Exceptional Proff 612

Introduction

Topics to be covered include:

· Budgeting is a Political Process

· Separating Payers and Policymakers

· Openness and Constraint

· Political Decisions Made in Public Budgeting

· Expenditures, Balancing, and Implementation of the Budget

In Lesson 5, we will discuss how politics impacts the public budgeting process. A public budget ensures that money will be available for defense, for public services, or for other public needs by allocating money where it will be most needed. In previous lessons, we discussed the technical aspects of this process. But given the fact that it is often the work of elected officials who are supporting their own constituents with their policymaking decisions, it is an inherently political process as well.

Budgeting is a Political Process

BUDGET AS A DEMOCRATIC TOOL

Policymakers decide what governments will and will not do for their citizens, and the budget reflects these decisions. It also reflects the will of the people. In times of war, defense spending may be a priority for many people, and this priority will reflect the number of funds that are allocated for this purpose. In peacetime, education or healthcare may be greater concerns. Whatever the case, different things are important to different people, and in a country, as politically diverse as our own no budget can succinctly satisfy everyone.

A budget is a powerful democratic tool. Citizens who want to know how the government is spending their money can use a budget to keep their public servants accountable. The budget indicates the degree to which wealth is redistributed through the tax system, as well as how much money the citizens are willing to pay in taxes to support other Americans. The federal budget is one of the economy’s greatest influencers.

Budgeting is an important aspect of the political system in that the decisions about the scope of government, the distribution of wealth, the openness of government to interest groups, and the accountability of government to the public at large are all reflected in a public budget. And the context of budgeting, with its need for balance, its openness to the environment, and its requirement for timely decisions so that government can carry on without interruption, make budgeting unique from other aspects of politics also. Public budgets clearly have political implications.

ACTORS IN POLITICAL BUDGETING

The actors involved in budgeting may include executives, legislators, interest groups, citizens, courts, and even the press. All of these actors may have political aims that conflict with those of other actors.

Separating Payers and Policymakers

The people who pay taxes are not the ones who decide how taxes are spent—a major fact concerning public budgeting—and taxpayer dollars are not always spent in a manner which taxpayer consensus approves of. In early America, payer and decider were typical of the same social class, shared the same interests, and in many cases were the same people. Local officials spent money on projects that would benefit those paying the taxes, and they did so under taxpayer discretion. But as more people moved into the cities and laws requiring property ownership for voting were rescinded, a gap developed between the wealthy people who paid the majority of taxes, the poorer ones who benefited the most from government services, and the elected people who provided the benefits to these people.

No budgetary decisions will be acceptable to everyone, so the decisions that underlie budgets are not always made clear. It is important that a budget be clear and open in a democratic system, but whether they are easy for the layman to understand is a different story. To achieve more transparency, budgeters have tried grouping expenditures by program and establishing performance goals and measurements for each program. The goal of performance budgeting at all levels of government has been to broaden the notion of accountability, after all. Accurate reporting is crucial for this model to work, but officials may be reluctant to report details when they make decisions that are likely to be unpopular.

Numerous U.S. cities suffered immense fiscal strain following the subprime mortgage crisis and financial crash of 2007. Diminished revenues, tightened credit, and speculative financing that went bad in the aftermath fueled widespread fiscal distress on the local scale. Local fiscal politics had become increasingly removed from democratic oversight and control.  Kirkpatrick argues that de-democratization hinders the capacity of political communities to re-regulate markets and rebuild urban communities (Kirkpatrick, 2016, pp. 45-80).

Openness and Constraint

This report gives the money spent for AIDS relief and provides key performance indicators on the left blue bar. You can read more at  PEPFAR: U.S. President’s Emergency Plan for AIDS Relief

pERFORMANCE INDICATORS AND BUDGET CONSTRAINTS

PERFORMANCE DATA AND SELECTIVE REVELATION

Performance data is an effective tool in the hands of a political opponent to attack an agency, program, or administration. For this reason, every budget employs a degree of selectivity as to what is presented and how it is presented. The art of selective revelation is part of public budgeting. The amount of secrecy in budgets goes up and down with different administrations and requires constant monitoring.

The budget passed in public should obviously be the budget actually implemented, and it should address any changes in the level of resources available. As public opinion changes, budget priorities may change as well. Changing relations between national, state, and local governments should be taken into account. Government grants to state and local governments are a federal budget consideration, and if some grants are required to be spent on particular items a different and unexpected pattern of spending may surface.

PUBLIC SCRUTINY

The environment has a great impact on budgeting, not only due to changing amounts of revenue, emergency demands on spending, and the changing intergovernmental system that frames responsibilities and revenue sources but also in demands for accountability from the public. Committee hearings and revenue and expenditure proposals are reported in newspapers and often hotly debated outside of the context of policymaking. The whole budget process takes place under public scrutiny.

Public budgeting is far more constrained than private sector or family budgeting, largely due to the public scrutiny that surrounds it. Potentially embarrassing mistakes are very difficult to hide on this level. Some state governments mandate requirements for local government budgets, just as federal guidelines may exist for states that are receiving federal grants. All revenues must equal or exceed expenditures, and state and local budgets must balance.

BALANCED BUDGETS, DEFICITS AND TAX LIMITS

Continuing effort is required to create any degree of flexibility with these constraints. If levels of borrowing and debt are limited, balanced budget requirements can be difficult to meet because deficits cannot be filled with borrowed money. Tax limits are a common feature of state laws and constitutions, and legislative supermajorities are often required to pass tax increases. These limits have made it more difficult to raise taxes in many states. At the national level, the level of borrowing has been the focus of much of the politics of constraint, while at the state level limiting taxes has been a greater focus.

