Term
| What are the two types of budgets? |
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Definition
| 1) Line Item Budget 2)Performance Budgets |
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Term
| What do line item budgets focus on? |
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Definition
| 1)Line item budgets focus on expense control and accountability; Budgets-Traditional, Great for cost control. Budget costs are often all decision makers consider. The needed comparison between cost and program value vital to intelligent resource allocation is absent. |
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Term
| What is opportunity cost? |
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Definition
A dollar today is worth more than a dollar next year because of the lost opportunity of using that dollar on goods and services or gaining some kind of revenue from it.
This is the basis of present & discount value.
aka Time Value of Money |
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Term
| What is the "Golden Rule" when dealing with Capital Budgets? |
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Definition
| match current revenue to spending on current services, but borrow to support the capital spending and thereby maintain the net worth of the public sector |
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Term
| What is a capital budget and why have one? |
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Definition
To select individual projects for funding while keeping expenditures within a total resource constraint. We do this with discounting future values.
First, separate consideration can improve both the efficiency and equity of providing and financing non recurrent projects with long term service flows.
General standard is operating budgets financed, capital budgets, financed. Otherwise, a “pay as you go” would result in inequity for citizens paying for a long life project all at once.
2)Capital budgets can stabilize tax rates when individual capital projects are large relative to the tax base of the host government. Paying for costs over the life of the project does not damage the tax base capacity as long as the project is paid for over the life of the project. A 1.5 B tax base could not pay for a 150 M reservoir, but it could if it was going to serve the area for 50 years.
3)Special reviews of capital budgeting are appropriate because capital projects are permanent, mistakes will be around for many years.
Capital budgets are valuable tools for managing limited fiscal resources, especially in light of the special care required to plan activities that necessitate long term drains on those resources.
Reasons supporting capital projects are strongest for state and local governments. Federal governments don’t use a capital budget. |
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Term
| What is the Capital Implementation Plan? |
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Definition
Choices about investment in Infrastructure driven by consequences of facility failure, recurring benefits from facility, cost and financial impact of the project, citizenry attitude.
CIP identifies capital expenditure projects appropriate for the next 6 years.
Debt ratings and issues are very important. Will funds be available to meet debt service, principal and interest. Funds for early bond retirement? Ratings good enough to drive new purchases? |
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Term
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Definition
| Discounting-A process of converting a stream of returns or costs incurred over time to a single present value. The present value accounts for both the absolute size and the timing of the impacts of a proposed actions. |
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Term
| What are the three types of taxation in the U.S.? |
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Definition
1)Income
2)Purchases or Sales
3)Property Ownership or Transfer |
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Term
| What is the greatest state tax? |
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Definition
| Taxes on goods and services, general and selective, are the largest single source of state revenue, and states are the largest overall users of that source |
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Term
| What is the greatest tax income on the local level? |
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Definition
| The Property Tax remains the major own source revenue producer for local government |
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Term
| What are the standards for taxation? |
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Definition
The Primary Goal of taxation is to transfer control of resources from one group in the society to another and to do so in ways that do not jeopardize, and may even facilitate, the attainment of other economic goals.
Transfers include:1)shifts of purchasing power among groups in the private sector & 2)shifts of control over purchasing power from the private sector to the pubic sector. |
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Term
| What are the standards for taxes? |
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Definition
When Public goods are financed, the tax must not be voluntary.
A tax can be distinguished from other revenue sources by it compulsory nature.
Absence of volunteerism distinguishes taxes from user charges. |
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Term
| What is the great expenditure source for each level of government? |
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Definition
| 1)Federal - Transfer Payments aka Entitlements - social security, medicare, etc. 2)State - Welfare 3)Local - Education |
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Term
| What is the Federal Income Tax Structure? |
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Definition
| This was the last change to how the federal government collected taxes on income. This portion of the federal income tax structure consists of the payroll taxes that support most of the social insurance system. For many lower income individuals, the social insurance payroll tax liability amounts to more than the amount of individual income tax owed. |
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Term
| What is the dominant revenue source for the Federal Government? |
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Definition
The individual and corporate income taxes and the payroll taxes on wages and salaries are the dominant government revenue source in the US. They are the heart of the federal revenue system.
