The Size and Growth of Government Expenditure
• Government purchases (stuff)
• Transfer payments (Social Security)
• Government spending (all governments) is about a third of the GDP
• Not too bad compared with other countries
Budget Process & Logic
• Different from the private sector– No price or profit signals to go by– Public goods are difficult to sell– No profits/bottom line to measure– Limited by resource constraints– More customers is not necessarily better– Mixed, sometimes competing motives
The Parts of the Public Expenditure/Public Revenue Process
• Who should pay for things?
• How much should be borrowed?
• The budget:– Elaborates executive-branch intentions– Provides for legislative review and approval– Provides control of implementation
Multiple Budgets
• The budget year– The plan for the next budget year
• The progress-report year– Current budget in execution
• The final report year– The most recently fully-completed budget
• Outyears– Future budgets beyond the one being
requested
Fiscal Year
• Pronounced “FISS-KUL” (NOT physical)
• Federal FY runs from 1 Oct thru 30 Sep
• Some states and cities different
• Named by the year in which the FY ENDS (FY 2009 goes from Oct 2008-Sep 2009)
Functions of the Budget Process
• Fiscal discipline and control
• Response to strategic priorities
• Efficient implementation of the budget
4 Phases of the Budget Cycle
• Executive Preparation• Agency requests, ceilings, forecasts, justification, strategy,
promises
• Legislative Consideration• Subcommittees, appropriations, bi-cameral approval,
conference, veto
• Execution• Appropriations spent, services delivered, spend-down, carry-
over, budget base
• Audit and Evaluation• GAO, financial or performance audits
Authorization v Appropriation
• Authorization - what the executive is allowed to spend
• Appropriation – what the executive is actually given to spend
Governmental Accounting & Financial Reporting
• Standards– Financial Accounting Standards Board
(FASB-private)– Government Accounting Standards Board
(GASB-govt)
Governmental Accounting & Financial Reporting
• Elements of an accounting system– Source documents
• Receipts, invoices
– Journals• Chronological summary of transactions
– Ledgers• Reports of revenue, expense, or balance in an
account
– Procedures & controls• Forms, instructions, policies
Governmental Accounting & Financial Reporting
• Funds– Governmental Funds
• General fund (e.g., treasury)• Special revenue funds (e.g., transportation trust fund)• Debt service funds (e.g., bond repayment)• Capital projects funds (e.g., new tunnel)• Permanent fund (e.g. a trust fund)
– Proprietary Funds• Enterprise fund (e.g., water, utilities)• Internal service fund (e.g., motor vehicle maintenance, GSA)
– Fiduciary Funds (e.g., pension funds)
Governmental Accounting & Financial Reporting
• Accounting basis (the method of matching revenues and expenditures over time)– CASH BASIS
• Records money inflow when received, expenditure when cash payment completed
– FULL ACCRUAL BASIS• Revenue recorded when earned, expenses recorded when
liability incurred
– MODIFIED ACCRUAL• Expenditure recorded when liability incurred, revenue
recorded when cash received
Governmental Accounting & Financial Reporting
• Comprehensive Annual Report (CAFR)– Introductory section, financial section,
statistical section
Budgets & Political Strategies
• The Incremental Insight (reality)– Importance of the budget base– Politics and compromise
• The Comprehensive Insight (abstract)– Bottom up review, annual analysis
Roles, Visions, and Incentives
• Operating agency’s view
• Chief executive’s view
• Legislature’s view
Strategies
• Strategies for a proposed reduction in the base– Propose a study– Cut popular programs– Dire consequences– All or nothing– You pick– We are the experts
Strategies
• Strategies to continue an existing program– Round up– “if it don’t run, chrome it”– Sprinkling– Numbers game– Workload and backlog– The accounting trap
Strategies
• Strategies to propose a new program– Old stuff– Foot-in-the-door financing– It pays for itself– Spend to save– Crisis– Mislabeling– What they did makes us do it– Mandates– Matching the competition– It’s so small
Politics, Representation, and Government Finance
• Some people are more politically important than others
• Specialists appear
• Imperfect information results in bribery
• Voters make uninformed choices