Budgeting for outcomes in Savannah.

• Author: Elmer, Eva

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The art of leadership in today's world involves orchestrating the inevitable conflict, chaos, and confusion of change so that the disturbance is productive rather than destructive. (1)

At the end of 2008, city leadership determined that the City of Savannah, Georgia, needed a long-term structural approach to lowering expenditures, and they decided to make the transition to budgeting for outcomes (BFO) in 2009. The changeover was challenging, not only because of the intensity of the learning and implementation process for all involved, but also because the city was under great financial pressure in the midst of a steep economic downturn. However, the priority-driven BFO process helped focus available revenue while supporting the city's most important goals.

The city realized many benefits from this process, but the top four are:

* Financial Resiliency--meeting budget reduction targets without increasing taxes or resorting to balancing gimmicks that would simply increase financial problems in later years.

* Clarity of Outcomes--opening up the budget process and financial information to the entire organization in order to focus all employees on assisting with the financial challenges.

* Internal Engagement--training hundreds of employees to identify outcomes, develop performance measures, and prioritize services.

* Cross-Departmental Cooperation --changing the organizational culture to one of service collaboration in order to meet community priorities.

WHY BUDGETING FOR OUTCOMES

The city's financial team had first been introduced to budgeting for outcomes at a Government Finance Officers Association (GFOA) conference in June 2008.The immediate reaction was that this was a great approach to budgeting but extremely time-consuming and a major challenge to the status quo.lf things ever got bad enough,maybe Savannah would try it.Then, in the fall of 2008, things did get bad enough; the economic crisis became global and hit Savannah's major industries hard.

The City of Savannah, like local governments around the country, was faced with the greatest financial challenge in decades. While Savannah's diverse economy spared the city from the beginning stages of the recession, the downturn hit city revenues beginning in the fall of 2008. Since that time, sales tax revenue and property tax revenue declined substantially, and other elastic sources of revenue such as hotel/motel taxes and rental vehicle taxes declined by more than 10 percent. Additionally, the state of Georgia prohibited property reassessments until 2012. The cumulative impact of these challenges compelled the city to reduce the 2010 general fund budget by more than $10 million. Fortunately, when times were good and revenues were increasing, Savannah had done the right things. The city had reduced general fund debt by more than 40 percent in the previous eight years, increased the capital maintenance program, increased reserves--including establishing a special sales tax stabilization fund to smooth out the volatility of elastic revenue sources (see "Emphasis on Long-Term Planning Helps Sunnyvale Survive Fiscal Challenges" in this issue of Government Finance Review for more information on stabilization funds)--and invested in projects that reduced ongoing costs (e.g., energy retrofits).

The financial challenges were clearly structural and not short term. Therefore, city officials decided to avoid short-term fixes; they would not make across-the-board-cuts, draw down reserves, delay maintenance, take a pension holiday, or undertake other cost-reduction methods that would not lead to long-term budget reductions. Instead, Savannah's financial leaders chose to realistically determine the amount of funds available and then direct them to services and programs that best met the city's priorities--in other words, budgeting for outcomes.

ASSESSING THE CITY'S CAPABILITIES

The first step in the BFO process was to find out if the city had the talent, technical capabilities, and will to adapt to this challenging new process. The core financial team, which consisted of representatives from the finance, research and development, human resources, and auditing departments, was brought together to study the issue. Team members had mixed reactions to BFO, but generally the concern was about change. Of the major issues that came out of these meetings, the first was that the change would be too labor-intensive for staff to deal with, especially when there was so much to cope with as a result of the financial crisis. There were also concerns about whether city staff actually had the skills necessary to carry out the change. And finally, the research and development department staff was worried that it would be difficult to adapt BFO to the city's existing financial software system. A new system would have to be created to accommodate and adapt BFO and then translate it back to the legacy financial system.

In the end, the city determined that it had the talent, will, and sufficient technology to adopt the new system. Implementing BFO would force the city to take a more strategic, thoughtful, collaborative, and innovative approach to closing the projected budget gap in 2010 and beyond. Furthermore, the new system would have the added benefit of involving more people in the budget process, tapping into more talent, and creating an environment that promoted teamwork. The most controversial aspect of BFO is that it puts a great deal of trust in thoughtful non-experts to make good decisions and to encourage or force experts to start thinking outside the box. If this basic premise is not accepted, BFO will not generate the preferred...