Review of Revenue Estimates in Federal, State and Local Budgets - Research Paper Example

Review of revenue estimates in Federal, State and Local Budgets Introduction: “A budget is a description of a financial plan. It is a list of estimates of revenues to and expenditures by an agent for a stated period of time. Normally a budget describes a period in the future not the past.” (Definition of budget, 2010, para.1). For the United States of America each year the budget of the following fiscal year is submitted by the President. He submits the budget proposal before Congress and if approved is passed with two third majority. According to the Budget and Accounting Act of 1921, the president must annually submit a budget to Congress by the first Monday in February. The proposed spending plan, the president's budget must show: The condition of the Treasury at the end of the last completed fiscal year. The estimated condition of the Treasury at the end of the current fiscal year. The estimated condition of the Treasury at the end of the next fiscal year if the budget proposals are carried out.” (Budget of the United States government: About, 2010, para.1). Basic description of each budget: The budget for the country proposed by the president is known as the federal budget. The federal budget gives an idea about the income and expenditure of the country and this form the basis for all other budgets such as that of the state, local and agencies budget. It can be given as, “An annual effort to balance federal spending in such areas as forestry, education, space technology, and the national defense, with revenue, which the United States collects largely through federal taxes.” (Federal budget, 2010, para.1). The state budget is the planned financial Plan of the coming financial year for a particular state. The state budget was presented by the governor of the state; the state budget is for the 50 states and the U .S. territories. Example Budget for the State of Georgia. “Title 45-12-78 of the Official Code of Georgia Annotated provides that no later than September 1 of each year the head of each budget unit, with the exception of the General Assembly and the Judiciary, shall submit to the Office of Planning and Budget (OPB) estimates of the financial requirements of the budget unit for the next fiscal year, on the forms and in the manner prescribed by OPB, with such explanatory data as is required by OPB. The submission shall utilize programs and budget classes and be within expenditure parameters as established by the Governor.” (Perdue, 2010, p.3). The local budget is the financial plan for the next fiscal year for the local self governments, say City Corporation or municipality. In city it is the mayor council that deals with administration and the mayor will be presenting the budget.The revenue for the budget consists of the allocations from the federal and the state budget. Example Budget for the city of Macon. The agency budget is the spending plan for the different agencies operating in an area. It includes the fund available for the particular agency for the fiscal year to carry out budget activities. Example agency budget for the police department of a city, say Macon “Mandatory Spending, at $2.16 trillion in FY 2011, was 56% of the U.S. Federal Budget. The largest mandatory spending programs were Social Security and Medicare, as follows: Social Security - $730 billion Medicare - $491 billion Medicaid - $297 billion TARP - $11 billion Jobs Programs - $25 billion.” (Amadeo, 2010, para.1). Differences and similarities of each budget: “In Fiscal Year 2010, the U.S. federal budget will commit the expenditure of up to $3.55 trillion dollars, increasing the federal deficit to almost $1.7 trillion. Clearly, spending that much taxpayer money requires a carefully thought out and closely followed process. In a perfect world, the annual federal budget process begins in February, ends in October and goes like this.” (Longley, 2010, para.1). Federal Budget State Budget Local Budget Agency Budget The Budget is presented by the President The budget is presented by the governor The budget is presented by the Mayor. The funds are allocated to the agency as per the fiscal policy of the year. The budget allocates for the other three from the taxes paid by the people It includes its part towards the local and agency from their share of taxes and if had from the federal one too. With the allocated funds from the state and the federal part and along with their collection from the public towards their share of taxes They are provided with funds from the prime agencies and some are independent to plan within the premises of the government policies. Tax is the main source of income Tax is the main source of income Tax is the main source of income Individual income for some of the agencies and fund allocated from the government. Various agencies assist in the preparation of budget and are planned for the country. The state agencies assist in the preparation of the budget and is planned for the state. Need to abide the policies of the federal government The local government got finance panels to assist in the preparation of their financial plan. The proposal or requirement for functioning can be submitted by the agency, based on which allocation can be made by the governments at the various levels of the administrational hierarchy. At the federal level it is allowed for deficit spending At this level there are limitations for deficit spending At this level there are limitations