State-Sales-Taxes on goods and services, Local-Property are the largest sources. |
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Term
| What are the reasons for taxing income? |
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Definition
The argument for taxing income is simple, 1) Equity or measuring the ability of someone to pay. Income is an important measure of a taxpayer’s capacity to bear the cost of the government.
The second argument for taxing income is 2)Adjustability. Income Tax can be made to account for individual taxpayer conditions, not just ability, like family size, medical conditions, special economic circumstances. This gives the tax a unique advantage. |
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Term
| What are the reasons for NOT using income taxes? |
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Definition
Transparency and Compliance
Administration and Compliance
Economic Effects-Discourages long term savings and investment in economy.
Economic Distortion-Provisions in tax structure provide varying reliefs and punishments to different sectors of the economy.
Equity-Does this distribute the cost of government evenly?
Overuse-Easy to increase and use heavily. Look at how many times social security taxes have gone up in the past 73 years since the Social Security Act of 1935, and then was reinforced with amendments in 1965 as the Medicare Tax. |
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Term
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Definition
| That is, their revenues are dedicated to finance only particular social insurance benefits. Because these benefits tend to be more valuable to lower income individuals, the public generally accepts the unusual features of these taxes. |
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Term
| What do performance budgets focus on? |
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Definition
| Performance budgets seek to emphasize agency-activity performance objectives and accomplishments, not the purchase of resources. Performance budget entails certain shifts in thinking from line item; Budget information should be organized in terms of activities, rather than in terms of individual line items only; 2)Activities should be measured, costs should be identified for these activities, and efficiency in performance of these activities should be evaluated; Performance should be monitored by comparing actual cost and accomplishment against the planned levels for each agency.4)Although the performance measures would ordinarily not be “end products” of government, the activities ideally should be associated with these beneficial results or outcomes. In modern terminology, these performance measures are on the order of “means to an end” rather than being the end themselves. Effectiveness, efficiency and low cost are the end goals. Does not question whether objectives are appropriate or a service is worth its cost of production. Only considers if the activity performed is being low cost! Major problem |
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Term
| What should the federal budget represent? |
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Definition
1) Nation’s National Economic Plan
2)Economic Efficiency. |
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Term
| Does the private sector rely on the government? |
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Definition
Yes. The Private sector relies on government budgeting.
**Without government, the private sector itself could not function. A stable existence would cease. There would be no law, security, contracts and the medium to conduct exchange.
Invisible Hand-Guiding Principal of business. Supply = Demand. Insures efficiency through marginal benefit.
These two conditions insure efficiency, but what happens when these conditions do not apply? |
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Term
| What is Non-exhaustion and/or Non-rivalry? |
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Definition
Non-exhaustion or Non-rivalry, occurs when benefits of the service can only be shared, meaning that a given quantity of the service can be enjoyed by additional people with no reduction in benefit to the existing population. Non Rival is the market extension of Non-Exhaustion.
Market extension or Non Rival means that private sectors will not provide the service due to fact no margins on the product.
The cost of providing the service to additional users once the service has been provided is zero, meaning a marginal value of zero. Private companies will not produce such goods. Therefore too little would be produced because of the high price. |
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Term
| What is Failure of Exclusion? |
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Definition
Failure of Exclusion- If someone provides the services, then all receive the service.
Examples: Public Goods
National Defense, System of Justice, Pollution Control, Disease Control. |
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Term
| What are common pool goods? |
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Definition
One characteristic in common to public but not both.
Common pool goods are goods and services for which exclusion is not feasible but there are competing and exhaustive uses in the private realm.
Common Pool Goods are Rival. This is the characteristic that is different from a Pure Public Good.
Examples: Fisheries, aquifers, oil and gas deposits.
Left in Private hands these goods would be quickly exhausted.
Homework-Fishing Quotas. |
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Term
| What is the tragedy of the commons? |
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Definition
Takes place because of Failure of Exclusion leading to exhaustion of goods that are rival.
