Speaking Notes

PADM 5301

March 16, 2010

Dr. Neubauer

WHERE WE ARE

• There is a useful summary of public budgeting here:
• http://en.wikipedia.org/wiki/Public_budgeting
• We are one week ahead of the calendar posted on the web regarding chapters and dates.
• We have four more class meetings and then the final exam, on April 20.
• We skipped Chapter 9 on budget approval in the U.S. Congress
• Today is Chapter 10 on Budget Execution
• I anticipate that the final will include material through Chapter 14. I do not anticipate getting into Chapter 15.

CHAPTER 10 OF OUR TEXTBOOK

Budget execution in brief:

• Budget execution refers to an agency actually receiving and spending money.
• The money becomes available in allotments (like drops from an eyedropper). The allotments are not necessarily equal amounts during the fiscal year.
• Specific people in the agency have the authority to authorize purchases and payroll.
• Time management for payroll purposes is increasingly highly automated.
• Increasingly, specialized debit cards are being made available to employees. They can be set with limits and limitations on what can and cannot be purchased.
• There is usually some opportunity at the agency level to move money between accounts if necessary.
• It may become necessary to request a supplemental budget (or make other budget adjustments) during the fiscal year.
• Books are being kept using appropriate governmental accounting methods.
• It is likely that both internal and external auditors are engaged in monitoring the record keeping as money is received and expended.
• There may possibly be some legislative oversight although probably not.
• Purchases above an amount may require taking competitive bids from venders on a list of approved venders.
• If the agency is large it is likely that someone is making decisions intended to maximize the "float," just as corporations and banks do. The credit rating of the jurisdiction is important as it will affect interest rates required to borrow money for capital projects.
• Procurement is likely to be centralized to help assure adherence to "standards," particularly regarding purchases of computer hardware and software.
• Toward the end of the fiscal year it is likely that certain kinds of resources (such as paper, toner for printers and the like) are purchased in sufficient quantities so as not to return any of the final allotment amount to the government treasury.

Outline of Chapter 10

• interactions between central budget office and line agencies
• tax administration
• cash management
• procurement
• risk management

INTERACTIONS BETWEEN CENTRAL BUDGET OFFICE AND LINE AGENCIES

What is the agency suppose to be doing?

• The idea is to follow the laws that created the policies and the programs intended to be implemented by the agencies.
• It is not just the law as written -- it is "legislative intent" as evident in the official records of the legislature.
• What passed is likely to be intentionally vague.
• Trying to discern a coherent legislative intent is likely to be difficult or impossible.
• The courts may get involved in attempting to determine legislative intent.

Authorization, appropriation and now allotment of the money.

• Budget analysts play very important roles during budget execution.
• The agency would prefer just to get its money and be left alone.
• The central budget office is likely to be involved in both the flow of the money (allotment) and in overseeing how the money is spent (preaudit).
• It may be necessary to ask the legislature for additional revenue in the middle of the budget year because of emergencies.
• The flow of money may decrease during the budget year because of low revenue flows to the government.
• End of year spending reflects a major problem in the design of the system and the incentives it creates. ESTIMATES BECOME COMMITMENTS and that tends to create a no-win situation for the agency.

Control of Information Collection.

• "Paperwork" is a means of control and accountability but it produces a great deal of "overhead" in what the government does. This applies both WITHIN the government and between agencies and other organizations.
• The "solution" to any problem almost always involves more required information.
• Even the paperwork reduction act requires additional internal reporting.
• There are not only laws but EXECUTIVE ORDERS that agency administrators have to try to abide by.
• Federal agencies now have to justify the information they require from others.
• Federal agencies can (through a process) create RULES that have the force of law on the organizations they regulate.
• Some government agencies use E-government web sites to try to make things easier -- but easier for whom?
• I THINK THE POINT IS THAT BUDGET ANALYSTS (WORKING BOTH FOR CENTRALIZED BUDGET AGENCIES AND FOR THE AGENCES) ARE VERY INVOLVED IN DECISIONS RELEVANT TO THE ADMINISTRATION OF THE AGENCIES.

Tax Administration and Debt Collection

I am not sure why this material is in Chapter 10 on budget execution. Yes, someone has to actually collect the money to be made available to the agencies.

Cash Management

• Cash management is about having "real money" available as needed.
• The issue is "liquidity."
• The issue is also "float."
• Government agencies and nonprofits use BANKS like everyone else.
• When substantial amounts of money are involved the FLOAT becomes important.
• There is a TIME VALUE OF MONEY. Interest can be earned until the money is needed. Interest can be earned by DEFERRING the payment of debts.
• Agencies have multiple FUND ACCOUNTS and they commonly borrow money from one account to put into another as needed.
• Government agencies should be CONSERVATIVE when investing money. HIGH RISKS should be avoided.

Procurement

• Centralized purchasing in large lots to gain volume discounts is good only if the COSTS OF INVENTORY are low.
• The "RED TAPE" associated with procurement is often more costly than the indiscretions or fraud intended to be avoided.
• I think the major concerns in abuses regarding procurement are fraud, favoritism, and waste.
• A lot of other criteria become involved such as the executive order regarding immigration laws and trying to promote small businesses.
• Government credit cards have potential to streamline many government purchases but can also be misused.
• In emergency situations, a lot of money tends to be wasted because government agencies are not used to having to make decisions quickly. In a culture of DISTRUST there is a lack of AGILITY necessary to do what must be done at the speed in which the relevant environment is moving.
• The NIMS plan for emergency management includes a key person who is suppose to keep taps of "who owns whom for what" in the midst of a crisis.

Risk Management

• I guess the relevance of risk management to budget execution is that if something bad happens it is likely to be expensive after the fact.
• Major lawsuits and events like the Chicago Flood of 1992 can be very costly and are going to have to be paid SOMEHOW by the government and (directly or indirectly) its agencies.
• INSURANCE ALONE is not the answer. Insurance spreads the risk around.
• The key is identifying and MITIGATING risks.