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Public Finance Administration
Chapter 8
The Budget Cycle: Preparation and Legislative Approval
Preparation Phase
Budget preparations begin before the start of the fiscal year, as there is much information and material to gather before the budget can be passed and implemented:
Prepare a budget calendar for department heads and other interested parties to turn in requests, draft budgets to be crafted, revisions made, public hearings held, etc.
Revenue available for expenditure must be projected
Often comes from outside sources, i.e. county assessors or other tax-collection agencies
Provide instructions to departments for budget structure (i.e., all departments must cut 5%, no expenditure for new personnel)
Compile all materials into a final budget request for public and legislative review/approval
Legislative Approval
In virtually all governments, the budget must be approved by the elected/appointed legislative body rather than the chief executive of the body, who is usually tasked with implementing the approved budget (often through staff, i.e. city manager, department heads, etc).
Legislative approval usually requires multiple readings of a crafted budget to allow public scrutiny and input regarding the proposed budget
The level of involvement of the legislative body depends on the nature of the governing organization, the body being governed, and the level of public input towards the budget
State and large city budgets usually have a significant amount of citizen and public-interest group input towards budget priorities
Smaller towns and single-purpose governments often have much lower-key legislative input/involvement in the budget, especially when the majority of the budget is “business as usual”
The legislative body will pass a final ordinance, resolution or statute authorizing the expenditure of funds in $X amount, which will constitute the budget for the organization for the coming fiscal year
In certain organizations, the chief executive may make minor or major changes to the budget appropriation without legislative approval
Conflict in Budget Deliberations
Budgets are almost always going to produce some level of conflict, as there will always be “winners” and “losers” in budgets since expenditures and projects must be prioritized
Examples: What roads get paved? What sidewalks get built? What neighborhood gets a park? What non-profits get funded, and at what level?
Advocates vs. Conservers
Certain groups are by nature going to advocate for more budget expenditures – department heads, citizen groups, business lobbyists
Conservers tend to be those held responsible for accuracy in revenue projections and expenditure cost estimates, as well as outside groups that may suffer financially from increased budgets (i.e. citizen tax-revolt groups)
Budgeting is often used as a manipulative tool by underestimating expenditures or overestimating revenue!
Politicians wishing to gain projects for their Districts
Department heads wishing to gain or maintain importance
Interest groups wishing to “get a bigger piece of the pie”
Managing Conflict Through a Budget Policy
The inherent conflict between groups, departments and individuals can be managed by good policies and administrative structure; for example:
Budget policies – Expenditures will not exceed X% of projected revenues; budgets will be balanced; taxes will not be raised beyond X%
Organization policies – Budget priority will be given to health, safety, and welfare before all other departments (i.e. police, fire, water, sewer, etc)
Revenue policies – “Rainy-day” funds will not be used to balance the budget; X% of revenue collected will be set aside for reserves
Expenditure policies – Debt service will not exceed X% of the annual budget; debt will not be issued for non-capital projects; Budget amendments will not be authorized for non-emergency purposes
Conclusion
The construction of the budget is one of the most important tasks faced with any government organization – it determines who gets what, when, where, how, and why
There will always be more competing factions for budget dollars than there will be dollars to implement all projects, and therefore decisions will always have to be made what to fund and what to cut
The mismatch in projects versus revenue necessarily means some groups will end up “winners” and some as “losers”, and trying to create a budget where all get some and none get all is an enormous challenge
Through good policy and open government, conflict and poor decisions can be managed successfully