Creating a market where none existed through permits tied to quotas. Permits would be transferable and would create a market, which would in theory become efficient to ensure overfishing does not take place |
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Term
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Definition
One characteristic in common to public but not both
Non Rival-One person can consume the good to it’s fullest while not reducing the amount of it for someone else. For these services and goods, exclusion is possible.
Toll Goods have exclusion. This is the characteristic that is different from a Pure Public Good.
Turnpikes, Toll bridges, etc. |
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Term
| What are the two kinds of externalities? |
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Definition
| Positive and Negative-Third Party effects that are not fully recognized in the market. Our lack of knowledge in 3rd party effects leads to under & over production. |
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Term
| What is a positive externality? |
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Definition
Positive-This is when the good in question is under produced because the benefits in question are not fully represented to society. Vaccination and education.
We do not recognize someone vaccinated may prevent someone from contracting the disease, or an educated person passing on knowledge. |
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Term
| What is a negative externality? |
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Definition
Negative-This time it results in overproduction because the costs are not fully born by the the producers of the externalities.
We are willing to pay for the right to drive, not recognizing the harmful effects of fumes, and congestion incurred, leading to overproduction. Companies are willing to pollute because they are not made to recognize damage to society. |
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Term
| What is economic stabilization? |
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Definition
Government seeks through many instruments to ensure economic stabalization, steady employment, and to control inflation.
What tools does the gov’t use to seek stabalization?
Government seeks to do this through transfers, which is usually done through budget policy, tax changes, grants.
Federal Reserve seeks to do it through monetary policy. Interest rate changes, changes in money supply. |
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Term
| What are policies of stabilization? |
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Definition
Redistribution-taxation, direct payments, SSI, Medicaid. These are all transfers or entitlement programs.
What can we do that is opposite to stabalize?
Privatization- Arguments- Smaller goverernment. Certain gov’t services that once were considered public goods and to be provided by the gov’t are now being provided by private entities. Prison system is an example
Operating efficiencies and response to clients mean more economic efficiency.
Cash-Sale of Gov’t operated entities bring revenue to government and less resources expended, plus the gov’t gets out of the business of operation of entities. |
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Term
| What is the pareto criterion when dealing with social decisions from private preferences? |
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Definition
Pareto Criterion-If at least one person is better off from a policy action an no person is worse off, then the community as a whole is unambiguously better off for the policy. Social Benefits exceed Social Costs, it is a desirable project for the community.
A responsive government would build the levee.
Limits of scientific principles in decision making. |
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Term
| What is the incrementalist insight? |
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Definition
Problem is that majority vote in any society can mean misallocation of resources due to Incrementalist Insight.
Lobbying and Riders just make the problems worse. Health reform largely written by healthcare companies. Riders attached to bills that have nothing to do with bill.
Incrementalist Insight- This principle maintains that in the end budget policy is nothing more than political power and persuasion, and whoever holds the power can decide budgetary policy regardless if benefits outweigh social costs, or if the activity or project should be funded, regardless of efficiency and need. Political power decides budgetary policy. Healthcare reform is the perfect example. Majority of public do not want the bill in present form, but Democrats control the executive and both houses of legislature.
Incremtalist Insight happens on all levels of government! |
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Term
| What are the layers of government? |
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Definition
Federal, State, and Local governments.
In each Local jurisdiction several governmental bodies may reside to share powers.
Constitution determines financial powers and fiscal constraints in the Federal system.
The power to lay and collect taxes, borrow money, regulate commerce, and coin money. Article I Section 8, Section 9 establishes Fiscal Constraints.
Commerce Clause -Prevents state interference with international commerce and commerce among other states. Basically gives taxing power and regulatory power for interstate commerce. Established in Section 10, Article 1. (federal) |
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Term
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Definition
The Tenth Amendment documents residual powers, or powers by states. “The powers not delegated to the US by the constitution, nor prohibited by it to the States, are reserved to the States. Thus the constitution does not need to provided specific authority for a state gov’t to have a particular power. Constitutional silence implies the state can act in the area of question.
Residual Powers establishes states as the sovereign middle layer in the federal system |
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Term
| What is "local rule" and how it deals with Dillon's Rule? |
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Definition
Local governments are typically captive creatures of the State, and on the bottom of the Federal System.
