Budgeting necessities of government departments

Many aspects combine to create the tapestry of administration within a government at any level. Yet it is readily apparent that few carry quite as much weight as the accumulation and proper allocation of operating capital. A local, state, or federal government’s budget is its lifeblood, and if that budget is improperly devised or its funds incorrectly distributed, the consequences for essential municipal services—and thus, the entire population of the governed area—may be disastrous.

As such, it will be beneficial for anyone involved in government—or heading toward such a career by enrolling in a Master of Public Administration graduate degree program—to learn the essentials of budgeting within the public sector. At its core, administration hinges on the execution of policy prerogatives through pragmatic action that takes the bigger picture into account, and a government’s budget is what makes policy implementation possible by grounding initiatives in hard dollars-and-cents data. Even those whose responsibilities will pertain to budgeting tangentially or not at all should nonetheless know how money in their departments will be deployed.

Government spending 101

As explained by the Congressional Budget Office, the nonpartisan regulatory body that evaluates the implementation costs associated with legislation drafted in either house of Congress, the U.S. federal budget consists of three spending categories and their associated funds: revenues, discretionary spending, and direct spending.

  • Revenues: Any payments directly collected (and, eventually, spent) by the government at any level, including taxes, fees levied for the use of municipal services or facilities, fines assessed as punishment for broken laws, and more, fall under this category.
  • Direct spending: This term applies to monetary resources governments spend according to the terms laid out in federal, state, or local laws that specifically regulate the uses of funds. For both direct and revenue-based spending at the federal level, the CBO analyzes how costs will change over time. It will behoove administrators in lower tiers of government to emulate this precise level of attention to detail when attempting to budget.
  • Discretionary spending: Federal appropriations bills, crafted with input from both houses of Congress and signed into law by the president, authorize discretionary spending. Unlike direct spending, discretionary budgets aren’t tied to specific government programs or functions. Legislators decide what discretionary budgets will fund, with education, defense, infrastructure, and transportation being typical recipients. Although the processes of appropriations will differ between governments at various levels, the essential nature of discretionary spending remains consistent.

The nuts and bolts of budgeting

According to the International City/County Management Association, the basic steps of government budgeting start with meticulous preparation by the administration’s financial staff, line item by line item. This first step also involves input from in-house legal counsel, legislators, and the government’s chief executive. Next, the administration presents the budget to the government’s legislative body – be it a city council or the U.S. Congress – for debate, modification, and eventual approval. Then, officials such as the city manager and treasurer (or those roles’ equivalent at another level of government) handle the nitty-gritty of routing the money where it needs to go.

Finally, accounting and reporting takes place at the close of every fiscal year. Private-sector independent financial experts almost invariably handle these parts of the process, to ensure no alteration of the data takes place. Governments will often make copies of the budget report available online or provide hard copies for citizens’ perusal at their facilities in the interest of promoting transparency.

Planning for present and future alike

The amplified, almost hyper-real rhythms of the political process never quite recede for government officials—and the staff members with whom they surround themselves—even when elections are several years in the past or future. Pressures of this variety can cause public servants to act quickly so that a particular constituency or special interest group backs off, and more dangerously, policymakers sometimes craft laws—such as those pertaining to spending—with such short-term stressors in mind. In so doing, they may eschew the bigger picture and thus set themselves up for failure. In a report for the Center on Budget and Policy Priorities, fiscal policy experts Elizabeth McNichol, Vincent Palacios, and Nicholas Johnson explained how this approach could affect state-level budgeting:

“The spending, tax, and other policy decisions that comprise [a] budget have consequences for a state’s fiscal and economic security that last long beyond the budget year,” the trio wrote. “Often, however, policymakers focus on the immediate effects of policy decisions and fail to account for their longer-term consequences.”

McNichol, Palacios, and Johnson also cited failure to appropriately project the revenue amassed from taxes, highway tolls, and other sources and the lack of an emergency fund for expenditures in the event of a natural disaster as common mistakes of government administrations that miss the big picture. While the authors’ report concerns states, the broad implications apply to any government – it’s just a matter of scaling up or down.

So how do administrators avoid this pitfall? The CBPP authors recommended devising budgets covering a fiscal year – as is standard practice – but also including revenue and spending projections that reach at least five years into the future. Careful analysis of historical and current cost metrics, coupled with an accurate gauge of constituents’ sentiment and departmental need, allows for the creation of a proper financial forecast for both present and future. The ICMA also noted that government budgeting processes require a mindset that reflects how each agency of the administration complements and benefits the others.

Adjustments after budget implementation

Unforeseen circumstances can befall any level of government. Even those of less dramatic tone or scope than natural disasters or political scandals may lead to considerable difficulties that require reallocation of a budget’s funds after it has already been approved and set in motion. These happenings include everything from strikes by municipal employees to sudden shortfalls in education funding that weren’t immediately discovered due to mistakes made by past handlers of the budgeting process.

The National Advisory Council on State and Local Budgeting, a subsidiary of the Government Finance Officers Association, pointed out the necessity of flexibility in such situations. Governments must have contingency plans allowing for efficient budget adjustment that does not interrupt essential government processes—in a nutshell, by only rerouting discretionary funds. While some administrations may conduct such changes at an executive level, it may be wisest to let legislators vote on any alterations and allow input from as many voices as possible.

The mess Baltimore almost found itself in during the first half of 2017 exemplifies such an incident perfectly. According to The Baltimore Sun, a massive deficit in the city’s schools’ operating funds required the City Council to examine the budget and reallocate $13 million from other programs, including several purportedly of great importance to Baltimore’s mayor, Catherine Pugh, so that municipal education wouldn’t risk going under. Public-sector budgeting almost invariably requires hearing harsh truths and making hard choices: Anyone hoping to work for any government should understand this early on; if they don’t, they’ll likely soon learn up close.

Learn More

The School of Public Affairs and Administration at Rutgers University-Newark, provider of the online Master of Public Administration, is accredited by the NASPAA. Before a program becomes eligible for accreditation by the NASPAA, its parent school must be recognized by a regional, national or international agency. Rutgers, The State University of New Jersey, is accredited by Middle States Commission on Higher Education and is a member of the Association of American Universities.

Recommended Readings

Sources:

https://www.cbo.gov/sites/default/files/cbofiles/attachments/FAQ_components_federalbudget_graphic.pdf

https://www.cbpp.org/research/state-budget-and-tax/budgeting-for-the-future-fiscal-planning-tools-can-show-the-way

https://nces.ed.gov/pubs2004/h2r2/ch_3.asp

http://www.gfoa.org/sites/default/files/RecommendedBudgetPractices.pdf

https://icma.org/articles/local-government-annual-budget-process

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