Term
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Definition
| allocates scarce resources and hence implies choice between potential objects of expenditure. Budgeting implies balance, and it requires some kind of decision-making process. |
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Term
| Key political features of budgeting |
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Definition
Budgets reflect choices about what govt will and will not do
Budgets reflect priorities
Budgets provide a powerful tool for accountability to citizens
Budgets influence the economy and vice versa
Budgets reflect the power of individuals and groups to influence budget outcomes |
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Term
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Definition
Economic conditions
Other governments
Courts
Other: Shit List |
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Term
| Reasons for conflict in budgeting |
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Definition
Stakes are high—a contest where there will be winners and losers
Because budgets allocate a significant share of societal resources
Budgeting is the centerpiece of policymaking
Illuminate political conflicts
Budgets can bring accountability |
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Term
Budget authority vs. budget outlays |
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Definition
Budget authority: determined by government on what will be spent (funding)
Budget outlays: when funds are spent
PG 53 Mikesell Chart
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Budget Authority→
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Obligations→
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Inventory Recorded→
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Outlay→
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Cost
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Funding provided
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Order placed
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Materials delivered
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Bill paid
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Material used
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Term
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Definition
"An aggregate measure of price change"
Weighted average of price changes for all government purchases (actual and real increases in spending)
Go by weight of relative amounts spent on one category; whichever is the larger amount is spent on whichever category, then that is the one that usually has higher weight
Helps to see across years of budgeting in a meaningful way
All use base year and price index |
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Term
Government debt vs. deficit |
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Definition
Debt: Total money owed by US Federal government to creditors who hold US Debt Instruments (Saving bonds is an example)
Deficit- The amount by which expenditures exceed revenues during an accounting period.
Difference between what money the government takes in (receipts) and what it actually spends (outlays)
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Receipts from fees, income, excise, social insurance, etc.
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Treasury needs to borrow money to pay bills of government
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Term
Five different ways used by scholars to look at the meaning of politics in budgeting |
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Definition
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Reformism (Prescriptive)- Technical/Idealistic
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Incrementalist view- Optimistic/Everyone part
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Interest group determinism-Pessismistic/Interest Groups, $, Politics
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Process view- Winners & Losers
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Policymaking view- Blur/policyriders
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Term
Basic differences between public and private org’s |
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Definition
a. Resource constraints: Government may tax to enlarge their resources
b. Ownership: There are many stakeholders who share legitimate interest in government decisions
c. Objectives: Government services are not easy to define or give value in a single measurement such as a private business who can make sales
d. Overall: Government has the power to tax, prohibit, and punish |
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Term
Why do we need government? |
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Definition
We get most things in society from private sources
Government helps markets function
Goes beyond that because there are certain things markets will not provide
What are those things that markets can't provide?
Nonapppropriability: Some goods that are inefficiently supplied or not supplied at all in the marketplace, privately
Problem is in two aspects:
Nonexhaustion or nonrivalry
Inability to exclude taxpayers
Other reasons for government
Externalities: A positive one causes the good in question to be under produced (Ex. Rubella vaccination for baby boys) while a negative cause causes the good to be overproduced (Ex. Exhaust fumes)
Failure of markets:
Barriers to competition
Incomplete Markets and Imperfect Info
Economic Stabilization
Redistribution |
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Term
Public goods vs. private goods |
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Definition
Public Good: Can be exhausted and available to all (ex. K-12 education, national security, system of justice). It is very hard to expect private sector to provide these things. Common characteristics of these goods are:
Once made available, denial to those that have not paid is impossible (nonexclusion)
Anyone can consume this good at anytime and it will not diminish the amount available for anyone else to consume (Nonexhaustion)
Private Good: This good can run out and you can exclude people. One person's use of the good eliminates its use again and exclusion is feasible (ex. Bread, milk, etc.) Person must pay in order to use the good, possible to separate payers from nonpayers, and there is no effect on other individuals |
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Term
Common-pool resources, Tragedy of the commons |
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Definition
Common-pool resources: Exclusion is not feasible, but there are competing and exhaustive uses (ex. Water aquifer, fisheries, oil and gas deposits)
Tragedy of the commons:- In the presence of a good that we can take as much as we want, there is a push for you wanting to get more then your neighbor; therefore, extinction of that product (Ex. Petroleum and fish) |
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Term
Non-exhaustion vs. non-rivalry |
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Definition
Non-exhaustion: An element of Nonapppropriability where benefits of the service can only be shared, which means that giving the service by additional people will not cause a reduction in benefit to the existing population and inability to exclude nonpayer's occurs when benefits cannot be easily limited to those who have paid for the services
Non-rivalry: Use of a service by one person does not preclude concurrent full use by others at no additional cost of providing that service; in other words, anyone else who uses the service will not occur a cost, the cost is zero
Pothole theory! :) |
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Term
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Definition
An externality or spillover of an economic transaction is an impact on a party that is not directly involved in the transaction. In such a case, prices do not reflect the full costs or benefits in production or consumption of a product or service. An advantageous impact is called an external benefit or positive externality, while a detrimental impact is called an external cost or negative externality.
