MPA 752

Public Budgeting
and Finance
Professor Craig S. Maher
Clow Faculty 408
Office Ph. 920-424-7304
Best way to contact me is via
email; Im generally on
campus Tues and Thurs
Email (maher@uwosh.edu)
 Grading

Class Assignments (3, each worth 25 points)

75 pts

A more substantive financial evaluation

100 pts
Class Participation 50 pts

Total Possible Points 225 pts

 Course outline
Session 1: external drivers of local finance and their
impact on local decision-making; is budget design
and process a response?

Session 2: Introduction to basic financial accounting

with emphasis on meaning of G.A.S.B. 34, 43 and 45

Session 3: Revenue estimation and evaluation

Session 4: Financial Evaluation Techniques

Session 5: Capital Budgeting and Debt Analysis

 Todays Session
Fiscal federalism today

Budget Structures and Implications

G.R.E.A.T. Program from UW-

Extension Local Government Center
 The Federal Budget
In 2010, the federal deficit was
approximately $1.3 trillion
The federal government has
accumulated more than $14 trillion in
debt
Official unemployment at 9.1 percent;
no job growth in August
According to CBO, unemployment will
remain above 8 percent until 2012
 Tuesday (9/13/11)
Presentation by CBO to
Joint Select Committee on
Deficit Reduction

CBO Presentation 1
Committee Presentation
economic forecast update
Entitlements Consuming
Larger Share of Federal
Budget

Social Security
Medicare
Other Entitlements
 Coping With Stagnant
Economy
Is Keynes dead?

Impact of austerity tighten your belt in

tough times

(regardless, federal decisions have

significant impact on states)
federalism report by Rockefeller
Institute
 For a State-Level
Perspective
NASBO

Rockefeller Institute
www.nasbo.org
NGA/NASBO
SPRING 2011
FISCAL
SURVEY OF
STATES
16
 Jan. 08 GAO Report:
Growing Fiscal Challenges will Emerge
during the Next 10 Years

in the absence of policy changes, large and

recurring fiscal challenges for the state and
local sector will begin to emerge within a
decade.

Continuing on this unsustainable path will

gradually erode, and ultimately damage, our
economy, our standard of living
-David Walker, Comptroller General, January 2008

22
 GAO Report (Jan. 2008)
Tax receipts would need to rise
considerably faster than historical
experience to enable the operating
balance to remain in the historical
range.

Substantial policy changes would be

needed to prevent the fiscal decline in
the state and local government sector.

23
 Long Term Fiscal Gap
The GAO simulation shows that by the
mid-2020s states will be in strong fiscal
distress

Fiscal gap requires a 15.2% tax increase

or a 12.9% spending reduction

Tough choices on spending and tax policy

Balanced budget requirements
Bond ratings

24
Recent State-
Level Good
News
Source: Rockefeller Institute
(2011)
 PIT CIT Sales Total
2007 Q1 8.5 14.8 3.1 5.2
2007 Q2 9.2 1.7 3.5 5.5
2007 Q3 7.0 (4.3) (0.7) 3.1
2007 Q4 3.8 (14.5) 4.0 3.6
2008 Q1 4.8 (1.4) 0.7 2.6
2008 Q2 8.1 (7.0) 1.0 5.4
2008 Q3 0.9 (13.2) 4.7 2.8
2008 Q4 (1.9) (23.0) (5.3) (4.0)
2009 Q1 (19.4) (20.2) (8.4) (12.2)
2009 Q2 (27.7) 3.0 (9.5) (16.3)
2009 Q3 (11.5) (21.3) (10.1) (11.0)
2009 Q4 (4.1) 0.7 (5.4) (3.3)
2010 Q1 3.6 0.6 0.1 3.3
2010 Q2 1.3 (19.0) 5.7 1.9
2010 Q3 5.4 0.5 4.2 5.1
2010 Q4 10.5 18.1 5.7 7.9
2011 Q1 12.8 5.1 6.3 9.3
2011 Q2
16.5 16.5 5.9 11.4
(preliminary)
 Table 2: Percent Change in State Tax Revenue
Quarterly Tax Revenue by Major Tax, Early
Reporting States
April-June 2010 to 2011, Percent change

PIT CIT Sales Total

United
16.5 16.5 5.9 11.4
States
Great
31.6 21.7 5.6 16.2
Lakes
Illinois 67.9 51.2 6.7 37.7
Indiana 23.0 3.1 5.6 9.3
Michigan 24.8 20.7 6.7 11.7
Ohio 16.9 12.3 5.6 11.0
Wisconsin 11.1 (5.6) 1.8 5.1
Source: Rockefeller Institute, 2011
 Meaning of fiscal woes at
the local level
According to a recent NLC study: 88 percent
of city financial officials report that their
communities are less able to meet fiscal
needs in 2009 than in the previous year city
sales tax revenues and income tax revenues
are predicted to decline through 2009 (city
finance officers) predict that revenues will
decline (-0.4 percent) and, while spending will
increase by 2.5 percent (in 2009).

