Financial Management

Video Watch: Budgeting Theories in Public Organizations

This week's presentation is on budgeting theories and public organizations. So what's some budget? Budgets? A statement of the allocation of scarce resources that a public organization has, and the objectives that we want to achieve using those scarce resources, the budgets, financial plan to do that. Mit includes not only how we spend those funds, but also how we receive those funds through taxes, fees, or trust funds or some other form of data collection or revenue collection, rather. Biblical principles about money. There are three or four different scriptures that are noted here. One is in Proverbs 1311, dishonest money dwindles away, but whoever gathers money little by little makes it grow. Timothy States, Commandos who are rich in this present world, not to be arrogant, not to put their hope and wealth, which is so uncertain, but they're put their help in God who richly provides us with everything for our enjoyment. Biblical principles for not only public leaders who are statesmen, but all public leaders, should be used when you're managing public funds. Those public funds are not yours, so you do not make the decision as to how you want to spend those moneys. Those monies belong to the public, to the taxpayer. However, where the taxpayer get those funds, we know that from that scripture that of all resources come from God. So in essence, those budget funds that we have a really God's funds, not ours. And we must abide by God's rules when we spend that money. We must be good stewards of those resources. For those resources are from God. According to ERA would dial ski, who's written extensively on, on budgeting and published several books. The budget includes a prediction of expenses. Usually. This is performed through some revenue enhancement projections using economic models. Each government agency usually has an economic advisor, especially at the executive level b, at the price that a governor or a mayor, there is someone there that will make those projections. There's a link between the financial resources and human behavior and how people will achieve those objectives. That's part of the budget. Also. The budget has to do with outcomes. And the budget represents does desired outcomes after some political battle of political structure. It's really based on people's political preferences. The federal budget is controlled. And guided by three primary documents to Bill of Rights, the Commerce Clause and the US Constitution. In 1921, Congress passed the Budget and Accountability Act that establish the executive budget. This was a recommendation at that time by the TAF commission in this established a more centralized control for the budget of the United States. The budgeting and Accounting Act, 2001 establish that the President would submit his or her annual budget the Congress. It also created a Bureau of the Budget within Department of Treasury. Today we know that that bureau does not exist. That there is an Office of Management and Budget which is under the auspices of the executive branch, the president to agency within the present that establishes the economic revenue projections, as well as develops the budget from all the different executive agencies. The act also created the General Accounting Office, the GAO, which is really a program Audit Agency. It's it's not really I'm an accounting auditing agency. They do more program audits. In 1974, Congress passed the congressional budget and impoundment Control Act, and it changed the federal fiscal year. October 1st of September 30 was originally July 1 through June 30. July 1 to June 30 is typically used as the budget period for the fiscal year of states, some local governments, but there are local governments and I've worked for a couple that used October to September. The act also created the Congressional Budget Office, which provide support to both the House and Senate in terms of evaluating various programs and policies related to budget matters. It also created two committees in the House of one and set it for for a budgeting. And both of those committees will prepare their individual budgets for the entire US government and will present those budgets. And there would be some conference committee that would meet to compromise over those two budgets. The budget control act of 2011 set up a joint committee, a special committee on deficit reduction. We also know that a couple years after that sequestration and partial government shutdown started to occur. And that was over balancing the budget and also establishing a debt ceiling for the for how much that the federal government would take on. The act also establish the 10-year cap on discretionary spending. And if those caps were not kept, then there was a sequestration which cause all the federal agencies to have to cut their budgets by some amount in order to offset that amount of discretionary spending. Dylan's rule and home rule, basically, those provide authorities to local governments, from the state government. Any program or policy that is not under the purview of state governments, under the purview of local government, home row gives local government control over some issues and some programs that are close to it. In other words, close to the center. Including budgeting. There are different budget formats. One is the line item budget, which you typically see at the state level. And governors usually have a line item veto where the President doesn't yeah, program budgets, where the revenues and program objectives are tied to the budget. You have a lump sum budget, which is the total budget for a particular agency. Performance budgets where you have performance measures that are established that are key to the various programs within the budget. And unless those measures are met, the level of funding is not, is not made. And a 0 or target-based budgeting. It's 0 budget, 0 based budgeting. But you don't start at 0. You start with several different packages of the budget. It might be a base budget as one package, two or three that are below the base and maybe two or three that are above the base, usually some percent. The planning program budgeting system, PBS, was established during Robert Mac marriage time when he was the head of department of Defense during John F. Kennedy as President. And it sets different levels and types of performance. There quantify they were analyzed in order to make the best decisions. The basic part of the PPPS was taking some choices and evaluating those choices against your objectives and how you're going to achieve them. There were also not only inputs, but also outputs established. Those would help determine how budgets were allocated to the various parts of the agency in terms of their programs. Management by objectives was an initiative started by Richard Nixon, otherwise call MBO. It was designed to hold public administrators accountable for achieving those outputs and outcomes. And that efficiency was