Exceptional Proff 612 Paper

Introduction

Topics to be covered include:

· The History of Budgeting

· Budget and Accountability Act (BAA)

· Cost-Benefit Analysis (CBA)

· Zero-Based Budgeting (ZBB)

· Planning, Programming, and Budgeting System (PPBS)

· Activity-Based Costing (ABC)

· Views of Budgeting

Over the course of U.S. history, several methods of budgeting have been used with varying degrees of success. We will start the discussion with a brief overview of the history of budgeting in the United States, beginning with the methods practiced in the colonies under British rule.

The History of Budgeting

1215 - 1760

EARLY BRITISH HISTORY

From the beginning of civilization, rulers have managed resources to secure compliance from their subjects. The Magna Carta, signed by King John of England in 1215, required all new revenues to be approved by a Council of Barons (the predecessor to the English Parliament). This document put the budgetary process under a group of barons for the first time in history and prohibited many budgetary practices that had been viewed as objectionable.

Parliament established permanent taxes for the first time in 1660 and finally took control of the budget from the King of England in 1760 (Swain & Reed, 2010, p. 23).

1607 - 1733

AMERICAN HISTORY

Initially, the American colonists followed the same procedures that were in place in England. At the turn of the twentieth century, the United States remained the only developed country in the world that did not have a national budget system or federal tax. (Swain & Reed, 2010, ch. 2)

1861 - 1894

FEDERAL TAX SYSTEM

July 25, 1861 –  H.R. 54  was enacted by the U.S. Senate Committee on Finance to provide increased revenue from Imports, to pay interest on the public debt and for other purposes.

The primary motivation for a federal tax system did not germinate from Washington D.C., but from municipalities across the country. During the Civil War, Congress passed the  Revenue Act of 1861 , which included a tax on personal incomes over $800 a year to help pay war expenses and which was repealed 10 years later.

The idea did not disappear, and a flat rate federal income tax was enacted by Congress in 1894 but was ruled unconstitutional a year later by the U.S. Supreme Court because it was a direct tax not apportioned according to the population of each state.

1911

COMMISSION ON ECONOMY AND EFFICIENCY

In 1911,  President William Howard Taft  created the Commission on Economy and Efficiency for the purpose of proposing a plan for an executive budget. Chaired by public administration expert Frederick A. Cleveland, the commission included two other experts of the era, legal scholar Frank Goodnow, and economist William F. Willoughby.

On June 27, 1912, President Taft transmitted his commission’s report, “The Need for a National Budget” to Congress (Swain & Reed, 2010, p. 30).

1912

FEDERAL RESERVE ACT

President Wilson did not have much personal knowledge or professional experience concerning banking and finance, but he did have the expertise of Virginia Representative Carter Glass and economics professor H. Parker Willis, who would lead the House Committee on Banking and Finance.

Glass and Willis labored over a central bank proposal, and by the end of 1912 presented Wilson with what would become the  Federal Reserve Act . The President signed the act into law one year later, and a decentralized central bank that balanced the competing interests of private banks and the populist sentiment was created (Board of Governors of the Federal Reserve System, 2017).

1913

FEDERAL RESERVE SYSTEM AND INCOME TAX

Previously, executive agencies had requested appropriations directly from Congress without any control or oversight from the President; these agencies often overspent their allocated funds and addressed their overspending by requesting deficiency appropriations to cover it. This practice gave rise to concern that these institutions could not manage the government’s finances and the national economy.

In 1913, after Woodrow Wilson defeated Taft to become President, two actions were taken to address these concerns: the creation of the Federal Reserve System and the adoption of an income tax on the wealthiest Americans (Swain & Reed, 2010, p. 30).

1913

SIXTEENTH AMENDMENT

In 1913, the Sixteenth Amendment to the Constitution was adopted, nearly three years after it had been first introduced in 1909.

