Budgets

Question 1

budget

Answer 1

the allocation and expenditure of funds to provide service to the public. A budget serves to set spending priorities.

Question 2

operating budget

Answer 2

everyday expenditures of an organization, such as supplies, personnel, and maintenance of office space.

Question 3

capital budget

Answer 3

long-term purchases, such as a new building, recreation center, water main, or major equipment.
A capital budget is a one-year budget for capital expenditures

Question 4

Capital Improvements Program (CIP)

Answer 4

is a longer range (5-7 years) look at the capital needs of a community.
A CIP includes project descriptions, estimated costs, construction timelines, and sources of funding.

Question 5

purposes for creating a budget

Answer 5

Budgeting can be used for resource allocation. A budget is a spending plan and is the principal mechanism for deciding priorities between programs;
Budgeting can be used for financial control. It is one of the principal mechanisms for assuring resources are spent as decided by an agency. Actual spending can be compared with a budget;
A budget can be used for management control and to help improve efficiency and effectiveness in an organization;
A budget is a communication tool. It can be used to communicate organizational goals and objectives, and to determine how resources are allocated to meet these objectives;
Budgeting is a planning tool. It can provide short and long-range forecasts of revenues, spending, and community change.

Question 6

Government agencies can use one of four types of budgeting methods

Answer 6

Line-item Budgeting
Planning, Programming, Budgeting Systems (PPBS)
Zero-Base Budgeting (ZBB)
Performance-based budget

Question 7

Line-item Budgeting

Answer 7

In line-item budgeting, the emphasis is on projecting the budget for the next year while adding in inflationary costs.
The advantage of this method is that it does not require any evaluation of existing services, and it is easy to prepare and justify. Line-item budgeting is also easy for public officials to understand.
Disadvantages include a lack of flexibility and a lack of relationship between budget requests and the objectives of an organization. This type of budget has a short-term focus. A line-item budget only looks one-year into the future and is not linked with strategic, comprehensive, or capital improvement plans. It lacks focus on programs, looking at individual expenditures rather than how those expenditures fund programs and/or the results of those programs.

Question 8

Planning, Programming, Budgeting Systems (PPBS)

Answer 8

PPBS is focused on planning through accomplishing goals set by a department.
The advantage of this method is that it helps departments place their programs in perspective and evaluate efforts and accomplishments.
The disadvantage is that it is time-consuming to prepare and requires that goals and objectives be stated in measurable terms. For example, a department may evaluate the number of permits that are issued per month rather than the satisfaction of applicants.

Question 9

PPBS includes the following components:

Answer 9

Budget organized by program area (includes program mission statements, objectives, and indicators of success);
Long-range planning of goals, programs, and required resources;
Policy analysis, cost-benefit analysis, program evaluation.
PPBS has limited success because of its heavy information requirements and the incompatibility of program format with control mission.

Question 10

Zero-Base Budgeting (ZBB)

Answer 10

ZBB emphasizes planning and fosters understanding within all units of an organization.
The advantage of this method is that it requires a department to consider every aspect of its operation and concentrate on why it does things the way it does. Disadvantage because it is time-consuming to justify every activity.

Question 11

Zero-Base Budgeting (ZBB) includes the following components:

Answer 11

Efficiency and effectiveness of programs to be re-evaluated on a regular basis;
Agencies to prepare “decision packages” for each program that looks at the impact of “low”, “medium”, and “high” funding;
Decision packages of all programs ranked by executive; facilitates budget cuts by City Council.
ZBB has limited success because of its intensive information requirements and limited benefits to managers.

Question 12

Performance-based budget

Answer 12

Performance-based budgeting is focused on linking funding to performance measures.
For example, funding could be tied to the amount of time it takes to process plat applications or building permits. Meeting performance goals results in funding increases.
The advantage of this method is that it helps departments develop and evaluate performance standards.
The disadvantage is that it is time-consuming to prepare and requires that goals and objectives be stated in measurable terms. For example, like PPBS, a department may evaluate the number of permits that are issued per month rather than the satisfaction of applicants.

