Budget Execution

1. Budget Execution 57.508-201 The Budget as a Policy, Planning and Information Tool Week 5 - Spring 2011

2. Budget Process • Executive and staff preparation • Submission to policy body budget committee • Policy deliberations, amendments and revisions • Adoption • Execution • Evaluation • Audit

3. 2. Submission • Draft budget with message sent to policy body • City council, county legislature, town board, etc. • Finance committee reviews budget requests • Sometimes invites in all department heads • Sometimes executive represents all requests • Sometimes conflicts between executive & departments • Politics and reality at play

4. 3. Policy Deliberations • City council or board of aldermen • Town council or board of selectmen • County legislature or board of supervisors • School board • Regional council or COG governing board • NGO Board of directors

5. 4. Adoption • “Ways & Means” looks at expected revenues • Public hearings held • Fixed costs & entitlements vs. discretionary • Council or board members propose changes • Changes voted on individually • Consensus achieved on bottom lines • Full council or board adopts with amendments

7. Budget Process • Executive and staff preparation • Submission to policy body budget committee • Policy deliberations, amendments and revisions • Adoption • Execution • Evaluation • Audit

8. Role of the Budget Office • Management controls • Accounting system operations • Reviewing agency or department procedures • Setting rules for consultants or travel • Protecting against fraud & waste • Overseeing agency or department compliance • Reporting on organization performance

9. Subsystems of Budget Execution • Revenue Administration • Cash Management • Procurement • Risk Management

10. Revenue Administration • Taxes • Determining the tax • Applying the tax • Collecting the tax • Enforcing the law • Fees, sales, grants, gifts, loans, etc. • Investment management

11. Cash Management • Depositing revenue promptly • Expenditure planning • Paying bills promptly • Short term borrowing • Contingency funds • Investment planning and management

12. Procurement • System with unambiguous and precise policies • Centralized vs. decentralized • Group or contract purchasing • Low cost, timely delivery, quality product • Bid procedures, RFPs • Purchase vs. lease • Outsourcing & privatizing • Contract management • Efforts to ensure competition, public notice, etc. • Can further policies like… • MBEs & WBEs • Energy efficiency or environmental quality

13. Risk Management • People, property and records to protect • Liability, exposure to litigation • Faulty equipment or hazardous location • Identify probability of extreme events • Insurance vs. self-insuring • Premiums, awards, settlements, etc.

14. Revenue Administration Taxes & Fees • Determining the tax (fee) • Applying the tax (fee) • Collecting the tax (fee) • Enforcing the law Remember the “centrality of revenue constraint”

15. Legal Basis for Collecting Taxes • Taxing powers • Percentage of income • Consumption (sales) • Wealth (investments & property) • Proprietary powers • Operation of enterprises yielding fees-for-service • Regulatory (or police) powers • Regulation of land use & code enforcement • Licensing of various professions or activities • Inspection and certification of food establishments

16. Three Pillars of Taxation • Equity • Neutrality • Effective Administration

17. Equity in theory • Horizontal equity • Vertical equity or • Progressive distribution • Proportional distribution

18. Equity in Practice • Benefits-received principle • Motor fuels taxes • Hotel/motel occupancy taxes • Property tax • Ability-to-pay principle • “From those to whom much is given, much shall be required.”

19. Elements of a Fair Policies • Levies are benefits-based • No favors to special groups • Ease the burden on the poorest but don’t punish the wealthiest • Tailor tax structure to community’s age, income distribution, and preference for public services

20. Neutrality in Theory • Public goods and services • (education, public safety) • Private goods and services • (utilities, public transit, solid waste) • Merit goods • (municipal airport, local library)

21. Neutrality in Practice • Broader base • Flatter tax rates with fewer exemptions • Benefits-based taxes and charges • Smaller tax rate differentials (loopholes) • Carefully designed taxes on business

22. Tips for Tax Reformers • Improving the equity and neutrality of existing taxes is better than introducing new taxes • Long term, increasing tax neutrality stimulates economic prosperity more than reducing tax rates • An equitable tax structure is the best tool for creating a favorable business environment

23. Influences on Local Revenues

24. Trends in Local Revenues Q: What’s been happening?

25. Trends in Local Revenues • Devolution & downshifting • Greater need for financial self-sufficiency • More charges and fees for services • Increased intergovernmental competition (e.g., for new development) • Citizen distrust of government • Increased economic uncertainty

26. Factors Escalating Competition • Increased mobility of business • Stagnant growth, particularly in manufacturing • Reduction in revenue sharing • Greater service responsibility shifts

27. Dependence on the Property Tax

28. Dependence on the Property Tax

29. Advantages of the Property Tax • Provides a stable source of revenue • Reaches nonresident property owners • Finances property-related services • Is easy to administer & difficult to evade • Promotes local autonomy

30. Disadvantages of the Property Tax • Not horizontally or vertically equitable • Not progressive in distribution • Not based on ability-to-pay • Not benefits based • Not broad based Q: What happens in areas of declining values?