U.S. Constitution: 16th Amendment  – “The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration”

This amendment removed the constitutional objection by allowing the federal government to tax the income of individuals without regard to each state’s population. In other words, for the first time in history, Congress had the authority to levy federal income taxes. Since the Sixteenth Amendment was adopted, the nation has seen growth in revenue and expenditures, new forms of spending, and new relationships between public and private sectors.

1921

BUDGET AND ACCOUNTABILITY ACT (BAA)

It was not until 1921 that Congress passed the Budget and Accounting Act (BAA), which gave the president responsibility for proposing a budget and established the Bureau of the Budget and the General Accounting Office. The first legislation establishing a national budget system, the BAA drew most of its findings from Taft’s commission.

 

Briefing Paper

1960

COST-BENEFIT ANALYSIS (CBA)

A budgeting tool that came into fashion starting with the federal government but then migrating to the states beginning in the 1960s was cost-benefit analysis (CBA). This tool compares costs and benefits of proposals or programs for public managers to determine whether or not to approve them. Decision makers tend to support programs that generate more benefits than costs. Investment projects with useful lives of several years or longer are the usual targets for CBA (Ryu, 2014, p.92).

1962

ZERO-BASED BUDGETING (ZBB)

Zero-based budgeting (ZBB) was first used in the federal government by the Department of Agriculture, which implemented it in 1962. In the 1970s, it became more popular as Georgia Governor Jimmy Carter introduced it to his state’s budgeting process and later to the federal government after he was elected President in 1976. Under ZBB, all programs must be re-justified and all programs reviewed annually from a zero baseline to minimize the budget. In other words, each year the budgeters start from scratch (Rodrigues, Fien-Helfman, Barber, & Peck 2015, p. 2).

1969

PLANNING PROGRAMMING BUDGETING SYSTEM (PPBS)

In 1969, a new type of budgeting emerged combining programming, planning, and budgeting called the Planning Programming Budgeting System (PPBS). This integrated management system placed emphasis on the use of analysis for program decision-making. Its purpose was to provide management with a better analytical basis for making program decisions, and for putting such decisions into operation through an integration of the planning, programming and budgeting functions (DonVito, 1969, p. 1).

1980

ACTIVITY-BASED COSTING (ABC)

As a component of PBB, an activity-based costing (ABC) system was developed in the 1980s and has been employed as another tool to measure costs for products and services in both the private and public sectors (Ryu, 2014, p. 106). This accounting method identifies a firm’s activities and then assigns indirect costs to the products produced as a result of these activities through an analysis of the relationship between costs, activities, and products.

Budget and Accountability Act (BAA)

The Budget and Accountability Act (BAA) is the framework for the modern federal budget. The act created the Bureau of Budget, now called the Office of Management and Budget (OMB). “The Office of Management and Budget (OMB) serves the President of the United States in overseeing the implementation of his vision across the Executive Branch. Specifically, OMB’s mission is to assist the President in meeting his policy, budget, management and regulatory objectives and to fulfill the agency’s statutory responsibilities” (The White House, 2018).

OMB’S CRITICAL PROCESSES

1. Budget development and execution.

2. Management, including oversight of agency performance, human capital, Federal procurement, financial management, and information technology.

3. Regulatory policy, including coordination and review of all significant Federal regulations by executive agencies.

4. Legislative clearance and coordination.

5. Executive Orders and Presidential Memoranda.

Cost-Benefit Analysis (CBA)

USE OF CBA

To use Cost-Benefit Analysis (CBA) to determine if a project is feasible financially, the first step is to compile a comprehensive list of all the costs and benefits that the project will entail. Costs should include direct and indirect costs, intangible costs, opportunity costs, and the cost of potential risks. Benefits should include all direct and indirect revenues and intangible benefits, such as increased production from improved employee safety and morale, or customer goodwill, which can increase sales. A common unit of monetary measurement should then be applied to all items on the list. Conservatism is key at this stage of the CBA, as costs should not be underestimated or benefits overestimated (Cost-Benefit Analysis, 2018, para. 3).

