1. PP500: Public Administration and Management Unit 7 Professor Jamie Scripps jscripps@kaplan.edu

2. Housekeeping Feedback Questions?

4. Readings The reading for this unit will cover the purpose and types of budgets in the public sector. You will also learn the process of making budgets in government. Read Chapter 8: “Government Budgeting”

5. To-Do List Read Chapter 8 in the Textbook (Milakovich & Gordon) Read Additional Articles and Lecture Notes (Caiden, N. (2010). Challenges Confronting Contemporary Public Budgeting: Retrospectives/Prospectives from Allen Schick. Public Administration Review, 70(2), 203-210. ) Review Unit 7 Key Terms Respond to the Discussion Board (25 pts) Attend the Weekly Seminar (10 pts)

6. Lecture Notes Public administrators are crucial to planning the budget in the public sector. The framework of the budget should benefit the public and the organization by providing funding and resources. In doing so there are challenges you will encounter. The article “Challenges Confronting Contemporary Public Budgeting: Retrospectives/Prospective from Allen Schick” focuses on those challenges.

7. Lecture Notes Public sector budgeting can be overwhelming with factors such as accountability, managerial, political and economic instruments. Government budgets are crucial to foundation of public programs, organizations and the community. If the funding is not available, taxes have to be raised or programs have to be cut.

8. Discussion Question Many state constitutions require state and local governments to operate within balanced budgets. Why don’t we require this of the federal government? Should states be allowed to run up budget deficits? Why or why not?

9. Bonded Indebtedness Most states and localities have extensive bonded indebtedness, meaning that they issue interest-bearing bonds, generally free from federal taxation, to raise funds for specific stated purposes. They must manage the debts they owe to holders of those bonds over the lifetime of the bonds— paying interest on schedule and at the rate stipulated, and redeeming the bonds at agreed-on times.

10. Key Terms Executive Budget – Budgets prepared by the chief executives and their central budget offices for submission to the legislature for analysis, consideration, review change, and enactment. Entitlements – Government programs (mainly for Individuals) created under legislation that defines eligibility standards, but places no limit on total budget authority; the level of outlays I determined solely by the number of eligible persons who apply for authorized benefits, under existing law.

11. Key Terms Mandatory or direct spending – Category of outlays from budget authority provided in laws other than appropriations acts, for entitlements and budget authority for food stamps. Discretionary spending – Category of budget authority that comprises budgetary resources (except those provided to fund direct-spending programs) in appropriations acts.

12. Key Terms Congressional budget Office (CBO) – Created in 1974; the budget and financial planning division of the U.S. Congress. Deficit – Amount by which governmental outlays exceed governmental receipts in fiscal year.

13. Key Terms Gramm-Rudman-Hollings Act – Informal title of the Balanced Budget and Emergency Deficit Control Act of 1985, which mandated steadily decreasing national government annual budget deficits through fiscal year 1991. Taxation – Primary means by which governments raise revenues for public services; taxes can be collected from individuals and corporations on income (earned and unearned), profits, property value, sales, and services. National debt – The cumulative sum of borrowing necessary over time to pay the difference between the amount raised and spent in the annual federal budget.

14. Key Terms Budget deficit – The difference between the amount of revenue raised by taxes and the amount of federal government spending in a fiscal year. Bonded indebtedness – Revenue-raising tool for governments to issue notes or promises to pay a certain amount (principal) at a certain time (maturity date) at a particular rate of interest.

15. Key Terms Outsourcing – Reallocation of jobs to more favorable economic environments (that is, lower wages, less taxes, less regulation, and so on), typically seen as movement of jobs from developed countries to less developed ones. Line-item budgeting – Earliest approach to modern executive- budget making, emphasizing control of expenditures through careful accounting for all money spent in public programs; facilitated central control of purchasing and hiring, along with completeness and honesty in fiscal accounting.

16. Key Terms Performance budgeting – Approach to modern executive-budget making that gained currency in the 1930s and then again in the 1950s, emphasizing not only resources acquired by an agency but also what it did with them; geared to promoting effective management of government of government programs in a time of growing programmatic complexity.

17. Discussion Is “outsourcing” a good way to deal with government budget problems? Why or why not?

18. Purpose of Budgeting New budgeting systems have been used to increase program effectiveness through long- range planning and management of the economy. At the same time, entitlement programs such as Social Security and Medicare were expanding as the number of benefits and recipients grew. Entitlements provide money for individuals and institutions and now consume two-thirds of the entire federal budget.

19. Purpose of Budgeting During the 1970s, a new budgeting structure emerged to increase congressional oversight of executive branch activities. The Balanced Budget and Emergency Deficit Reduction Act of 1985 (known by its sponsors names as the Gramm-Rudman-Hollings Act), and the balanced budget agreements of 1995 and 2002, mandated steady reductions in annual budget deficits and temporarily changed the face of budgetary politics.

20. Budgetary Reforms These budgetary reforms lasted until the early 2000s, when the costs for the wars in Afghanistan and Iraq and the “bailout” of Wall Street investment firms exceeded federal revenues, causing annual deficits and the national debt to skyrocket.

21. Budget approaches in the Executive Branch Line-Item Budgeting Performance Budgeting Planning-Programming-Budgeting Zero-Base Budgeting

22. Line-Item Budgeting  Line-item budgeting presents the budget of a public agency on an object-of-expenditure basis. Line-item budgeting emphasizes control and was popular from the 1910s through the 1930s.

23. Performance Budgeting  Performance budgeting used cost and work measures to assess both the cost of resources and what was being done with them; efficiency was measured, but not effectiveness. Performance budgeting was used from 1939 to 1960.

24. Planning-Programming-Budgeting  Planning-programming budgeting (PPB) was originally used only internally in the Department of Defense, but in August 1965 Lyndon Johnson mandated its use in all civilian agencies within the executive branch.

25. Zero-Base Budgeting  Zero-base budgeting (ZBB) originated at the Texas Instruments Corporation and was implemented by Governor Jimmy Carter in Georgia from 1971 to 1975.

26. Discussion Question Why is incremental budget making not used as often as it once was?

27. Moving away from incremental budgeting… In recent decades, the incremental decision model has had decreasing applicability in explaining how budgets are proposed and enacted. In the 1960s, efforts were mounted ( though with limited success) to make budgeting more “ rational,” through reducing the influence of politics as usual and strengthening the role of policy evaluation in long- range planning, in hopes of increasing programmatic effectiveness.

28. Moving away from incremental budgeting… The 1970s saw another change: the emergence of legislative formulas as the basis for allocating larger amounts of funds in greater numbers of programs. Since the 1980s, partisan conflict over budget priorities ( aka “divided government”) has dominated budgetary decision making. Nonetheless, spending in constant ( 2000) dollars has steadily increased for the past thirty years ( see Figure 8– 1). The major reason for this is that federal programs for Social Security, Medicare, and veterans’ benefits are distributed on a formula basis and, as the number of those eligible for particular government benefits rise, expenditures automatically increase.

29. The Process of Budget Making  Essentials of the Process - Government budgets progress through an annual or biennial cycle in five stages:

30. The Process of Budget Making  Preparation (economic studies and fiscal projections; executive)…

31. The Process of Budget Making  Authorization (setting maximum spending levels; legislative involvement)…

32. The Process of Budget Making  Appropriations (the granting of power to incur financial obligation by the legislature)…

33. The Process of Budget Making  Execution (the process of spending money; mainly executive, with legislative influence)…

34. The Process of Budget Making  Audit (both executive and legislative).

35. Questions?