Priority-based budgeting (PBB) represents the latest departure from traditional incremental budgeting, implemented in over 400 North American governments. PBB also provides a mechanism to incorporate community context and changing community conditions into budgetary decision-making. Indeed, a municipal budget is largely influenced by the economic, socioeconomic, political, and fiscal characteristics of the surrounding community. Since initial PBB reallocation efforts have produced mixed results in terms of budgetary reallocation, it is reasonable to ask: How does a community's context affect the level of PBB budgetary reallocation from low-priority programs to higher-priority ones?
This study explores budgetary reallocation for 32 US cities after they implemented PBB, using a staggered-adoption difference-in-differences multiple regression analysis with two-way fixed effects to determine how reallocation is affected by community characteristics.
Higher intergovernmental revenue and political conservatism each substantially increase PBB reallocation from low-to high-priority programs – to the tune of 12–18% of the overall budget. Racial diversity is also an important contextual factor – less diverse communities with above-average population growth and enhanced public engagement witnessed a 16% reallocation. More diverse communities with below-average population growth and higher personal income but lower income inequality experienced a 14% reallocation.
Community characteristics play an important role in driving budgetary decision-making and allocation. While much of the existing scholarly literature connects community context to budgetary allocation, this study firmly extends these theories to budgetary reallocation. In doing so, the study offers concrete guidance to American local governments about where PBB is most likely to succeed.