After all costs and benefits have been estimated with as much accuracy as possible, the results of the aggregate costs and benefits should be quantitatively compared to determine if the benefits outweigh the costs. If so, the project will be a good investment and the best decision should be to go forward with it. But what if the costs outweigh the benefits? Instead of immediately dismissing the project as financially infeasible, a review should be made to determine if adjustments could be made to increase benefits or to decrease costs in order to make the project more viable within the confines of the budget (Cost-Benefit Analysis, 2018, para. 4).

WEAKNESSES OF CBA

For projects that involve investments of small to mid-level capital and time, an in-depth CBA may be sufficient for making a decision. But if a project is very large and will take a long time to complete, financial concerns such as inflation, interest rates, varying cash flows and the present value of money are difficult to take into account through CBA. This tool has several other shortcomings as well. The assumptions made about costs and benefits cannot always be relied upon as accurate. Some costs cannot be measured in quantitative terms, or at least not with sensitivity. For example, the government may be considering a program for natural disaster management that, while expensive, will save lives. If the principal benefits of the program are the lives that will be saved, the CBA will involve placing monetary values in those lives. The mere thought of determining the worth of a human being’s life in dollars is offensive to many (Cost-Benefit Analysis, 2018, para. 5).

With CBA, the risk of double counting (counting the same cost or benefit twice) also exists. Assume that budget officials are conducting a CBA to determine whether a large plant will be allowed to open in a struggling region. Benefits include well-paying jobs for employees and a boon to the local economy. The officials may be tempted to add the additional revenue that will be seen by local businesses when the plant’s employees begin spending the money they make. However, this benefit has already been addressed with the additional income that the workers will make. To count that money twice (when it is earned and when it is spent) would be an overestimation of benefits.

Other criticisms of CBA include that it is susceptible to political influence that it is incapable of producing neutral results, and the time it takes to execute could impede policy approval and implementation, especially considering that it is a better tool for estimating returns on short-term projects. Public criticism of CBA, which included issues with uncertain valuations and future values as well as its method of calculation of risk, was rampant in the 1980s and 1990s. Despite these concerns, the process is still used today for policymaking.

Zero-Based Budgeting (ZBB)

STAGES OF ZBB

· Stage one - what a certain program achieves in terms of a program operation or function is defined.

· In the next stage of the process, all potential alternatives that may provide the same level of operation or function are identified. Starting from a zero base rather than the previous year’s budget amount, policymakers assess all potential alternatives that may maximize efficiency and effectiveness. Since all alternative programs are competing with all other alternative programs, zero-based competition is the result.

ADVANTAGES AND DISADVANTAGES OF ZBB

· ADVANTAGES

There are many advantages to ZBB, chiefly its promotion of efficiency. Perhaps the previous year’s budget was not spent wisely or effectively, and a change is necessary. Managers go back to square one and justify every project seeking funds, whether it is brand new or a project that was adequately funded the previous year and needs its funds renewed in order to continue. New projects are placed on par with old projects and can compete for financing on the basis of their merit. This does not mean that existing projects will not receive funding; they will simply have to prove how successful they have been with the money they have received in the past in order to continue to be funded.

An analysis of an organization’s long-term budget often shows much money spent on long-running projects or departments that may have served its core mission in the beginning but now make no significant contribution. ZBB carefully examines long-term spending patterns and asks the question of whether the organization would be better off ending programs that are not essential in order to focus on those that may serve the organization’s core mission better. This examination also reveals redundancies, in which multiple people or agencies may be doing the same job. Once redundant functions are identified, they can be consolidated, saving money and effort. (Rodrigues, et al., 2015, p. 3).

· DISADVANTAGES

However, there have also been some significant problems with ZBB. This type of budgeting involves many calculations, many more people, and much more time. ZBB requires that every item in a budget must be justified and properly documented by the manager preparing the budget in a manner that ranks budget items by importance and cost, creating a massive amount of paperwork. It can also be quite difficult to list and justify every detail for a budgeted item, and this tiring and time-consuming process may not be practical or feasible for every expense. If the budget is typically reviewed on an annual basis, it may be too costly and too time to consume for a small agency to do a zero-based budget annually.

