Module 8 Textbook Notes
Budgeting Process
Before 1921, Congress did budgeting; executive became involved with Budget and Accounting Act of 1921 (created by the Taft commission)
BAA created the Bureau of the Budget (BoB) and the Government Accountability Office (GAO)
BoB was the agency thru which the president prepares and presents a formal budget to Congress — was replaced by Office of Management and Budget (OMB) in 1970 by Nixon.
GAO is responsible for auditing/reviewing the fed budget (made President into dominant budgetary role)
Process
President presents a budget request to Congress detailing agency budgets that are needed
Request prepared by OMB. OMB budget examiners go to agencies to determine necessary budget —> make final recommendations to the OMB
OMB provides this info to Congress: how much money is being requested, how much tax money will be collected, whether there is a surplus or deficit, and how much the budget/shortfall amount to
Congress receives budget request and questions EOP about it —> both chambers create separate resolutions —> sent to separate floors for debate to allow changes —> changes are ironed out and a single version is presented to both chambers for a majority vote
Resolution is sent to both chamber Appropriations committees —> discretionary is split into 13 categories (ind. appropriations bills) —> all 13 are debated, amended —> differences ironed out —> voted on by both chambers and can be approved/vetoed by President
President priorities relate to both discretionary and entitlement spending
Discretionary must have funding approved each year (defense, education, housing)
Entitlement is mandated by law (social security and Medicare) but President can recommend changes to these programs
This resolution is not signed by President; it is a blueprint for future appropriations legislation
Resolution has two definitions of spending: budget authority and outlays.
Budget authority is the amount of money Congress allows the feds to spend
Outlays is actual amounts spent each year
BA for ‘school construction’ may be $100 mil but maybe there won’t be that much in outlays until the next fiscal year
Process includes audits done by GAO to ensure lawful, efficient spending by agencies
Types of Budgets
Budgets are plans on how revenues are spent in a yearly cycle
Cycle: preparation —> approval —> implementation —> auditing
Who prepares the budget?
Executive budgets by President / Governor / County Executive / Mayor
Developed from requests by govt. agencies —> sent to legislative body for approval (can be Congress or city council)
Operating vs. Capital Budget
Operating Budget: Plans how resources will be allocated for agencies. Focuses on day-to-day expenses such as salaries, utilities, and routine maintenance.
Capital Budget: Allocates funding for long-term investments in infrastructure, services, and facilities. Financed through borrowing (bonds)
Line-Item Budget
Illustrates where public money will be spent, item by item.
Personnel costs, office supplies, etc.
Used by local govts due to simplicity
Advantage: keeps people accountable
Disadvantage: not tied to performance—allocations differ very little and assessing how much should be spent becomes difficult.
Performance Budget
How much is spent on a Department directly ties to how well they a re performing.
Requires the establishment of ‘performance levels’ — indicators are outputs and outcomes
Output: units produced or numbers of services provided (could be miles of road swept)
Outcomes: how well entity meets goals/objectives (can be “street cleanliness” measured via visual inspections, degree of citizen satisfaction/number of citizen complaints)
Points of performance budgeting: amount of work done is measured / quality is measured / impacts how much money a department receives
Overperformance = more money, underperformance = less
Criticisms: taking money from struggling departments exacerbates problems, and collecting performance data is too costly and time consuming
Zero-Based Budget
All departments defend their programs and, as well, their level of funding.
Head of department would be required to show what would happen if amount budgeted for (example) street sweeping outputs would be maintained, reduced, increased, or eliminated.
This is called decision packages and one is prepared for each department program
Packages are ranked from most to least importance to maintain funding or decrease if cuts are necessary
Advantage: allows department heads to set priorities of where budget increases and cuts should happen
Disadvantage: labor intensiveness (overwhelming to prepare and rank packages) and also subjective
PPBS
Planning Programming Budgeting System—based on rational decision making
Uses cost-benefit analysis where program costs are compared to benefits - if the ratio is greater than 1.0, benefits are greater than costs
Difficult because it can’t really place a monetary value on the intangible benefits of programs
This system compares a particular program’s cost-benefits compared to possible alternative programs
Budget Auditing
Auditing ensures that public money is being spent lawfully and efficiently—are done by independent investigators
Federal level = GAO
State level/large cities = Office of the Comptroller
Types of audits: Compliance and performance
Compliance = govt. spends money in accordance with the law
Performance = looks at organizational effectiveness and efficiency—if goals/objectives are being met at a reasonable cost
Where Do Governments Get This Money?
Federal govt. raises money through the taxation of income, wealth, and consumption.
Income tax: personal (progressive tax system) taxes where if you earn more you pay more
Corporate: corporations are taxed at varying rates based on their profitability
Payroll tax: Paid by both employer and employee, money withheld from paychecks to pay into Medicare and Social Security
Capital gains taxes: taxes on sales of stock, bonds, precious metals, and real estate
State govts. rely on personal and corporate income taxes, and also consumption/sales tax
Consumption: cents added to every dollar spent on goods/services
Income, corporate. sales tax rates differ between states
Local govts. rely on property taxes to finance services and projects
A property’s value is assessed and then multiplied by a set tax rate
Theories of Budgets
Because of scarcity, budget makers determine how resources are used
Three viewpoints: rights (legal or contractual obligation), deserts (merit and utilitarianism), and needs (taking from the wealthy to support the poor).
These are ways of dealing with equity
Should they be allocated based on need (Temp Assistance for Needy Families/TANF) or should contract be the basis (Social Security/Medicare)?
Three perspectives: the economist, the political scientist, and the public administrator
Economist: rationality with a regard to normative theory of budgeting
Determine organizational goals but economy is a means in terms of relative value, effectiveness, and incremental comparisons
Relative value: opportunity cost of a policy decision (usually difference between first and second choices)
Effectiveness: evaluating a policy/budgetary preference in terms of achieving a common purpose
Incremental comparisons: comparing value/cost at the margin, where value diminishes with quantity
Closest application of this concept is zero-based budgeting
The budget process is to support policies where value > costs and is to identify/sustain worthwhile government activities while minimizing resource waste
Process creates a “common pool” of resources where private income becomes common property —> becomes a problem as the transfer creates incentives for exploitation
The pool is “up for grabs” among competing interests—obtaining parts of it creates tension and conflict
Brubaker embraces a process that expresses public preference, creates universal net benefits, decreases opportunities for rent seeking, allows direct participation
Public choice measures would reduce magnitude of budgetary commons
Tax credits offered for contributions made to providers of quasi-public services
Taxpayers can choose to not participate in programs that provide dividable goods or services
Citizens could participate in determining their tax share (this is prone to free rider problems and lack of knowledge)
Ability to pay depends on tax system (income taxes are progressive, consumption taxes are proportional)
Political Scientists: Budgeting is an interest oriented process where decisions are made in the context of who pays and who receives
Budget is a set of individual preferences/conflicts over whose preferences should prevail
Whicker (1992): wealthy taxes should be given to services for poor, ideology filtered through parties controls the budget
The redistributive components of diff ideologies are the basis for how resources are split
Swedlow (2002): cultural theory is a basis for budget decisions; culture embodies ideology, impact of redistributive policies on individual autonomy and collective relationships
Cultural theory predicts which political actors will form coalitions and what budget outcomes they prefer
Egalitarian culture = budgets via referendum, individualistic culture = budgets that are decentralized/fragmented
Public administrator: Equity is in the budget making process
Encompasses notions such as equality in govt. services, responsiveness to citizen needs, approach to public admin that includes practical applications, being problem oriented, and theoretically sound