Jul 9, 2020 in Research Paper

Public Budgeting Researrch Paper

Abstract

Public administration mainly involves the implementation of government policies. Public budgeting is one of the fields in public administration, and it involves the formulation of federal and state budgets, with each being formed depending on the level of leadership. Therefore, the federal government and the state governments have independent budgets. This paper looks into how budgets are formed in the federal government of the USA, the processes involved in a budget formation, and the institutions involved in the processes. This information is discussed in detail in the Chapter Summary section of this research paper. At the same time, the paper also looks into a case study of the Fire Department of the City of New York (F.D.N.Y.) and studies how departmental budgets are prepared and the processes they undergo before approval in the State Government of New York. The paper also offers recommendations that need to be implemented to improve the budget process.

Public Budgeting

Public budgeting is a field of study under public administration that involves the formulation of budgets of different government states and departments. A public budget is a plan for the expected incomes and expenditures for the upcoming fiscal year within an organization. Many governments, especially the US government, sometimes have budgets exceeding the taxes raised. In such a situation, they have to use the Treasury to raise money to be used to actualize their budget. This is called the expansionary fiscal policy. There are also times when the government has surplus money. In such a case, the government cuts expenditure, which leaves the Treasury with excess money. In this case, it is the contractionary fiscal policy (Ross, 2015). This fiscal policy is good for the government because it creates surplus money that the government can use for other projects and programs. These policies have highly contributed to proper budgeting in the USA. The analysis shows the evolution of budgeting in the USA while explaining a case study on the Fire Department of the City of New York’s budget preparation process.

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Chapter Summary

The budget-making process underwent a few changes since the USA had gained its independence, but the most significant changes had been witnessed at the dawn of the 20th century under the leadership of Howard Taft, the then President. Prior to that, the US President had no role in the budget-making process. In the event where an agency needed money, the agency’s leadership was supposed to petition to Congress directly because the executive arm of the government had no role in federal budgetary decisions. Only in 1921, the Budget and Accounting Act was passed under the leadership President William Howard Taft. Cozzetto, Kweit, and Kweit (1995) describe the Act as “the most comprehensive, sweeping attempt at budget reform in U. S. history." The authors clearly show that the US budget process had many weaknesses.

 Due to the rapid growth of the country, societal problems developed as well, which led to the amendment of the Budget and Accounting Act through the recommendations made by the Commission on economy and efficiency. Commonly, this commission was known as the Taft Commission because it was chaired by President Howard Taft (Holzer & Schwester, 2015). The proposals gave the President the mandate to prepare a budget through the Bureau of the Budget (BOB), which was later replaced by Office of Management and Budget (OMB) under the leadership of Nixon in 1970, and present it to Congress. The Taft Commission also formed the Government Accountability Office (GAO) that was and still in charge of auditing the budget before its presentation to Congress for approval. All these were meant to streamline the budget preparation process.

Holzer and Schwester (2015) highlight two types of budgets, which are capital budgets and operational budgets. These two types differ in that operational budgets are recurrent every fiscal year, while capital budgets are meant for the projects that run for a couple of years, for example, the construction of bridges and buildings. Apart from the capital and operational budgets, Holzer and Schwester (2015) discuss the line-item budget that shows how taxpayers’ money will be spent item by item. This is the most common type of budget brought to Congress by different agencies for approval. At the same time, Bianca (n.d.) notes that “It’s easy to create…straightforward and does not require linking budgeting to advanced accounting, such as activity-based costing, or management practices.” The last form of budget discussed in the chapter is the performance budget that involves allocating money and resources to a department according to its performance. This type of budget is noted by critics as counterintuitive because it tends to take away money from struggling departments, which worsens matters (Holzer & Schwester, 2015). All those different budgets depend on the nature of department. Some departments use quantifiable goods, which utilize the line-item budgets, while others offer services that cannot only prepare a performance budget to get funding.

In their book, Holzer and Schweter (2015) explain two budgetary theories. The first one is grander budget theory by Whicker (1992) that has a redistributive aspect. In other words, tax money collected from the wealthiest is used on projects and programs benefiting the less fortunate. This theory is functional in that in the USA, the high-end earners pay more taxes as compared to others. The tax money collected is mostly used to benefit the less fortunate in the society, which is more or less, what the grander budget theory is all about. The second theory is cultural theory which is dependent on political factors. Swedlow (2002) argues that in cultural theory, because of political factors, the budget formed promotes some values over others. Out of the two theories, grander budget theory is the most preferred one in the USA.