The use of ZBB seemed a feasible solution to the fiscal crisis that had overtaken the economy in the late 1970s. Initially well received, it proved ineffective as well as complicated and time-consuming, as Congress and the executive branch were extended the responsibility for deciding whether to keep or eliminate a program. Agencies were then forced to assign priorities and identify possible reductions, which meant that rather than starting from a true zero base as ZBB would suggest, the agencies would start from a “priority base,” such as 80-85% of the current year (Rodrigues et al., 2015, p. 2).

President Ronald Reagan abandoned the system after taking office in 1980 (Rodrigues et al., 2015, p. 2). Since then, ZBB’s use in both the public and private sectors has been limited and is now used to justify programs using either four- or eight-year cycles. An alternative to ZBB, target-based budgeting (TBB), requires far fewer human resources to accomplish. TBB sets limits on how much a department may request in its budget. Under TBB, departments must submit two budget requests, one within the target base and another for additional funds, with some supplemental requests receiving funding from a reserve pool. While ZBB is on the decline, TBB’s use is slowly expanding within the federal government.

Planning, Programming, and Budgeting System (PPBS)

The PPBS is concerned primarily with major decision-making processes, placing an emphasis on the management functions that precede actual operations. An organization can be viewed in a simplified way as carrying out its functions through five basic and sequential phases. As its name indicates, PPBS is concerned with the first three of these phases, each of which consists of a distinct but related function in the overall conduct of the organization’s affairs.

FIVE PHASES OF PPBS

PLANNING

Planning is used to determine the organization’s objectives and to examine courses of actions that could be taken in pursuit of those objectives.

PROGRAMMING

Programming is the function that converts courses of action into detailed plans and resource requirements.

BUDGETING

Budgeting is concerned with the preparation and justification of an organization’s annual budget.

OPERATIONS

Operations consist of actually carrying out the organization’s program.

EVALUATION

Through evaluation, the worth of operating programs in attaining goals is measured and appraised (DonVito, 1969, pp. 1-2).

THE ESSENTIALS OF PPBS

UNIFYING PLANNING, PROGRAMMING, AND BUDGETING

A major objective of the PPBS is to unify the planning, programming, and budgeting functions. Planning, which is conducted through analysis and research, is a part of the program formulation process in PPBS. Planning research to select particular courses of action provides the basis for the organization’s overall program, and the annual budget is derived directly from the approved program and financial plan. Planning, programming, and budgeting, although each exercising specialized functions become separate phases of a single effort, which is to set the course for the organization. Under the PPBS, autonomy in planning, programming, and budgeting is minimized to the greatest degree possible. Procedures and workflows established under the system prescribe direct links among these basic functions. Increased emphasis through research is placed on the function of selecting courses of action for the organization. The program, therefore, is derived directly from the results of the planning activity, and preparation of the budget being derived from the program is likewise not an independent activity (DonVito, 1969, p. 1).

MAKING DECISIONS

The decision-making process of PPBS establishes the functions, rules, and timetables for the actions it requires. Developing the PPBS decision-making process involves establishing the responsibilities of the organizational units engaged in planning, programming, and budget preparation. The basic objective of this element is to provide a procedure for its sequential functions: formulating new courses of action for the organization; forwarding proposed courses of action through the organization for staff review and higher level analysis; transmitting reviewed proposals to the decision-maker for approval, rejection or modification; incorporating the decision into the overall agency program (if it makes it beyond the third function); and forwarding the approved program to the budget activity for the preparation of the budget (DonVito, 1969, p. 9).