for deficit spending No scope of deficit spending is done over the funds allocated and requested if necessity arises. Budgeting process is a structured one. Budgeting process is a structured one. Budgeting process is a structured one. Funds are allocated to them but the spending process is structured and reports at the end of financial year need to be submitted. The budget will be on the first Monday of the month of February After the federal budget is proposed and passed usually the state budget is presented Next will be the budget proposal at the local level, say for the city. The agency will have discussions on the budget and the funds allocated to them to match with their services and the report is passed to the concerned departments. In the federal budget they got the option of having deficts which is lacked by the state local and agency budget, they do not have the option of having deficits to plan their spending for the fiscal year. The Budget is prepared as per the specifications in the Budget and accounting Act. Each of the budgets possesses its own special format and the respective agencies assist in the preparation of the Budget. The differences and similarities of the four types of budget are pointed above What accounts for the major sources of revenue for each? Federal Budget: Federal budget is the budget plan for the country which specifies towards the revenues they will earn and the spending plan of the earnings for the fiscal year. This was presented by the president. “Income taxes contribute 45%. Social security taxes are 34%. Corporate taxes are only 12%. Excise taxes and other make up the remaining 9%.” (Amadeo, 2010, para.2). From the above data it is visible that the major chunk of revenue comes from the income taxes paid by the individual, which is almost the half part of the total revenue of the country. The taxes paid by the individuals are used for the development of the country. The tax paid for social securities comes next the defense and the police departments are allocated a large portion of the available funds every year to maintain law and order in the country. Because of the global slow down, which has been affecting the united states too cause for the diminishing rate of the revenues. The revenue rates are not upcoming Government is taking measures to rescue the economy and creating job opportunities. Policies are made supporting the industrial and agricultural sectors to improve the GDP. Corporate taxes contribute only to 12% of the total revenue earned. This is comparatively less when compared with the individual taxes this points out that the individuals are contributing more. Excise taxes and others make up the remaining 7%.government is planning to take measures to improve the revenue without putting the burden on the individuals because of the slow down the economic analysts says the scenario would likely to be continued. The deficit in the budget is increasing. Social security and medicare grabs the majority of the revenue towards its utilization in the year. “States’ fiscal conditions remain extremely weak this year – fiscal year 2011 – even as the economy appears to be moving in the direction of recovery. Indeed, historical experience and current economic projections suggest 2011 will be worse than 2010 by the time the year ends due to declining federal assistance.” (McNichol, et al, 2010, para.8). The quote points out toward the weakness of the US economy to continue. Because of that the deficit has grown up to $ 1.267 trillion. State of Georgia: It is one among the 50 states of the United States. It is formed in the 18th century. “FY 2011 Estimated Revenues Total: $18,156,435,820 Income Tax – Individual 41.4% Motor Fuel Tax 4.8% Income Tax – Corporate 3.2% Sales Tax 29.1% Other Taxes 6.3% Fees & Sales 7.7% Lottery 6.2% Tobacco Settlement 0.8% Miscellaneous 0.5%.” (Perdue, 2010, p.13). From the above furnished details we will get an idea about the revenue earnings in the State of Georgia.Here too it is the income tax collected from the individuals which form the major chunk towards the revenue for the state. The state has a population of about 14 lakh.The budget here was presented by the governor of the state. The next higher percentage towards the revenue is contributed by the sales tax. As the global slow down affected the whole of the world and in US, the impact too was visible in the economy of Georgia .The fees and sales contribute about 7.7% towards the revenue of the state. The next higher contribution is by the lottery, it contributes about 6.2%.motor fuel tax is contributing a little towards the revenue. The corporate sale tax is still a less amount when compared to the individual taxes paid it is less by 10 times. The global slow and the allied factors are the main cause of loss of revenue. The revenue is allocated in the budget toward the various spending areas of the state and it includes its part of giving grants to the cities and agencies. The major chunk of money is spent towards social security and medicare. City of Macon: “Macon, incorporated in 1823, is the county seat of Bibb County. The city is named in honor of Senator Nathaniel Macon.” (City of Macon, n.d, para.1). In the city the budget is presented by the mayor of the city. The budget consists of the spending plan for the city the revenues accrued by them and the funds allocated by the federal and state budgets for the city. Property taxes, sales taxes, business licences, contribute towards the revenue of the state; in addition