Question 13

Performance-based budgeting includes the following components:

Answer 13

Use of traditional function/object budget;
Performance information on workload, productivity, outputs, and outcomes;
Performance and spending may be linked through cost analysis, and program evaluation.

Question 14

When agencies have major capital expenses, there are a number of financing alternatives available. The most common include the following:

Answer 14

Pay-As-You-Go
Reserve Funds
General Obligation Bonds
Revenue Bonds

Question 15

Pay-As-You-Go

Answer 15

uses current funds to pay for capital improvement projects;

Question 16

Reserve Funds

Answer 16

are ones that have been saved for the purchase of future capital improvements;

Question 17

General Obligation Bonds

Answer 17

are voter-approved bonds for capital improvements. GO Bonds use the tax revenue of the government to pay back the debt;

Question 18

Revenue Bonds

Answer 18

use a fixed source of revenue to pay back the debt. For example, revenue bonds could be issued to pay for a new water main. The debt would be paid back through the water use fees. Revenue bonds are commonly used to finance utility improvements and special facilities, such as baseball stadiums.

Question 19

Other specialized financing arrangements are available depending on the situation.

Answer 19

Tax Increment Financing (TIF)
Special Assessments
Lease-purchase
Grants

Question 20

Tax Increment Financing (TIF)

Answer 20

allows a designated area to have tax revenue increases used for capital improvements in that area. All but one US state permit the use of TIF. A tax increment financing district is supposed to be an area with substantial disinvestment (sometimes called “blight”). The designated area receives targeted investment, such as infrastructure improvements which should enable redevelopment and reinvestment in the area. The increase in the value of property results in increased tax revenue. The increment of increase in tax revenue is used to pay back the investment made in the area. This article from the Lincoln Institute provides more detail about tax increment financing.

Question 21

Special Assessments

Answer 21

allows a particular group of people to assess the cost of a public improvement. For example, in Columbus, Ohio, the City has a plan to have every street lit by 2020. Property owners are offered the option of having regular street lights for free or ornamental street lights at their expense. In the latter case, all of the property owners on the street are assessed a fee to pay for the ornamental street lights.

Question 22

Lease-purchase

Answer 22

allows a government to “rent-to-own.” The benefit is that the government does not have to borrow money to finance the acquisition of a major capital improvement.

Question 23

Grants

Answer 23

allow for all or a portion of the cost of a public facility to be paid for by someone other than the local government. Grants are available from all levels of government, the private sector, and foundations. Typically, grants require a match from the local government.

Question 24

There are three types of taxes:

Answer 24

Progressive
Proportional
Regressive

Question 25

Progressive

Answer 25

The tax rate increases as income rises. For example, the federal income tax system taxes those with high incomes a higher tax rate than those with low incomes;

Question 26

Proportional

Answer 26

The tax rate is the same regardless of income. For example, a property tax rate is the same regardless of the price of your home. A person who owns a $50,000 home pays the same proportion as a person who owns a $250,000 home;

Question 27

Regressive

Answer 27

The tax rate decreases as income rises.

Question 28

When considering the implementation of a tax there are several criteria that should be considered:

Answer 28

Fairness
Certainty
Convenience
Efficiency 
Productivity
Neutrality

Question 29

Fairness

Answer 29

A tax should reflect the ability to pay of those who bear its burden. Those who are poor, for instance, should not have to pay a lot in taxes;

Question 30

Certainty

Answer 30

A tax should be fairly applied (i.e., I know that every time I go to purchase a gallon of milk that I will be taxed at the same rate);

Question 31

Convenience

Answer 31

A tax should be convenient to pay. For example, vehicle registration taxes are mailed to vehicle owners’ homes;

Question 32

Efficiency

Answer 32

A tax should allow collection and enforcement to be a straightforward process;

Question 33

Productivity

Answer 33

A tax should provide a stable source of revenue;

Question 34

Neutrality

Answer 34

A tax should not change the way a government would normally use its resources.

Question 35

Governments frequently offer tax incentives in order to attract economic development.

Answer 35

This loss of revenue is known as a tax write-off.