OPEN AND SYSTEMATIC DECISIONS

It is crucial that decision-making procedures be open and systematic with the rules known to all concerned. New ideas put in the form of new program proposals should be encouraged with the full knowledge of the units that would be affected. The system should be open in the sense that all interested units should be able to initiate proposals, with adequate provision for staff review. Decisions involving new or changed courses of action should be prepared for and should not come as surprises. An important provision in the procedures established for PPBS is that the proper authority is identified and specified prior to the need for a decision. There should be no uncertainty concerning who has the authority to make decisions. Major decisions should be made by the agency head. The use of analysis, the program structure and the supporting information system all assist decision-makers in this important function (DonVito, 1969, p. 7)

DECLINE IN USE

Developed by the  RAND Corporation , PPBS was designed with the intent to make programs, not agencies, the central focus of budgeting. It was successfully used in the U.S. Department of Defense before spreading throughout governments at all levels during the 1970s. Even though PPBS emphasizes economy in most measures, it was also extremely complex and for that reason, it did not become widely institutionalized in the long term. Today, a few government agencies still employ PPBS for making budgeting decisions (RAND Corporation, 2017).

Performance-Based Budgeting (PBB)

Based on Performance

Performance-based budgeting (PBB) shares many of the same features as PPBS, such as strategic planning and program budgeting. This method of budgeting allocates resources based on the performance of programs (outcomes rather than outputs) with the intention of maximizing agency productivity by increasing outputs while minimizing costs. For example, a PBB-based budget will favor educational capacity improvement over the number of students who graduate (NCSL, 2018).

Comparison to Line-item Budgeting

PBB is strikingly different from line-item budgeting  (LIB), in which agencies prepare their budgets based on typical expenditures and stakeholders are not apprised of what activities or functions the agencies achieve with the budgetary funds they are allocated. Instead, PPB begins by defining the agencies’ tangible objectives, which realize the agencies’ ultimate mission, and the agencies then develop program structures that might span different subdivisions within agencies.

Early Use

In 1913, President Taft’s commission suggested that government officials tie expenditures to results (Swain & Reed, 2010, p. 30). In 1934, the U.S. Department of Agriculture adopted a budgeting system that resembled PBB in some ways. Under this system, government officials prepared budgets based on what its programs produced. Government officials are not allowed to regard the number of their previous budgets, which is one clear advantage of this method of budgeting. Performance budgeting takes into account what those input dollars bring about on an annual basis and readjusts budgets according to what public programs actually achieve, measured in terms of program activities, performance, or output.

Government Performance and Results Act

After several decades of stagnancy, PBB enjoyed a revival in the 1990s. One of the most prominent examples of PBB applied to governmental budgeting is the Clinton administration’s  Government Performance and Results Act  (GPRA) of 1993. GPRA focused on strategic plans and required all federal agencies to write strategic plans for their activities by 2000, placing heavier emphasis on outcomes than on outputs and in this sense, is an example of new performance funding systems. H.R.2883 - GOVERNMENT PERFORMANCE AND RESULTS ACT TECHNICAL AMENDMENTS OF 1998

Variations under Different Administrations

The  President’s Management Agenda  (PMA), adopted by the G.W. Bush administration in 2001, identified five areas for management improvement: strategic investment in human capital, competitive sourcing, improved financial performance, e-government, and budget and performance integration. For each area, 26 agencies were evaluated using a traffic light grading system. Successful performance in an agency was given a rating of green; mixed performance results, yellow; and unsatisfactory performance, red. The Obama administration continued to use the same performance agenda, through the  GPRA Modernization Act of 2010 , and many state governments have various versions of PBB as well, especially since the Great Recession when insufficient resources drove governments to minimize costs wherever possible. However, it has not been successful in either productive or allocative efficiency. The more common problems with PBB include that it is too complex, susceptible to partisan politics, and not as effective at the national level as the local level. It is a challenge to link outcomes (which can take years to realize) to organization performance. Targets and goals, not quantitative data, are central to PBB, which can create difficulties. A budget with only targets (and no limits) can be vague and result in excessive spending.

