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Public Budgeting > Budget test April > Flashcards

Budget test April Flashcards

0
Q

What are 3 types of budget balances?

A

Annual Budget Balance
Structural Balance
Cyclical Balance

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1
Q

What is a CIP?

A

Capital Improvement Plan. It’s the result if the capital budgeting process. Typically 4-5 yr plan and identifies the funding sources. it also tells public the goals of govt, priorities of govt.

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2
Q

What is a capital budget?

A

They are large, one-time and non recurring. Usually on physical buildings, and permanent infrastructure.

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3
Q

What are a few ways the capital budget connects to the operating budget?

A
  1. Maintenance and operation costs are created by the capital budget but should be included in the operating budget.
  2. Debt service (D/S) - borrowing against future revenue for GF and SRF.
  3. Transfer- govt can pay a portion (10%-15%) from operating budget, then the rest is borrowed capital budget
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4
Q

When can maintenance become a part of the capital budget?

A

If maintenance is ignored for a long period if time, it may become so large that it can be included in the capital budget.

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5
Q

What are the factors that effect economic growth

A

Productivity gain

Population growth

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6
Q

Do both capital and operating budgets allow borrowing?

A

No, only capital budgets

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7
Q

Can a capital budget begin with baseline budgeting?

A

No, because there are no recurring expenses.

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8
Q

Are Cost Benefit Analysis a good way to choose capital projects? Why?

A

On a minor scale, a CBA (Cost Benefit Analysis) can be used, but it cannot be relied on b/c:

  1. profit is not the motive
  2. government is more program oriented while CBA is more project oriented.
  3. Time horizon
  4. Politically
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9
Q

What is the capital budgeting process?

A
  1. Committee - responsible for initial selection and recommendation of capital projects.
  2. Use criteria to prioritize
  3. Identify funding source
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10
Q

What criteria can be used to rank capital budgeting?

A
  1. Cost
  2. Need/immediacy
  3. Mandate (ex: for state to fund school bldg)
  4. Health and public safety (high priority)
  5. Preservation of existing facilities
  6. Operating budget impact (positive or negative)
  7. Funding source - does the project have a source, like a grant? Can it generate it’s own revenue?
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11
Q

Cyclical surplus

A

Occurs during economic growth. It is not a permanent surplus.

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12
Q

In an annual budget balance, on what basis do you budget?

A
  1. Cash basis

2. Modified accrual

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13
Q

Cash basis

A

Follows the money. You only have to recognize it this years budget if you actually spend it.
Revenue = cash
Spending = only spending if you’ve written the check

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15
Q

Accrual

A

Economic resources
Revenue = accounts receivable
Spending = accounts payable

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16
Q

Structural budget balance

A

Recurring revenue matches recurring spending. One-time spending does not count. Really it compares trends in long term revenue and expense. This is long term budgeting.

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17
Q

Why is structural valance so important?

A
  1. Closing long term debt requires knowledge of recurring revenue and expense.
  2. Analysis can point out holes in long-term budgets.for example, we can see this in social security. It’s easier to fix now but it often just gets kicked down the road.
  3. Lenders are interested because it shows them if you’ll be able to pay them back in 5-10 years.
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18
Q

Cyclical budget balance

A

Budgeting based on the economic or business cycle

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19
Q

Revenue and spending in cyclical budgeting

A

Economic trends are cyclical, so are revenue trends. Revenue is elastic.

Spend in is less elastic. Some programs grow when there is a recession (welfare, healthcare)

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20
Q

Cyclical deficit

A

Times of economic decline. Programs are cut, particularly if revenue was reduced during the cyclical surplus

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21
Q

Why are cyclical balances more important to state and local budgets than to federal budget?

A

Because states and local are not able to budget.

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22
Q

Causes of government deficit on the revenue side

A
  1. Economy - shirt and long term
  2. Forecasting errors - primarily on the revenue side
  3. Tax revenue limit - if there is a cap on revenue but not in spending
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23
Q

Causes of government deficit on the spending side

A
  1. Unchecked growth in spending - public pensions, mandated programs.
  2. Mandates
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24
Q

When the economy is creating a deficit, what are short and long terms problems?