Producers and consumers in a market may either not bear all of the costs or not reap all of the benefits of the economic activity.
Positive externality: A positive one causes the good in question to be under produced (Ex. Rubella vaccination for baby boys)
Negative externality: A negative cause causes the good to be overproduced (Ex. Exhaust fumes) |
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Term
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Definition
| Named after a nineteenth-century economist, holds that if at least one person is better off from a policy action and non person is worse off, then the community as a whole is unambiguously better off for the policy. |
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Term
4 categories of government spending |
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Definition
1.Government purchases: Biggest purchase would be labor for government; goods and services such as contracting with private sector; contracting (government still runs the whole thing but only contracts a few parts) versus privatization (Ex. Highways; sell it completely to private business to run and give services or goods); privatization is not done as much as it use to since it is not always efficient
2.Transfer payments: Money paid out but nothing is expected in return, Ex. Social security, entitlement areas
3.Interest payments to retire debt: Operating budget versus capital budget; operating budget is annual budget for running organization, capital budget is usually where debt is assumed such as making buildings, things that will last into the future; much debt assumed at the state and local level; operating budget could be completely balanced but the capital budget may not be balanced; this interest payments to retire debt occurs in almost all levels of government
4.Government Savings: Ex. Rainy day funds, If revenue is better then anticipated, then there is a savings |
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Term
The relationship between budget authority and outlays (schematic in Mikesell) |
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Definition
Budget authority: It is the upper limit for the agency spending without obtaining additional authority. This is done through appropriation, borrowing authority or contract authority. This is what is allowed by Congress as to how much a certain agency can commit to spending.
Budget outlays: Estimated level of expenditures. How much money actually flows out of the federal treasury in a given year.
Budget authority represents a limit on how much funding Congress will provide, and is generally what Congress focuses on in making most budgetary decisions. Outlays, because they represent actual cash flow, help determine the size of the overall deficit or surplus.
Budget Authority →
Obligations→ Inventory Recorded→
Outlay→
Cost
Funding provided by govt Order placed
Needed to ensure that commitments do not exceed available authority Materials delivered
Needed for inventory control and management Bill paid
Needed to manage cash and debt Material used
Needed to plan programs effectively and manage them efficiently |
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Term
Two main types of government funds and why they are separated |
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Definition
oBackground: Separated into "cookie jar accounts" so that the government can comply with legal restrictions. If all the money is mixed into one fund, then it is hard to demonstrate compliance
General accepting accounting principles (GAAP)- Funds are interrelated accounts that record assets (revenue) and liabilities (expenditures/obligations) and are connected to a specific purpose
Two main types of Government Funds:
•General fund- General revenue includes taxes, fines, licenses and fees; only one general fund
•Special revenue funds: Operations of government that are supported by dedicated revenue sources such as fees, dedicated taxes, and intergovernmental assistance (Ex. Transportation trust funds)
oGovernment makes up a comprehensive annual financial report (CAFR) which brings all funds under the framework of the government and gives overview of all finances
To make it more legal |
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Term
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Definition
Mainly a political strategy; downplay of public service models and attempts at rationality; Wildavsky and Caiden explanation where "many items are standard, simply reenacted each year unless there is a special reason to challenge them"; "budgets are incremental, not comprehensive"; There have been some major chagnes in federal expenditure programs such as the end of the Cold War, beginning of the war in Iraq and Afghanistan, etc. However, there is evidence that agencies do hold some policies in place over the years under different administrations; a lot of agencies do look at previous budgets and those that were approved previously and make some changes for new operating cost conditions; comparisons between budgets are made between proposed and prior budgets, such as in the media and legislative committees; best insight for future budgets IS from the immediate budget
"But the facts remain that some policies-- and resulting expenditure implications-- do remain in place over the years; that most spending agencies at all levels of govt do begin their new budget development by considering their approved budgets and the changes that should be made to them to adjust to new operating condditions; that budget comparisons in central budget offices, in legislative committees, and in the media are made between the proposed and prior-year budgets; and that the most rational place to get insights about the near future is from the immediate past.
