Public Budgets

A budget is a political instrument that: weighs policy priorities against available public resources; specifies the ways and means of providing public programs and services; establishes the cost of programs and the criteria by which these programs will be evaluated for efficiency and effectiveness; ensures that the programs will be evaluated at least once each budget cycle; redistributes income; provides the government with a spending limitation; and provides transparency by which the government may be held accountable at the end of each budget cycle or political term.

The budget is generally composed of an operating budget, which shows expenditures for the current period, and a capital budget, which shows the financial plans for long-term capital improvements, facilities, and equipment. The two budgets may be consolidated in order to indicate the amount of total estimated revenues available for the current period and the amount of new debt to be incurred for projects in the capital budget. For more information on expected incomes, see Local Revenue Structures.


Although the details of the budget process vary significantly from city to city, there are four main sequential stages in the lifecycle of a public budget:

  1. Preparation: the budget involves the development of expenditure estimates for departments in light of available revenues.
  2. Approval: budget estimates are then submitted to a city council or board for review and modification, often with citizen input from public 
    meetings. The budget is then legally approved and adopted.
  3. Implementation: the budget is then implemented by municipal departments throughout the year.
  4. Evaluation/Audit: the performance of all governmental units is monitored and measured throughout the fiscal year. Those indicators 
    are evaluated at the year's end to inform the budget process for the following year. 


The entity that prepares the budget may be a mayor with independent authority to develop and make recommendations for the budget to the city council. In other cases, a city manager may initiate the process then the mayor may review and comment on the budget for the council. In all cases, the council is solely responsible for approving the budget. Once the proposed budget is approved through a budget ordinance, the newly adopted plan becomes a legally binding document for the mayor or city manager to administer. After the fiscal year has been completed, most state laws and municipal charters require an independent financial audit which is made public. 


In addition, state laws dictate that nearly all cities operate under balanced-budget requirements, meaning that cities almost always plan on ending the fiscal year with a surplus to carry forward. This ending balance, often referred to as a "reserve" or "rainy day fund," which is often capped in size, becomes available revenue for the next fiscal year, as is the case in two‐thirds of states. In other states, the fund is maintained to use only in times of unexpected revenue shortfalls or budget deficits. Eight states refund the money to the taxpayers, and nine states earmark the funds.


Government Finance Officers Association. "Best Practices in Public Budgeting." Accessed March 9, 2011,

MacManus, Susan A. and Charles S. Bullock, III. "The Form, Structure, and Composition of America's Municipalities in the New Millenium." In The Municipal Year Book 2003. Washington, DC: International City/County Management Association, 2003.

National Association of State Budge Officers. Budget Processes in the States. Washington, D.C.: National Association of State Budget Officers, 2008.

National Conference of State Legislatures, "Budget and Tax."  Accessed March 8, 2011.,61,161#951.

Shafritz, Jay M. The Dorsey Dictionary of American Government and Politics. Chicago, IL: The Dorsey Press, 1988.

Solano, Paul. "Chapter 7: Budgeting." In Management Policies in Local Government Finance, Fifth Edition. Washington, D.C.: International City/County Management Association, 2004.