Most states in the US have imposed some

type of tax and expenditure limitation on
themselves and/or local governments .
Current and Future City and Village
Financial Prospects 2010
Current and Future City and Village Financial Prospects
1997, 2004, 2007 and 2010
Future Financial Prospects (Five Years Ahead)
1997, 2004, 2007 and 2010
 Quotes from local
officials
Besides the property tax limit the new
restraints on reducing emergency
service budgets also is a huge impact
on communities.
My Finance committee struggles each
year to keep the tax levy down or just
slight increases, but with four union
contracts wages and benefits are set
and funding must be appropriated.
 Quotes from Survey
Cont
I wouldn't say 2007-2010 was particularly
stressful, but 2010-2012 will be.
Levy limits and maintenance of effort
requirements will ultimately deplete our reserves
and force reduction/elimination of services.
Loss of jobs, forced foreclosed properties. Poor
economy, reduced new homes to be built in our
TIF district and no businesses to come to expand
into our TIF district.
Limited funds based on population, hard to get
grant funding.
 Quotes from Survey
Cont
No incurring debt and "good old fashioned home
budgeting" has helped this small municipality to thrive in
this challenging economy.
Wisconsin doesn't provide municipalities another revenue
generating source other than property taxes, user fees,
revenue sharing, and other State aids, the overall
financial conditions of most Wisconsin municipalities will
be depressed greatly for the following reasons: Increased
cost of operations & maintenance; the replacement of
aging infrastructure and the increasing costs associated
with it; and the continued cuts in State revenue sharing
and continued imposition of levy
 Quotes from Survey
Cont
The levy limit has been slowly strangling
our little village. My personal opinion is
that our residents vote for people that
they feel are fiscally responsible and will
not spend needlessly. The board
members should be given the faith from
our government that they will be
responsible with our money. They can
see what happens at a local level way
better than the state government.
 Quotes from Survey
Cont
The upcoming years will be
challenging. Creativity will be essential.
Education and communication with
residents will be critical. They need to
be part of the process.
It's a shame that a government that has
been operating within its means for over
20 years is unable to increase property
tax rates at times it may be needed.
 Quotes from Survey
Cont
We could have somewhat adequate revenues if the
Council would allow reasonable Property Tax increases.
They required 0% last budget (2010)and are demanding
0% or a reduction for 2011.
Significant property tax increases in 2008 and 2009 for
debt service intended to respond to a long term
infrastructure maintenance deficit helped address that
issue, but that was after 12 years of belt tightening and
expanding demands for municipal services.
Now there is no cushion and the anti tax/fee fervor is as
hot here as anywhere. Yet most everyone wants us to do
more...
What Does the
Future Hold for
Wisconsin
Communities?
Population Trends
 Percent Change
Age
Group 2005-10 2010-15 2015-20 2020-25 2025-30 2030-35 2005-35
0-4 2.36 5.57 3.25 0.01 -1.18 -0.22 10.0%
5-9 1.46 3.06 5.45 2.94 -0.27 -1.42 11.6%
10-14 -7.56 2.15 2.93 5.13 2.65 -0.50 4.4%
15-19 -3.13 -6.93 2.02 2.61 4.83 2.42 1.3%
20-24 1.91 -2.47 -6.94 1.78 2.33 4.57 0.8%
25-29 11.94 2.60 -2.47 -7.14 1.52 2.09 7.8%
30-34 5.43 12.70 2.51 -2.75 -7.39 1.29 11.1%
35-39 -8.68 6.16 12.59 2.20 -3.02 -7.59 0.0%
40-44 -12.40 -8.04 6.11 12.32 1.95 -3.22 -5.3%
45-49 -0.12 -11.77 -8.04 5.91 12.07 1.74 -2.1%
50-54 11.08 0.33 -11.75 -8.12 5.81 11.98 7.1%
55-59 17.98 11.36 0.41 -11.70 -8.08 5.84 13.3%
60-64 29.74 18.37 11.54 0.56 -11.59 -7.97 40.2%
65-69 18.57 30.09 18.66 11.81 0.80 -11.40 82.8%
70-74 5.52 19.06 30.56 19.06 12.18 1.15 121.6%
75-79 -4.83 6.10 19.80 31.18 19.62 12.74 114.0%
80-84 1.83 -3.89 7.09 20.80 32.06 20.48 101.4%
85-89 12.24 3.68 -2.21 8.53 22.23 33.43 101.5%
90-94 18.40 15.52 6.37 0.16 10.58 24.36 100.4%
95-99 31.63 23.27 20.18 10.06 3.32 13.53 151.8%
100&ove
 In Summary:
At national level: debt levels at unprecedented
levels; economic stagnation continues; wide
disagreement between President and some
members of Congress on fiscal policy
State level: balanced budget requirements;
debt levels higher; reserves drawn down;
recent signs of revenue growth
Local level: balanced budget requirements;
reserves drawn down; fiscal constraints
(TELs); greater flexibility re. personnel; weak
housing market
Public outrage at all levels
 What Does This Mean for
Budgeting?
Todays emphasis: Does current conditions necessitate
greater effort by government officials to explain fiscal
decisions
Results indicate that performance information does
have a significant impact on budget allocation (Ho,
2011)
continued emphasis on the use of performance
information to rationalize budgetary and program
decisions. (Ho, 2011)
real elephant in room is the fiscal climate budget
pressures worse than at any time in recent memory
anger at government all services face reduction.
(Gloo, 2011)
A fundamental question:
What is (are) the
purpose(s) of a budget?
An accounting document (record,
control expenditures)
A management document (determine
who can spend how much)
Decision-making document (basis for
sound decision-making by council
and staff)
Communications document
(informing public of how their
 GFOA Award Criterion

