July 1 marked the start of a new fiscal year. That means budgets are (hopefully) adopted and priorities have been set for the year ahead in public agencies. Budgets are where the rubber meets the road of policy. You fund the things that matter or advance the policy goals of the elected body. For most cities, big or small, left or right, those budget areas will see public safety as the largest part of the budget - with or without fire services. Next up are likely capital projects and then the data really starts breaking down into departments.

As I visited with city managers and talked to council members in the first half of 2023, these were the rumblings I heard for this budget season.

• Spend the Federal money quickly and put it to work because the Federal Government may be looking to claw back unspent funds. Of course, the debt limit vote may have avoided that risk, but “spend it if you've got it” still seems like a popular concept.
• Inflation may be slowing down in the headline numbers, but the deferred impact on government budgets is real and costs are up, especially on capital projects. This is prompting some agencies to put off doing projects while others plow ahead aggressively to beat the expected upward trajectory of major public works project costs. Each choice has its own trade-offs.
• Elevated interest rates have brought an end to the bond refinance boom that was driven by the ultra-low interest rates of the past. So finding new savings through refinancing seems dead. But financing big new projects remains a need, and those elevated interest rates have only added to the costs. 
• “Economic headwinds” is a phrase popping up here and there with city managers. They are seeing some dips in sales tax or shopping activity and further acceleration of a shift to online shopping that is undermining local sales tax revenues.
• Destination towns like Napa, Pismo Beach and Indian Wells seem to be benefiting from enormous travel demand. This is likely somewhat connected to deferred travel plans from the pandemic that are still being unleashed on the tourism economy. Hotel room rates remain high and for those with TOT, it is a nice win.
• Energy is getting more expensive. We have certainly seen that at the retail level with gasoline prices, and the winter spike in natural gas prices was a shocker. That will ripple through our power grid sources and fall on city budgets, as cities consume a lot of energy. Agencies that have shifted to major efficiency gains will likely look like the smartest kids in the room. Those who have not may find that investing in efficiency now pays even bigger dividends.
• Risk mitigation and insurance costs continue to accelerate above inflation. These costs are not something residents experience a direct benefit of - premiums don’t fill potholes or put another cop on the beat. But the costs are real and some jury awards have proven simply insane by some people’s viewpoints. Risk is getting more expensive and at some point, the costs may be so high that no one will want to do anything that has a risk. But a society that does not take risks does not build for the future, in my humble opinion.
• And finally, the rule as old as time, agencies prioritize being transparent with their constituents about how their taxpayers’ dollars are being spent and will benefit their communities. Keeping residents informed throughout the budget process reminds the community that there are council members and staff hard at work to uphold the values of their city and establish trust. I’ve seen many cities use budget-at-a-glance reports, annual budget books, budget-focused webpages and budget explainer videos to make this heavy topic digestible for community members.

In our local government world, keep an eye on HdL sales tax updates and Beacon Economics reports. Listen for news from your local auto dealer(s). Monitor costs for construction bids on your RFPs to get first-hand knowledge about inflation trends. At the local level, our ears are close to the ground where the economy is rumbling along. Listen well. Stay flexible.

Remain Balanced,

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