I recently facilitated a city council retreat to set goals and priorities leading into their budget process. One council member strongly advocated for “the lowest tax rate in the region.” The Mayor responded with an incredibly thoughtful and wise explanation regarding the need to link tax rate decisions to both current and future needs (such as aging infrastructure) and that a tax rate should not be an end in and of itself, but a means to accomplish the policy goals of the council and the quality of life goals of the community.

This wise Mayor understood that the tax rate is an important part of the equation to be deliberated, but just one part. A one dimensional focus on the tax rate empowers bad decision making. It is like awarding the cheapest bid for new police cars, but ignoring that the cars included in the lowest bid did not include engines.

The budget is not a financial document so much as a policy document which has financial implications. And the tax rate provides the means to implement the policy decisions of the elected officials… but it should not be an end in and of itself.

A one dimensional obsession with the tax rate, unaccompanied by an understanding that it has a direct impact on the type and quality of services delivered reminds me of the little boy visiting his grandfather who was an avid baseball fan. They were watching the game together when the doorbell rang. The grandfather got up and asked the boy to watch the game and tell him what happened when he got back. When the grandfather returned, he asked what the score was. “Five to four” the boy replied. “In whose favor?” he asked. The boy thought a moment and replied “The fives.”

When the only question is “do we have the lowest tax rate?” the answer is like the little boy who knew the score but not what the numbers really meant. An effective budget process helps the governing body ask the right series of questions to understand underlying implications and in so doing advance their policy goals:

1. “What services do we want to deliver?” allows a governing body to answer the philosophical questions of what business lines their organization should be in.
2. “How are we delivering these services?” allows a governing body to address efficiency and effectiveness as well as the level of quality they are committed to.
3. “Who should we be delivering the services to?” allows a governing body to wrestle with different service configurations for different populations such as central versus neighborhood libraries and non-resident utilization of city services.
4. “What are we willing to pay to provide these services?” allows the governing body to determine if they are really ready to pay for what they say they want. If the governing body is unwilling to set the tax rate at a level required to deliver the array of services at the desired quality of service level, then the governing body should rethink whether they want to quit providing a service, whether they want to provide it at a lower quality level, or whether they do not want to provide it as broadly.
5. “What are the long term implications of our intended funding level for these services?” provides a fiscal stewardship reality check. What looks like a fiscally conservative decision in the context of a two year time horizon often looks like fiscal irresponsibility when considered over a 20 year time horizon (think under-funding infrastructure needs). Evaluating and understanding the long term implications of current funding decisions is an essential and routine part of any responsible budgeting process.

Asking the right questions in the right order equips governing bodies to engage in more sensible budget deliberations to set tax rates that ensure both fiscal responsibility and a vibrant and healthy future.

Written by:
Ron Holifield
CEO, Strategic Government Resources
governmentresource.com

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