1. Jim Raines, Ph.D. Budgeting PA 412 Public Budgeting & Finance

2. Three Purposes of Budgeting ~ Financial Control of financial transactions in accordance with policy ~ Planning and Management Tool ~ Effectiveness & Efficiency Report Card CHHS

3. Budgetary Decisions ~ Federal fiscal year: October 1 – September 30 ~ Most States (46) fiscal years: July 1 – June 30 ~ Balanced Budget means that projected revenues will match budgeted expenditures. ~ Federal Budget has no balanced budget requirement ~ Federal Fiscal policy aims for a stable economy: ~ Supply-side policy aims to reduce taxes ~ Keynesian policy aims to increase federal spending ~ Most states (44) require the governor to submit a balanced budget, 41 require the legislature to adopt a balance budget. ~ All states allow the governor to reduce end-of-year expenses. CHHS

4. Nonprofits Budgets ~ Do NOT have to have a balanced budget, but... ~ United Way requires a balanced budget as a condition of aid. ~ State funders also require balanced budgets. ~ Many nonprofit boards adopt a balanced budget policy. CHHS

5. Strategic Planning ~ Most strategic planners use a SWOT analysis to determine external and internal conditions of an organization. ~ Strengths & Weaknesses are usually internal conditions. ~ Opportunities & Threats are usually external conditions. CHHS

6. SWOT Example CHHS

7. Reserves ~ Both governments and nonprofits should budget a reserve for unexpected financial downturns. ~ Reserves may be needed if expected revenues may fall short. ~ Reserves may be needed if expenditures are unexpected (e.g., natural disasters) ~ The smaller the organization, the greater the % of general revenues should be held in reserve. ~ Half (25) of the states maintain rainy day funds. ~ United Way requires nonprofits to maintain a minimum of 3 months of expenses. CHHS

8. Nonprofit Reserve Policy Example CHHS

9. Budgetary Systems 1. Line-item Budget 2. Performance Budget a) Outputs measure the quantity of work. b) Intermediate outcomes measure the quality of work. c) End outcomes measure whether the ultimate goals was met. d) Efficiency measures relate inputs ($) to outputs, etc. 3. Zero-Based Budget a) Allows board to radically change its policy priorities by: i. Substantially increasing or decreasing certain program funds ii. Eliminating certain program funds iii. Creating new program funds CHHS

10. Performance Budget Measures CHHS

11. Budgetary Systems (cont’d) 4. Target-Based Budget a) Specifies the % change that all agencies may request. b) Requires agencies to prioritize which programs get funded. 5. Entrepreneurial Budget a) Avoids “spend it or lose it” mentality b) Allows managers to carry over all or part of unexpended amounts to next year’s budget for capital expenditures. 6. Multiyear Budget - 23 states use biennial budgets. 7. Full Expenditure Budget a) Requires the total budget to be spent during the fiscal year. CHHS

12. Taxes ~ Federal taxes ~ Federal income taxes are progressive: the more money you make, the higher % of your income you pay. ~ State taxes ~ All but 7 states levy income taxes. Six are flat-rate, some are progressive. ~ All but 5 states levy sales taxes. They are always regressive: the poor pay more! CHHS

13. Taxes (cont’d) ~ Property Taxes ~ Real property is immobile: land, buildings, natural resources ~ Personal property is mobile and includes: ~ Tangible assets: Furniture, Equipment, Vehicles ~ Intangible assets: Bank accounts, Stocks, Bonds ~ Property Tax Cycle: ~ Appraisal ~ Assess Taxable Value ~ Collection of taxes ~ User Fees for regulatory services ~ Drivers’ licenses, wedding licenses, recording property sales ~ Development Fees for connection or impact costs CHHS

14. The Budgetary Cycle ~ Budget Preparation ~ Governing Board Approval ~ Budget Execution CHHS

15. Budget Preparation ~ Forecast Revenues ~ Revenue Criteria: ~ Equity – How fair is the tax or fee? ~ Elasticity – What is the potential for growth? ~ Compliance – What is the cost of collection? ~ Public Acceptance – What is the public’s tolerance for it? ~ Transparency – What is the public’s awareness of it? CHHS

16. Revenue Criteria by Source CHHS

17. Budget Preparation (cont’d) ~ Revenue Forecasting Methods ~ Qualitative ~ Best used when economic conditions are uncertain or ~ Used to budget one-time events ~ Deterministic ~ Forecast according to a preset formula ~ Extrapolative ~ Previous years’ revenues are used to estimate future years (e.g., simple moving average method) ~ Econometric ~ Uses independent variables to predict revenues ~ Practice vs. Politics CHHS

18. Governing Board Approval ~ Size and Structure of Governing bodies affect the approval process. ~ Legislators oversee budget implementation in 3 ways: 1. Legislative Intent: Budgetary language includes intent. 2. Sunset Legislation: The program expires after a given period 3. Legislative Veto: Legislators can veto regulations CHHS

19. Budget Execution ~ CEOs use 4 tools to ensure the budget meets its intended target: 1. Pre-Audit: The accounting department pre-audits purchase orders and contracts to ensure that funds are budgeted. 2. Allotments: Agencies are allowed to spend only specific amounts within a specific time period. 3. Budgetary Transfers: CEO has authority to transfer funds from one program to another as needed. 4. Budget Monitoring: CEO reports regularly to the governing body about the status of budgeted vs. actual revenues and expenditures. CHHS