to all this the revenue is supported with grants from the federal and the state governments. With all this the city administration is done.The budget is prepared for the city. Agency budget will be the budget for agency providing services, say the police agency of the city of Macon. The social; security is given due importance in budgets of all levels at all times with financial plan their services are formulated and done. “Social Security is funded through payroll taxes. Through 2017, Social Security collects more in tax revenues than it pays out in benefits because there are 3.3 younger workers for every beneficiary. This created a surplus in the Social Security Trust Fund.” (Amadeo, 2010, para.3). The police department of the city is a small agency, and the department is taking care of the social security of the city. The major spending areas in all levels of budget include the social security. Before considering the implications and ramifications of how changes in revenues are going to impact American lives through Federal, State, Community and agency budget, it is first of all, imperative to consider what these kinds of budgets really are, and what they mean for the American community. Coming first to Federal budget, it is meant to formulate an overall budget framework for the entire country as a whole. There are many critical federal agencies that come within the ambit of Federal intervention like, Defense, Energy, Homeland Security, Education, law enforcement and Commerce, and it is thus the responsibility of the Federal Government to exercise control and jurisdiction on these important areas with mission critical objectives. Besides, the Americas are facing one of the worst and long drawn economic recession of the size comparable to the Great Depression. Although the worst is almost over, it is necessary that the Obama Government take all necessary steps to carry the country along the lines of overall economic recovery and renewed prosperity. “However, there is much left to do, and this Budget lays out the way ahead.” (Budget of the United States government: Browse fiscal year 2011, 2010, p.6). Coming next to State budgets, especially for the state of Georgia, in which Macon city is, situate, the revenues since fiscal 2007 have been as follows: Actuals for fiscal 2007 - $19.8 Billions Actuals for fiscal 2008 - $19.7 Billions Actuals for fiscal 2009 - $17.8 Billions Thus, it is necessary to consider the fact that during these three previous fiscals, the increase in rate of growth has come down, during fiscal 2010, the estimated revenue has been pegged at $17.4 and in 2011, it is a higher $18.15 B. With slow downs in new housing projects accompanied with lowered growth rates in house tax collections in the housing sector, realization of projected budget estimates for 2011 remains to be seen. However, there are silver bullets in the form of reducing operating expenses in critical areas, and when speaking about law enforcement, the shifting of the Macon police academy to the public Safety Training Center Head quarters which would not only reduce a great deal of costs but could also ensure that greater efficiencies are gained in later years. From the table provided below, it is evident that major source of revenues for Georgia is from Personal individual income tax (41%), fees and sales (7.7%) (Perdue, 2010, p.13). However, there is evidence to prove that the income tax gained by the government has reduced in recent years, mainly because of the recession in the economy. “Nominal personal income has fallen in recent quarters in the US and in Georgia. These declines, measured compared to the prior quarter, are relatively rare over the last 40 years and are indicative of the severity of the current recession.” (Perdue, 2010, p.412). Coming to employment growth statistics, it is seen that Macon has experienced the three highest negative impact of employment growth table. This is around -5.8% as is seen from the above Table. Coming next to the City of Mecon and its Budget, the following could be mentioned.This city was constituted on December 10, 1823, through Charter and it is governed through a mayor kind of administration and dominance. The Funds and Group Accounts are under each separate legal accounting entity. There are Assets, Creditors, Funds equity, receipts and expenses like in any other typical government entity. The city is ruled through amounts received from government resources and other individual funding sources. It is important to know that all fund entities are treated as separate entities and except for pre authorized fund movements; they are treated as distinct and discrete entities. In the event of spending, the purpose for which this has been undertaken needs to be explained by the concerned officials and also no revenue could be gained or expenses incurred ultra vires the aims and objectives of the governing committee and the essential corpus of the budget. Budget committees and its budget officers are responsible for the enforcement of budget programs. Again, it is also incumbent on the part of the Budget Committee to oversee that the modus operandi is controlled and is well within the powers and the byelaws of the organization. “The modified accrual basis of accounting is followed in all governmental fund types, expendable trust funds and agency funds. Under this method, revenues are recognized when they become measurable and available as net current assets. Expenditures are generally recognized when the obligation is