Difficulty of Measuring Success

Since PBB does not rely upon quantitative measurement, it can be difficult to define the stage at which its goals have been achieved successfully. A goal such as “improving infrastructure” or “making education better” can be nearly impossible to measure accurately, and views within the organization as to the performance of the program can be diverse and conflicting. In addition, a cost analysis can be nearly impossible to reach, and the budget’s targets and goals can be too flexible. A changing of the guard in leadership within an agency can result in a completely new interpretation of the agency’s budget.

Activity-Based Costing (ABC)

Activities are the basis of the ABC system of cost accounting. An activity can be defined as any event, unit of work or task with a specific goal. Since these activities consume resources whose value can be quantitatively determined, they are considered cost objects. An activity can also be considered as any transaction or event that is a  cost driver , which is used to refer to an allocation base. There are two categories of measurements for activities under ABC: transaction drivers, which involve counting how many times an activity occurs; and duration drivers, which measure how long the activity takes to complete. The ABC system classifies five broad levels of activity that are unrelated to how many units are produced, including batch-level activity, unit-level activity, customer-level activity, organization-sustaining activity, and product-level activity (Activity-Based Costing, 2018).

USING AN ABC SYSTEM

LIST ALL POTENTIAL ACTIVITIES

The ABC project team develops an activity dictionary that lists all potential activities driving up costs for cost objects.

COLLECT DETAILED COST DATA

The ABC project team collects more detailed cost data on all activities in the activity dictionary. The cost data will cover unit-level activities, batch-level activities, product-sustaining activities, customer-sustaining activities, product-line sustaining activities, facility-sustaining activities, and channel-sustaining activities.

IDENTIFY SPECIFIC COST OBJECTIVES

The ABC project team identifies specific cost objects.

IDENTIFY COST DRIVERS

The ABC project team identifies activity cost drivers (transaction or duration) to link to cost objects (Ryu, 2014, p. 111).

ADVANTAGES AND DISADVANTAGES OF ABC

There are three great advantages to using the ABC method:

1. It expands the number of cost pools that can be used to assemble overhead costs, pooling costs by activity.

2. It creates new bases for assigning overhead costs to items so that costs are allocated on the basis of the activities that generate them instead of on volume measures.

3. It is able to trace a number of costs previously considered indirect to the activities they are associated with.

However, ABC is expensive and difficult to implement. Its use transfers overhead costs from high-volume products to low-volume products, which raises the costs of the latter. When indirect costs include fixed costs, even the cost allocation based on ABC systems is misleading, because fixed costs are sunk. Financial managers need caution in employing the ABC systems for make-or-buy decisions. The ABC method has predominantly been used to support strategic decisions, such as pricing, outsourcing, identification, and measurement of process improvement initiatives (Activity-Based Costing, 2018).

Views of Budgeting

FORMAL VS. INFORMAL BUDGETING

The budgeting process differs in complexity between organizations, but there are some basic generalities. For example:

· There is a formal process either dictated by laws for the government or formal policies in a non-profit organization.

· Other smaller agencies budget on an ad hoc, informal basis. Standing decisions of third parties predetermine some budgetary policy.

REFORM VS. TRADITIONAL BUDGETING

Public managers often can take two participatory viewpoints in the annual budget political systems: the reform or the traditionalist view.

· REFORM

· In short, the reformed view emphasizes that public managers are and should be technically competent experts while remaining politically neutral. The reform viewpoint focuses on rational decision-making based on comprehensive analysis. To the reformer, budget proposals should be based on rational analysis and should not exceed the exact amounts that are needed for operation. The use of discretion should not be used for gaining political support, which includes making appealing but misleading arguments and using political means to limit outsiders and policymakers.

· TRADITIONAL

The traditionalist view focuses on the process of making decisions for public organizations that can require political behavior for public managers to succeed at their work. They prefer an incremental approach and account for resource and time limitations regarding the budget, suggesting that political behavior might be needed to a degree in order to succeed in public policymaking. Indeed, in the traditionalist view, politics and policymaking are two connected entities and are natural partners. Therefore, political circumstances should be taken into account when budgets are proposed and implemented (Swain & Reed, 2010, p. 116).

