Section 2- Part 1

Question 1

Budget

Answer 1

legal document that serves many purposes. It embodies the priorities and objectives of government.

Question 2

Budget Fundamentals

Answer 2

Since the budget is fundamental to government operations, many individuals and groups contribute to the budget process. The budget process involves hearings, debates and negotiations among individual citizens, public interest groups, executive branch agencies and the legislative branch.

Question 3

Popular Sovereignty

Answer 3

An examination of government financial management must begin with the concept of sovereignty. One definition of sovereignty is “possessed of supreme power.” In a democracy, the people hold final authority over the government and public policies. This is known as “popular sovereignty.”

Question 4

Government Sovereignty

Answer 4

Government sovereignty is derived from the people and expressed in constitutions or, at the local level, in charters. In the U.S., the national government has the broadest sovereignty. For example, Article I of the U.S. Constitution gives the national government the power to coin money and prohibits the states from doing so.

Question 5

Sovereign Entities (Fiscal/Monetary Powers)

Answer 5

• tax citizens and corporate entities to raise revenue;
• establish budgets and spend public funds for authorized purposes;
• borrow funds for government operations and capital investments
• create money (national government only

Ex: US Federal Reserve System

Question 6

Sovereign Entities (Examples)

Answer 6

Most developed countries also have a central bank to influence monetary policy. The U.S. Federal Reserve System, like many of its counterparts, is designed to be politically independent. The Federal Reserve System has 12 regional banks in major cities throughout the nation. Through money supply operations and setting certain interest rates, it influences interest rates set by banks and other financial institutions world-wide, affecting the cost and availability of credit.

Question 7

Legal Constraints of government sovereignty

Answer 7

Legal constraints derive from constitutions, statutes and ordinances. They include limits on the type of tax, rate of tax and tax collection process.

Question 8

Ex of legal Constraint

Answer 8

For example, the constitutions of nine states prohibit a state-level personal income ax.1 California’s famous “Proposition 13” (and its many clones) sets a legal limit on property tax rates. Tax enforcement mechanisms, such as foreclosures and seizures, also stem from these legal authorities.

Question 9

Legal Restrictions

Answer 9

Purpose
Term
Amount
Process

PTAP

Question 10

Legal Restriction- Purpose

Answer 10

Borrowing is often restricted to capital investments, as contrasted to government operations. Borrowing to support operations may be permitted in unique circumstances—most often, for cash flow purposes.

Question 11

Legal Restriction- Term

Answer 11

Term: Government debts must be repaid in a specified period.

Question 12

Legal Restriction- Amount

Answer 12

Total amount of debt is restricted in various ways. The national government has a debt limit based on the absolute value of the debt.2 States often limit the amount that can be used to service debt to a percentage of the total state budget. Local debt limits may be tied to assessed value of real estate.

Question 13

Legal Restriction- Process

Answer 13

In many instances, government borrowing is allowed only by referendum. For instance, after the legislature or county commissioners approve the borrowing plan, it must be put before the voters for approval before borrowing can take place. See the text box on the next page.

Question 14

Appropriated Budget

Answer 14

Budget that has been passed by the legislative branch (and signed by the chief executive, if required); has effect of law

An appropriated budget provides legal authority to spend, as well as a legal constraint on government spending. If a budget has not been passed by the start of a new fiscal year, the government does not have legal authority to operate.

Question 15

Continuing resolution

Answer 15

As an emergency stopgap measure, a continuing resolution may be enacted; it allows government to continue operations for a limited period until the budget appropriation is passed.

Question 16

Who informs the legislative branch that more funds are needed

Answer 16

A different problem occurs when the appropriated budget is depleted before the end of the period, usually a fiscal year, or when unexpected expenses arise. The chief executive informs the legislative branch that more funds are needed. If the legislature provides additional funds, it is called a supplemental appropriation or budget amendment.

Question 17

Debt vs Deficit

Answer 17

“Debt” should not be confused with “deficit.” Debt is planned, short-or long-term borrowing to finance government objectives. The national government incurs debt to finance both current operations and capital investments. In states and localities, debt is usually restricted to capital investments (not current operations).\
A deficit occurs when government expenditures for a specific fiscal period exceed revenues. Deficits often lead to borrowing and thus to debt, especially at the national level. Most state and local governments are prohibited from deficit spending.

Question 18

Separation of Powers

Answer 18

The separation of powers forms another constraint on government sovereignty and spending. Even the president’s authority as commander in chief is curtailed by checks and balances—the military cannot be trained, equipped and deployed if the legislative branch does not provide the funds.

The legislative branch has the most power when it comes to budgets. At all levels of government, the legislative branch passes laws related to taxation, budgets, borrowing and debt ceilings. It sets limits on the purpose, timing and amount of government spending. In other words, the legislative branch has the “power of the purse.”

Question 19

Executive- Budget

Answer 19

The president and most governors are required to submit a proposed budget to the legislature—this is called the
“executive budget.” The degree to which the legislature upholds the executive budget is subject to politics. Legislators may even declare it “dead on arrival” and start from scratch. In some states, the legislature can only accept or reduce the total expenditures proposed by the governor; they cannot increase it.

Question 20

Judicial- Budget

Answer 20

The judicial branch also plays a role in government finance. When disputes arise, the judicial branch exercises judicial review. Courts may intervene if the purpose or manner of spending violates the constitution, law or statutes

Question 21

Budget Passed by Congress (And Local)

Answer 21

After a budget bill is passed by the Congress or a state legislature, it goes back to the chief executive for signature. The president and governors have authority to either sign or veto the budget bill. Forty state governors also have line-item veto authority; they may strike out individual items without having to veto the entire bill. (Currently, the president does not have this authority.) As with any law, the legislative branch can override the veto with enough votes, usually two-thirds of both chambers.

The process is similar in local governments. Typically, a city council or board of supervisors submits a proposed budget to the mayor or supervisor; the chief executive can veto the budget (some have line-item veto authority), and the council/board may override the veto.

Question 22

When Budget Becomes Law

Answer 22

Once a budget becomes law, the executive branch implements the budget and the legislative branch provides oversight. The legislature may:
* prescribe organization structure and staffing procedures as part of the budget bill;
* require various budget execution and spending reports; and
* conduct reviews and hold hearings to evaluate the programs or when issues arise.

Question 23

How is popular Sovereignty exercised:

Answer 23

• Citizens submit their needs and concerns to elected officials.
  *Constitutions and statutes may require that certain spending and borrowing plans be submitted to voters via referendum or initiative.
• Citizens exercise their oversight at the polls.