Public and Private Budgeting and Evolution of US Government Budgeting - Assignment Example

Midterm Exam One of the differences between government and private sector budgeting is that the public sector has different actors who participate in the budgeting process, including the president, the congress, other government institutions, local governments, and the public. These different groups have different priorities and different levels of power over the prepared budgets. Secondly, the documents prepared for the budgets are made public through the public budgeting but in private sector budgets the budget documents are private. Therefore, public budgets are often controversial while private documents are not controversial. The third difference is that public budgeting is carried out using citizen’s money, and the money is spent on things that some people may not want. The private sector uses its own money for budgeting and spends it on things that the people need. Public budgets also involve planning in advance while private budgeting can be changed from time to time. In terms of similarities, public and private budgeting includes how money is going to be spent, and use similar accounting approaches of income and expenditure. 2. In terms of incrementalism, budgetary decisions are influenced by existing budgets. A Budget for the coming period is built on the current fiscal year’s budget. Rational budgeting depends on facts for decision making. Rational budgets are determined by collected data on recent performance, market trends, cost of credit and new product development. In terms of political influence budgeting, pubic budgets are influenced by the interests of political parties and politicians, group interests and legislations. The factors that influence public budgeting in terms of economics include opportunity cost, availability of resources, availability of information, and efficiency of resource allocation. Economists collect enough information in order to allocate resources efficiently in public budgeting. Lastly, decision making regarding procedures in public budgets are influenced by the available system and policies. The procedures of making budgets include policy planning, policy formulation, policy execution, budget process, and evaluation. 3. The evolution of US government budgeting has occurred in three eras. The first era was 1789 to 1921 which involved congressional dominance. In this era, the government was small with frequent surpluses. The constitution required the congress to levy taxes and money were only spent after appropriation of the congress. The era also included a balanced budget. It was in this era that Federal Income Tax was ratified. The next era was an era of presidential dominance which occurred between 1921 and 1974. In this era, national policy was dominant due to the imperialism of the presidency. In this era, the budget was used to fine-tune the economy towards the right direction. The Budget and Accounting Act was implemented in this era. This Act held agencies to tight spending, demanded efficiency and reduced the appropriation roles of the congress. The last era occurred between 1974 and the present. In this era, neither the president nor the congress had dominance over the budget. Deficits increased, decreased and increased again. Federal spending also increased. 4. Accountability in budgeting refers to the requirement of politicians and other budgetary actors to account for their actions in budgeting. In this case, those who prepare public budgets need to analyse the budgeted and the actual expenditures to ensure that public funds are utilised in the right projects according to the public interests and needs. Transparency refers to the situation in which political leaders provide the public with access relevant information about public budgets and encourage feedback concerning allocations, expenditures and government revenues. Budgets need to be provided openly to public scrutiny. Responsiveness to public budget is the ability of those who prepared it to react to suggestions, influences and appeals from the public. A responsive budget should consider the suggestions and interests of the public. Stewardship is the process of responsible public budgetary planning and management. Those who plan and implement budgets need to do so responsibly as custodians of public resources. 5. When someone talks about the federal budget the first question I ask is which type of budget the federal budget is. There are several types of budgets. Operating budget is the one that identifies cash inflows and outflows in day-to-day operations of the country or an organisation. It involves cash flows that are monitored on regular basis to identify differences between income and expenditure. Unified budget in United States is a type of federal budget that involves the consolidation of receipts and outlays from the Social Security Trust Fund and the federal funds. This results in single way of measuring government’s fiscal status. Off-budget is a type of budget in United States which is not included in the country’s regular federal budget. This budget is financed by separate agencies. On-budget is the budget that is included in the federal budget. Mandatory budget includes budgets that are controlled by laws other than the appropriation acts; they include social security and Medicare. They are entitlements that everyone who meets relevant eligibility can benefit from. Discretionary budget is the budget prepared through authority in appropriation acts. It is prepared under the discretion of the congress. 6. Issue networks theory supports the alliance of interest groups who come together to support an issue of government policy. In terms of budgets, issue networks encourage change in federal budgets to serve the interests of the public. Interest groups such as journalists, political leaders, public corporations and researchers form networks to advocate for the interests of the public in terms of budgetary allocations. On the other hand, iron triangle involves relationships between interest groups targeting mutual benefits. The interest groups support their private interests rather than public interests in terms of budgetary allocations. The interest groups include congressional budget committee and federal agencies. 7. The four main parts of a local budget are: budget message, summary, detailed schedules, and supporting documentation. The budget message contains a message from the person responsible for preparing the budget and summarises the primary features if the budget. It also highlights challenges faced by the local government in preparing the budget as well as changes made. The local budget also contains summary which represents entries of revenue and expenditure for each fund in the budget. It has revenue and expenditure balances show the differences between expenditure and income which can either be surpluses or deficits. Detailed schedules are represented by tables showing more detailed financial data. Lastly, supporting documents include information about labour contracts, employees and changing economic conditions. 8. There are eight things than one needs to know when reading the budget. The first one is “Who/What” exactly bears the responsibility on which the budget applies. One needs to know what the organization covers and what the budget entails. Secondly, one needs to know the financial year covered by the local budget in order to determine tax or spending needs. The third thing that one needs to know when reading local budgets is the operating or capital budget. He or she should know whether the local government uses capital or operating budget. Fourthly, one needs to know the legal status of the documents involved in the local budget. The other four things that one needs to know when reading the local budget include: whether the budget is balanced, the type of funds that apply in the budget, the main drivers of the budget, and the people who get the spotlight regarding the local budget. 9. The congressional budgetary process occurs in five steps. The first step involves president’s submission of the budget to the congress in early February of each year. This submission outlines the funding and policy priorities of the administration for the coming year. In step 2, the House and Senate Committees hold hearings on the president’s submission and provides a budget resolution. Thirdly, appropriation bills for the next financial year are passed in the House. The bills go through hearings, markups, floor considerations and conference in the House. I n step four, considerations are made on the reconciliation of the legislation. In this case, committees are required to report legislation containing changes needed in the spending and revenue levels indicated in the budget resolution. Lastly, consideration is made on the authorization of the legislation. In this case, the Congress makes decision on the authorization of the appropriation funds for each fiscal year, based on the Budget Act and the rules of the House and the Senate. 10. The Congressional Authorization Committees are those committees that authorize programs and make policy decisions. These committees have the jurisdiction over subject areas, and are responsible for writing the legislation. This legislation authorizes the use or expenditure of funds from the federal budget. The authorization committees specify the amount of money needed to be spent on specific programs. On the other hand, the Appropriations Committees are comprised of 12 appropriations subcommittees which draft appropriations bills and allocate funds and control them among various programs. The Appropriations Committees decide on the levels of funding for each project. 11. The GAO reports to the Congress rather than the President because the congress is the body that is responsible for authorizing and appropriating funds. The role of GAO is to investigate or evaluate issues related to receipt, disbursement and application of public funds. The Congress ensures that the receipts and disbursements go to the right programs in the right amount. Therefore, the General Accounting Office (GAO) should report issues that enhance greater economy or efficiency to the Congress which oversees the budgetary allocation process. References list Lewis, C.W., & Hildreth, W.B. (2011). Budgeting: Politics and power. New York: Oxford University Press. Read More