The Future of Priority-Based Budgeting

All right, TGIF! Welcome back to GovTech's In Case You Missed It. Dustin Haisler here. Joe is off tackling some other world-changing problems, but today we've got an incredibly important topic to dive into. And I think back to when I had my local government assistant city manager hat on, one of the toughest challenges that I had to deal with was just the overarching budgeting process. And, you know, taking my ERP, taking my budgeting process, and taking a variety of civic input and trying to figure out what to do with limited resources. And so this is a challenge that I know is near and dear to many of you that may be listening in today. And so today we're going to kind of dig into some exciting market news, but also some new innovative approaches. May not be new for all of you, but it is a world-changing approach to this budgetary process. And we're going to talk about improving performance, we're going to talk about efficiency, and we're going to look at priority-based budgeting and how these solutions can be integrated into your overarching public sector ERP strategy. And we've got 2 Chrises that are going to break it down today. For the first part of the show, we'll be joined by Chris Fabian, CEO of ResourceX, and in our second half, we're going to invite the second Chris to the table, Chris Webster, Tyler Technologies President of ERP, to talk about how these 2 companies are joining forces to really dynamically change the way that we do priority-based budgeting for the future. So I want to invite to the virtual stage our first Chris, Chris Fabian. Good to see you.

Hey Dustin, great to see you too. Happy holidays and thanks for having us on the show.

Absolutely. This is one that we've been anxiously waiting for. You've got a lot— you've been doing a lot of work in the market and, and, you know, maybe just to start, tell our audience a little bit about yourself and your journey in the GovTech space culminating with ResourceX.

All right, um, geez, a little bit about myself. You know, I come from a family who has always been interested in community building. Our father was a nonprofit executive director in environmental health, was the mayor of our small community outside of Detroit, Michigan. Always had public service at heart. Even my brother, who's part of the company, found himself working in public housing, City of Denver, City of Portland, Oregon. And for myself, always looking for a way to make a positive impact on our communities overall. I think when I got started in all of this working for local governments, I was in a management consulting type of position within an engineering firm and had the opportunity to design financial rate models for communities. So building out what should they charge for utility rates, then I'd do a fleet analysis for another community assessing their assets and looking to save money. And in every experience, um, I felt like we would maybe save, uh, community XYZ a little bit of money. And what was always of interest to me was what happens to those savings? Like, did our work do any good? Um, and one thing leads to another, uh, and, and everything leads back to the budget. I think that was what I discovered was in order to answer that question, did your fleet analysis savings do anything good? Like, did the taxpayers get their money back? Did they put that money towards salaries of staff members? You find yourself winding your way back to the budget process where these answers occur. And I think no one— well, maybe not all of us wake up one day and you're thinking to yourself, I'm either gonna be Indiana Jones for my career or I'm gonna work in local government budgeting. But for any of us who have ultimately tried to figure out how do we achieve better outcomes for our community, the budget process is at least one major puzzle piece overall. And I became enamored with it. I became quite obsessed in an excited way of how do you actually look at all the resources, all the wealth in a community that goes into a local government city, a county, a school district, and try to make that connection between how those resources are being directed towards the outcomes that we're striving to achieve. So in my own local government, Jefferson County, Colorado, Fort Collins, Colorado, was one of the first budgeting for outcomes experiences I had the chance to work on. I found myself working on a process to understand What does happen to those resources? What are we funding and how can we assure ourselves that we're getting resources towards outcomes in the most appropriate way? That's what led to ResourceX ultimately, and I figure we'll continue to be working on this most incredible problem and solution as we combine forces with Tyler.

Yeah, so exciting. I think we can call you the Indiana Jones of budgeting. We'll combine those two together. You know, let's talk a little bit about kind of priority-based budgeting. And, you know, most people may be familiar with the, you know, line-item-based budgeting, the traditional approaches. Tell us a little bit about maybe the difference there and how you would define kind of this new approach.

