assignment 22
castle1
Chapter7PFA.pptxPublic Finance Administration
Chapter 7
Budget Choices: Principles to Guide the Manager
A Century of Budget Innovation
Line Item Budgets – Expenditures & Revenue organized into individual items; makes tracking individual expenses & income easy to compare to expectations
Zero Based Budgeting – Began in 1970’s as a way of forcing governmental accountability for all programs/expenditures each budget year. Impractical and essentially unused today
Target Based Budgeting – Began in 1980’s as a way of front-end capping department expenditure requests based on revenue expectations
Performance Budgeting – Setting budgets based on desired performance level for a certain level of expenditure, i.e. $X expenditures will allow police response time of 3 minutes or less on 95% of calls
A Century of Budget Innovations (cont.)
Program Based Budgeting – Setting budgets based on the prioritization of programs, i.e. $X level of expenditure in Parks & Rec will allow for 5 after-school programs, 3 park renovations, etc.
Entrepreneurial Budgeting
Balanced Scorecard – setting budgets based on the community’s entire mission & strategic plan
Budgeting for Outcomes – setting budgets based on council (often through citizen/focus groups) priorities for the coming year, and having departments and/or private organizations “bid” for service provision
Budget Innovations (cont.)
Line item budgets are most common and most easily understood by council members & the public. It is also useful in having a basic understanding what broad service provision costs (police, fire, etc), but less useful in understanding the cost of programs/services within those broad categories. Line item budgets are overwhelmingly used in small government units and those with limited levels of service provision
Performance & Program budgeting, and some combination of the two, are used by larger governments where greater competition for budget dollars exists between departments and non-governmental organizations
Hybrids of most of the budgets described above exist everywhere, with combinations of line-item and performance or line-item and program most common.
Discovering Budget Linkages
Inputs & Outputs
Inputs – Labor & Capital
Labor – Workforce
Capital - Money, technology, other assets
Outputs – Goods & Services
Services – Police protection, fire protection, etc.
Goods – Clean water, paved streets, etc.
Because of natural limitations on inputs, outputs are interrelated
There is a limit as to how much revenue can be raised, and how much personnel can be hired, so changes in one department or program will affect others
Example: Desiring an increase in police patrols will require more inputs (money for department budget, officers), which will thus require either a higher level of taxation or a reduction in budget of another department
Lessons for Budgeting
Without accurate data and honest assessment, budgets are highly likely to fail to achieve their desired outcomes
Paradoxically, the poorest communities with the least access to highly-skilled professionals require the highest level of budget accuracy
Budgeting to achieve outcomes similar to that of neighboring communities is common but is difficult, as each community will have its own opportunities, problems, tax base, access to resources, etc.
Measuring municipal outcomes is difficult for many services, and even measurable metrics can fail to illustrate the success or failure of programs or services
Example: police services can be measured by time to respond, crimes committed per resident, but these figures may not represent whether the department is successfully solving and preventing crime in relation to the inputs it receives
The Budget Office
Budget office contains analysts, accountants and other professionals whose job is to accurately forecast expenditures & revenues, control spending, track spending, and make recommendations to administrative leaders regarding the financial health of the municipality
Budget offices generally exist only in very large communities. In very small organizations a single individual (i.e. fiscal/finance officer) may fulfill some or all of these functions, and in mid-sized organizations these functions are usually dispersed amongst several professionals who provide information to the organization’s CEO/COO (city manager, strong mayor, etc)
The Budget Cycle
The budget cycle is *NOT* a linear process – it is a circular process characterized by four major functional phases
Preparation – Gathering information, drafting preliminary budgets, setting budget guidelines for departments, etc.
Approval – Approval of the budget by the legislative body
Implementation – Carrying out the budget as approved/amended by the legislative body
Audit – Review of budget periodically and at year’s end for legality, information for future budgets
Conclusion
Budgeting is the single-most important function/process of the governmental body, as without funding services cannot be provided, and municipalities exist principally to provide services
No single budget format is right for all communities; budget usefulness depends heavily on the expectations and abilities of the community and legislative body in question
