Some of the most important problems in the municipal budget process, as pointed out by Jack R. Huddleston, Ph.D. (Professor of Urban and Regional Planning University of Wisconsin-Madison), in "An Introduction to Local Government Budgets," are summarized below.
- Raising revenue: Means approved by state statutes for revenue raising vary, and statutes may limit new municipality spending responsibilities or restrict municipality revenue raising sources.
- Adapting to changing needs: Since municipal revenue spending responsibilities and revenue raising sources may be static, set by state statute, municipalities may be slow to respond and adapt to changes in local municipal conditions.
- State statutory limits: States may set limits on municipal spending and/or revenue raising for specific items at the local level. Municipalities also may set local limits on how much property taxes can be increased, which sets an effective limit on municipal revenue sources, and tax revenue remains inflexible unless municipal development introduces new revenue sources through new home or business properties.
- Federal and state mandated public services: Mandated services, like education and roads, impose limits to spending of revenue by municipalities leading to forced oversight of spending on local needs, so that revenue sources may prove inadequate to local needs.
One contemporary solution, which was begun in Brazil and which is being experimented with in many world-wide locations, including New York council districts and Vallejo, California, is that of participatory budgeting in which a restricted section of the municipality's budget is opened to discussion and decision within a public forum. Certain budget sections, like pensions and municipal debt service, are excluded from public participatory budgeting. Another solution being attempted is that of replacing line-item budgeting with performance budgeting. Performance budgeting has proven difficult to administer because subjective performance criteria are difficult to quantify on the out-put/results end of the budgeting process.