Speaking Notes

January 19, 2010

PADM 5301

Dr. Neubauer

WHERE WE ARE

• I need to work on your first lab assignment and your writing assignment for this course and put due dates on the course calendar soon.
• The midterm is Feb. 16 and will cover the first five chapters in our textbook plus any other material we cover between now and then.

OVERVIEW OF SOME CHAPTER 1 CONTENT

1) What are the major reasons why public budgeting cannot be reduced to calculation?

2) In terms of level of political conflict, what would be the implication of going to a budgeting system which was rational-comprehensive in nature rather than incremental?

3) Given that the private economy is the "engine" from which tax revenues are generated, what are the long term consequences if the relative size of the government (in aggregate) increases as a percent of the entire economy? Tie this to the concept of supply side economics.

4) What is an externality as related to public budgeting?

5) Many services are non exclusive, meaning that if the service is provided it becomes available to everyone. Why "should" such services be provided by government rather than through the commercial market system?

6) What does it mean to say that public budgetary processes are INCREMENTAL decision-making processes? Make the case for incrementalism as a rational means of decision making within complex (adaptive) systems.

7) What is the notion of, "the dance" as applied to public budgeting? What is the benefit of "the dance" to the "dancers?"

8) What is the significance of the executive's (mayor, governor, president, or other) budget address?

9) Reflect on this statement. How likely is it that a president of the US will go through the federal budget line by line? What is the alternative to a 20th century bureaucracy?

Text of Obama's acceptance speech.

http://www.dailykos.com/storyonly/2008/8/28/225345/447

Now, many of these plans will cost money, which is why I've laid out how I'll pay for every dime -- by closing corporate loopholes and tax havens that don't help America grow. But I will also go through the federal budget, line by line, eliminating programs that no longer work and making the ones we do need work better and cost less -- because we cannot meet 21st century challenges with a 20th century bureaucracy.

Some new material this evening more or less based on Chapter 2 of our textbook:

There is a division of labor between the federal, state and local governments, both in terms of abilities to raise money and in terms of areas of program responsibilities.

The 16th amendment in 1913 was a major shift in power.

http://en.wikipedia.org/wiki/Sixteenth_Amendment_to_the_United_States_Constitution

State and local governments are now substantially dependent upon the federal government for revenue. State and local governments must be able to ANTICIPATE the flow of money "from above" as they go about their budgetary decision processes.

GRANTS come in several forms and with more or fewer constraints attached.

Unfunded MANDATES are a major cause of concern to state and local governments.

The value of a revenue source depends upon . . .

• the amount of money it can produce
• the political difficulty involved in its use
• the administrative difficulty involved in its use
• its predictability and reliability as a source of revenue

Most states have personal and corporate income taxes and "piggyback" on the infrastructure of the federal government.

Local governments generally tax property and sales. Some cities tax personal incomes.

Local governments are creations of the state governments, created by charter.

Dillon's Rule -- local governments have only the powers EXPRESSLY granted to them.

http://en.wikipedia.org/wiki/John_Forrest_Dillon

Home rule -- a more liberal interpretation of the situation in which local governments can pretty much do what they want to do if not prevented from doing so by the state government.

The federal government often offers specific grants as a "hook" to get local leaders to enter into a program with LONG TERM budget implications. Once a popular program is started it is difficult to back out of it.

Federal programs promote UNIFORMTY across the nation whereas local discretion often results in DIVERSITY among places, which may or may not be a good thing.

Budgets include both OPERATIONAL and CAPITAL expenditures. It makes more sense to incur DEPT for a capital project than for operational needs.

The federal government can go into dept and literally runs the printing presses.

DEBT -- "the big one" -- the accumulation of deficits over the years

DEFICIT -- the shortfall in the present year

SURPLUS -- an infrequent occurrence in which revenues exceed expenses for a fiscal year

DISCRETIONAL spending -- spending that is not already required by law to be decided. What government officials decide to spend that they could have decided not to spend.

NONDISCRETIONARY spending (mandatory spending, formula-based spending) -- what must be spent even if it requires additional revenues (or new debt) to spend.

State and local governments generally must have "balanced" budgets, although they do often borrow money though multiple means such as municipal bonds.

ONE TIME SALE OF ASSETS -- a way for a government entity to raise money by selling something. The problem is that you generally cannot sell the same thing over and over again.

INTEREST ON DEBT -- the money that must be spent to pay for having borrowed money in the past.

The federal government is deeply in debt (substantially to the government of the nation of China) and if it fails to pay the interest due it may be unable to borrow more money.

http://en.wikipedia.org/wiki/United_States_public_debt

Over time, the percentage of the federal budget that is discretionary is decreasing, largely because of obligations that are formula-driven such as social security and Medicaid.

As discretionary spending approaches zero dollars it becomes increasingly irrelevant WHO we elect to office.

There is FISCAL POLICY and MONETARY POLICY and we have already pretty much done everything possible to pull out of the present recession.

The PRINTING PRESS can produce money but it does not produce value. As more dollars are put in circulation the value of each one of them tends to decline. This known as INFLATION.

The PHILLIPS CURVE describes a relationship between INFLATION AND UNEMPLOYMENT.

http://en.wikipedia.org/wiki/Phillips_curve

At the federal level the government tries to use ECONOMIC POLICY to negotiate the tradeoff between unemployment and inflation. This is within the domain of MACRO ECONOMICS.

With rare exceptions budgetary decisions at the state and local levels proceed under the domain of MICRO ECONOMICS. State and local governments are not usually big enough to affect the entire system.

THE POINT IS that NEEDS ARE THE GREATEST at precisely the time that RESOURCES ARE THE MOST CONSTRAINED.

Ideally, governments should accumulate surpluses in the good times to help carry them through the bad times. POLITICALLY, it is difficult to argue for tax increases in good times and expect to get reelected in the next election cycle.

THE RATCHET EFFECT

In time of war national spending increases. After the war it usually decreases but NEVER TO THE PRE-WAR LEVEL.

THE TOOTHPASTE TUBE EFFECT

When you squeeze down one place the result will become evident somewhere else.

THE INETIA EFFECT

Once a program is up and running it is difficult to "kill." SUNSET legislation can help prevent programs from being forgotten and continually refunded "forever." Programs and agencies almost become living beings with a will to survive and to grow/perpetuate themselves.

PRIVITIZATION AND CONTRACT ADMINISTRATION

Government agencies contracting out programs to nonprofits and other organizations makes the government look smaller than it really is. Contract employees are not subject to civil service rules and do not earn pensions. Nevertheless, government by proxy is big and growing and the money is real regardless of whether or not the person receiving it is on government payroll. MULTIYEAR CONTRACTS become nondiscretionary expenditures in future budget years.

OUTPUTS AND OUTCOMES

If public budgeting is limited to a line-item format and a CONTROL orientation the distinction between outputs and outcomes is irrelevant.

When public budgeting is used to address issues of PERFORMANCE and/or of PLANNING the distinction between outputs and outcomes becomes very important.

• Costs (how much we spent) is relatively easy to ascertain.
• Outputs (what we did with the money) is fairly easy to ascertain.
• Outcomes (what did we really achieve) is far more difficult to ascertain.

Modern public budgeting systems attempt to address questions regarding performance and achievement, and to be important planning documents.