Understanding how the budget process works is one thing, but to truly understand how to have meaningful input into the decisions about how to raise and spend city money, citizens should know more intermediate information...
The budget is about priorities -- The city budget documents government's good intentions. In a world of scarce resources and endless needs, the city budget is the fundamental document that decides what we prioritize as a city. The budget will declare that we are willing to spend money in some areas, but not others.
The budget is also about assumptions, but we must always assume a balanced budget -- Perhaps more important, the city budget establishes the assumptions we hold for ourselves and our city. Will it snow a lot in the coming year, forcing the city to spend more money on snow removal? Will a growing population of senior citizens increase the need for the city to build new senior centers? Will Philadelphia generate more tax revenues in the future to allow us to expand spending? All of these questions are answered by assumptions that help create the budget, but one assumption must be made every year -- that the city budget must be balanced and we are not permitted to enact a budget into law that calls for us to end the year in the red.
The budget is about who decides our public priorities and assumptions -- If the budget is simply a set of priorities and assumptions, it becomes most important to understand how those priorities and assumptions are set, who sets them, and the process we follow as a city to make it happen. If the public is not involved in the process to establish our city budget, then the priorities and assumptions set forth in the budget may not reflect our collective wants and needs. In the current process -- the Mayor proposes his budget with no formal input from the public and City Council holds weeks of public hearings where the heads of city agencies speak before the public is given a token opportunity to comment -- the public has little say in setting or even modifying the city's budgeted priorities or assumptions.
The Mayor starts the budget process and sets the city's priorities and spending limit -- It is the Mayor who proposes the city's spending priorities in outlining a proposed budget that he submits to City Council. Perhaps more important, the Mayor, and the Mayor alone, has the power to establish the estimate of how much revenue the city will generate for the year. City Council is not permitted to authorize any spending beyond the amount the Mayor estimates for the year. The buck starts with the Mayor -- and he, alone, tells how many bucks we can talk about.
City Council authorizes city spending, but cannot tell the Mayor how to specifically spend the money to run the government -- After the Mayor starts the budget process by establishing how much money can be spent, it is City Council's job to actually approve or change the Mayor's spending plan. City Council sets money aside for each agency of the government and then, for each agency, money is set aside for various categories including personnel, materials and supplies, and contracts for services, etc. By budgeting in "lump sums," City Council can tell the Mayor how much money should be spent, for example, purchasing supplies for the Fire Department. However, it is up to the Mayor to actually determine how that lump sum for supplies will actually be spent, for example, how much for hoses and how much for axes. It is also the Mayor's responsibility to negotiate contracts with the city's unionized workforce and with other vendors and City Council has no formal role in determining how much or how little the city can spend for individual contracts. In fact, the Mayor is under no obligation to actually spend the money City Council sets aside in the budget for any particular function.
The budget for next year will look a lot like the budget for this year -- When planning the budget each year, the Mayor and the members of the city administration do not reinvent the wheel. In general, the budget for each year will represent incremental changes from the previous year. Some costs (like the money to pay off bonds, which are like the city's mortgage payments for financing major construction projects) are essentially set in stone from year to year based on the borrowing rates that were established when the bonds were issued. Other costs (like salary and health benefits costs for city employees) are established based on contracts with the city's unionized workforce and changes from year to year will be based on factors like whether we add or subtract any of the more than 20,000 city workers or change the terms of future contracts with the unionized workforce. Still other costs (like the money we set aside for trash disposal based on how much trash we believe will be collected in the coming year) are estimated based on prior years' experience and will generally be on target for next year. So most of the city's nearly $4 billion General Fund will be budgeted in the same way it was last year. At the margins, however, the Mayor and City Council have the ability (many, many millions of dollars of ability) to fund new priorities or increase funding for current programs from year to year.
Certain assumptions in the budget are routinely wrong -- While many of the assumptions made in creating the budget turn out to be darn close to the reality that unfolds during the actual fiscal year, some of the predictions made in the budget inevitably turn out to be wrong. It is always better to be conservative and it makes sense to estimate high for spending and low for revenues, but each year in recent memory, the city has systematically underestimated the amount it will generate in local tax revenues. Because the Mayor, alone, sets the revenue estimate, that means that each year the city will actually bring in more money than City Council is able to budget for the citizens' priorities. The Mayor is then able to use the transfer process (described below) to ask City Council to use this extra money later during the budget year. BUDGETWATCHERS will look to see if the new administration will change this practice.
Changes can be made to the budget during the fiscal year -- After the budget has been passed into law, changes can still be made to the budget in the form of what is essentially an amendment to the budget law that must be passed by City Council and signed into law by the Mayor, called a transfer ordinance. Money can be transferred from agency to agency (from the Police Department to the Fire Department) or from lump sum to lump sum within agencies (from Police Personnel to Police Materials and Supplies). Money can even be transferred from budget to budget (from the Grants Revenue Fund to the General Fund). The budget is routinely changed at the margins during the year and -- occasionally -- significant changes to the budgeted priorities can be made after the budget is enacted into law.
Philadelphia's budgets are prepared within a five-year framework -- After the city flirted with bankruptcy in the early 1990s, a state-appointed financial oversight board was established to review city budgets and the city was compelled to prepare a Five-Year Financial Plan to show that the budget would not just balance for the next year, but for the next five years. Each year, the city must submit its budget and Five-Year Financial Plan to the Pennsylvania Intergovernmental Cooperation Authority (PICA) for review and approval. If PICA does not approve the Plan, the agency has the power to stop paying some of the city's bills that the agency continues to pay as part of the financial help provided to the city to avoid bankruptcy. Therefore, the Mayor and City Council generally pay attention if PICA has any issues about the Five-Year Plan. Even though there are plenty of reasons to be frustrated by the budget, the fact that the city does create a Five-Year Plan and that that Plan faces independent review and approval provides some comfort that the city will probably not go bankrupt any time soon.
Resources for further study:
That's intermediate information...for a critique of how the budget process does not work for the citizenry -- or the city -- follow the link below for advanced advice about what is wrong with the process and how it can be improved.