incurred, with the exception of principal and interest on general long term debt which is recognized when due. Those revenues susceptible to accrual are property taxes, local option sales taxes, other taxes, intergovernmental revenue, interest revenue and charges for services. Fines, licenses and permits and miscellaneous revenues are not susceptible to accrual because generally they are not measurable until received in cash.” (Financial structure: Basic of accounting, 2009, para.3). In the case of the city of Macon, it is necessary that the administrative policies be imbued into the budgetary process through plan of Actions. It is the Chief Administrative Officer (CAO) who is entrusted with budgetary responsibilities and to administer budget committee requirements. The budgetary proposals are carried out by the responsible budget committee supervened by budget officers. It is the primary responsibility of the Mayor, who is in overall charge of the budget to discuss budgetary proposals with the CAO during the budget sessions that are proposed during January every year. It is also necessary that a public hearing of the entire gamut of the proposed budget of the town of Macon be conducted by the city council, within 7 days of its being sent for approval, during which time the question of funding of such be budget is also taken up. The Mayor of Macon has discretionary powers to veto (cancel) what he may feel inappropriate in terms of individual appropriation lines and it would then become necessary for 2/3 of the City Council to cancel this Mayor’s veto powers. “A "performance budgeting" system is used by the City of Macon in order to line the work program of the City to the budgetary dollar amounts. The essence of the performance budget is the establishment of departmental objectives and statistical performance indicators.” (Financial structure: Basic of accounting, 2009, para.11). In as far as the city of Mecon is concerned, it needs to be seen that the budget exercise is not a staid and customary one, or even bureaucratic in nature- on the contrary, following the pattern of budget preparation and approval, it is ever changing and dynamic process. First kind of budget revisions- Supplementary Budget Appropriations: It is seen that in the event any changes in the budget becomes necessary, it is necessary to inform the city council who would take necessary steps; Budgetary changes are often done in the event the quantum of revenues/expenses are higher or lower than expected or if there needs to be more channeling of funds for capital projects. This procedure is often referred to as the Supplementary Budgetary Appropriation. (SBA). The procedure under which SBAs are carried out is that there needs to be a written request to the department heads and the CAO/Finance Director. After following the due process, the request may either be approved or disapproved. In the event the request is approved, the Finance director needs to make the administrative budget changes and inform the appropriate committee for further course of actions on this account. This causes changes in the quantum of budgets. Now it is necessary to consider the second kind of changes that could possible occur in Macon city. Second kind of budget revisions- Administrative Budget adjustments: This is characteristic of changes at the departmental levels and does not cause any change in as far as functional aspects of budget is concerned. The effect of an administrative adjustment is that it redistributes appropriated funding within a function to different line items within the same function without causing an increase or decrease in the budget. The exception is that there is no funding increase allowed to the personnel compensation. While the first Supplementary Budgetary appropriation needs approval of the City Council, administrative budget adjustments do not require Council approval. The modus operandi of an administrative budget adjustment is that a proposal is mooted to the CAO and the specialists in budgeting who may review and approve, if need be. “If there are no objections and/or questions, the Budget Specialist notifies the department head that the request has been approved or disapproved.” (Financial structure: Basic of accounting, 2009, para.16). Next, it becomes necessary to consider agency budget of Police department of Macon City. The full list is appended in Second file of this work. (APPENDIX 1) Sr. Title Budget 2010 $ Actuals 3/31/2010 Projected Budget 2011 Changes 2010/2011 % Changes 1. Police- Youth and intervention services 690,850 403,265 1,079,150 34,063 56% 2 Police- Administration 3,982,451 2,545,155 32,43,269 533,249 -19% 3 Police- CID 3,439,677 2424,614 3526,464 289,719 3% 4. Police- Patrol 8607,153 5976,626 7561,715 1134,635 -12% 5. Police- Management services 508,685 320,793 546,384 67,954 7% 6. Police- Animal control 366,963 235,761 528,744 60,332 44% Total for this section of Police 17,595,779 11,906,214 16,485,806 240,409 -6% This part of the study is concerned with the agency budget of the police in Macom. From the above statement, it is clear that in the year 2011, there has been an overall reduction in the budget as seen against the previous budget allocations for 2010 to the tune of 6%. It is necessary that in these times of economic recession, it is necessary to institute cost savings in order to gain better control over expenses and also to institute more efficient budget operations in the coming fiscals. Coming to the question of how the revenues are going to