Week 8: Local Government Finance Guest Speaker: Betty Masuoka, Assistant City Manager, City of Sacramento –City revenues and expenditures –Major financing issues facing the City Course Review Begin discussion of ethics in public budgeting and finance

Review: Key Concepts Budget process –why is it important? Budget baseline –what is it? –why is it important? Budget format and presentation –Line item budgets –Budget text: highlights and summary –Budget schedules Executive v legislative roles and conflicts –how does this play out at different levels of govt.?

Why is an Agency’s Budget Process Important? To Be Filled In By Class Discussion

What is the budget baseline? Why is it important? To Be Filled In By Class Discussion

Common Budget Presentation: line item

Executive v Legislative Roles and Conflict Role of executive –vision –priorities –consistency and support across agencies –budget balance –management of resources Role of legislative branch –hold executive accountable –representation (policy and pork) –partisan leadership

Steps in Developing a Budget Plans and priorities Revenue projections Budget instructions Budget request preparation and internal submission Internal review Submission to and review by executive office Full budget preparation and submission Legislative review Approval and appropriation Executive branch internal allocations and implementation

Budgeting Vocabulary—selected terms incrementalism reallocation across-the-board unallocated reduction fund General Fund special fund budget transfers one-time v ongoing revenues/expenditures personnel years (PY) discretionary expenditures earmarking tax expenditures

Budgeting Vocabulary—selected terms, cont. appropriation allocation chart of accounts operating budget salary savings reserve year end balance enterprise fund entitlement program fiscal year progressive tax regressive tax zero-base budgeting

Framework for Public Sector Ethics Traditional view of ethics (roots in business world): –“low road” of compliance -- stay out of trouble –neutrality/expertise/administration/rules/efficiency –controls to guard against fraud, waste, abuse –means-based approach Contemporary view of ethics –“high road” of moral reasoning, integrity, justice, leadership –ethics of value, not of neutrality –integrity/moral reasoning/leadership/justice –Results-oriented government ==> ends-based ethics –Responsible use of increased administrative discretion

Ethics Framework Applied to Public Budgeting Old budgetary ethics –line item accountability –limited discretion –focus on allowable uses of funds New budgetary ethics –discretion on use of funds across categories –program control, not line-item –focus on accomplishments flexible use of resources to meet goals

Some Ethical Issues in Public Budgeting From three separate Sac Bee articles on March 17: hold positions vacant to fund other priorities for which augmentations are difficult to get subsidize golf enterprise fund with city general funds to maintain access for all citizens support increases unemployment insurance benefits beyond what fund can bear after election spend general fund money on grant costs because the latter can be carried over and the former can’t use (abuse) of data in budget justifications design budget process to exclude contrary viewpoints advocate for program in opposition to executive budget decision

Some Ethical Issues in Public Finance Estimate of available revenues –Are there circumstances when withholding information could be ethical? –Choosing optimistic v pessimistic scenarios Impact of tax policies –Short-term v long-term impacts (leave problems for successors) –Political expediency to gain passage (features or gimmicks that aren’t fiscally sound) –User taxes to replace general purpose revenues

Preview of Week 9 Part III: Practical Applications in Budgeting Back to Rubin, Ch 5 on tradeoffs and competition for $$ Bland and Rubin: budgeting in local government Department of Finance –Budget analysis –BCPs In class project on budget justification/analysis