Yeah, so in order to start to try to answer that question, how are resources aligned with the results that we're striving to accomplish? You could imagine starting with a with line items overall. Line items are things like accounting categories. How much do we spend on travel and training or supplies and services or postage overall? And for most local governments, line item budgeting has been the way that we do things from one year to the next. You take any given line item, you study trends, and are postage rates going up, or supplies or fuel? Those are line items in the budget. How is inflation impacting those? And, and a local government does its best to make a forecast and communicate back, well, here's what I think is going to happen with our line items from this year to next year. And for a decision maker, you sit back and that sounds like a reasonable discussion. But when you, when you shift the discussion towards what are we getting for those line items, Mm-hmm. if I'm an elected official and I'm trying to improve safety in my community or economic vitality. What we discovered is it's nearly impossible to look at a line item and go, well, if I approve this increase for postage, does our community get any safer? If I approve this increase in fuel, does economic vitality increase? Are we saving jobs? So what we discovered is that there's a big disconnect in the logic from line item decision units and the outcomes that we're striving to achieve. And so the, the first epiphany moment, and I'm— we weren't the first ones to discover this, but, um, was really asking the question, what do you use those line items to do? Uh, you have people, you have stuff, you have vehicles. Um, you use— the line items are just accounting categories that are about putting fuel, putting funding towards programs and services that you support, and capital projects, of course. So we had to make the leap between line items and the programs that they're funding. Once we get to programs like police patrol, like pothole repair, like snow removal, now we're talking. We can talk about programs that we offer and the outcomes that we're striving to, the priorities that we're striving to achieve. So line item budgeting essentially Begged for program budgeting to add context to what the line items are all about. Programs begged for context around what's the point, what's the outcome that we're striving to achieve with snow removal. If we quadruple the funding for snow removal, do we get safer? That's a better conversation. So that path, Dustin, from line items alone to line items now given context and a storyline around the programs that they support and programs that can be evaluated towards their impact on societal goals. That's the idea behind priority-based budgeting. And lastly, as a decision maker, it's far easier to question, should I approve this budget request? Should I deny it? Should I modify it? What are my options when I know the programs that they support and the priorities that we're intending to achieve.

Yeah, I love that because it gives you context into the underlying data and moves kind of beyond just looking at it from a line item by line item standpoint. So as you think about kind of this landscape, there's over 19,000 cities across the country, you know, the vast majority, you know, skew small, but are there, you know, specific criteria or things that need to be in place for this to work really well, or is it applicable just to everybody?

That has been a fun question to answer along our journey. When we started, I'm working in the city of Fort Collins, Colorado, mid-sized community, and then Jefferson County, started to roll out towards large cities like San Jose, California, all the way to today, cities like Fort Worth, Texas is doing amazing work, Albuquerque, New Mexico, Kansas City, Missouri. And these large cities are exciting because they get headlines, and there's massive population centers, um, and they have big priorities. Uh, and, and it's clearly applicable when you have big goals, big priorities to achieve, and we need to understand how do we align resources to come through towards the achievement of those priorities overall. Um, the use case makes total sense for large cities. Uh, at the same time, what we discovered along the way was even for the smallest communities, priority-based budgeting is just as imperative because they have such limited resources to allocate. And still, even in a small community— Creed, Colorado was one of our first, population less than 300 people, old mining town— and with a staff of less than 10, we've had families approach us in Boulder, Colorado to say, they evaluate their own family spending with a priority-based budgeting approach to discern between mandated funding choices like the mortgage for their house versus charitable giving versus Netflix subscription or vacations. Dustin, this is a— it's been surprising in a good way to realize that priority-based budgeting is a philosophy that is just as applicable to a large city as it is to Very small communities. We've had single departments use this as well. Kansas City Parks and Recreation. We've seen it work in all sorts of scale.

So let's talk about kind of the output of that, right? So it scales, you know, from those individual departments to the megacities that are out there. You know, what are some example, you know, positive outcomes that can be achieved through this that you've seen maybe with your own customers?