THE OFFICE |
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Term
Budget analysis dimensions |
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Definition
Fiscal discipline and control: Allows for restraint on expenditures that are limited to available finance, lets budgets that are approved be executed and preserve legality of any agency expenditures (Ex. Post-expenditure audits done from the outside)
Restrains expenditures, keeps approved budgets legal
Response to strategic priorities: Use of budgets to give services that are most important to citizenry at the time
Most important services a priority
Efficient implementation of the budget: Public budget serves as a control device and shows operational efficiency
Budget is a control and efficiency device |
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Term
Objectives of the budget process |
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Definition
1.To allocate the scarce resources of government
2.To positively affect the economy (macro-dimensions)
a.Stabilization
b.Equity
c.Efficiency
3.The budget is also important in managing resources
4.Schick’s 3 major functions of budget process:
a.Control*
b.As a management tool
c.As a long-range planning tool |
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Term
Schick’s 3 major functions of budget process |
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Definition
Control: Ensure legal compliance and hold down spending
Management: Budget is a tool for efficient delivery of service
Planning: Used for setting goals and analyze alternative courses of action
Overall, Schick argued that government has gone from a control process, to management, and finally to a planning process |
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Term
4 basic steps of budget cycle and what they involve |
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Definition
Executive preparation: 18 months before start of fiscal year is when it starts; involves executive branch agencies; preparation of the budget for the legislature
Three distinct part process:
Guidelines from chief executive on budget call/guidelines
Agency budget preparation
Budget review/submission
Legislative review and approval: This process starts whenever the executive budget is received; very politicized; dividing up of revenue components to different committees; usually comes from lower house first;
Implementation/Execution phase: Taken care of during the fiscal year; once the budget is turned into law, the executive agencies and executive budget office get the budget back; this allows for execution of public programs; long process as to when the agencies will get the funds (not given in one big check)
Five steps for execution of funds for agencies:
Agencies submit apportionment plans to budget office for approval
Subunits are given allotments that are determined by the main agency
Agencies incur obligations
Once a good arrives, agency authorizes the budget office to provide the outlay (when funds are spent)
The good is used in providing agency function
Audit: Usually happens after the fiscal year; used to make sure that agencies and executive executed the objectives of the budget
Different types of audits:
Financial - Were funds spent legally?
Management - Performance assessment of the agency as a whole?
Program - Were program objectives met? |
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Term
| Apportionment, allotments, and outlays (part of budget execution) |
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Definition
Apportionment: OMB divides up monies between agencies and puts them into sums for distribution over the year
Allotments: Authorization from head of the agency to allow for subordinates to incur obligations within a specified amount; allotted amount can not surpass what OMB has set
Outlays: Ability for agency to authorize the budget office to show when funds are spent (or the bill is paid); budget authority outlays are different from year to year, it can result from present or previous authority rendered by the agency |
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Term
Audits (slides 38-39) and Schick’s 3 control functions |
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Definition
Audits: "Examination of records, facilities, systems and other evidence to discover or verify desired information"
Different types of audits:
Financial - Were funds spent legally?
Management - Performance assessment of the agency as a whole?
Program - Were program objectives met?
Schick's 3 control functions:
Financial audits determine if the funds were spent legally (assess the control objective)
Management audits assess the performance of the agency (management objective)
Program audits assess agency success in accomplishing program objectives (Planning objective) |
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Term
| GFOA criteria for a good budget presentation |
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Definition
Budgets should be a policy document - Residents should be able to see government major policy initiatives so that they know where and how their money is being spent
Should have an operations guide - Can get a set of performance and unit cost aspect; it should have a comparison to prior years
Have a financial plan - Budget should account for all financial activities in the government
Budget should be a vehicle for communication - via transmittal letters from the government |
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Term
Main contents of a budget document |
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Definition
Budgets have the following sections:
Summary tables which have:
Aggregate formats
Objects of expenditure
Line item details
Economic revenue forecasts
Assessment of economy and revenues which is based on assumptions or response to economic conditions
Also, forecast can be political
The budget year
The progress report year
The Final report year
Out years |
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Term
Cross-pressures on agency directors |
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Definition
oAgencies are in a juggling act at any given time in regards to the budget
They could be preparing for a future budget that is biennial
Could be in the mid of a legislative review for next years budget
Execution of this year's budget
Auditing in regards to last years budget
oPolitical pressures/Societal Pressures
New administration who has different POV on how to use the budget
Legislature has a new majority, therefore political agenda changes, as well as support for particular agencies; may affect future support for budgets
Media- Can be their own worst enemy or friend depending on how an agency uses it; considered to be a tool to get support for increased budgeting and to stem off budget cuts by getting public support
Agency Director has to:
Try to accomplish the executive's goals
Be responsive to the clients of the program
Appease powerful interest groups and legislators affected by the program
Stay within the budget consttraints imposed by the central budget office |
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Term
| Budget guideline & Budget instructions |
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Definition
Budget instructions:
The chief executive's main goals for the people
Forecast of critical operating conditions for the budget year (inflation, service population, etc.
