate the performance of
the programs and services it provides.
11.1.2 Rationale: Government functions, programs, and activities should be
periodically reviewed to determine whether they are accomplishing
intended program goals and making efficient use of resources. Unlike
private enterprise, there are often no simple measures such as profit to

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evaluate "bottom line" performance. A performance evaluation provides

both accountability and information on which to base improvements.
11.1.3 Outputs: Performance measures, including efficiency and effectiveness
measures, should be presented in basic budget materials, including the
operating budget document, and should be available to stakeholders.
Performance measures should be reported using actual data, where
possible. At least some of these measures should document progress
toward achievement of previously developed goals and objectives. More
formal reviews and documentation of those reviews should be carried out
as part of the overall planning, decision-making, and budget process.
11.1.4 Notes: Evaluating and reporting on program performance on a routine,
publicized basis keeps stakeholders apprised of actual results compared
to expectations. One option is to prepare regular reports of key
performance measures, with in-depth evaluations or reviews conducted
once every several years. Program performance information should be
available during the budget process. Regardless of whether the program
is provided by government employees or contracted out, the reporting
and evaluation process should be similar.

11.2 Monitor, measure, and assess stakeholder satisfaction

11.2.1 Practice: Governments should monitor and assess stakeholder
satisfaction with programs and services.
11.2.2 Rationale: The main contact with a government for many stakeholders is
through the programs and services it provides. It is important for a
government to be aware of and respond to stakeholders' perceptions of
these programs and services. Stakeholders' perceptions of the quality of
public services is an important factor in their overall perception of the
government and their level of confidence in governmental decision
making.
11.2.3 Outputs: There are many ways to assess stakeholder satisfaction,
including various forms of contact with the legislative body and
administrative leaders, citizen surveys, public forums or hearings, and
focus groups of clients/customers. A government should determine the
methods it wishes to use and should then formally assess satisfaction
with programs and services. These assessments should be conducted
regularly. Stakeholder satisfaction should be reported using appropriate
technology and should be available to all stakeholders.
11.2.4 Notes: Governments define areas where goals need to be adjusted by
identifying and understanding stakeholders' concerns. Governments
should consider developing performance measures and benchmarks to
evaluate stakeholder satisfaction.

11.3 Monitor, measure, and assess budgetary performance

11.3.1 Practice: A government should evaluate its financial performance relative
to the adopted budget.
11.3.2 Rationale: Regular monitoring of budgetary performance provides an
early warning of potential problems and gives decision makers time to
consider actions that may be needed if major deviations in budget-to-
actual results become evident. It is also an essential input in
demonstrating accountability.
11.3.3 Outputs: Budget-to-actual or budget-to-projected actual comparisons of
revenues, expenditures, and fund balance should be included in periodic
reviews undertaken during the budget period. Staffing levels should also
be monitored. Comparisons for at least the current year should be
included in the budget document and be generally available to

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stakeholders during discussions related to budget preparation and

adoption.
11.3.4 Notes: Consistency and timeliness are particularly important when
implementing this practice: it is essential that reports are prepared on a
routine, widely-publicized basis. In addition to monitoring budget-to-
actual results, reasons for deviations should be evaluated. These factors
are important in assessing the significance of variations, including
whether they are expected to be temporary or longer-term in duration.
(See practices entitled Monitor, Measure, and Assess Program
Performance and Monitor, Measure, and Assess External Factors.)

11.4 Monitor, measure, and assess financial condition

11.4.1 Practice: A government should monitor and evaluate its financial
condition.
11.4.2 Rationale: The financial health of a government is critical to its ability to
meet the needs of stakeholders. Financial condition should be evaluated
to identify potential problems and any changes that may be needed to
improve performance over both the short and long terms.
11.4.3 Outputs: Financial indicator measures often are developed to monitor
financial condition and achievement of explicitly set financial goals.
Indicators to monitor factors that affect financial performance are also
reported. A report on financial condition should be periodically prepared
and updated. The report may be a separate document or incorporated
into other relevant documents, including the budget document. When
reporting on financial condition, the government should highlight the
significance of relevant indicators.
11.4.4 Notes: Financial condition is distinguished from budget performance.
Budget performance identifies explicit short-term indicators, primarily
revenue and expenditure status for the budget period. An evaluation of
financial condition considers a broader array of factors that may have
long-term implications for the financial health of the government. These
factors may include specific measures of the government's financial
performance (e.g., trends in operating position or liquidity) as well as
measures of the community's general social, demographic, and
economic conditions.

11.5 Monitor, measure, and assess external factors

11.5.1 Practice: Governments should monitor and assess external factors that
may affect budget and financial performance and achievement of goals.
11.5.2 Rationale: Factors outside the government's control, such as the national
or regional economy, demographic changes, statutory changes,
legislation, mandates, and weather, may affect achievement of stated
goals. Monitoring these factors helps governments to evaluate and
respond to the effect of these external influences on goals, programs,
and financial plans.
11.5.3 Outputs: External factors that are likely to be important in achieving goals
should be identified and monitored regularly. The results of this analysis
should be factored into the assessment of program and financial
performance and considered in making adjustments to these programs.
Trends and significant issues may be described in reports to
stakeholders discussing program, budget, and financial performance.
The assessment of external factors should be reported, at least in
summary form, and available to stakeholders.
11.5.4 Notes: Many external factors cannot be controlled or sometimes even
predicted by a government. Contingency planning can help address

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negative impacts or take better advantage of positive factors that might

arise from external events. To the extent that external events have long-
range impacts, programs, plans, and goals may need to be adjusted to
reflect these changes. (See practice entitled Develop Policy on
Contingency Planning.)