Oh wow, um, numerous. Uh, GFOA put out a book called Financial Foundations for Thriving Communities, and I would encourage everybody who's, who's tuning in, if you haven't read the book, um, it's another Shane Cavanaugh masterpiece that we're, we're really digging into, um, all the, the precursor foundational reasons for why GFOA also launched the Rethinking Budgeting initiative that is now 2 years in the making and why communities should rethink budgeting. To sell Rethinking Budgeting, GFOA has pointed to some of these inspirational stories. One of them, Washington County, Wisconsin, right outside of the Milwaukee metro area. So not Milwaukee County, it's a smaller local government to your point of scale, just outside of Milwaukee. Josh Shulman, is the county executive out there and has demonstrated through the use of priority-based budgeting, scrutinizing resource reallocation at every program, looking for options for partnerships, program efficiencies, what's a high priority versus what's actually a lower priority program overall. So you end up with a framework to actually pinpoint where programs might be not the, the most aligned. Um, Josh, in the Um, professionals in Washington County have reallocated upwards of 15% of their entire operating budget using the priority-based budgeting framework. They took a department in parks and recreation that was entirely dependent on general government subsidization and turned it around to 100% self-sustaining by studying every program, looking for revenue opportunities sponsorships, partnerships, efficiencies, uh, and alleviated 100% of, of general fund support. Um, Pittsburgh, Pennsylvania, right in the midst of the rollout of COVID when most local governments including Pittsburgh were barely holding on to core services— um, this is before knowing if there's any ARPA funds on the horizon, uh, CARES Act funding overall— we're just clinging on to fund basic, basic programs. Mayor Bill Peduto at the time, which has been carried on by Mayor Ed Gainey, said, yeah, at the, at the time when we're barely hanging on to core services, we also need to make sure that we're freeing up enough funding to fund a climate action plan that did not have the funding that it needed. They implemented priority-based budgeting to go further to scrutinize every program they're providing and still ask Can we do this differently? Can we partner? Can we generate new revenue? And at the end of the day, identified $41 million in resource reallocation and new revenue-generating opportunities to fund an unfunded climate action plan. I'll tell you one more, which is exciting, and then I'm going to get to a punchline. So when ARPA did roll out, we are working with the Washington counties and the Pittsburghs For ResourceX, we highlighted a handful of upper achievers who had reallocated over 10% of their budget or more. This is something we track in our annual impact report at ResourceX, how much are communities reallocating. And what we discovered to our delight was communities were reallocating amounts of money on par with what they were receiving from ARPA funds overall. If you step back and think about it, the leaders of Shawnee, Kansas pointed this out to us. They said ARPA funds are one-time and they're supposed to be game-changing, once-in-a-lifetime amounts of resources to make positive change in our community. But resource reallocation is ongoing, meaning if I stop providing one program and free up the resources to fund something else, I get those resources year after year after year on an ongoing basis, as if it's ARPA funding year after year after year. for those who had received it. And, uh, to us it's inspirational. That's what we need when local governments look out towards the future. When ARPA— speaking of ARPA— ARPA funds are, are over or ending soon, um, inflationary pressures are still pretty tight, structural budget, um, deficiencies are still out there. We, we need solutions in front of us to think differently about the budget we have and have options at our fingertips data-driven to know where we can turn to free up and reallocate resources. And that's what we want communities to be equipped with. And those are some of the inspirational stories of priority-based budgeting implementers.

Yeah, I love that. I'll have to definitely dig into some of those impact reports. I know I've read a few over the years, but it's great to just continue to see that. Now the big news was that ResourceX was recently acquired by Tyler Technologies. So congratulations on that. And I want to bring Chris Webster, the president of Tyler's ERP division, in and let's talk a little bit about this acquisition and the future. So Chris Webster, thanks so much for hopping on. I'd love for you to maybe just spend a moment introducing yourself to our audience and telling them a little bit about your role at Tyler.

Absolutely. Hey, thank you very much. Really appreciate the opportunity to be here today. I've been with Tyler for almost 25 years and involved with a number of various roles in implementing and supporting our public sector governments with our ERP products. So, you know, hearing Chris talk about the, you know, these vibrant, thriving communities is something that's very near and dear to my heart as I've traversed over the last 25 years.

