February 10, 2021

A Government’s Guide To Spending Their Budget Surplus

Smart digitization for government operations can save both time and money for city clerks and administrators.
Posted by Karl Pawlewicz

The question of How to Spend Budget Surplus resurfaces toward the end of every fiscal year in government. As the old adage goes, “If you don’t use it, you lose it!”

In fact, research shows that of all industries, use-it-or-lose-it budgeting policies are most pronounced among government buyers. Government sees a 5X increase in expenditure in the final week of the fiscal year as compared to an average weekly expenditure.

Procurement also becomes easier toward the tail-end of a fiscal year. Because of the compressed time schedule, government purchases face less scrutiny at year-end than in other parts of the year.

What is budget surplus and how can you best manage it toward the end of your fiscal year? See below for answers to common questions and recommended guidelines to set your agency up for fiscal success.

What is budget surplus?

Budget surplus happens when government taxes on the private sector exceed the money government spends.

Many states have laws governing budget surpluses. New York state law, for example, prevents school districts from retaining more than 4 percent of their budgets. This legislation exists to protect governments from amassing too much in savings without injecting the money back into the economy.

While moderate budget surplus can be a sign of a healthy economy, there are a number of risks associated with budget surplus on the local and state level.

What happens if you don’t use your budget surplus?

Sometimes, governments might decide to put their budget surplus in a rainy-day fund. The justification: they’ll be able to turn to this money if things go bad. However, this approach often instills distrust in constituents, who feel like they are being taxed gratuitously. According to a citizen of Henrietta NY, a town whose budget surplus captured media attention in 2015: “Give it back to the taxpayer. I don’t have a surplus.”

Aside from rainy-day funds, governments have a number of options for managing their leftover budget: Return it to taxpayers? Reduce property taxes? Improve infrastructure? In many cases, citizens demand a referendum vote so that their government officials take into account their input.

In some cases, retaining a budget surplus can be economically harmful. When governments are saving more cash than they’re using, there is less potential for economic activity, which can lead to a recession.

Taxes exist so that governments can deliver public services to citizens. In order to do so effectively, local and state governments should approach a budget surplus as an opportunity to better serve their constituents.‍

How should I use my budget surplus?

Here are some tips for wisely spending your budget surplus at the end of the fiscal year:

1. Think creatively

How can you achieve the goals you set out for yourself in ways you may not have originally imagined? Take Wayne County, NC, for example: the IT department had set aside money to improve their website, and were confronted with extra budget toward the end of 2017. “The county manager decided he wanted to make applications available online,” shares IT Specialist John Wayne. “I went searching for a solution, and that extra budget money really helped us bring our website to the next level.”

2. Plan for the future

As the fiscal year comes to an end, invest with an eye toward the future. Think about what technologies can modernize your constituents’ experience. According to IT Director Justin Heyman of Franklin Township, NJ: “Citizens wonder: ‘Why can I do everything else online but I can’t interact with my government that way?’ So the Mayor and Township Manager decided it was time for us to go paperless.”

3. Spend economically

Sounds counterintuitive for a budget surplus, no? Spending economically is still important when you’re dealing with a surplus. Rather than blow the rest of your budget on one big purchase, you should look for opportunities to try some smaller projects that have piqued your interest. “We started out with a pilot version of GovOS Studio because that’s what fit into our budget,” says John of Wayne County. “Once we saw the value of online applications, we procured the full subscription the following fiscal year.”

4. Prioritize investments with a high ROI

Budget surpluses are a great way to get another few projects underway, but should not be taken for granted. Just because you have leftover money this fiscal year doesn’t mean you will next year. That’s why it’s important to invest in projects that will bring in a high return on investment, so that you can have more money to spend on exciting projects in the future.

Ready to spend your budget surplus on modernizing the way your staff and citizens interact, while saving your government time and money? We’ve got some ideas.