PRIVATE VS. PUBLIC SECTOR BUDGETING

A Century of Public Budgeting Reform: The ‘Key’ Question 

The last century has reflected changing public support for the role of government in American society. When Americans trusted the private sector more than the public sector, budget reform was centered on cost control and improved efficiency. When Americans turned to government to solve problems the private sector could not, budget reform was centered on programmatic effectiveness. In the past one hundred years, incremental budgeting has reflected Americans' preference for incremental policy change, while the traditional or line-item format has promoted financial accountability. Janet M. Kelly discusses theories of budgeting that relate to the changes that have been seen over the last century in “A Century of Public Budgeting Reform: The ‘Key’ Question” (Kelly, 2005, pp. 89-109).

Fiscal Management in the National Government

One of the first works to explore government budgeting was Arthur E. Buck and Harvey C. Mansfield’s critique of the fragmentation among congressional, bureaucratic, and presidential interests in budgeting and accountability, “Fiscal Management in the National Government” (Buck & Mansfield, 1937).

The Continuity of Change: Public Budgeting and Finance Reforms Over 70 Years 

Fiscal management in the national government remains just as important to public administration today as it was in 1937, and Paul L. Posner’s analysis of this work, “The Continuity of Change: Public Budgeting and Finance Reforms Over 70 Years”, draws the field's attention to what we can learn about the politics of management reform from the successes and limitations of this landmark study-lessons that will serve the field well as it confronts new issues and reform agendas in the future (Posner, 2007, pp. 1018-1029).

Comprehensive Annual Financial Reports 

In their 2015 paper, Ross, Yan, and Johnson employ comprehensive annual financial reports of the 35 American cities with the largest populations, from 2005 to 2011, to examine how these cities managed the Great Recession. This event brought a global macroeconomic shock that was particularly damaging to the housing sector. Broader surveys of local government suggested that the Great Recession has been associated with substantive revenue declines, particularly via the property tax, but the “Comprehensive Annual Financial Reports” data indicated that large cities remained relatively stable in revenue by using higher property taxes to compensate for other revenue declines. These findings indicate that cities are relying on traditional strengths of local governments, but are also able to engage in the deficit spending that is typically characteristic of national governments (Ross, Yan, & Johnson, 2015, pp. 113-138).

Ethical Norms in Public Budgeting: Evolution or Devolution 

Public budgeting has always been identified with the norms of technical expertise, neutral competence, and professionalism, but the field has evolved over the course of the twentieth century. In  “Ethical Norms in Public Budgeting: Evolution or  Devolution ?”  Robert W. Smith discussed the role of "budgeteers" and their evolution from accountants to budget processors. Smith’s article posits five ethical norms that can be used to explain how public budgeting evolved in the twentieth century and where it may be headed in the next (Smith, 2003, pp. 205-227).

Conclusion

Reflection:

· How have the American government's budgeting practices changed and developed over time?

· What budgeting system do you think would be the best to use for a large governmental system?

· Which system would you use if you were managing your own finances?

· What if you were the treasurer of a small organization? Why?

In early America, the traditional English form of budgeting was followed. But in the early twentieth century, reforms such as the federal income tax, the Federal Reserve System, and the Budget and Accounting Act were passed, which helped create a budgeting system. A number of tools and methods have been used by governments for creating budgets. Cost-benefit analysis (CBA), used in many applications, compares costs and benefits of proposals or programs for public managers to determine whether or not to approve them. The Planning Programming Budgeting System (PPBS), not commonly used anymore, placed emphasis on the use of analysis for program decision-making. Under zero-based budgeting (ZBB), all programs must be re-justified and all programs reviewed annually from a zero baseline to minimize the budget. Performance-based budgeting (PBB) allocates resources based on the performance of programs. As a component of PBB, an activity-based costing (ABC) system identifies a firm’s activities and then assigns indirect costs to the products produced.

ARIZONA STATE LEGISLATURE

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