Absolutely. So as you think back to kind of the ResourceX dynamic, you know, what impressed you the most about, you know, not just Chris and his Indiana Jones of budgeting skills, but, you know, what ultimately really stood out to you as a part of kind of this new product play for Tyler's ERP?

Well, certainly him being a Chris kind of helped with the overall decision. So, but, uh, you know, if we look back about 2 years ago, uh, we— Tyler had embarked on a project to revamp our budgeting solutions. And as part of that, as part of that roadmap, uh, it involved, uh, you know, program and priority-based budgeting. Uh, we have been keeping tabs on ResourceX and, uh, Chris and the, in the team over the last, uh, several years, and we were really impressed with their enthusiasm and their distinctive approach to budgeting for the public sector. When Chris approached us, we jumped at the opportunity to start that discussion and take a closer look at the solution. And as we learned more, we were even more impressed with Chris and the team, their expertise, their passion, and depth of product. Their use of AI and machine learning in the solution was also very, very impressive to us as well.

Yeah, I love that. And actually, Chris, maybe, uh, Chris Fabian, maybe tell us a little bit about how you're using AI to kind of play off of, uh, of what Chris Webster just said.

Yeah, this is, um, it's very exciting. So, uh, if you think about it, Dustin, there was, there was a, um, a long period of time where we worked with the implementers of priority-based budgeting to assemble the recipe manually. Uh, we'd build a program inventory with Walnut Creek, California, and we'd do the program costing. We take all of the personnel and allocate people to the programs and the non-personnel. We score the programs, we prioritize, and we look for reallocation opportunities again and again. Over 300 local governments in total over our lifetime, even when we had spreadsheets doing this work. Um, and, and what you end up with is an incredible amount of very unique data which is how do line items actually get associated with programs that they provide? What are the programs that local governments provide by department? How do these programs, if we score 'em and evaluate them again and again towards the impact on a safer community or economic vitality, we are evaluating these programs year after year and gathering that data. Are they mandated and so on? And ultimately, what are communities doing to change the way they provide snow removal or pothole repair to reallocate resources. With that data and the breakthroughs in modern technology, we built our own large language model. We have our own approach to taking our own data, um, and with any given new community's budget information, for which Tyler has a heck of a lot, uh, and other communities do too, we can bring that into our system, um, make a prediction around by department what programs they provide, how their budget is allocated, so the program price tags that we're looking for, how those programs tend to get prioritized and scored, and most importantly, where those resource reallocation opportunities can occur. The, the point of all this is reducing the amount of effort that any given community would have to go through to build that data on their own in order to get to the value proposition, which is applying that data to make that positive change in the reallocation. It's tremendously exciting. I hope it's also like very practical. Nothing super magic, but just using data to make predictions based on all who have gone through this exercise before.

So y'all have created another Chris, a ChrisGPT.

Yes.

Right. So, so Chris Webster, you know, how do you envision this kind of integrating into Tyler's existing ERP offerings and, you know, product strategy? I know this was on the roadmap before, but, you know, what does the future look like here?

Yeah, so certainly the acquisition helped bring it forward in our timeline, which was great. And we really see ResourceX as a natural fit to complement and extend our existing ERP budgeting portfolio now and into the future and really offer a unique, you know, product and solution to the public sector. You know, as Chris was alluding to, you know, our public sector clients are continually pressed to do more with less established budgets to meet the demands and the desired outcomes for the programs and services they offer to their constituents. And I think, you know, our ability to integrate ResourceX with Talus budgeting and transparency solutions will provide our clients with an even more powerful solution to meet these demands and create an unparalleled offering in the public sector market.

And as, you know, Chris Fabian mentioned earlier, you know, you've got a wealth of customers all over the country. You know, how do you envision priority-based budgeting, you know, changing the way that the public sector deals with this budgeting process?