Form for budget proposal, which usually has request forms
Schedule for development of budget
Show approximate amount of money that agency will be building its budget around
Budget guideline:
Requires:
Narrative - Describes agency, shows managerial objectives for the budget year and beyond it, shows agency mission statement
Detail schedules - uses managerial objectives and turns them into requests for new agency appropriations
Cumulative schedules - aggregate new initiatives into existing activities to form the complete request
Also may include - Workload, productivity, performance measures
Common reasons for requesting funds are:
Higher (or lower) prices
Workload
Methods improvement
Full financing
New Services
Overall, there should be an explanation of what resources an agency wants for the budget year, what will the agency do with those resources, and what will be the end good result |
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Term
Current services budget and improvements |
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Definition
Current Services Budget and Improvements
Increasingly, governments adding formal stage to budgeting process, which requires agencies:
To prepare a baseline or current services budget
To identify improvements or additions to the budget
Current Services Budget
Roughly defined as the cost of providing “the same as last year.”
Key question is the same what?
Same spending
Same resources
Same service level
Bottom-line question: when is an increase an improvement?
Improvements
These days, planned improvements require separate documentation.
Agencies, more so than in the baseline budget, have to justify the increase.
Variety of rationales for new funding: increasing demand, mandates, need to be better, urgent problems, etc. |
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Term
3 basic steps of calculating a personnel budget |
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Definition
Calculating a personnel budget involves several basic steps:
(1)Determine the # of staff by type needed to provide the required level of service
(2)Determine the salary associated with each of these staff
(3)Calculate fringe benefits |
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Term
Personnel schedule & Salary schedule |
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Definition
Personnel schedule:
Ability for an agency to compile daily and weekly personnel assignments in order to determine what kind of personnel will be needed for certain objectives and assignments, such as worker skill sets, availability of workers, seniority, job classification, and preferences.
Schedule can be adjusted so that emergencies, sick live, and other issues do not affect the manpower that is dedicated to a particular objective
Personnel schedule—a list of staff in the agency by position, grade, and step.
The grade of a position reflects the responsibility and salary level of a position.
The step of a position captures the seniority or experience level of a staff.
It is common for staff to receive increases in salary for seniority up to some experience level (last step).
Salary Schedule:
Set of pay per hour, month, annually for government employees within any given department or agency
Based on one to fifteen scale
Pay grade depends on education and experience per position
Range changes per location due to cost of living conditions in different cities |
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Term
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Definition
Organization of information about a program in order to consider priorities
Allows for government to see whether the benefit to society that is gained is greater then the social cost that it entails
Five steps for categorizing and making up a cost benefit analysis
1) Project objectives - What is the desirable results for the project?
2) Benefit estimation and valuation - Look at changes during the duration of project, give money value to compare individuals value and resources being used for project
3) Estimating project cost - Construction and operating cost for life of project, look at negative externalities, private/internal cost, look at what the community may lose if the site being used for the project is done, (usually govt is able to build on govt land)
4) Discounting cost and benefit flows at an appropriate discount rate - Look at cost of borrowed funds to the government (interest rate that govt must pay) and opportunity cost of displaced private activity (return that private resources could earn)
5) Decision criteria - Summarizes previous information into whether project is economically justifiable or rank projects that can be done within the limited budget |
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Term
3 standard approaches (incremental, standard and unit costs) |
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Definition
Incremental method—simply multiply last year’s budget by a flat inflation rate.
Standard costs—Tie non-personnel spending to full-time personnel staffing levels in agency.
Unit costs—Tie non-personnel spending directly to agency output. |
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Term
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Definition
Indirect cost- Any cost incurred for common objectives and that therefore cannot be directly charged to any single cost objective. These costs are allocated to the various classes of work in proportion to the benefit to each class. Indirect cost is also referred to as overhead or burden cost.
Indirect costs are more difficult to assign to a mission center (e.g. overhead costs).
Direct Cost- A cost that can be directly traced to producing specific goods or services.
Direct costs can be accurately assigned directly to a mission center. |
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Term
Cost Accounting & Mission centers |
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Definition
Cost accounting involves the careful classification of financial information from an agency’s budget into cost categories.
