Bringing Out the Dead: Can Information Technology Resurrect Budget Reform?

• Author: Metzgar, Judd

Abandoned budget reforms dot the state and local government landscape. Program, performance, zero-based, and mission-driven budgeting--with isolated exceptions--are just some of the reforms in the scrap heap of public-sector fiscal history. The authors outline a case for why advances in information technology may lead governments to reconsider old budgeting approaches and motivate 21st century reformers to develop new and hybrid ones.

The one thing that has been conspicuously lacking in our governmental business, federal, state, and municipal, has been the element of careful, understandable, responsible planning.

Frederick Cleveland (1915)

Evolution of the Budget idea in the United States

Advances in information technology continue to change the face of planning and administration. Information technology has improved the efficiency of repetitive tasks such as payroll processing, accounting journal entries, and financial reporting. It also has eased the burden of document management and transaction processing in areas such as purchasing and human resources. The latest advances include enterprise resource planning (ERP) systems that allow organizations to reengineer processes and coordinate diverse staff and line functions. The most recent technology "craze"--e-Commerce and customer relationship management (CRM) systems--is pushing out the benefits of technology to parties outside organizations such as suppliers and customers. Indeed, by changing the access, flow, creation, and distribution of information, technology is making it difficult to identify or impose organizational boundaries.

But how has technological change influenced planning and budgeting--two mission critical tasks that all organizations undertake? This article examines this question in the context of state and local governments. In particular, is it possible to bring to life "dead" budget reforms? To provide an answer to these questions it is important to understand what is expected of the budgeting function and the traditions and reforms that shape and constrain it--the focus of the first section of this article. The second section examines the current budgeting systems used by state and local governments and the technology poised to shape them in the future. The concluding section makes observations regarding the role of information technology in easing the implementation of recommended practices of the National Advisory Council on State and Local Budgeting (NACSLB)--the most recent (1998) comprehensive budget reform effort.

Seven "Habits" of Budgeting

Budgeting is a term that represents numerous tasks and activities related to fiscal planning and management. In a hierarchy listing of different purposes that budgeting might serve, financial control would make the top of most lists. But most finance officers would look to budgeting as a launch pad for many other organizational improvements--priority setting and planning, forecasting, performance measurement, cost management, and competitive government.

Budgeting practices used today are shaped by long-held traditions in American government such as: 1) annularity--planning one year at a time; 2) citizen participation--a factor that imposes pressures for transparency in budgeting; 3) intergenerational equity--exemplified by the separation of current from capital programs; 4) executive-driven processes--where "executive proposes and legislature disposes;" 5) input focus--that emphasizes line items not outputs and outcomes; 6) incrementalism--where the previous year's appropriation is the starting point for budget formulation with negotiations focused on increments or decrements; and 7) the balanced budget norm--a goal of most state statutes and local ordinances. While it is not yet pervasive enough to be called a tradition, the expanding role of state and local governments in economic development and infrastructure finance also has led to long-range financial planning efforts to satisfy requirements of stakeholders, such as creditors and rating agencies. With these factors in mind, it becomes easier to understand the motivations for budget reform, and then, budgeting technology.

Brief History of Budget Reform

A key to the budget reforms of the early 1900s was the establishment of the budget itself--both as a process and a document. From this point on, the bulk of the reform efforts up to the current period have focused on policy and procedural reforms relating to better budgeting approaches and new formats. Just as the line-item budgeting "innovation" was becoming an ordinary feature of government administration in the 1920s and 1930s, dissatisfaction with this approach set in and then spread quickly. The deficiencies of line-item budgeting were not hard to identify. Line-item budgets were incremental not comprehensive, based on inputs not outputs, obsessed with financial control over managerial flexibility, organized around government departments and functions instead of programs, and forced a short-term planning horizon that provided an incentive for opportunistic spending.

Calls in the 1930s soon followed asking for better budgeting, cost accounting, and the use of performance measurement--which led to the Municipal Finance Officers Association (MFOA) (GFOA's previous name) to push for performance budgeting. Performance budgeting efforts increased in the 1940s and 1950s but enthusiasm for this approach waned after World War II. Instead, the population and economic growth facing the country led people to explore the use of the budget as a planning tool. In the 1960s, Planning and Programming Budgeting Systems (PPBS) emerged that combined program and performance budgeting with the use of...