Yeah, we have roughly 4,500 ERP clients across the US and some of the territories, and, you know, priority-based budgeting has been an increasing and growing approach to public sector budgeting for almost a decade now. And public sector governments have been reading and hearing about priority-based budgeting through articles and presentations, through GFOA, ICMA, presentations like this. And so this really represents a shift in thinking and the approach to budgeting. So a lot of organizations are probably unsure of how they're going to be able to get this to fit in their organization, what kind of change, how are they going to move their organization in this direction? And really, I think leveraging ResourceX with a budgeting solution and the data that they're already familiar with, coupling it to the power of the embedded AI and leveraging the domain expertise that the ResourceX team has helped pioneer in this space, the governments will be able to rapidly implement the solution and really take advantage of where and how they can achieve the desired goals for safer communities, vibrant downtowns, meeting climate goals, et cetera.

Yeah, I love that. Now, as we think to the future, I mean, the world is moving so quick. We're kind of in this exponential era where everything is changing and shifting. You know, what does the future hold for priority-based budgeting? And, you know, now that you see this combination of Tyler Technologies, you know, the world-class ERP with ResourceX and, you know, the ChrisGPT dynamic, you know, what are you most excited about? But what do you see on the horizon? Chris Fabian, let's start with you here.

Oh, that sounds great. Um, you know, a couple things come to mind. Uh, one thing I'll get to in just a moment that Chris Webster just brought up, but you think about the, the challenge in front of local government leaders today as they look out towards the future with extraordinary priorities that they need to deliver on, whether it's safer communities, keeping their economies intact, transportation systems that need updating, climate, and so on and so forth. While those are exciting, there's— it's hard to imagine that there is a future where local governments can predict there's going to be just an abundance of new resources coming their way. If I was a local government leader today, I look out towards the future, I might not know exactly how it all unfolds, but I could probably guess a future where, hey, I bet citizens are going to really want to start giving us a lot more money. And we're going to have treasure troves of new ARPA opportunities. Just doesn't, doesn't seem like that's the most likely scenario. Given that, our choices are, well, we do the best with what we have and we just don't pursue those priorities. We let homeless challenges persist and transportation systems erode, or we have to figure out a solution. The solution, at least as far as we've been able to see it unfold, includes how do we make better partnerships with local governments one to another? How do we free up and reallocate existing resources and challenge business models? How do we add technology and provide more efficiency? So the toolset of priority-based budgeting, you can see the discipline, the need for mastery for these types of skills and knowing what your options are. Seems to be inevitable. How we get there, this is where I wanted to link it back to what Chris Webster said. We have to get there faster. We can't have local governments wondering, well, that sounds right, but I don't have the time right now because we also have workforce challenges that persist. So we need systems to allow expediency, rapid ability to get to the data as fast as we can. sound data and take action on it. And that's where I wanted to link it back. What Chris Webster said is absolutely right. Our combination together, the partnership of ResourceX and Tyler, ushers in an era where we can shrink implementation times, get data faster in the hands of local government leaders in order to, to know what those options are to embrace that future as best as we can.

And Chris Webster, what do you think about that? You know, as you think to the future of priority-based budgeting, you know, what are you most excited about? You know, where do you see this intersection?

You know, I think we're at the forefront of this in terms of the market. Like I said, there's not another solution like it out there in the marketplace. So we're very excited about being able to leverage the domain expertise that Chris and his team bring to Tyler to be able to bolster our budget offerings to our clients and creating that unmatched integrated solution that will help our public sector clients meet the ever-growing budget demands in the communities that they serve.

And final question, easiest question is, you know, for those that want to dig into this and they want to become the Indiana Jones of budgeting, where do they go and where should they start?

Yeah, start with talotech.com or resourcex.net. Either one will get you to the right spot to be able to find out more information.

All right. Well, Chris Webster and Chris Fabian, the Chrises, thank you so much for carving some time out to share, you know, not just this important kind of new philosophy that is working its way across the country and really having impact globally, but this exciting new partnership and kind of venture together. We're really excited to follow your success and can't wait to see what the future holds in 2024. And glad to have you both first time on In Case You Missed It. I know that there's going to be many more opportunities in the future. Thanks for joining us today. Great, thank you.

Thank you so much, Dustin. Thanks, Chris. Uh, always wanted to be on, on the show together with you, so appreciate the opportunity.