This article is part one of MRG’s three-part series, “Planning Your Public Agency’s Financial Future,” exploring budget preparation, fiscal sustainability, and strategies to prepare for 2027 budget season.
As agencies look ahead to the next budget season, the work of setting financial direction should already be underway. As you know, a local government budget reflects decisions about the services it will provide, the commitments it will maintain and the priorities it will pursue. By the time departments begin preparing their budgets, some of the most consequential budget work should already be done, including:
Setting priorities: Establishing a budget message that can set the tone for the many decisions staff will need to make to present a budget to executive leaders and governing boards.
Early forecasting: We begin with early forecasting and its role in helping leadership connect governing board priorities with the resources available to support them.
Fiscal forecasting: Forecasting should begin three to four months before budget season. Conducted early, it gives the city manager and governing board time to understand emerging pressures, clarify priorities, and establish direction before detailed budget preparation begins.
Here’s a primer for setting up your budget year as the first part in our series that will come out over the next 3 months to help you in “Planning Your Public Agency’s Financial Future”.
Establish Executive Leadership’s Budget Message
Another item that can be completed before the official budget kickoff is the establishment of the executive leaders’ budget message. The executive leadership’s central responsibility is to identify, clarify, and champion the Governing board’s priorities and their budget direction communicates the governing board priorities that guide the organization’s work and budget decisions for the coming fiscal year.
This work is particularly important when a newer governing board is still sorting out its goals. Individual members may bring different expectations about service improvements, infrastructure investment, staffing, or financial restraint. Staff need sufficient clarity about the collective direction to prepare a budget that reflects it.
The financial outlook helps give priorities practical meaning to seemingly opposing goals, for instance: A governing board may want to expand services while maintaining reserves and addressing deferred investment. Understanding whether available resources can support those commitments allows leadership to discuss the choices involved before departments begin building their requests.
The executive leader’s budget message should be informed by fiscal forecasting and should inform the budget creation process. That connection gives staff a clearer basis for deciding what to propose, what to prioritize, and where further discussion is needed.
Forecast While There's Still Time to Respond
An early forecast may seem obvious, but the benefits are plentiful: it helps leadership examine whether recurring revenues can support recurring expenditures and how that relationship may change over time. It can identify structural deficits, projected reserve use, and obligations that may place additional pressure on future budgets.
CalPERS obligations and other liabilities on the horizon also belong in that assessment as do commitments whose financial effects may develop gradually, including compensation costs, infrastructure maintenance, and equipment replacement. A current spending plan may appear manageable while these obligations reduce the agency’s future flexibility.
The value of forecasting comes from understanding both the financial outlook and its implications. If agency expenditures are expected to outpace dependable revenues, leadership needs to know when the gap emerges, what drives it, and how much time is available to respond. Different assumptions can also be tested to understand how changes in revenue or costs affect the trajectory.
If you begin your forecasting process three to four months before budget season, you create space for that work to matter and time to address issues and communicate well with all the groups who need to be notified of the shortfall. The executive leader can discuss the findings with the governing board, consider strategic responses, and refine budget direction before staff invest substantial time in detailed proposals.
The Risks of Waiting Until Budget Season
It can be tempting to conduct forecasting alongside budget development. The processes use related financial information, and combining them may appear efficient, particularly in a small agency with experienced staff and short lines of communication. The processes are fundamentally different: Forecasting examines the agency’s financial trajectory under stated assumptions. Budget preparation develops a spending plan within the direction and resources established by leadership. When both occur together, it can become harder to distinguish the underlying financial condition from the adjustments being made to balance the proposed budget. The two processes serve different purposes and conducting the forecast before budgeting is the best method to ensure the budget process doesn’t require heavy revisions which can happen if you’re conducting the processes simultaneously.
Holding positions vacant, postponing replacement purchases, or applying temporary resources may help close an immediate gap but those choices can also obscure an ongoing mismatch between revenues and expenditures if their effects are not clearly separated in the analysis.
Without the forecast, late findings can create additional work. A structural deficit identified after departmental proposals have been developed may require revised instructions, reconsidered priorities, and another round of preparation. The agency can end up preparing the budget twice: once before it understands the problem, and again afterward. Even smaller, agile agencies benefit from a better understanding of their financial position before committing to a budget direction.
The Finance Director’s Opportunity to Shape the Budget
The Finance Director has a responsibility to brief the executive leader on the forecast and explain what it means for the organization. This represents a significant opportunity to influence the shape of the budget while leadership still has time to consider budget options.
An effective briefing connects the figures to decisions. It explains the projected financial position, identifies emerging liabilities, and shows where the governing board’s priorities may require additional resources or adjustments to existing commitments. It should make clear which pressures are ongoing, which are temporary, and which assumptions warrant closer attention.
Department directors are critical to the budget process as they provide essential knowledge about operational needs and service demands. Each has good reasons to make the case for their own department and their perspectives naturally reflect the responsibilities of their own departments. The forecast gives the City Manager an agencywide financial foundation for weighing those needs alongside governing board priorities and existing obligations.
With that foundation, the executive leader can give departments budget direction that reflects the organization’s overall capacity and goals.
Giving Budget Season a Clear Starting Point
Early forecasting helps leadership enter budget season with a clearer understanding of the agency’s financial condition and the choices ahead. It gives the governing board time to clarify its priorities, the Finance Director an opportunity to explain emerging pressures, and the executive leader a stronger basis for guiding budget development.
The practical starting point is to schedule the forecast and Finance Director’s briefing three to four months before budget season. Use the findings to inform the executive leader’s annual budget message, then carry that direction into budget preparation. The result is a budget process better positioned to connect public priorities with the resources needed to deliver them.
Steve Montano is an MRG affiliated consultant and municipal finance expert whose work focuses on fiscal sustainability and long-term financial planning for local governments and public agencies. He has served in senior leadership roles such as Deputy Finance Director for the City of Newport Beach and Assistant Director of Financial Services for the City of San Juan Capistrano. Steve is a veteran of the United States Marine Corps and holds a Master of Public Policy and a Bachelor of Arts in Political Science from the University of California, Berkeley.