A

Short term economic impact - very painful in the short run

Long term economic impact - means that the economic base is shrinking (Detroit )

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25
Q

What is the spending solution To dealing with deficits?

A
  1. Programmatic

2. Non programmatic

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26
Q

Annual budget balance

A

Spending is equal to revenue, the budget is balanced like this yearly.

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26
Q

Modified accrual basis

A

Follows financial resources, which does not account for depreciation. Revenue = measurable and collectible
Spending= accounts payable

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27
Q

Non programmatic cuts in spending

A
  1. Across the board
  2. Cut capital projects
  3. Reduce maintenance

Public won’t necessarily feel the impact of these cuts. They are fair, easy to implement, and temporary.

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28
Q

What is the revenue solution To dealing with deficits?

A
  1. Raise fees - easy b/c they are voluntary.
  2. raise taxes
  3. Rainy day funds
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29
Q

What are some ways to raise taxes?

A
  1. Sin tax - not a long term solution (alcohol, cigarettes)
  2. Surcharge - temporary tax
  3. Permanent tax raise (this is the last resort)
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30
Q

Rainy day funds

A

AKA - budget stabilization fund.
Use former surplus in time of deficit.
Not a long term solution

31
Q

Non programmatic cut: personnel

A

Personnel is higher for local than for state.

  1. Temporary - hiring freeze, vacant positions are left open
  2. Permanent - attrition, when someone leaves their position, it’s eliminated.
  3. Temporary - salary freeze
  4. furlough - forced to take time off of work without pay
  5. Cut overtime, or restrict it
  6. Privatization - eliminate departments or privatize them.
  7. Early retirement - May offer benefits until 65 (although you’ll pay more in pension benefits)
  8. One timer - asset sale
  9. Delayed pension payment
32
Q

programmatic cut: major programs

A

K-12
Higher education
Medicaid
Corrections

33
Q

Programmatic cut: k-12

A

Cannot cut into base, do must deal with it in terms of inflation

34
Q

Programmatic cut : Medicaid

A

The goal is to slow it’s growth
It’s hard to control or cut b/c it grows during times of economic downturn.
It’s a matching grant program, lots of requirements

35
Q

Programmatic cut: corrections

A

Goal is to slow it’s growth. Permanent reduction would require fewer people in prison
AZ it costs 24k per year per inmate. So cutting corrections means cutting prisoner quality of life
More privatization?

36
Q

Programmatic cost: higher education

A

Don’t have to worry about slowing growth, so higher ed is easiest to cut
Not an entitlement program
It’s the 4th biggest item on the budget.

37
Q

What is performance budgeting?

A

Link performance measures to resource allocation.

38
Q

What is budgeting?

A

Resource allocation

39
Q

Why performance budgeting?

A
  1. Accountability to taxpayers
  2. Evaluation
  3. Benchmark (measure each year, change if needed)
40
Q

Efficiency ( performance budgeting)

A

Productivity ratio = output/input (#arrests/#of police officers
Unit cost = input/output (cost/arrest)
Resource utilization - is there a lot of downtime?

41
Q

What are the performance measures for performance budgeting?

A
  1. Input
  2. Output
  3. Outcome (effectiveness)
  4. Efficiency
42
Q

Input

A

Monetary and non monetary resources

Expenditure, personnel, equipment

43
Q

Output

A

Measuring the quantity of services or products. (# of arrests, # of calls responded to, short term , annual focus)

44
Q

Outcome ( effectiveness) most important measure

A

What do you want to accomplish by providing all these services? ( reduce crime rate, long term focus)

45
Q

Performance budgeting in an organizational level - incentive and disincentive

A

Incentive- if you save, govt lets you keep money and expand programs

Disincentive- if you save money and were efficient, your budget may get cut.

46
Q

Why are elected officials more likely to make only short term cuts?

A

They are only elected for a short period, don’t care as much about the long run as we’d like

47
Q

Performance budgeting in an individual level - incentive and disincentive

A

Incentive - save money, get a bonus

48
Q

Why is linking the 4 performance measures so difficult?

