Budget Execution57.508-201

The Budget as a Policy, Planning and Information ToolWeek 5 - Spring 2011

Budget Process

1. Executive and staff preparation

2. Submission to policy body budget committee

3. Policy deliberations, amendments and revisions4. Adoption

5. Execution

6. Evaluation

7. Audit

2. Submission

• Draft budget with message sent to policy body• City council, county legislature, town board, etc.• Finance committee reviews budget requests

– Sometimes invites in all department heads– Sometimes executive represents all requests– Sometimes conflicts between executive & departments– Politics and reality at play

3. Policy Deliberations

• City council or board of aldermen• Town council or board of selectmen• County legislature or board of supervisors• School board• Regional council or COG governing board• NGO Board of directors

4. Adoption

• “Ways & Means” looks at expected revenues• Public hearings held• Fixed costs & entitlements vs. discretionary • Council or board members propose changes• Changes voted on individually• Consensus achieved on bottom lines • Full council or board adopts with amendments

Budget Process

1. Executive and staff preparation

2. Submission to policy body budget committee

3. Policy deliberations, amendments and revisions

4. Adoption

5. Execution6. Evaluation

7. Audit

Role of the Budget Office• Management controls• Accounting system operations• Reviewing agency or department procedures• Setting rules for consultants or travel• Protecting against fraud & waste• Overseeing agency or department compliance• Reporting on organization performance

Subsystems of Budget Execution

• Revenue Administration• Cash Management• Procurement• Risk Management

Revenue Administration

• Taxes– Determining the tax– Applying the tax– Collecting the tax– Enforcing the law

• Fees, sales, grants, gifts, loans, etc.

• Investment management

Cash Management

• Depositing revenue promptly• Expenditure planning• Paying bills promptly• Short term borrowing• Contingency funds• Investment planning and management

Procurement• System with unambiguous and precise policies• Centralized vs. decentralized• Group or contract purchasing• Low cost, timely delivery, quality product• Bid procedures, RFPs• Purchase vs. lease• Outsourcing & privatizing• Contract management • Efforts to ensure competition, public notice, etc.• Can further policies like…

– MBEs & WBEs– Energy efficiency or environmental quality

Risk Management

• People, property and records to protect• Liability, exposure to litigation• Faulty equipment or hazardous location• Identify probability of extreme events• Insurance vs. self-insuring• Premiums, awards, settlements, etc.

Revenue Administration

Taxes & Fees– Determining the tax (fee)– Applying the tax (fee)– Collecting the tax (fee)– Enforcing the law

Remember the “centrality of revenue constraint”

Legal Basis for Collecting Taxes• Taxing powers

– Percentage of income – Consumption (sales)– Wealth (investments & property)

• Proprietary powers– Operation of enterprises yielding fees-for-service

• Regulatory (or police) powers

– Regulation of land use & code enforcement– Licensing of various professions or activities– Inspection and certification of food establishments

Three Pillars of Taxation

• Equity

• Neutrality

• Effective Administration

Equity in theory• Horizontal equity• Vertical equity

or

• Progressive distribution

• Proportional distribution

Equity in Practice

• Benefits-received principle– Motor fuels taxes– Hotel/motel occupancy taxes– Property tax

• Ability-to-pay principle– “From those to whom much is given, much shall be

required.”

Elements of a Fair Policies

• Levies are benefits-based

• No favors to special groups

• Ease the burden on the poorest but don’t punish the wealthiest

• Tailor tax structure to community’s age, income distribution, and preference for public services

Neutrality in Theory

• Public goods and services– (education, public safety)

• Private goods and services– (utilities, public transit, solid waste)

• Merit goods– (municipal airport, local library)

Neutrality in Practice

• Broader base

• Flatter tax rates with fewer exemptions

• Benefits-based taxes and charges

• Smaller tax rate differentials (loopholes)

• Carefully designed taxes on business

Tips for Tax Reformers

• Improving the equity and neutrality of existing taxes is better than introducing new taxes

• Long term, increasing tax neutrality stimulates economic prosperity more than reducing tax rates

• An equitable tax structure is the best tool for creating a favorable business environment

Influences on Local Revenues

Trends in Local Revenues

Q: What’s been happening?

Trends in Local Revenues

• Devolution & downshifting• Greater need for financial self-sufficiency• More charges and fees for services• Increased intergovernmental competition

(e.g., for new development)

• Citizen distrust of government• Increased economic uncertainty

Factors Escalating Competition

• Increased mobility of business

• Stagnant growth, particularly in manufacturing

• Reduction in revenue sharing

• Greater service responsibility shifts

Dependence on the Property Tax

Dependence on the Property Tax

Advantages of the Property Tax

• Provides a stable source of revenue

• Reaches nonresident property owners

• Finances property-related services

• Is easy to administer & difficult to evade

• Promotes local autonomy

Disadvantages of the Property Tax• Not horizontally or vertically equitable• Not progressive in distribution• Not based on ability-to-pay• Not benefits based• Not broad based

Q: What happens in areas of declining values?