An Overview of Public Budgeting
Public budgeting is one of the most critical aspects of
public administration and public policy.
Public budgeting is much more than accountants sitting
around making entries into the books or working with
spreadsheets on computers.
A public budget is a document or a plan for how
government will spend the public’s money and how it will
generate the funds needed to pay for services for the next
year.
Governments collect revenues, mainly through taxes, and
then spend those revenues on a varied array of services and
If they spend more than the available revenues, they must
borrow money to pay for the deficit.
If the money left over, that is a surplus and it needs to be
allocated properly or returned back to the tax payers as a
rebate.
The most simplistic way to think about the basic accounting
in budgeting is revenues mines expenditures equal the surplus
or deficit.
When the budget is done, the income calculation is
approximate; not exact since it is unknown how much the
income or revenue will be next year.
Public budgeting is a highly political process where public
When policy makers and politicians make budgetary
decisions, they are making policy decisions, and interest
groups appear to make sure that their special interests are
accommodated.
The process involves who is going to get whatever there is
to get from the legislature.
If a person wants to know what the nation’s commitment is
to national defense, finding a cure for cancer, child care,
education, and the like, they can find it in the budget.
In most countries, the budgetary process involves such
decisions as the “guns-or-butter” debate.
That is, how much will be spent on the nation’s defense
versus how much will be spent on welfare-related
programs?
The budget is a plan, but it is also a commitment for
education programs, highways and transportation projects,
and research and development.
Budgeting is more than just a document; it is a written
record of public policy.
Different Ways to Think about Budgeting
Public budgets can be seen from at least five different
perspectives.
Budgeting is a way to manage the economy.
The major objectives of budget policy involve three very
important goals.
They include allocation of resources, distribution of
resources, and stabilization of the economy.
Fiscal policy greatly influences the economy because it
directly affects the collection and expenditure of public
money.
In theory, public financing holds that citizens must pay for
the services needed to maintain society.
The tax and spending policy of government can be used to
manage the overall economy.
British economist John Maynard Keynes argued this point
more than 80 years ago.
Stated simply, when the economy is booming, government
collects more revenue.
During times of recession, the economy can be “pumped
and primed” by giving tax breaks and incentives to
stimulate economic activity.
When the economy is performing poorly, government incurs
more welfare-related expenses and unemployment benefits.
This also can help to stimulate the economy because those
receiving benefits spend their money in stores, which has a
multiplier effect in the economy.
During recession, government usually spends more than it
collects because the economy has stagnated.
During those times, government usually operates with deficit
spending until the economy recovers.
The fiscal policy of government can greatly affect the length
of a recession, relieve human suffering during hard economic
times, and help the economy to recover.
Once the “business cycle” starts moving upward again, the
economy begins recovering; and once the recovery is over,
government tax collections increase.
As Engels indicated, in capitalism the business cycle is
well known for its boom-and-bust characteristics.
There is one reality that is the actions of government are
important in determining the path that economy takes.
Supply-side theory holds that government should
minimize its presence in the economy by keeping taxes low
and watching the supply of money.
Any intervention on the part of government, which is
discouraged, should be to aid producers rather than
This idea is associated with fiscal conservatives.
Supply-side theory is a contemporary version of classical
economics, which is associated with Adam Smith and other
classicists like David Ricardo and Jean Baptiste Say.
It is sometimes referred to a laissez-faire economics, but critics
have called it trickle-down economics because it favors
business and the wealth.
Demand-side economics, which is associated with the work of
John Maynard Keynes, holds that supply is meaningless if there
is no demand.
He argues that government must play an active role in the
economy during recessions or depressions, and that fiscal policy
can be used to manage the economy.
Government must intervene to help relieve the suffering of
consumers.
The monetarists, associated with economist Milton
Friedman, believe that neither supply nor demand-side
economic theory is adequate; the key lies with the supply
of money.
As the economy grows, the supply of money should grow
and if the economy shrinks, the supply of money must be
reduced; if not, inflation occurs.
The goal of fiscal policy is to produce a healthy, growing
economy with low unemployment and low inflation.
Budgeting is also a way to choose among competing
Do we invest in large-scale nuclear energy projects to
ensure that the nation does not have “blackouts”?
Do we build more submarines or increase health care
benefits for the nation’s senior citizens?
Do we help farmers or do we help cities?
Do we fight the war on illegal narcotics or do we build
more public transportation light rail system?
The examples like these could go on and on, but one thing
is a reality that is budgeting involves choices among
competing goals.
It also involves a clash of values over how the money
should be spent, on which programs and projects, and how
the revenue should be raised.
Do we spend billions of dollars to build space shuttles and
explore space, or do we put the money in superfund
projects to clean up pollution?
Budgeting is where ideological clashes occur over what is
important and what will be secondary in public policy.
Thus, budgeting is a power struggle among competing
priorities and interests.
This includes the agencies of government that must lobby
to ensure that their funding continues.
Budgeting is a way to review and control the agencies of
government.
Agencies depend on the funding from the legislature to
function, and the legislature can hold them accountable for
poor performance.
Thus, budgeting is a form of control.
In a similar vein, budgeting is also a tool of management.
Public managers use their budgets to manage their agency.
The budget is a financial plan that includes categories of
expenditures that are used to carry out activities and
implement public policy.
Budgeting is a form of accounting.
A budget is a comprehensive statement about what
government did last year and the plan for the next year.
It lists all revenues and expenditures, often line by line.
It serves as a public statement of government activity in
which the activities of government are documented by a
complex system of governmental accounting.
The Budget Cycle
The budget cycle is the process in which the budget is
planned, prepared, debated, adopted, implemented, and
audited.
Budget cycles typically contain several distinct but
overlapping phases: It includes preparation and
formulation, legislative review, budget execution, and audit
and evaluation phases.
Budgets generally follow a fiscal year, which is an
accounting cycle.
In the US fiscal years vary from state to state, but most
governments use July 1 through June 30.
The federal government uses a different cycle that runs from
October 1 through September 30.
In Turkey, the fiscal year starts on January 1th and ends on
December 31th.
The first phase of creating a budget is preparation and policy
formulation, which involves making revenue estimates,
gathering expenditure requests from agencies, and dealing with
the requests of interest groups.
Budget offices, in the US at the federal level, the Office of
Management and Budget (OMB), gather and assemble the
information needed to put together a proposed budget.
The information must be analyzed to ensure that the projected
revenues will cover anticipated expenditures.
The second phase is legislative review.
Although the budget is submitted to the legislature,
executive-legislative relations continue throughout the
process, particularly in the US.
This phase involves assembling the final budget, holding
hearings, listening again to requests from interest groups
and agencies, and legislative debate.
Public policy is also finalized in this process.
After the debate is over, the budget is approved by the
legislature and signed by the chief executive.
At this point, the budget has been formally adopted.
The budget is then executed (implemented) and funds
become available for agencies to spend in executing public
agencies.
Depending on the government, funds may be earmarked for
agencies or transferred to agency accounts.
After the fiscal year ends, the process of auditing and
evaluation begins.
Often auditors have just completed the previous year’s
evaluations, so auditing and evaluation is an ongoing
process.
The auditing process involves not only traditional
accounting checks and verification, but also evaluation.
Evaluation often involves cost-benefit studies and detailed
analysis to measure the performance of programs.
Auditing is conducted to ensure that funds were spent
properly and that procedures were followed.
The US has zero-sum model budget which is also called
pay-as-you-go (PAYGO).