11.6 Monitor, measure, and assess capital program implementation

11.6.1 Practice: Governments should monitor, measure, and assess capital
program implementation.
11.6.2 Rationale: Monitoring the status of capital projects helps to ensure that
projects progress as planned, problems (such as delays in key
milestones and cost overruns) are identified early enough to take
corrective action, funds are available when needed, and legal
requirements are met.
11.6.3 Outputs: Reports on capital project implementation should be prepared
for decision makers and other stakeholders. Summary information
should be considered for projects that are progressing as planned. More
detailed information will probably be needed for projects where there are
issues. Project milestones, such as dates for completion of such tasks as
planning, land acquisition, engineering and design, and construction,
should be identified and progress in meeting these milestones should be
reported. Governments should monitor quality compliance and financial
performance.
11.6.4 Notes: A government may have a large number of significant projects.
This practice is intended to promote the development of mechanisms to
ensure that decision makers are not overwhelmed with information on
which no decision is needed and that they receive timely information
where decisions or actions are required.

12 Element 12 - Make Adjustments as Needed

From time to time, a government may need to adjust programs, strategies, performance measures,
the budget, and goals based on the review and assessment of program, budget, financial condition
measures, stakeholder satisfaction and external factors. Processes are needed to ensure that these
adjustments are formally presented to decision makers and other stakeholders and receive adequate
consideration.

PRACTICES

12.1 Adjust the budget

12.1.1 Practice: The budget should be adjusted during the budget period should
unforeseen events require changes to the original budget plan.
12.1.2 Rationale: The budget is a plan based on a set of assumptions that may
not always match actual experiences during the execution phase. A
government should watch for significant deviations from expectations
and make adjustments so that the plan is consistent with revised
expectations.
12.1.3 Outputs: Governments should have procedures in place to determine
when deviations from the budget plan merit adjustments to the budget.
Budget adjustments, whether to programs or to revenues and
expenditures, should be made as appropriate. Final changes to the
budget should be reported. The timing and manner in which this is done
depends on the stakeholder group and the level of materiality of the
changes.

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12.1.4 Notes: Budget adjustments may be administrative or legislative

depending on the government's procedures and on statutory
requirements such as the legal level of control of the budget
appropriations.

12.2 Adjust policies, plans, programs and management strategies

12.2.1 Practice: A government should adjust its policies, plans, programs, and
management strategies during the budget period, as appropriate.
12.2.2 Rationale: Changing conditions or programs and services that are not
producing the desired results or efficiently utilizing resources may require
adjustments in order for the government to continue to meet the needs of
stakeholders and to meet its own goals.
12.2.3 Outputs: Governments should have procedures in place to provide for
review, decision making, and implementation of changes to policies,
plans, programs, and management strategies during the budget period.
Adjustments should be based on findings obtained from monitoring and
assessing program and financial results, stakeholder input, and external
circumstances. Regular briefings to senior program officers,
management, and elected officials on the contents of the reports permit
timely adjustments as needed to the plan or program activities.
12.2.4 Notes: The adjustments made by a government should be based on its
assessment of performance. This practice helps complete the budget
planning cycle and will feed into the review of services, goals, plans, and
programs which occurs near the beginning of the cycle. This practice is
distinguished from the earlier review processes in that it is intended to
focus more on mid-period adjustments, rather than on more fundamental
changes that may be needed to achieve broad goals. (See practices
under elements entitled Identify Opportunities and Challenges for
Government Services, Capital Assets, and Management; Develop
Programmatic, Operating, and Capital Policies and Plans; Develop
Programs and Services That Are Consistent with Policies and Plans; and
Develop Management Strategies.)

12.3 Adjust broad goals, if appropriate

12.3.1 Practice: A government should modify or change its broad goals if
conditions change sufficiently that these goals are no longer appropriate.
12.3.2 Rationale: Goals may need to be adjusted in response to new
information about program results, stakeholder needs, and external
circumstances in order to be more relevant for the community or more
practically attainable.
12.3.3 Outputs: Governments should have procedures in place to ensure that
goals are reviewed during the budget period and adjusted when
appropriate. Adjustments should be based, in part, on findings obtained
from monitoring and assessing program and financial results,
stakeholder input, and external circumstances. Opportunities and
challenges facing the government also should be considered.
12.3.4 Notes: This practice helps complete the budget planning cycle and will
feed into the goal development phase which begins the cycle. It is
desirable to minimize the number of adjustments to longer-term goals in
order to maintain credibility. Adjustment of performance measures
associated with goals is another way to adjust or clarify goals without
changing basic intent of a goal. (See elements and practices under
principle entitled Establish Broad Goals to Guide Government Decision
Making.)

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