1 / 20

Financial Management Series Number 9 Local Government Budgets: Approaches & Traits

Financial Management Series Number 9 Local Government Budgets: Approaches & Traits. Alan Probst Local Government Specialist Local Government Center UW-Extension. What is the Purpose of a Budget?. An accounting document (record & control expenditures)

carlynda
Download Presentation

Financial Management Series Number 9 Local Government Budgets: Approaches & Traits

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Financial Management Series Number 9Local Government Budgets:Approaches & Traits Alan Probst Local Government Specialist Local Government Center UW-Extension

  2. What is the Purpose of a Budget? • An accounting document (record & control expenditures) • A management document (determines who can spend how much) • Decision-making document (basis for sound decision-making by council & staff) • Communications document (informing public of how their money is being spent)

  3. Budget Approaches • Line-Item Budgets • Program Budgets • Performance Budgets • Zero-Based Budgets

  4. Line-Item Budgets • Most common format • Connects & reports information on inputs used to produce government services • Emphasizes control & oversight • Downplays trust, communication & flexibility

  5. Line Item Operating Budget

  6. Line-Item

  7. Program Budgets • A Program Budget allocates money to major program areas or activities rather than to specific line items • More centralized than other approaches • Focuses on program goals • Examines all alternatives that may achieve program goals

  8. Program Budgets Program budgets include both revenue and expenses for the major activities of an organization. Helps managers focus on sources of profits and losses of programs that could be expanded or discontinued.

  9. Program Budgets • Program budgets allocate money to major program areas or activities rather than specific line items • A Police Department might be broken down as such: • Administration • Patrol • Investigation • Community support Instead of by line items

  10. Program Budget Challenges • Goals can be difficult to formulate and define • Goals are subject to change; program structure must be changed in response • Sometimes difficult to obtain objective measures of benefits • Can be difficult to determine inter-program efficiency

  11. Performance Budgeting • Under a performance budget approach, a program budget format is adopted to the existing organizational structure • A performance budget is essentially a program budget with performance measurement methodology used to make budget decisions.

  12. Performance Budgeting • Initiative in budget preparation lies with performance unit • Government activities are divided into major functions • Each activity must yield an identifiable output • Management, administration, and overhead costs are distributed among the various activities of the performance unit

  13. Purposes of Performance Budgeting • Better evaluates results of program operations • Provides decision-makers and public with better information on quality of public services • More popular as citizens lose confidence in government

  14. Zero-Based Budgeting Zero-Based Budgeting (ZBB) organizes information into decision packages, i.e. incremental spending levels that reflect varying levels of effort and costs

  15. Zero-Based Budgeting In theory, each department prepares at lest three (3) packages: • A base-level, meeting the program’s minimum requirements • Current-level funding • Enhanced package – to address unmet needs

  16. Zero-Based Budgeting • Packages from all departments are then ranked according to perceived need for the package • Unlike PBB, which uses more objective criteria, ZBB relies on subjective judgment of decision-makers in ranking packages

  17. Incremental vs. Zero-Based Budgeting Incremental budgeting starts with current revenues and projects next year by adjusting for inflation, volume, efficiency, technology, etc.

  18. Incremental vs. Zero-Based Budgeting Zero-Based Budgeting: • calls for a total re-evaluation of all programs and activities • requires that decision packages be prepared for each separable activity or level of activity • Ranks the packages • Selects packages for adoption or rejection

  19. Why the “zero” in ZBB? • In theory, decision-makers conduct an annual evaluation on each program’s purpose and priority, weighing it against all other spending possibilities • As a result, decision-makers may decide not to renew funding for existing program and shift those funds to another, possibly entirely new, program • In reality, this reallocation rarely occurs

  20. References “Management Policies in Local Government Finance” Fifth Edition, ICMA, 2004 MPA 752 “Public Budgeting and Finance” Professor Craig Maher, University of Wisconsin-Oshkosh “Performance Measurement: Getting Results” Harry P. Hatry, The Urban Institute Press, 2006

More Related