In the 1990s the city of Porto Alegre in southern Brazil won international renown with its innovative policies. The centrepiece of the new policy was involving the population in planning the city budget - participatory budgeting. The new method of drawing up the budget radically altered the relationship between the city administration and civil society. Unfortunately this form of participation exists only on paper today, because political changes after 2004 resulted in Brazilian citizens’ right to participate being drastically curtailed. None the less, the foundation-stone for participatory budgeting was laid in Porto Alegre in 1988. A constitutional amendment established wide-ranging municipal powers, which in turn induced a process of increasing democratization.

For participatory budgeting elements of direct and representative democracy were combined as follows:

• Citizens received basic information about the city budget in meetings at district level. Delegates selected from the people attending these meetings drew up a list of priorities for projects in the forthcoming budget, in consultation with the general public and the administration.
• The next step was for all those taking part to vote on assigning priorities to projects, and to elect two delegates from each district to the Conselho do Orçamento Participativo (COP). 
• Alongside the district assemblies, issue-related assemblies were also set up to handle city-wide topics; these nominated two delegates each to the COP, too.
• On the basis of the directives from the district and issue-related assemblies the COP drew up a draft budget plus investment plan, and submitted these to the city council for assessment and final decision. The COP was also responsible for working out the rules for the process of planning the next budget. These rules incorporated allocation formulae developed specially to ensure even-handed treatment of poor and rich districts. The structures of the Participatory Budget were very largely developed autonomously; it was intended to revise them year by year.

Experience with and limits of the Participatory Budget in Porto Alegre

This innovative way of planning a budget increased the material incentive for citizens to take an active part in politics and to organize themselves. Participation provided opportunities for citizens to lobby for the funding of specific projects. One positive effect was that women and ethnic minorities participated to a comparatively large extent. There were also redistributive effects – poor districts achieved a higher level of public investment per head. In comparison with other large cities in Brazil Porto Alegre’s development level rose significantly, by means of small-scale projects adapted to local structures and the needs of the population.
Participatory budgeting is limited by the extent to which economic policy can be influenced at the local level. Slumdwellers benefited from improvements to their surroundings, but their chances of gainful employment were not directly enhanced.