History of Fire Department of the City of New York

During the Civil War in the USA, volunteer firefighters were in charge of fire extinguishing in New York City. In 1864, insurance companies started a movement to replace the volunteer firefighters with a professional fire department. Insurance companies felt it was such a great loss to them. The movement got back up from Metropolitan Police Department and the State Republican Party. On  January 16, 1865, a bill entitled an Act to Create a Metropolitan Fire District was introduced in the State Legislature, which led to the formation of Metropolitan Fire District, a Board of Fire Commissioners, and a paid fire department (Calderone & Lerch, n.d.). The bill was passed and signed into law by the governor. On April 5, 1870, the Tweed charter was passed, and in its provisions, it wiped out the Metropolitan Fire District, established a new Board of Fire Commissioners, and the Metropolitan Fire Department became the Fire Department of the City of New York (F.D.N.Y.) (Calderone & Lerch, n.d.). The department has undergone numerous changes which have made it the dependable department it is now.

Analysis of how the Fire Department of New York Requests for Money 

The Fire Department of the City of New York is among the many departments in the state. New York uses the executive budget model. This model is more or less the same as the federal budget process, where the executive is responsible for drafting the budget subject to modification and approval by the legislature. 

The budget process in New York begins around May, when the Director of Budgets issues a policy memorandum to F.D.N.Y. This memorandum is commonly known as a call letter. The call letter outlines the Governor’s priorities for the coming fiscal year and the schedule for submitting the budget to the Division of Budget. By early mid-fall, the budget proposal is finalized in line with the instructions in the call letter and approved by the head of the F.D.N.Y. One copy of the proposed budget is submitted to the Division of Budget, and other copies - to the legislative fiscal committees for examination. In November, the Division of Budget conducts a formal hearing, where they give the head of F.D.N.Y. a chance to present and discuss the department’s budget. The Governor’s office uses this platform to raise questions concerning the proposed budget. In late November, the Division’s examiners transform the proposed budget into a preliminary budget and prepare recommendations from the examiners and the Director. They present these to the Governor and his staff. The Division of the Budget staff and the Governor hold meetings that lead to the formulation of Executive Budget recommendations. The policies reviewed in these meetings lead to possible amendments to the F.D.N.Y. preliminary budget. The governor submits the preliminary budget to the legislature, where this budget is analyzed through the Senate Finance and Assembly who seek further clarifications from the Division and the F.D.N.Y. After deliberations, the two houses pass the Enacted Budget. The Enacted Budget is then submitted to the Governor for review (“The Budget Process”, n.d.). At this point, the budget is ready for implementation. 

The budget formulated by the F.D.N.Y. is both an operational and an item-line one because it is recurrent every year and it is meant for the operations of the department. It includes purchases of new equipment and uniforms, wages, and medical services amongst others, which makes it an item line budget. The two main policies in this department are Expenditures, Cost Containment, and Budgetary Control Policies, and the Accounting, Auditing, and Reporting Policies. These policies are put in place to ensure proper utilization of public funds. The F.D.N.Y. releases its financial report of the previous fiscal year that details its spending. State auditors, who confirm if the department utilizes funds effectively, also perform the auditing. The department is adhering to the policies by releasing its financial reports at the end of the fiscal year. This makes it qualify for funding in the upcoming fiscal year. These policies prove to be effective because they cut excessive spending and prevent the embezzling of public funds.

Recommendations

The budget cycle in New York runs for 27 months. The budget preparation takes 15 months, which to me is a long period. The period should be reduced to less than one. The stages should also be reduced, which minimizes the expenditure incurred in the budget making process. The F.D.N.Y. should also consider procuring some services like ambulances from other institutions to cut its expenses. 

Conclusion

Public budgeting has seen multiple changes that have been able to provide a smooth and easy budgeting process. The introduction of various institutions to monitor and evaluate the process has ensured that public funds are not wasted and prioritization is put in place. Thus, the embezzling of funds has been handled because the Treasury work under tough policies and guidelines. Auditors also ensure that funds disbursed for various projects have been used as it has been stipulated in the departments’ budgets. 

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