If agency provides different types of services, we need to be able to divide costs of agency among them.
These different service areas are called mission centers. |
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Term
Cost structure (i.e. fixed, variable, semi-variable, step) |
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Definition
Fixed-Cost remain the same regardless of outputs
Variable- cost varies. More demand/output variable cost will go up ex) food for daycare
Semi-Variable- Have both fixed and variable Ex) Cellphones or arrangement with copy machine so much per year and so much per copy.
Step- Ratio Ex) As daycare grows you have to hire more people. |
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Term
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Definition
The legal requirement for federal agencies to establish accounts for segregating revenues and other resources, together with all related liabilities, obligations, and reserves, for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. Fund accounting, in a broad sense, is required in the federal government to demonstrate agency compliance with requirements of existing legislation for which federal funds have been appropriated or otherwise authorized.
fund accounting deals with the actual tracking of money in a given fiscal year within a certain sphere |
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Term
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Definition
An accounting device established to control receipt and disbursement of income from sources set aside to support specific activities or attain certain objectives. In the accounts of individual governments, each fund is treated as a distinct fiscal entity.
Fund—a self-contained entity for control, fiscal, accounting, and reporting purposes.
Funds-financial documents that accountants keep track of. |
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Term
Different types of governmental and proprietary funds |
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Definition
Governmental funds (traditional)
The General Fund (catch-all fund)
Special revenue funds
Proprietary funds (business-like)
Enterprise funds
Internal service funds |
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Term
CAFR’s (3 main sections of) |
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Definition
Comprehensive annual financial report
Includes 3 main sections:
1) An auditor’s report
2) General purpose financial statements (GPFS)
3) Individual fund statements and combinations of like-funds |
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Term
Main features of capital budgets |
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Definition
A distinct capital budget can focus decisions, facilitate financial planning, smooth tax rates over time, and regularize the provision of projects that (1) have long life (10 or 15 years), (2) have a high price tag relative to the resources of the governing unit, and (3) are nonreccurrent.
Capital budgeting projects are by definition long-term in nature, are expensive, and impact local finances and the economy.
For these reasons, capital budgeting processes are often tied to long-range planning in the community more generally. |
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Term
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Definition
Capital expenditures by definition are long-term commitments and require a long-term perspective.
Capital expenditures are objects above a certain value (usually $1500) purchased by government which have a useful life over one year.
Governments typically have another category (recurring capital expenditures) for those objects under $1500 with usefulness over one year |
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Term
Why are capital budgets separated? |
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Definition
1. Can improve both the efficiency and equity of providing and financing nonrecurrent projects with long term service flows.
a. Dual budgets—a balanced operating budget and a financed capital budget—can thus make important improvements in the equity and efficiency of providing projects and producing long-term service flow.
2. Can stabilize tax rates when individual capital projects are large relative to the tax base of the host government.
3. The special reviews of capital budgeting are appropriate because capital projects are permanent
a. Capital budget process serves to reduce errors both of commission and omission in public infrastructure construction.
4. Capital budgets are valuable tools for managing limited fiscal resources
a. The capital budget… provides a vehicle for financial planning and for the regulation of local tax rates. It thus contributes to financial solvency, and at the same time assures that over a period of years needed improvements will be constructed. |
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Term
Key steps in capital budgeting process |
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Definition
Capital budgeting processes typically include:
1) Master plan (capital is just one part)
2) Capital improvement plan (CIP)
3) Project evaluation (cost/benefit analysis)
4) Long range financial projections
5) Development of financing plan
6) Feasibility check of debt burden
7) Development of the capital budget |
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Term
Capital acquisition theories |
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Definition
Capital Acquisition Theories
Current revenues - “pay-as-you-go” or “pre-paid infrastructure”: more fiscally conservative, and puts less burden on future generations.
Current and future revenues - “pay-as-you-use” : can be more intergenerationally fair since attempts to match costs with benefits. |
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Term
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Definition
Total debt over assessed value (tax base). 10% or less is acceptable.
Debt service payments over current revenues. 20% or less is acceptable. |
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Term
What are government bonds? Bond types and trends |
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Definition
Bond- A contract to pay a specified sum of money (the principal or face value) at a specified future date (maturity) plus interest paid at an agreed percentage of the principal. Maturity is usually longer than 1 year. Notes have shorter maturities and are issued with less formality.
2 Types of Bonds:
General obligation bonds (backed by the full faith and credit of the government—safest)
Revenue bonds (backed by the revenue from a proposed project—a bit more risky) TREND TOWARD THESE |
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