Rethinking Budgeting: A look back at GFR in October 2003.

• Position: Rewind

In October 2003, GFF dedicated an issue to a perennial question: What's wrong with budgeting?

Then--much like today, and several times since--we noted that state and local--governments were mired in a challenging fiscal environment, forcing policymakers and administrators to make difficult choices between painful cuts in services and tax and fee increases.

We concluded that it "may well be the ideal time to implement much-needed improvements to public budgeting," noting that "the current fiscal crisis, however, has exposed deficiencies in public budgeting systems and generated some momentum to correct them." And this conclusion could apply to most years since that magazine was published.

In 2003, we were worried about many of the features of budgeting--it was incremental, took months and thousands of hours of staff time to implement, was dollar-centric, ignored performance, and led employees to focus on the wrong targets at the expense of customer service and overall corporate goals, and restricted managerial flexibility, which limited innovation. Back then there were accusations that budgetary incentives promoted gaming the system.

Local governments have been reforming the budget function almost from the moment it was introduced in the early 1900s. "Traditional budgeting" is the result of a long process of experimentation that has settled on a number of traditions:

* Annularity--that uncertainty makes it realistic to plan only one year at a time.

* Citizen participation--that citizens should influence priority setting.

* Intergenerational equity-exemplified by the separation of current expenditures from long-term capital programs.

* Executive-driven processes--pinpointing accountability for administration.

* Input and control focus--controlling what public money is spent on and mitigating the risk of over-spending.

* Incrementalism--where the previous year's appropriation is the starting point for budget formulation, with negotiations focused on increments or decrements.

* Balanced budget requirements--found in most...