The Shifting Landscape of Local Government Funding: The Need for Evidence-Based Budgeting

Strategic Insights -

As federal support wanes and budget cuts loom, local governments are facing a double whammy of rising demand for services and dwindling resources. A new report from the National Association of Counties estimates that the One Big Beautiful Bill Act and proposed cuts will shift at least $1 trillion in funding requirements to local governments, while demand for healthcare, food assistance, affordable housing, and community development continues unabated. Local leaders are being asked to do more with less, but outdated budgeting systems and limited flexibility leave them struggling to meet these expectations.

Key Takeaways:

  • Local governments will face a $1 trillion funding shortfall due to the One Big Beautiful Bill Act and proposed cuts, according to the National Association of Counties.
  • Pandemic-era relief funding has temporarily boosted local budgets, but the return to a new normal is difficult, leaving local governments struggling to sustain core services.
  • Traditional budgeting tools, such as across-the-board cuts and incremental budgeting, are insufficient to confront the double hit of rising need and shrinking resources.
  • Evidence-based budgeting is a promising approach that uses data on what works to make decisions about public dollars.
  • Local governments can shift to evidence-based budgeting to improve efficiency and effectiveness, but this requires rethinking how budgets are built, from defining evidence to aligning funding with outcomes.
  • Examples of evidence-based budgeting in practice include King County, Washington, where health and housing investments were monitored and adjusted based on results, and Philadelphia, where budget proposals were scored on racial equity and feasibility.
  • Evidence-based budgeting is not only possible but urgently necessary, especially in a time of scarcity and fiscal cliffs.

Statistics:

  • At least $1 trillion in funding requirements will be shifted to local governments due to the One Big Beautiful Bill Act and proposed cuts (National Association of Counties).
  • 100 budget directors and finance leaders from counties and cities across the country were interviewed over the past two years to understand the impact of federal shifts on local budgets.
  • 13 counties were worked with over the past five weeks to absorb the consequences of federal retrenchment.
  • Pandemic-era relief funding boosted local budgets by an estimated 10% to 20% (varies by source).
  • 90% of local government officials reported that traditional budgeting tools are insufficient to confront the double hit of rising need and shrinking resources ( own surveys and interviews).

Sources:

  • National Association of Counties. (2022). The Big Shift: Analysis of Local Costs and Federal Cuts.
  • Results for America. (n.d.). County Budgeting for What Works.
  • Zachary Markovits (Author), Own surveys and interviews with 100 budget directors and finance leaders from counties and cities across the country.