program efficiency was a great part of the MBO of product. One of its failures was it was separated from the existing budget process. And it was often difficult to establish those objectives. It did succeed at negotiating goals and holding people accountable for achieving them. Zero-based budgeting, as I mentioned, is not a 0 base. You now start from 0. You start from your base. That's one of your packages. You might have 10 percent above the bass, 15 percent above the bass, and maybe 10 percent below the base, 15 percent below the base. You'll evaluate each of those packages. You'll rank them in terms of what they achieve, in terms of the agencies objectives. This is a very time-consuming and expensive process that was started under Jimmy Carter when he was president. It didn't last very long under Clinton. And this was something that Al Gore champion government performance Results Act, which is really part of reinventing government initiative that Al Gore pushed in 990 three, it required agencies to establish standards to measure their performance and how effective they were in those performances were tied to the budgets as well. That the agencies had to develop a strategic plan, update it probably every three years. And those plants had to be submitted to OMB by September 30th. Actually, 997 was first year they did that. This schematic shows the house and senate budget. You have the allocation of reconciliation instructions that are issued to each committee in the House and Senate. The Senate Appropriations house appropriation committees will develop individual budgets for the, all the agencies of the federal government. Though. They'll develop separate appropriation bills. Those bills will be analyzed and evaluated. And we'll go to a conference committee which basically establishes compromises over differences between the House and senate budget. Once that budget completed, it goes back to the House and Senate chambers. They'll vote on the conference report and the budget. Then it'll be sent to the President. The President can sign the budget bill, or he or she can veto the bill. Usually can contains 13 different bills. In the budget. In terms of Florida budget process, let's let's look at particular state and how that budget process works. Very familiar with that state as I worked through the governor for a few years and that state was involved in the budget process. Florida's constitution requires that the Florida Legislature develop a budget and that the governor present that budget to the legislature for For decision, they then on appropriations bill would be developed and sent to the governor for approval. Unlike the federal government, the state of Florida has to have a balanced budget. You cannot spend more money than you take in in Florida. That's often difficult as Florida is very much based on tourism. There's no income, state income taxes. There are some trust funds and fees that are associated with revenue collection that help. But it's often very difficult to predict your revenues folder the next year, or even the next three years or five years. Unlike federal budget, state's budget is known as a general appropriations act and it has to be balanced. The budget process is very extensive in Florida. It's a year long process, and it takes quite a bit of time to do. In July, the governor and lights, legislative leadership speaker, Senate President, and the chair of the House and Senate Appropriations Committees will develop written instructions and send those to the state agencies. Later on in the summer. Economic advisors for both the legislature and the governor will develop their economic forecasts of what the revenue projections will be and submit those. Once those outlooks are developed, the agencies would grade a long-range plan, which is due by the end of September. That plan as priority for their various programs with agencies over the next five years. From October through January, primarily in the fall. The all the state agencies and Florida will use that information in their plan, as well as the economic revenue projections and develop their legislative budget request. Those are due to the governor by October 5th date. The government uses those to make his or her recommendations to the legislature. From the agencies, the governor has an office of planning and budget. It's divided into especially specialized areas. Because a program evaluation office, which will evaluate various new programs and increases to existing programs that the governor wants to assess prior to making decisions. There's also in the budget office division into various components and areas of the budget. One area might be education, transportation office. There'll be a Budget Office for Environment and Natural Resources and so forth. The governor will normally well, the governor, I've worked for gram, we would pretty much submit requests to the legislature two months before they started. The requirement is 30 days, but we had good relationships and wanted to keep those good relationships. So we would try to give the leadership additional time to make decisions. On budgets. They were operations committees. Would would meet and decide on those budgets. But prior to that, sometime in the early spring around March, the both the legislative and governors economist would improve those projections on revenue and issue a new outlook in, typically in March. And so that information was used by the legislature to develop their budget. Appropriations bills were developed in both the House and Senate, then sent on to Joint Budget Conference Committee. The joint conference committee would meet and develop its budget and developed compromises between the House and Senate, and then sent to the legislature and make decision. Once it's decided on on a final budget, it will go into public hearing for three days. Public to make recommendations for enhancement to that budget, changes to the budget. And after that, both chambers vote on it. And a final budgets delivered to the governor. The governor has the right to either approve all or any parts of that budget he can veto or she can veto specific appropriations, programs, line items, and so forth. Unlike the federal government, the president cannot line item. In order to override the governor speed requires a two-thirds majority vote in the Florida Legislature. So that gives you an idea of the budget process and how complex it is and how time consuming it is. It is probably one of the greatest policy making documents that federal, state, and local governments work on. It is probably the most heated with the most political controversy of any of the policies and documents that are developed at any, at any government level. And so if you're looking to get involved with, with very political process where you can have a great impact on the future of Pharaoh politics. A federal policy-making, state policy or local policy. I would invite you to specialize in the budget process. So thanks so much and we'll talk to you next.