A balanced budget: it's not just about cuts.

• Author: Purcell, Melanie D.

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In today's economy, balancing a budget requires more than just cutting back on expenditures. Traditional management has an underlying assumption of continued positive growth. Budgets have grown pretty consistently in the past, so traditional management would expect these trends to continue. If the budget fails to grow as expected, an attempt is made to move expenditures--and therefore services I--back in time until growth gets back on track. But in today's environment, this approach is not feasible and will not carry an organization into a fiscally sound future (see Exhibit 1).

Because the current revenue picture is a result of unprecedented economic conditions, the current mix of expenditures can no longer be based on past models. The most immediate issue is the reality that local governments cannot afford the status quo. And even a smaller status quo, or just trimming at the margins, is beyond the reach of local governments that are experiencing declining sales tax revenues, and, soon, declining property tax revenues. There are plenty of theories as to the causes and cures for the ills facing the world economy, but there is not a point in history in which this combination of events and conditions has existed from which we can take concrete and proven solutions.

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The medium- to long-term fiscal picture promises to provide a number of challenges. The short-term trials of today are quickly evolving into the normal operating conditions of the next two to five years. Renowned business analysts such as Howard Davidowitz have predicted that the standard of living in the United States will decline permanently as a result of this most recent recession. (1) All governments will face financial constraints that mirror those of the average citizen. The National League of Cities' City Fiscal Conditions in 2009 report outlines a lag between economic and city fiscal conditions that makes it difficult to envision local government revenues beginning to grow back to 2006 levels before 2013. (2)

TAKING ANOTHER LOOK

"The way we have always done it" was obsolete years ago. There is a reason many recent management efforts have centered on quality management, citizen engagement, "lean thinking," comprehensive communications, and other code words for new ways of doing business. It is understood that government must evolve, although we frequently continue to develop our budgets along incremental decisions. However, the...