LEARNING OBJECTIVES
After reading this chapter, you should be able to
- Define public budgets in several ways
- Distinguish between different types of public budgeting decisions
- Distinguish between public and private budgets
- Understand different perspectives about the role, growth, and size of government
- Compare several theoretical frameworks about public budgeting
- Conduct your own investigation of government size
- Distinguish budget principles applicable to the legislative and executive branches of government
It is an especially important time to study public budgeting and financial management. Grim examples of government fiscal austerity, from the global to local scene, are plentiful right now. In 2012, Greece suffered through the greatest sovereign debt restructuring in history; the United States has had to weather an embarrassing downgrade of its credit since 2011; the American states collectively have closed budget gaps of over $500 billion since 2009; and American local governments have cut more than 500,000 positions since 2008. The official end of the Great Recession is now over four years in the past, but the City of Detroit just declared bankruptcy (July 2013).
In fact, public officials, budgeters, finance ministers and directors, agency department heads, and managers in governments around the world are grappling with how to reform their budget systems in order to provide basic services, sustain current operations, and build and maintain public infrastructure given the very long, slow recovery from the economic downturn that ended in June 2009. Many recognize that governments are simply unable to sustain the levels and mix of services and programs that citizens have come to expect. Government budget decision makers are reaching the end of an ability to budget using (as stated in a March 30, 2012, telephone interview by the author with a state government auditor) âstrategic seat-of-the-pants flying,â whereby budget gaps are plugged with one-time funds. According to this auditor from a traditionally poor (fiscally) US state government, âWe think (hope) the federal government will increase funding, we hope our revenues will increase, or that our Attorney General has a settlement coming. It has always worked out for the last decade. And, to us, a couple of million dollars is a huge amount of money. Our luck has helped us find ways to fill gaps to keep the status quo.â But how long can governments budget on hope? And for which governments will such luck hold?
This introductory chapter provides an entrée into the complicated and confusing world of public budgeting, beginning with a review of the foundational aspects of budgeting systems, such as governmental structure and size. The chapter addresses the distinctiveness of public (governmental) and private (market) activities, introduces popular theoretical frameworks for better understanding public budgets and budgetary processes, and defines some enduring public budgeting principles. These concepts set the stage for the systems and results of public budgeting that will be examined throughout the book.
The rest of this book describes the foundations for public budgets and budget making in a few countries, with focused attention on those at every level in the United States. Today, the interconnectedness of governments, businesses, nonprofits, and individuals throughout the world makes it vital to understand how different communities function. Governments provide for the rule of law that structures the relationships among individuals in communities. Governments, by taxing and spending, have an impact on the strength of economies and the behaviors of inhabitants. The countries examined throughout this book were chosen to expose readers to examples from industrialized and developing nations, with different governmental structures and various fiscal capacities. This group is a purely judgmental sample of governments that includes the federal, state, and local ones in the United States (North America), one government each from Central (Guatemala) and South America (Brazil), one from Africa (Tanzania), one from Europe (Italy), one government from South Asia (India), and one from East Asia and Pacific (Australia). There has been no predetermination for selection into this sample that any of these governments consistently conducts budgeting either poorly or well.
WHAT IS A BUDGET?
Merriam-Websterâs Dictionary (2013) defines âbudgetâ in several ways:
- Chiefly dialect: a usually leather pouch, wallet, or pack; also, its contents
- Stock, supply
- A quantity (as of energy or water) involved in, available for, or assignable to a particular situation; also, an account of gains and losses of such a quantity (the global carbon budget)
-
- A statement of the financial position of an administration for a definite period of time based on estimates of expenditures during the period and proposals for financing them
- A plan for the coordination of resources and expenditures
- The amount of money that is available for, required for, or assigned to a particular purpose
These definitions yield important concepts about public budgets and budgetingâa pouch or wallet brings to mind containment, an entity restricted in the amount of loose change or paper bills that can be held within it; stock or supply implies accounting for quantities of things; accounting of gains and losses entails some sort of balancing. The fourth definition presents constraints of time and resources, and suggests a budget as strategic. Irene Rubin (2010), who has written and conducted research extensively about public budgeting, explains that government budgets are different from those of individuals or businesses because they are public or open to scrutiny, they engage public resources, and involve many stakeholdersâpoliticians, government workers, taxpayers, the media, professional groups, clients and customers of government services, and citizens generallyâand numerous institutions (budget laws, rules, protocols, and processes).
A couple of things should become apparent to you as you progress through the following chapters. Most important, there is really no way to determine which country or government has the best budget or budgets best. There is no attempt here to ferret out âleadersâ or âlaggardsâ in budgeting. There are over two hundred different countries around the world, some with multiple levels of government and with many governments at each level. Each government budgets a bit differently and there are a vast range of revenue capacities and spending categories among them. You will learn that a great way to gain understanding about a country or community, its people and traditions, is to examine its budget. Public budgetsâwhat governments spend money on and the taxes that support this spendingâprovide a snapshot into the values, commitments, and interests of governments and the people who reside in them.
You will also learn that it is extremely challenging to study and compare governments and their budgets globally because every country is uniqueâeach has its own social, cultural, legal, political, and economic histories and traditions that influence budget development, budget information, and format requirements, tax structures, expenditure categories, and in-country and external relationships with other governments. The CIA World Factbook lists information about 237 âworld entitiesâ on its website.1 The July 2013 report on chiefs of state and cabinet members of foreign governments includes information about 198 countries, ranging from Afghanistan to Zimbabwe. This report includes developed (i.e., Australia and Italy) and developing countries (i.e., Brazil, Guatemala, India, Tanzania); governments in transition (i.e., Fiji, Guinea-Bissau, Lebanon, Madagascar, Mali, and Tunisia); those for which the United States has no diplomatic exchanges (Bhutan, Cuba, Iran, North Korea, and Taiwan); territories and colonies (Cook Islands and Bermuda, respectively); and the Holy See (Vatican City). Examining the Factbook is a quick and easy way to glimpse the breadth of governments that exist as well as compare data that characteri...
