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).