Public BudgetingIntroduction to Public Administration

Introduction or Why Budgeting?

• One of the primary aspects of public administration that is politicized, central to how governments operate, and a demonstration of the emphasis of policies, it is budgeting.

• Budgeting has become a more and more important aspect of government function.• The growth in importance is due to:• Expansion of regulatory power during industrialism.• Expands the effect of decision making as a determination of the scope of regulation and economic decisions.

• The power to tax given under the 16th Amendment (1913)• The formation of the modern presidency under Theodore Roosevelt.• Expanded presidential power and the role in the budgetary process through creation of:• Executive budget – budgets prepared by the chief executives and their central budget offices for submission to the

legislature for analysis, consideration, review, change, and enactment.• Impoundment – the practice by the chief executive of withholding final spending approval of funds appropriated by the

legislature, in a bill already signed into law. (now limited)

• Budgets are really lists of the winners and losers in politics.

Purposes of Budgeting

• Accounting• A ledger of income and expenditures.

• Statement of Basic Intent• The budget states the intentions of the government in terms of what it hopes to achieve through the funding (or not funding)

of policies, services, and programs.• Statement of Programmatic Intent• Agencies demonstrate their mission, purpose, and goals through construction of budgets.• Includes political priorities whether intentional or not.

• A Tool of Control• The power of the purse is a powerful instrument by which to control the bureaucracy:

• Congress• President

• Determining “Winners” and “Losers”• The scope of this determination is not as large as one would suspect at the federal level given the small percentage of

discretionary spending.

The Federal Budget

Understanding Budget Terminology and Concepts: The Federal Budget

• Mandatory spending ($2.63 trillion) – category of budget outlays from budget authority provided in laws other than appropriations acts for entitlements and budget authority for food stamps.• Made up of:

• Entitlements – government programs created under legislation that defines eligibility standards but places no limit on total budget authority; level of outlays is determined solely by the number of eligible person who apply for authorized benefits, under existing law.• Examples:• Social security• Medicare• Medicaid• Veteran’s benefits

Understanding Budget Terminology and Concepts: The Federal Budget

• Mandatory Spending:• Budget obligations – orders placed, contracts awarded, services rendered, or other

commitments made by government agencies during a give fiscal period that require the expenditure of public funds during the same or some future time period.• Past, established obligations create a form of mandatory spending and lessen…

Understanding Budget Terminology and Concepts: The Federal Budget

• Discretionary Spending ($1.15 trillion) – category of budget authority that comprises budgetary resources in appropriations acts.• Where the president and

Congress really have the ability to debate about spending priorities.

Understanding Budget Terminology: Deficit versus Debt

• Deficit – amount by which governmental outlays exceed governmental receipts in a fiscal year.• The federal government typically operates at a deficit.• Opposite:

• Surplus – amount by which governmental receipts exceed governmental outlays in a fiscal year.

• Debt – the cumulative sum of all previous deficits and debts for all prior year’s budgets.• National Debt – the cumulative sum of borrowing necessary over time to pay the difference between the amount raised and the amount spent in

the annual federal budget.• The U.S. national debt currently stands at $19,810,496,494,249.95 trillion dollars at the moment I typed this statement.• After typing the previous statement the debt was $19,810,496,569,912.15.• Difference = $75,662.2 in roughly 10 seconds.• Interest on the debt

• The National Debt as a Political Issue• National debt is a huge political issue.• Multiple attempts for Congress to begin to seek a balanced budget and reduction of the debt.

• Temptation is just too great for politicians seeking to get reelected.• Some people blame:

• Tax expenditure financing – revenue losses from provisions in the federal, state, or local tax codes that allow a special exclusion, exemption, or deduction from gross income that provide a special tax credit, a preferential rate of tax, or deferral of tax liability.• “loopholes”

Fiscal vs. Monetary Policy

• Fiscal Policy – refers to government actions aimed at development and stabilization of the private economy, including taxation and tax policy, expenditures, and management of the national debt.• Politicians have different ideas when it comes to fiscal policy:

• Taxation• Tax the wealthy at a higher rate to create more income for the government whereby this money can be redistributed via programs

to other groups thereby spurring the economy as average individuals have more money to spend in the economy.• Provide tax breaks to the wealthy so that they use the tax breaks to create businesses and jobs that will thereby create more

income for the average individual who will have money to spend in the economy. • Expenditures

• The federal government should be larger in size to help regulate what would otherwise be out of control businesses.• The federal government should be smaller in size so as to let the free market operate as a natural regulator.

• Management of the National Debt (discussed above)• Policies impact spending on goods and services which then has an effect on the state of the economy.

• Gross domestic product – sum of goods and services produced by the economy including personal consumption, private investments, and government spending.• 1% growth rate currently.

Fiscal vs. Monetary Policy

• Monetary policy – management of the money supply and interest rates in relation to issues of inflation, consumption, and economic growth.• Federal Reserve System – independent agency that serves as the central bank of the Unites States that

administers monetary policy.• Money Supply• Money supply – amount of money available in circulation to individuals and institutions in society.• The determination of the supply of money is important because it relates to:• Interest rates• The Federal Reserve System determines the interest rate, which then helps determine the interest rates used by lending institutions.

• Home loan• Car loan• Credit card

• Inflation – the rate at which the level of prices for goods and services is rising.• Increasing money supply lowers interest rates = more borrowing on credit based purchases.• Restricting money supply = restraining inflation.

• Stagflation• Stagnant economy with high inflation.

The Politics of Budgets

• Budgets and even budget processes are high stakes political topics and policies.

• Agencies and public administrators are directly affected by public budgeting decisions, which can often determine their success or failure in carrying out policy, implementing programs, and delivering services.

• Budgets are an instrument of control over agencies. • For more information see: The Politics of the Budgetary Process by

Wildavsky and Caiden