Projecting Expenditure Baselines in Barcelona
Posted by Jordi Baños-Rovira
In recent years, Barcelona City Council has introduced a range of budget reforms to improve the efficiency of resource allocation and operational management. In particular, a performance-based budgeting system (called the “Executive Budget’) has been developed, linked to the goals set in the Government’s Development Plan.
A key element of this new budget preparation process is the development of baseline projections of expenditure, which estimate the spending required to maintain current policies (or levels of service) for the next year, and to comply with already approved multi-year commitments. Budget requests by departments thus comprise two elements: the spending baselines, and additional resources required to finance new projects and services, and other policy changes.
The Barcelona City Council developed its own approach to estimating expenditure baselines, taking account of the existing literature and the experience of other governments. The main benefits of baseline projections are to reinforce fiscal discipline, facilitate an assessment of the sustainability of current policies, provide a neutral base for analyzing and evaluating policy changes, and improve the presentation of the budget to the general public and other stakeholders.
The approach followed in Barcelona focuses mainly on current spending (goods and services and current transfers), looks one year ahead, and makes projections at the highest level of line-item detail. The calculations are performed by line departments (under the guidance and control of the central budget office).
The expenditure baseline projection is one of the first stages of the budget preparation process, usually performed during the months of April and May, and is separated from the budget requests process (which usually takes place between June and September each year). The process is summarized in the chart below. (click the chart for enhanced view)
After line departments have prepared their baseline projections, the central budget office carries out a review of the estimates, in order to evaluate the quality of the data, and whether departments have complied with the procedures and instructions issued by the budget office.
Based on the early experience of applying the new approach, the following important lessons can be drawn:
- Divide the budget preparation calendar into separate stages, and allow sufficient time – at least two months - for completing the baseline projections stage.
- Ensure that line departments have sufficient capacity to take the lead in preparing baseline projections, under the guidance and monitoring of the central budget office.
- Emphasize to departments that baseline projections of spending do not set a minimum or guaranteed level of allocated resources.
- Focus on making projections at the highest level of line-item detail, which helps to integrate these estimates into the subsequent stages of budget preparation.
- Require departments to provide a complete explanation of the assumptions and methods they have used to prepare their projections.
- Provide adequate and user-friendly software, forms, circulars and training for line department.
- Undertake a thorough review by the central budget office of departments’ estimates in order to detect “camouflaged” new policies, inflated estimates, failure to eliminate non-recurring expenditures, or other undesired elements.
To sum up, expenditure baseline projections prepared by the Barcelona City Council have become an important tool for formulating the budget and taking budget decisions. The information helps to determine the amount of fiscal space available to finance new policies, and to explain the budget proposals to citizens. Further progress can be made, however, to develop and refine the procedures so that that quality and accuracy of the information improves year by year.
 Department of Presidency and Economy, Barcelona City Council.
 For a previous PFM Blog article on this topic, see: http://blog-pfm.imf.org/pfmblog/2014/01/barcelona-promotes-fiscal-health-and-strong-economic-performance.html
 For more information about the budget preparation process, consult Barcelona’s finance website: http://governobert.bcn.cat/estrategiaifinances/en/proc%C3%A9s-d%E2%80%99elaboraci%C3%B3-del-pressupost-en-el-model-de-pressupost-executiu
 For example see McNichol, E. and Okwuje, I. (2006) The Current Services Baseline: A Tool for Making Sensible Budget Choices, and Marc Robinson’s PFM results post (http://blog.pfmresults.com/wordpress/?p=121)
Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.