Dillon’s Rule-If state law is silent about a particular local power, the presumption is that the local level lacks power.
Critical limitation on local power, giving the state all the power. |
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Term
| What are the two types of government spending and what is involved? |
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Definition
2 kinds of government spending
1) Purchases-divert productive resources (land,labor,capital) from private uses by businesses to government use in the provision of public, toll, and common pool goods.
Most is for current services under contract, but part of this is for long term capital projects which budgets rarely reflect.
2)Transfer Payments - Constitute the other major element of governmental service and the largest part of government payments and growth.
Social Security, Unemployment, Medicare, Medicaid. Makes up 40% of all current expenditures by government in the U.S.
Current expenditures account for 30% of GDP in the US. |
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Term
| What is the budget process and the logic behind it? |
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Definition
Most budgets focus on inputs to the flow of services, and the purchases needed to respond to the demand for services.
Line Item Budget is the most basic and traditional of budgeting classification. |
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Term
| What is the line item budget? |
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Definition
Most budgets are bi-ennial-2 year budgets and this is most common in state and local
Federal budget year has a plus 4 year out timeline, reflecting future implications and purchases. |
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Term
| What is the minimum of budget plan? |
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Definition
Expenditure Plan
Plan for raising revenue
Plan for managing different revenue and expenditures.
Input classification is most basic and very important in expenditure and revenue planning-line item budget. |
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Term
| What is the budget process? |
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Definition
1st column - 3) Final Report Year – This column reports the fiscal figures for the most recently completed fiscal year, 01-02. These figures provide the standard for comparison.
2nd column - The Progress Report Year – Budget for 04-05 will have been considered during the 02-03 budget year. Columns report what was budgeted for actual year and what actual result is likely to be for current year. Many budgets give a percentage difference so this progress report can be used in making of the budget.
3rd column - Budget Year- The document focuses on the budget year or years if biennial. 04-05 Base Year Numbers reflect what the agency plans for operations. Differences in years due to what has been requested & approved in legislature.
4th column - Out Years – Some budgets but not the one represented carry figures for out years beyond the budget year in the request cycle. Federal Gov’t uses a budget year plus four out years in executive presentations. Federal can see longer picture. |
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Term
| What is the budget cycle? |
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Definition
1)Executive Preparation-executive instructs all departments and units to prepare agency request for funding.
2)Legislative Consideration-transmitted to legislature for debate and consideration
Appropriation committees and split into appropriation bills.
Approved by both houses-Conference Committee
3)Execution-Agencies carry out approved budgets.
Contract Authority
Budget Authority
4)Audit and Evaluation
GAO
Completes budget cycle. |
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Term
| What are the roles, visions, and insights of the budget process? |
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Definition
Operating Agencies
Chief Executive
Legislature
Many strategies can be employed when putting together a budget, but only thing I want you to remember is the “Incrementalist Insight-Budgets are mainly a function of political strategy. All strategies are formed from that base. |
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Term
| What is the OMB in the federal budget process? |
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Definition
Federal Budget Organizations
OMB-Office of Management of Budget, part of the executive office.
President appoints the OMB’s director.
OMB develops the executive budget by consolidating agency requests for appropriations within the guidelines provided by the president and transmits budget to Congress. |
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Term
| What is the GAO in the federal budget process? |
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Definition
GAO- Government Accounting Office, Primary Watchdog Agency for Congress to hold federal departments accountable for their actions. Supervises accounting done by the executive agencies, but much of it’s work emphasizes investigations to improve the effectiveness of the federal government.
Head of GAO appointed by president with consent of the Senate for 15 year term. |
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Term
| What is the CBO in the federal budget process? |
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Definition
CBO-Congressional Budget Office.
Congressional agency created to provide Congress with staff having expertise similar to that of the OMB, and is the central fiscal support agency of the Congress.
CBO=OMB |
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Term
| What are the stages of the budget process? |
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Definition
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Term
| What are the two types of budget authority? |
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Definition
2 other types important
1)Continuing Resolution
2)Supplemental appropriations |
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Term
| What are supplemental appropriations? |
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Definition
Supplemental-Immediate need for new funds but the agency has not run out of the appropriate funds it has. Usually one of two things result in the use of supplemental spending.
