Point-Counterpoint: One-Year vs. Two-Year Municipal Budget Processes

Point-Counterpoint: One-Year vs. Two-Year Municipal Budget Processes

A Balanced Discussion for California Society of Municipal Finance Officers

By Chu Thai, Finance Director, City of Union City

By Will Fuentes, Finance Director, City of Campbell

Introduction

Municipal budgeting is a cornerstone of effective city management, directly impacting fiscal responsibility, service delivery, and long-term planning. California cities face unique challenges, from rapidly changing economic conditions to shifting state mandates. As Finance Directors, we recognize the importance of selecting the right budget process. And often times, one size does not fit all.  This article presents a balanced discussion of the one-year and two-year budget processes, exploring their respective advantages and disadvantages and offering practical considerations for CSMFO members.

Point: The Case for a One-Year Budget Process

Chu Thai, City of Union City

A one‑year budget keeps a government honest, agile, and aligned with real and ever-changing conditions. In an environment where the economy and municipal revenues are so uncertain and cost increases for pension, healthcare, insurance, goods, and services are often beyond expectations; a shorter cycle protects accuracy. Forecasts made for twelve months are simply more reliable than those stretched across twenty‑four, and that reliability translates into better decisions, fewer surprises, and a clearer understanding of the city’s true financial position.  While we all attempt to make highly accurate long-range forecasts based on strong assumptions, the accuracy of any forecast declines significantly after the first year; often due to economic and geopolitical factors outside our control.  Or in the case of 2020, a global pandemic.

Annual budgeting also strengthens accountability. Departments must justify their spending every year, creating a consistent rhythm of review that prevents outdated priorities from lingering. Elected officials gain more frequent opportunities to adjust service levels, respond to community needs, and incorporate new policy direction. For residents, the annual cycle is easier to follow and aligns with audited financial statements, quarterly reports, and the cadence of most public engagement processes.

Staffing realities further reinforce the value of a one‑year cycle. Turnover, promotions, and shifting responsibilities are constant in municipal organizations. This has been especially true in Union City and other agencies I’ve served as it relates to public safety staff.  Regular assignment rotations and natural attrition often mean that new staff are involved in each successive budget preparation process.  Over a two‑year period, it’s entirely possible for an analyst or manager to miss the budget process altogether. With an annual budget, staff member cycles through the process regularly, building competence, confidence, and continuity. This rhythm ensures that institutional knowledge is refreshed rather than lost and that new employees gain hands‑on experience instead of waiting years for their first full budget.

Counterpoint: The Case for a Two-Year Budget Process

Will Fuentes, City of Campbell

A two-year budget process provides stability and efficiency for municipal operations. By planning for a longer horizon, cities can better align strategic objectives with financial resources, supporting multi-year projects and initiatives. This approach also reduces the administrative burden on staff, allowing more time for analysis, implementation, and performance measurement. And by allowing a “break” in year two of the budget cycle, staff can focus their efforts on other projects and priorities that would normally be put on the back burner such as an ERP implementation, an audit RFP, and process and policy improvements.  Or the second year of the budget process could be dedicated to CIP preparation only, while the first year was dedicated to operating budget preparation.  I have seen from a far this alternating budget and CIP approach work well for cities such as the City of Sunnyvale. Additionally, a two-year budget can foster stronger relationships with departments, as expectations are set further in advance.

Nevertheless, as Chu alludes to, the two-year process may reduce flexibility, making it harder to adjust to unforeseen circumstances. Economic downturns or legislative changes during the second year can create misalignment between planned and actual revenues or expenditures. We have all seen the State change the playing field for cities on multiple occasions year after year with new mandates, new legislation, and changes in local funding.  While mid-cycle adjustments are possible and often done before the start of year two, they may not fully address rapid changes. Despite these limitations though, the two-year budget encourages forward thinking and can enhance organizational stability since there is more certainty as to what budgetary allocations will likely be in year two. In addition, adjustments to a budget can always be made at any time by a City Council and mid-cycle adjustments do provide a sufficient level of surety that key revenues and expenditures will be reviewed at least annually.  However, in contrast to a one-year budget process, Finance staff, departments, the Executive Team, and the City Council do not have to go through the complete and often times all-consuming nature of a full budget process in year two; again allowing them to focus their time and energy on other projects and priorities which may be placed on the back burner due to lack of bandwidth.   

Comparative Analysis: Key Differences and Practical Considerations

The primary distinction between the one-year and two-year budget processes lies in their balance of flexibility and stability. One-year budgets provide cities with the ability to quickly adapt, but may increase administrative workload and limit long-term planning. Two-year budgets streamline operations and support strategic initiatives, but can reduce responsiveness to changing conditions.

For California cities, choosing the right process depends on local priorities, fiscal volatility, staff capacity, and community expectations. Cities with rapidly changing revenues or expenditures may benefit from the one-year approach. Those with stable financial environments and a focus on long-term projects may find the two-year process more effective. It is critical for Finance Directors and city leaders to assess their unique needs, engage stakeholders, and remain open to revisiting their budget approach as circumstances evolve.

Conclusion and Recommendations

Chu Thai: For cities facing frequent change, the one-year budget process is an essential tool for maintaining fiscal discipline and public accountability. While resource-intensive, it improves staff understanding of the process and ensures that city leaders remain closely attuned to current financial conditions and community needs.

Will Fuentes: The two-year budget process is ideal for cities seeking greater efficiency, time for other projects and priorities, and long-term strategic alignment. Although it requires careful monitoring and potential mid-cycle adjustments, it offers a stable framework for achieving multi-year goals.

Ultimately, there is no one-size-fits-all solution. CSMFO members should consider their city’s unique context and remain flexible, adopting the approach that best supports effective financial management and public service.

Chu Thai

Will Fuentes, Finance Director for City of Campbell: Will is the CSMFO President-Elect for 2026; transitioning into the role of CSMFO President for 2027.  Prior to that, Will served as Vice-Chair and then Chair of the Peninsula (SF) Chapter, Chair and then Senior Advisor to the Communications Committee, a Director on the CSMFO Board, and Vice-Chair of the Career Development Committee. Prior to working for the City of Campbell (Finance Director) and over a 28-year career in the public sector, Will has served in roles at the City of Milpitas (Finance Director), City of Hayward (Deputy Finance Director), City of San Leandro (Assistant Finance Director), and the City of Union City (Revenue and Budget Manager). In his free time, Will loves to hike, run, workout at F45, go dancing, spend as much time as possible with his family and friends, and cheer on the University of Notre Dame and the Buffalo Bills, as a former mid-westerner and New Yorker.