A
  1. Revenue
  2. Data - hard to get or nonexistent
  3. Value of programs - some can’t be cut, even if failing (public safety)
  4. Political - politicians want freedom to allocate
  5. Agreement on performance measures - measures can be subjective (education)
49
Q

When is performance budgeting really used?

A

Not at state level, but within agencies. Can hp agencies identify areas of improvement and success.

50
Q

What are the negotiation/adoption budget cycles for fed, state and local?

A

Federal - early jan - June 30
State- feb -sept 30
Local - march -June 30

51
Q

What is the process of budget negotiation / adoption

A 
Review
Debate
Negotiation
Approval by legislative
To executive - sign or veto
52
Q

Who is involved in budget negotiation / adoption?

A

Executive -formal
Legislative -formal
Informal interest groups who want to influence outcome

53
Q

Who dominates in budget negotiation / adoption?

A

Varies from state to state, but usually governors are more powerful

54
Q

What are the different types if veto?

A
  1. Line item - governor
  2. Package veto ( prob weakest) - president
  3. Reduction veto (probably strongest)
  4. Amendetary veto
  5. Pocket veto
55
Q

What causes the dominant branch in budgeting ?

A
  1. Institutional factors

2. Political factors

56
Q

What are the federal level budget offices?

A

Congressional Budget Office (CBO)

Office of Management and Budget (OMB)

57
Q

What are institutional factors that affect budget power

A
  1. Size of budget staff
  2. Who has the sole responsibility for proposing he budget?
  3. Veto power
58
Q

What are political factors that affect budget power

A
  1. Party affiliation - which party is in control of branches

2. Election cycle - as you get closer to election, you’ll want to win votes by putting forth a favorable budget

59
Q

What measures a budgets success?

A
  1. Fewer changes from proposal to adoption
  2. More proposals get through that constituents wanted
  3. Biggest - whether or not proposer wins reelection
60
Q

When budget is at the review stage, who reviews it and what do yet review?

A

Each house reviews it - senate and house of reps.

They review both revenue and spending

61
Q

Steps in legislative review

A
  1. Seek input from public and agencies in public hearing
  2. Each house reviews budgets separately.
  3. Then there are two budgets
  4. Conference committee To iron our all the details (opaque, public less privy)
  5. Budget goes back to house and senate for vote
  6. Only after budget has been approved by both houses does it go to executive.
62
Q

Revenue review (legislative budget review)

A

????

63
Q

Spending review (legislative budget review)

A

Looking mostly at new spending, changes from last year

  1. Evaluate caseload
  2. Understand inflation
  3. Review new programs
64
Q

To review spending on a proposed budget, congress must have…..

A
  1. Data (from agencies)
  2. Personnel (to gather & analyze data)
  3. Time (to gather & analyze data)
65
Q

What are 2 types of budget bills?

A

Capital budget

Overall budget

66
Q

What are some public interest groups ?

A

K-12 (state level)
Cities and counties (state level)
National governors (fed level)

67
Q

What are some private interest groups?

And what side of the budget do they lobby on

A
  1. Providers- lobby expense side of budget (healthcare)
  2. Clients- lobby the expense side of budget (all the caseloads-kids-poor)
  3. Industries- lobby the revenue side of budget - to reduce tax)
68
Q

How do legislature an executive branch prioritize the conflicting demands of interest groups?

A
  1. Votes - political (AARP)

2. Money - who contributes? For ballot initiatives, to campaign.

69
Q

If you want to put something on the budget, you have to identify how it will be paid for

A

!

70
Q

What are the steps for executive brach in the Budget Execution phase?

A
  1. Allotment
  2. Reporting
  3. Deal with changes
  4. Variance report
  5. End of year activity
  6. Financial audit
71
Q

What does variance reporting show?

A

Difference in actual vs projected

72
Q

What impacts revenue side of variance reporting?

A

The economy, which is very difficult to control

73
Q

What impacts the spending side of variance reporting?

A
  1. Timing
  2. Price
  3. Caseload
  4. Volume
  5. Caseload mix
74
Q

If an increase in spending is needed, where will money come from?

A
  1. Rainy day fund
  2. If you’ve done a mid year adjustment
  3. $ may come from discretionary fund, programs that are not mandatory

Public Budgeting (4 decks)

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