"Have the funds, but needs more funding" Ex. FEMA - Hurricane Katrina.
Supplemental appropriations-Example, national crisis-Hurricane so FEMA needs more funding. Also a new act is enacted during budget year which will need new funding. Example, Treasury Department nationalizing Fannie Mae and Freddie Mac. |
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Term
| What is continuing resolution of budget authority? |
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Definition
| Continuing-When some agency runs out of money and they need to keep some program running that usually has been budgeted out many years but underestimate of funding needs. Usually program has been declared of national importance |
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Term
| What is mandatory and discretionary spending? |
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Definition
Budget Enforcement Act of 1990 created two legal categories of federal spending: mandatory and Discretionary.
Mandatory spending includes outlays that are made according to definitions of eligibility and establishment of benefit or payment formulas, rather than directly through the appropriation process. Discretionary spending represents the rest of federal spending, the spending that flows through the annual appropriations process and the thirteen appropriation bills. This spending is for federal programs and the federal bureaucracy. This includes operation of all agencies within the federal branch.
Discretionary spending has fallen to 39%. |
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Term
| What are federal deficits? |
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Definition
1)Threaten Long Term economic growth in the nation.
2)effects on international capital markets from the continuing deficits promise to reduce standards of living in the US.
3)Constrains the capacity of the Fed. Go's to respond to legitimate national concerns.
4)Deficits could increase the rate of inflation, due to monetization of debt. |
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Term
| What are parts of the state and local budgets? |
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Definition
Local Government expenditure dominated by elementary and secondary education. 40% of total spending.
State Gov't largest expenditure is for public welfare programs, 33.9%.
Virtually all state and larger local Government use the familiar four phase budget cycle just described.
State and local Gov't executives often possess extraordinary fiscal powers in regard to expenditure during the fiscal year. 4)Local Government’s are closest to the people of any tier of government, as the citizen are most able to put input into fiscal choices. Called participatory budgeting.
Finally most governors have line item veto power, except 5 states including Indiana |
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Term
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Definition
5)State and local govt often earmark or dedicate portions of some broad revenue sources, like personal income tax or general sales tax to very narrow uses. % to education for example.
Much greater constraints on taxing & spending. |
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Term
| What are budget methods & practices? |
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Definition
Operating Agencies work from the instruction transmitted by the CBO to develop operating plans for the year and the budget requests that will accommodate those plans.
Ideally, instructions contain executives main goals for the people, forecasts of critical operating conditions (inflation, etc.) |
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Term
| What are the three agency preparation requests? |
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Definition
Typically an agency develops 3 important pieces of it’s budget proposal.
1)Narrative-describes the agencies, managerial objectives for budget year and beyond, and key it to a mission statement.
2)Detail Schedules-translate managerial objectives into requests for new agency appropriations
3)Cumulative Schedules-aggregate new initiatives into existing activities to form the complete request. ****Most important thing to realize is that description dominates numbers when putting together budget requests and preparation. Goes back to Incrementalist Insight. |
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Term
| What is involved in review of budgets? |
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Definition
What does an analyst look for when looking over budget requests?
Policy rationale, arithmetic, linkages, program changes, omissions, ratios, shares, & trends, executive policy, choices within limits, and performance |
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Term
| What are phantom balance and deficit reductions? |
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Definition
1)Rosy Scenarios for revenue collection.
2)One Shots-Unsustainable revenue boost by sale of property or assets held by government.
3)Interbudget Manipulation
4)Bubbles and Timing
5)Playing the intergovernmental system
6)Magic asterisk |
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Term
| What is involved for budget execution? |
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Definition
Internal Controls used to establish control over budgets.
1)Provide qualified personnel, rotate duties, and enforce annual leaves/vacations.
2)Segregate responsibility.
3)Separate operations and accounting
4)Assign responsibility.
5)Maintain controlled proofs and security
6)Record transactions and safeguard assets. |
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Term
| What are errors sought by auditors in the budget process? |
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Definition
Ghosting
Bid Rigging
Honest Graft
Diversion
Shoddy Material
Kickbacks |
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