GOV 356 Midterm

Definition of a budget

financial plan for a specific time period with a dollar sign attached.

A budget is an instrument for…

planning and good management

What kind of document is a budget

a document that refers to the financial condition of an organization and presents information about revenues, expenditures, activities, purposes and goals.

What information does a budget hold

revenues, expenditures, activities, purposes and goals.

budgets generally reflect ___ and ___

public consensus and priorities

Politician perspective on public budget

Political event for political advantage

Economist perspective on public budget

Uses economic analysis to identify the best decision

Accountant perspective on public budget

The budget is a statement of desired policy and information on actual expenditures compared with the budget

Public Manager perspective on public budget

Principal vehicle for developing government plans and policies

differences between private sector budgeting and public sector budgeting?

.  Public budgeting is more open, more actors determining the public budget, no profit factor via which to determine success, unlimited resources, private sector is limited, public sector provides public goods

What are externalities

Benefits extend beyond the provision of services. 

Why is it difficult to price public services?

There is no direct counterpart in the private sector upon which to base the price—Unique services being provided

Bureau Chiefs…

want to advance their programs

Executive budget officers…

want to achieve balance

Chief Executives…

have their own priorities and need to put it all together

Legislators…

want to get reelected

Committees of Legislators…

tasked with reviewing segments of the budget and finding compromise solutions

Interest groups…

wanting funding for their issues

Courts…

reviewing legality of Executive and Legislative actions

Other governments…

trying to get the most from others

What changes to budgeting were brought on by Modern Executive Budgeting?

Greater accountability, sound financial management, improving management of operations, improving the assignment of priorities to public programs

What are three basic approaches to decision making?

Rational, Incrementalism, and Limited Rationality

Rational decision making

apolitical, data and analysis and priority ranking. However, politics will challenge any conclusions. 

Incrementalism

muddling through, offering the least political conflict

Limited Rationality

 can’t just use the rational approach, results in political conflict as well

What are some things in the public sector that impact financial decision making?

Different values,  Different ability to pay for those values, Different philosophical approached

What are some factors that constrain a public budget?

Openness to the environment, Decisions made previously, Mandates, Borrowing limits, Taxation limits, Legal requirements for referendums, competition

What are the four phases of the budget process?

a.  executive preparation

b.  legislative consideration

c.  execution

d.  audit and evaluation

Why does government expand?

Government expands due to provision of collective goods

Major sources of federal revenue

Individual income tax

Major sources of state revenue

Income tax or sales tax.

Major sources of local revenue

Real estate/property taxes and sales tax.

Major federal expenditures

Mandatory expenses (Social Security

Major state expenditures

Education and social services.

Major local expenditures

Education and social services.

How is public budgeting similar to everyday life?

Budgeting resembles life in terms of priorities

What is the Dillon Rule?

A legal doctrine that local governments only have powers explicitly granted by the state.

What is pork-barrel spending?

Spending that benefits a small constituency

What is an earmark?

Funding specified in the budget for a particular project.

What is discretionary spending?

Spending not tied to statutory formulas and subject to annual decision-making.

10 budgetary truisms

NIMBY; taxpayers feel they pay too much; politics trumps economics; using non-recurring revenue for recurring expenses creates imbalance; citizens dislike higher taxes despite property value gains; favor visible services; save for a rainy day; easier to start than stop programs; hard to measure success; figures can be misleading.

What are scrambled budget cycles?

Managing prior

Federal fiscal year dates

October 1 to September 30.

Virginia/Fairfax fiscal year dates

July 1 to June 30.

What does the budget process control?

The rules of the game and spending.

Three types of tax bases

Income

Equity concerns for taxes

Equal treatment of equals and vertical equity (ability-to-pay principle).

What are tax expenditures?

Tax exemptions or breaks that reduce liability.

What makes a tax regressive?

Lower-income people spend more of their income on taxed goods/services.

What makes a tax progressive?

Higher-income taxpayers pay a larger share of income in taxes.

What are user charges?

Fees for services that make users contribute and help control demand.

Deterministic revenue model

Uses known/controlled variables to predict revenue exactly.

Trend extrapolation models

Assume future can be predicted from past patterns.

What do econometric models need?

Many years of data.

If you must underestimate revenues or expenditures

Underestimate revenues to avoid deficits (surplus is safer than shortfall).

Steps before raising taxes

Prove the need

Why are values important in budgeting?

Differing values complicate consensus; demographics and stakes affect outcomes.

Lesson from Town of Orono example

Decisions involve values

Four steps in taxation cycle

Pass new taxes → burden shifts → taxable wealth definition changes → reforms restore base.

What is a need?

The gap between current service level and demand.

What is a goal?

A broad

What is an objective?

A focused

What are outcomes?

Impacts of services and measures of program value.

What are outputs?

Products/services delivered.

What is a current services budget?

Funds only existing programs.

What is a fixed ceiling budget?

Cannot exceed a specific dollar amount.

What is an open-ended budget?

Agencies request whatever they need.

What is a line-item budget?

Focus on inputs grouped by expenditure objects

What is Zero-Based Budgeting (ZBB)?

Every expense must be justified from scratch.

What is PART?

Program Assessment Rating Tool; evaluates programs (green/yellow/red).

What are unfunded mandates?

Federal laws requiring services without reimbursement (e.g.

Line-item vs program budget

Line-item emphasizes inputs; program emphasizes outputs/results.

Tricks to get program approval

Use grants

Most important thing a budget does

Controls spending.

Environmental factors affecting budgets

Natural disasters

Washington Monument approach

Threaten cutting popular items to protect your department.

Why adopt reforms?

Fiscal stress

Environmental impacts on FCPS budget

More students

Why FCPS costs may look lower

Service differences (e.g.

What is a biennial budget?

A budget covering two years.

Why track home sales in Fairfax?

Real estate is primary revenue source.

What is a rainy-day fund?

Reserve to stabilize during emergencies.

What is the General Fund?

The largest/main government fund.

Role of Budget Office

Recommend to executive

Easiest budget cuts

Small cuts

Hardest budget cuts

Eliminating positions and programs.

Chief executive’s function

Set budget priorities.

Ways to balance budget

Reduce but don’t eliminate programs

Structural imbalance in a budget

Using one-time revenues for recurring costs.

What are entitlements?

Formula-driven benefits for eligible individuals

Primary agency goal in budget

Keep and expand current funding/programs.

Choose service cut victims wisely

Target groups less likely to protest.

Ways to cut personnel costs

Eliminate positions

Danger of cutting maintenance

Deferred repairs cost more

Why Fannie/Freddie needed takeover

Risky loans

Three legislative characteristics

Representation

Positive aspects of term limits

New people

Effect of fragmentation

Makes legislatures less effective.

Why use legislative committees?

Break down work

Legislator compensation impact

Low pay favors wealthy candidates.