Since the federal government is not required to balance its budget every year, it may borrow to cover gaps between revenue and spending. Federal borrowing reflects spending commitments that have already been made. Thus, a failure to raise the debt limit would result in failure to pay bills on time and the perceived creditworthiness of the United States would be impacted negatively. Some fiscal constraints on this level have resulted from efforts to control borrowing, while others involve efforts to stop discretion abuses. These controls can be very rigid and sometimes even constitutionally preserved. They can remain in effect long after the problem has been resolved.

SUPERVISION AND CONSTRAINTS

Still, other budget constraints are put in effect to facilitate supervision. If each jurisdiction uses a different budgeting process, it is increasingly difficult for states to monitor local budgeting and financial conditions. The states are ultimately responsible for local government finances, so constraints in public budgeting include tax limits, borrowing limits, referendum requirements for tax increases or bond issues, and uniform budget formats and accounting rules are deemed necessary.

Political Decisions Made in Public Budgeting

PROCESS AND REVENUE

Political conflicts can delay or even prevent decisions in the budgeting process, and unforeseen emergencies such as natural disasters can drastically change priorities. Thus, it is important to design the process of public budgeting so that it cannot be interrupted, a task that can be accomplished by dividing decisions made in budgeting into revenues, process, expenditures, balance, and implementation. Some categories of decisions are made faster than others, and the decisions in earlier categories must be predicted by those later in the process and revised later if necessary.

Revenue decisions include estimates of how much income will be available for the following year if tax structures do not change. They also include policy decisions about changes in taxation. Interest groups are intensely involved in this aspect of the decision-making process. The scarcity of resources, the tension between accountability and acceptability, and the environment are all emphasized in this category of decision-making. Economic changes can greatly influence revenue levels, and public opinion does the same concerning the willingness to increase taxes.

PARTICIPATION

How budget decisions are made is a process concern. Questions of who should participate in the process, how influential interest groups should be, how much power the legislature or chief executive should have, and how the work should be divided are all addressed in these decisions. The politics of process may revolve around the policy issues of the level of spending and the ability of government to balance its budget.

Municipal reformers often call for more public participation in the budget process. However, few studies have surveyed the viewpoints of budget practitioners on the efficacy of public involvement in municipal budgeting. Hatcher in a survey administered by e-mail to budget directors in cities that won the Government Finance Officers Association's (GFOA) distinguished budget presentation award in 2011 found that budget directors in the sampled cities view traditional participation methods, such as the public hearing, as the most effective, compared to more interactive and participatory methods. This viewpoint stands in contrast to the scholarly literature's normative arguments and empirical evidence that meaningful public input must be solicited early in the budgeting process through interactive methods (Hatcher, 2015, pp. 645-663).

Expenditures, Balancing, and Implementation of the Budget

EXPENDITURES

Likely expenditures, such as those for grants that are dependent on formulas and benefit programs whose costs depend on the level of unemployment, are estimated where expenditure decisions are made. Many expenditure decisions relate to policy. The expenditure portion of the budget emphasizes competition for limited resources and the trade-offs that result.

BALANCING

The basic budgetary question of how the budget will be balanced each year comes next. Here it is decided whether each year’s revenues will be used alone or whether borrowing will be allowed. Questions of whether balance should be achieved by increasing revenues, decreasing expenditures, or both, reflects policies about government and its desired scope. At the national level, deficits often help the economy recover during recessions. Which programs and services will be reduced and which taxes or fees will be raised are matters of public concern. Which bills or bonds may not be repaid on time or in full are concerns of investors and businesses, and both groups may influence the budget by participating in referendums and opinion polls. Taxpayers and interest groups may also lobby on this issue, and political parties may include their policies toward deficits in their election platforms.

IMPLEMENTATION

Finally, there is the actual implementation of the budget. How close actual expenditures should be to the ones planned in the budget, how variation from the budget plan can best be justified if it does occur, and whether the budget is remade after it is approved are key issues in this category. Executive branch staff plays the major role in implementation. The legislature’s roles are much smaller and more occasional, and interest groups play virtually no role in this stage. Allowances for technical changes are carefully monitored because they may cause open conflict. How well, how honestly, and how transparently budgeted funds are spent are as important to implementation as adherence to the planned budget.

TYPES OF FEDERAL AID TO STATE AND LOCAL GOVERNMENTS

The considerable money that the federal government provides to state and local governments takes one of the following six forms:

1. Direct cash grants to state or local government units.

2. Payments for grants-in-kind.

3. Payments to non-government entities when such payments result in cash or in-kind services passed on to state or local governments.

4. Payments to regional commissions and organizations that are redistributed to the state or local level.

5. Federal government payments to state and local governments for research and development that is an integral part of the provision of public services

6. Federal revenues shared with state and local governments.

Conclusion

Public budgeting has a number of features that make it expressly political in nature. These include its openness to the environment, the actors involved and their goals, the separation of taxpayers from decision makers, the use of the budget for public accountability, and the constraints present. Budgetary decision-making must be flexible, adaptive, and interruptible. These requirements lead to a structure of five stages of budgetary decision-making: revenues, process, expenditures, balance, and implementation.

To learn more about the political nature of the budgeting process, read Michael Oyakojo’s (2015) article “ The Political Dynamics Behind Government Budgeting Process .”