Exam 1 Flashcards
Definition of budgeting
Budgeting: allocates scarce resources and hence implies choice between potential objects of expenditure. Budgeting implies balance, and it requires some kind of decision-making process.
Key political features of budgeting
- budgets reflect choices about what government will and will not do
- budgets reflect priority
- budgets provide a powerful tool for accountability to citizens
- budgets influence the economy and vice versa
- budgets reflect the power of individuals and groups to influence budget outlays
Constraints on budgeting
- Economic conditions: when economy tanks or core industry fails, that affects government rev
- Other governments (i.e. Oklahoma Municipal Budgeting Act that governs how cities budget; need 1% in reserves and debt ratios in a certain place)
- Cities are reliant on state on revenue
- Courts
- Demographics (i.e. in OK, there has to be 5,000 ppl in a city to assume debt)
- Public Opinion (public and boundary effect)
- Foreign markets (world is increasingly interdependent in terms of the marketplace and stocks)
- Election Process (all the different ideas that people bring to the table)
Reasons for conflict in budgeting
- stakes are high; it’s a contest where there will be winners and losers
- because budgets allocate a significant share of societal resources
Budget authority vs. budget outlays
- Budget authority is what is decided on by the government in terms of funding
- Budget outlays are when funds are actually expended
Deflators
- Deflator = a value based on price index
- Deflating is a way to adjust budget spending data so that it is comparable across years in a meaningful way; something you do looking at budgets over time
- Basically controls for the price of stuff.
- Analysts select a base year, and then based on price indexes, the figures are raised in latter years and lowered in earlier years.
Government debt vs. deficit
A budget deficit is the difference between what the federal government spends (outlays) and what it takes in (revenue). Government debt is the result of the federal government borrowing money to cover years of budget deficits.
Five different ways used by scholars to look at the meaning of politics in budgeting
Reformism:
- suggests that politics and budgeting can be separated
- Budget process itself should not be political
- Considered as an idealistic goal and not a reality
- Political administration dichotomy
Incrementalist view:
- Based on interest groups; interest group perspective on budgeting that is idealistic
- Budget is an annual bargain among all the stakeholders
- Incrementalists view budgeting through a pluralist lens
- Pluralism is the political theory of american politics that we have so many access points and branches in government that citizens have plenty of places to go for help.
- Opposite of pluralist theory is elitist theory (there’s a small elite that runs everything)
Interest group determinism
- Realists
- stack the process in their favor; raises the question of whether everyone involved in politics is equal
Process view
- Temporal view
- Process view individuals is similar to interest group determinism is that some people are more adept at influencing processes than others
Policymaking view
- More than budgets are made during the budgeting process
Basic differences between public and private org’s
Resource constraints
- Government can pass rev tax increase; resources aren’t as constrained as private sector
- Private sector have to be more strategic about how to raise revenue (i.e. goods sold and competition)
Ownership
- Private sector ownership is clearer
- Public sector ownership, elected officials vs people
Objectives
- Private sector - existence, market share, profitability (15-20% overhead)
- Public sector/government - no market share fear, monopoly (~30% overhead)
Why do we need government?
- government helps market function
helps provide legitimacy in terms of rules and procedures (i.e. enforcement of contracts, property rights, etc.) - there are certain things that markets won’t provide (i.e. national defense, infrastructure)
Public goods vs. private goods
Private goods are scarce (can be exhausted) and exclusion is feasible (i.e. food, clothing, television sets)
Public goods are neither scarce (non-exhausting/non-rival) and exclusion is not feasible (i.e. parks, national defense)
Common-pool resources
Common-pool goods are hard to exclude people from using but can run out/is exhausting (i.e. aquifer, species of fish, petroleum reserves)
Tragedy of the commons
Tragedy of the commons is a situation in which a common-pool good is depleted or spoiled through individuals users acting according to their own self-interest and contrary to the common good of all users.
Non-exhaustion vs. non-rivalry
Non-exhaustion/non-rivalry occurs when benefits of the service can only be shared, meaning that a given quantity of a service can be enjoyed by additional people with no reduction in benefit to the existing population
Externalities
Externalities = consequences due to market transactions between buyer and seller
A positive externality is an underproduction of the good (i.e. rubella vaccine)
A negative externality is an overproduction of the good (i.e. gas emissions); “public bad”
Moral Hazard
a problem when those with insurance have an incentive to cause the insured event to happen or to be less diligent in averting the insured event.
Adverse Selection
a situation where insurance sellers have information that buyers do not have, or vice versa, about some aspect of product quality. In the case of insurance, adverse selection is the tendency of those in dangerous jobs or high-risk lifestyles to get life insurance.
Pareto criterion
The pareto criterion, or pareto optimality, is a measure of efficiency where folks that comes together to make a decision in which no one is worse off but at least one individual is better off.
4 categories of government spending
1) Government purchases
- includes paying for employees, buying supplies, equipment that lasts more than a year
- Tend to be on the operating side of the budget (is a huge % of the budget)
2) Transfer payments
- Government is cutting a check to an individual citizen
- I.e. social security check, federal entitlement programs, Pell grant
3) Interest payments to retire debt
- Certain % of government budget that goes towards retiring debt
- At the federal level, it’s 14%
4) Government savings
The relationship between budget authority and outlays (schematic in Mikesell)
Budget authority gives agencies the ability to enter into obligations that will eventually result in outlays (expenditures)
Two main types of government funds and why they are separated
1) Federal Funds:
- general funds: financed by undesignated receipts and provided for use by appropriation
- public enterprise revolving funds: generated by businesses (post office)
special funds” designated for specific use, deposited into different accounts
- intragovernmental revolving fund: collect receipts from government agencies selling services to other government agencies
2) Trust Funds
- these are budget accounts that receive specially designated receipts and have been designated by law as trust funds
- beneficiaries do not own the funds
Incrementalism
- budgeting is mainly a process of political strategies
- there are little moving parts that contribute to the whole
- they build on top of each other; revise budget and make small changes.
Apportionment, allotments, and outlays (part of budget execution)
- Agencies submit apportionment plans to budget office for approval
- Each agency determines allotments to sub-units in its organization
Agencies incur obligations - Once a good arrives, agency authorizes budget office to provide the outlay
Good is used in providing agency function
Audits and Schick’s 3 control functions
1) Financial audits determine if the funds were spent legally (assesses control objective)
2) Management audits assess the performance of the agency (management objective)
3) Program audits assess agency success in accomplish (program objective)