change in future, as seen above, it is observed that some of the heads may incur higher expenses on account of greater degree of operations, more men on –the- job training and larger budget allocation that needs to be used. Revenues may change due to heightened efficiencies in operations and effective cost management and savings. Besides, external and extraneous factors may also result in changes in revenue towards the better or worse. To a very large extent, law enforcement departments are politically controlled and this could also influence their future performance and workings, including budgetary performance. Well, the largest canvas is the federal budget which seeks to increase and create job opportunities. It is believed that during the recent recession, a total of around 7 million jobs were lost and GDP levels have fallen dramatically. All this not only has to be reversed in this and future budget presentations, but the President needs to put the country’s economy well on the road to recovery and future prosperity. This not only should policies been practiced and executed but these needs also to be monitored in a regular and consistent manner. At the level of Georgia, again fresh job opportunities have to be created, the economy and Georgia’s contribution to the national exchequer has to be increased, and there needs to be all round improvement in the economy. This is at the state domain. Coming to the domain of City of Macon, the Mayor and the appropriate local authorities have to ensure that scarce resources are well and justifiably spent and no expenses are made that do not have prior sanction and consent of the City Council and the office of the Finance Directorate. Even in the case of revenue generation, it needs to be in line with the established norms and budgetary allocation, and the budget officers are liable and responsible to the citizens for the accumulation, disbursement and collection of budget funds. The degree of accountability is an important factor that cannot be ignored; however small or large the funds issue may be. Coming to the grass roots of the agency budget- police fund allocation in Mecom, the detailed analysis is provided in Appendix 1 attached with this file. This would provide all the necessary data and information for the purpose of this budget. Conclusions: For a research study of this kind, it has indeed provided the basics needed for considering the review of revenue estimates in terms of Federal, state and local budgets. Perhaps more important than its actual constructions, budgets need to be religiously adhered to and all aspects, positive and negative needs to be brought within the ambit of the budgets and variances immediately identified and remedied, so as not to vitiate the future aspects of budgeting. While budgets are indeed very interesting exercises, it needs to be practical oriented, realistic and capable of being achieved by the administration. They also need to be dynamic and flexible enough to change according to varying requirements of the agency, local, state, and Federal policies and programs, in order to ensure their continued and sustained success. Budget officers have a special responsibility for ensuring the success of budget implementation exercises and need to work through teamwork in order to achieve budget goals and objectives, whether at local, state or Federal levels. Reference List Amadeo, K. (2010). FY 2011 federal mandatory budget. About.Com: US Economy. Retrieved August 4, 2010, from http://useconomy.about.com/od/fiscalpolicy/p/Mandatory.htm Amadeo, K. (2010). U.S. federal budget primer. About.Com: US Economy. Retrieved August 4, 2010, from http://useconomy.about.com/od/fiscalpolicy/tp/US_Federal_Budget.htm Budget of the United States government: About. (2010). GPO Access. Retrieved August 4, 2010, from http://www.gpoaccess.gov/usbudget/about.html Budget of the United States government: Browse fiscal year 2011. (2010). GPO Access, p.6. Retrieved August 4, 2010, from http://www.gpoaccess.gov/usbudget/fy11/pdf/budget.pdf City of Macon. (n.d.). Georgia.gov. Retrieved August 4, 2010, from http://macon.georgia.gov/05/home/0,2230,8964234,00.html;jsessionid=065484F739EF2D17778B7B0766B0CE84 Definition of budget. (2010). About.Com: Economics. Retrieved August 4, 2010, from http://economics.about.com/cs/economicsglossary/g/budget.htm Federal budget. (2010). the free Dictionary. Retrieved August 4, 2010, from http://legal-dictionary.thefreedictionary.com/Federal+Budget Financial structure: Basic of accounting. (2009). City of Macon. Retrieved August 4, 2010, from http://www.cityofmacon.net/citydept-finance-div-structure Longley, R. (2010). The federal budget process in a perfect world. About.Com: US Government Info. Retrieved August 4, 2010, from http://usgovinfo.about.com/od/federalbudgetprocess/a/budget_process.htm McNichol, E. et al. (2010). Recession continues to better state budgets; state responses could slow recovery. Center on Budget and Policy Priorities. Retrieved August 4, 2010, from http://www.cbpp.org/cms/?fa=view&id=711 Perdue, S. (2010). Preparation procedure for prioritized program budget amended fiscal year 2011 and fiscal year 2012. Opb.State.gu.us. Retrieved August 4, 2010, from http://www.opb.state.ga.us/media/12896/afy%202011%20and%20fy%202012%20budget%20instructions.pdf Perdue, S. (2010). The governor’s budget report fiscal year 2011. State of Georgia. Retrieved August 4, 2010, from http://www.opb.state.ga.us/media/12300/state_of_georgia_budget_fy_2011.pdf Read More