Stop the Municipal Budget Scramble: Make FY2026‑27 Easier by Acting Now
About four months have passed since most local government agencies adopted FY2025‑26 budgets, and roughly four months remain before leaders begin planning FY2026‑27. But waiting to think about budget decisions until the official start of the budget process is a costly mistake. Every day that passes with inaction is a lost opportunity to improve both the experience of budget adoption and the results. Effective governments approach budgeting as a continuous process, not an annual checkbox.
Questions You Should Be Asking Now
The first question that city councilmembers, district board members, and county supervisors should ask is: “How reliable is the 2025-26 budget?” The answer to this question may necessitate mid-year budget changes, alter projected year-end fund balances, or affect the assumptions for the 2026-27 budget.
Many agencies approve budgets that are proven inadequate shortly after adoption. The inadequacy may be due to an overly optimistic revenue forecast, or to the convenient exclusion of likely expenditures (e.g., deferred maintenance, the full impact of recent labor agreements, etc.). Either way, if the 2025-26 budget is broken, you need to know about it now, regardless of your agency’s traditional budget timeline.
The second question you should be asking is: “When will the audited financial statements for fiscal year 2024-25 be completed and presented publicly?” The answer to this question affects whether the 2026-27 budget will be built upon a factual baseline, or unaudited staff projections.
Delayed audits obscure the agency’s liabilities and pension and OPEB (retiree medical) trends. In addition, without the final accounting of one‑time items, the risk that projected fund balances are inaccurate is increased. Without timely financial statements, projected fund balances may misrepresent the actual resources available for spending.
Many budget commitments are made off-cycle – i.e., not integrated into the annual budget process (e.g., new staffing, capital projects, and programs). Whether due to necessity or poor planning, such proposed spending often escapes the scrutiny that it deserves. When brought forward individually, outside of “budget season,” such items only compete with themselves; alternative uses of the funds receive little, if any, consideration.
When such items are brought before you during the year, you should ask: “Why was this not anticipated in the annual budget, and what are all of the fiscal impacts of this item for the duration of the current year and future years?” If you face a structural budget deficit, treat off‑cycle approvals as accelerants to that deficit.
What to Do Now
Many elected officials are frustrated to discover how little immediate impact they have on their agency’s budget. They learn the hard way that if the agency delays budgeting reform, its options diminish over time. (In the extreme, the alternatives narrow to bankruptcy or disincorporation/shutdown.) To avoid such a condition, your agency should be actively engaged in the following mitigation steps:
- Stress-test your FY2025-26 assumptions. Run realistic revenue and expenditure scenarios. If the budget was balanced by deferring maintenance, use of one-time funds (including reserves), or borrowing, acknowledge the fiscal urgency and prepare to take immediate action.
- Conduct a mission triage. Identify activities that are essential functions of the agency. Develop a plan to phase out functions outside the agency’s mission and aggressively streamline the manner in which essential functions are executed.
- Negotiate labor strategy now. Define priorities for bargaining that focus on operating flexibility and modern staffing models. Where management’s rights to schedule and deploy staff have been bargained away, prepare to reclaim such rights.
Budgeting should be treated as continuous governance, not an annual ritual. A reliable fiscal year 2025-26 budget, timely audited fiscal year 2024-25 statements, disciplined control of off-cycle commitments, and a rigorous review of programs and obligations against the agency’s core mission will determine whether the budgeting process for fiscal year 2026-27 will be strategic or crisis-driven.
Mark Moses is a senior fellow with California Policy Center. He has thirty years of experience in local government administration and finance. His recent book, The Municipal Financial Crisis – A Framework for Understanding and Fixing Government Budgeting was published by Palgrave Macmillan and is available from major online booksellers.
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