Rethinking budgeting: A transformative approach for state and local governments

State and local governments across the U.S. are facing a growing financial crisis, with every state except Florida facing a budget deficit by 2025. 

Rising costs, falling tax revenues, increasing demand for public services, and outdated infrastructure are putting intense pressure on budgets. COVID-19 made things worse, creating deficits and straining resources, which now threaten public services, delay infrastructure projects, and weaken trust in government. 

The pandemic also exposed deep inequities in funding, now driving urgent calls to increase support to underserved communities. These challenges force tough decisions about what to fund and cut. 

When every dollar counts, governments must ensure each decision supports their strategic goals. Without this focus, communities risk wasting resources and losing direction — an especially costly mistake when budgets are tight. 

That’s why it's more important than ever for communities to align their budgets with priorities. Strategic budgeting provides a crucial solution, connecting immediate fiscal needs with a vision for the future.

Bridging the Gap Between Vision and Implementation

Full-cycle strategic budgeting tightly integrates strategic planning with the annual budgeting process. It ensures that every financial decision is intentional, targeted, and directly tied to a city’s broader objectives. 

By adopting this approach, governments can prevent misaligned spending, mitigate underfunding and ensure that scarce resources are used to generate measurable progress toward long-term goals.

Full-cycle budgeting allows governments to break away from the traditional incremental approach, in which budgets are often shaped by previous spending patterns rather than adapted to new priorities. 

This new approach allows for continuous adjustments, ensuring that scarce resources are used in ways that align with evolving community needs and long-term goals. It enables a more proactive stance, permitting course corrections as conditions change. This process also enhances transparency so that citizens understand how their tax dollars are spent, which builds greater trust between the public and local officials.

The Role of Technology in Mitigating Fiscal Risks

Technology has emerged as a crucial tool for mitigating fiscal risks, managing capacity demands, increasing transparency, and restoring public trust. Tools that support artificial intelligence, real-time data reporting and compliance are helping city officials work smarter by automating routine and repetitive tasks and providing clearer insights into how resources are used. 

Technologies for goal setting and budgeting in government include AI for predictive analysis, trend identification, and resource optimization, along with big data for informed decision-making and tracking spending patterns. Performance measurement tools enhance transparency by monitoring KPIs and communication technologies such as digital platforms and apps engage citizens, gathering input for effective budget planning and building public trust.

Fort Worth’s New Approach

Fort Worth, Texas, exemplifies this shift towards technology-enabled strategic budgeting. As one of the largest and fastest-growing U.S. cities, Fort Worth relied on a fragmented set of budgeting tools, which led to a disconnect between its annual budget and strategic vision. 

Fort Worth's budget team realized that traditional budgeting methods and their patchwork of outdated technology tools were no longer sufficient to meet the growing complexity of their financial planning needs. It also recognized that involving the community early and effectively during planning and budgeting is necessary to avoid repeated conflicts and issues throughout the year, which lead to delays, inefficiencies and distractions that hurt outcomes and skew performance data.

To modernize their process and ensure the budget aligns with community priorities, Fort Worth leaders implemented Balancing Act, an interactive budget simulator, paired with scenario planning software to gather better-informed resident input at scale. 

This streamlined approach made the process more efficient and user-friendly, eliminating paper forms and spreadsheets. Visualization and scenario planning features in their budgeting software, Euna Budget, combined with community input tools, enabled a more inclusive and strategic decision-making process.

By implementing priority-based budgeting across nine city departments, Fort Worth officials are reorganizing their Fiscal Year 2025 budgets to better align with city programs and strategic goals while enhancing financial transparency and providing additional data layers for decision-making.

Four Steps for Effective Strategic Budgeting

For state and local governments looking to adopt full-cycle, strategic budgeting, several key steps can help transform their budget process from a basic financial exercise to a strategic tool for growth.

• Engage Stakeholders for Input: The first step is involving the community and key stakeholders in the budgeting process. Gathering input from residents, businesses, and city employees ensures that the budget reflects the priorities of those it serves. Active community participation is vital because it ensures the budget reflects residents' lived experiences and priorities. When community members see their input taken into account, trust in local government is enhanced, and stronger relationships between the public and city officials are created. This engagement can be facilitated through public meetings, surveys, or digital platforms like budget simulators.
• Define Strategic Priorities and Objectives: After gathering input, it’s crucial to clearly define strategic priorities that align with the city’s long-term vision. These priorities should be specific, measurable objectives, ensuring accountability for each initiative. A key benefit of strategic budgeting is its focus on outcomes. Governments that clearly define objectives can better track progress and make adjustments as necessary. For instance, if a city prioritizes public safety, it can allocate funds to initiatives such as expanding police training or upgrading emergency response systems and measure the effectiveness of these programs over time. With the guidance of skilled consultants, cities can unlock the full potential of advanced tools and create fiscal strategies that are both forward-thinking and resilient.
• Link Budget Line Items to Strategic Priorities: Once strategic priorities are defined, every budget line item should be linked to specific objectives. This ensures that funding is properly allocated to initiatives that drive progress on key goals. This process, which can be managed and enhanced with a full-cycle budgeting platform, eliminates the common issue of funds being spent without a clear connection to long-term goals. By directly linking each line item to a strategic priority, governments ensure that financial resources are spent wisely and purposefully. It also helps city leaders make more informed decisions when new opportunities or challenges arise, providing a clearer framework for prioritization.
• Implement Continuous Review and Adjustment: Full-cycle budgeting requires ongoing review and adjustment. As priorities or financial conditions change, the budget must remain adaptable to reflect new challenges and opportunities. This flexibility ensures spending stays sustainable and aligned with long-term goals. A dynamic budget process enables governments to remain agile amid economic uncertainty. Whether due to unexpected revenue shortfalls, shifting political demands, or new investment opportunities, continuous review ensures that budgets are living documents that evolve alongside the cities they serve.

Leveraging Technology in Strategic Budgeting

Technology is revolutionizing the budgeting process, enhancing governments' ability to consolidate and analyze financial data for more informed and strategic decision-making. Scenario planning tools, for instance, that bring together citizen input and advanced planning enable cities to model different financial scenarios and assess their long-term impacts. 

These tools provide clarity for decision-makers and transparency for community members, making it easier to understand how financial choices affect broader goals.

Fort Worth’s success demonstrates the value of these digital tools. By modernizing its budgeting process, the city not only improved efficiency but also enhanced civic engagement, allowing residents to see their priorities reflected in the budget. This approach is especially critical as cities navigate rising costs, inflation, and competing demands for public funds.

Conclusion

As state and local governments face rising costs and economic uncertainty, adopting strategic budgeting is no longer optional — it's essential for long-term financial health. By embracing this approach, governments can achieve greater transparency, efficiency, and accountability — ultimately building greater trust and making real progress on the issues their communities care about most.

Mark Funkhouser is the founder and president of Funkhouser & Associates and former mayor of Kansas City, Missouri. Nick Mastronardi is the co-founder and CEO of Polco and a former member of the White House Council of Economic Advisers. Abhi Nemani is a senior vice president at Euna Solutions and the former chief data officer for the City of Los Angeles.