Budget as Policy Document

Budget as Financial Plan

Budget as Operations Guide

Budget as Communications
Device
 Budget as Accounting
and Mgmt Tool
executive budget proved to be a
ready-made solution to the dual goals
of preventing corruption and
increasing administrative efficiency.
The 1921 Budget and Accounting Act
required the President for the first
time in the history of the United
States to present such an executive
budget to Congress each year.
 Budget as Accounting
and
Mgmt Tool Cont
The turn-of-the-century reformers goal of control
created the first and, still primary, justification for a
unified public budget. To implement, accountants
were hired and accounting practices were
formalized.
Practices emphasized the importance of clearly
identifying costs and establishing routine protocols
for controlling spending. This "control-centered"
system resulted in what has come to be commonly
known as the object of expenditure or line item
budget"
Line Item
Operating
Budget
 Line-Item Budgets
Most common format, connects and
reports information on inputs used in the
production of government services
Includes lists, sometimes lengthy, of
goods and services to be purchased
labor, supplies, utilities, capital items and
misc.
Provides for a great deal of oversight
over expenditures
Focus on control
Positives: accounting, management
Negatives: decision-making, communication
 Does Budget
Design Matter?
You be the judge
 10.05155 VERNON C0. UWEX DEPARTMENT 2002 EXPENDITURE BUDGET
Line Item Description 12/31/1999 12/31/2000 06/30/2001 Year-End 2001 2002 Dept. Admin. Rec. 2002 Adopted

5048 Repairs & Maint. 2,354.27 2,321 2,111.58 2,550 2,550 2,550 2,550
5111 Salaries-Regular* 0 0 18,509.62 43,050 43,164 43,000 43,164
5112 Salaries-Part-time* 0 0 2,571 3,000 3,000 2,700 3,000
5113 Salaries-Overtime* 0 0 0 0 0 0 0
5131 Contract Services 0 0 28,687 59,095 60,277.00 60,277 60,277
5151 FICA* 0 0 1,533.17 3,293 3302 3302 3302
5152 Retirement* 0 0 2,073 4,882 4,834 4,834 4,834
5153 Health Insurance* 0 0 4,332.60 10,367 10,986 12,336.00 12,336
5154 Life Insurance 0 0 77.88 170 170 170 170
5223 Applause 0 0 820.5 820.5 0 0 800
5225 Telephone 3,408.05 3,208.20 1,373.58 5,150 5,150 5,150 5,150
54242 Comp.-WISPlan 673.2 1,280.29 745 1,450 1,450 1,450 1,450
5309 Educational Res. 1,794.73 1,376 1,582.32 2,250 2,250 2,250 2,750
5310 Office & Comp. Sup 2,724.88 3,350.90 3,272.02 4,500 4,700 4,300 4,700
5311 Postage & Envel. 819.79 417.83 478.5 1,050 1,050 900 1,050
5325 Regis. & Training 1,811.42 1,552.05 773.38 1,300 1,300 1,300 1,300
5327 Fee Programs 3,097.24 -73.57 5,853.38 0 0 0 #800
5329 Dues & Subs. -2,651.99 608.53 189.97 400 400 200 400
5333 Mileage 3,432 5,135.89 4,024.47 4,375.00 4,750 4,375 4,750
5335 Meals 395.92 705.19 129.43 550 550 400 550
5336 Lodging 499 397.45 190.39 600 600 450 600
5398 Van Expenses 539.18 1,978.27 217.43 900 900 900 1,150
5803 Computer Purchase 6,288 4,351 1,263.90 2,670 2,670 2,670 2,670
5810 Capital Outlay 999.28 956.5 0 0 0 0 0

Total Expends. 75,540.12 152,422.50 151353 153,514 157,753

 Eau Claire County
..\..\..\UW-GB Summer\2010\Eau
Claire\UW_Extension_ECC__Perf_Mgmt_Prog_Grid_02-2010.xls
 Consider the Budget Within
the Context of The Role of The
Elected Body

A common council/village or
county board serves as the
legislative arm of the
city/village/county government.

It decides policy matters.

Source: LWM, Handbook for Wisconsin Municipal Officials
 In What Form is Information
Presented to Enable Policy
Decisions to be Made?
Elected officials need evidence on
results that have been achieved from
taxpayers dollars.

They need to use that evidence to

help make resource and policy decisions.

Source: NLC and Urban Institutes Legislating for Results Presentation

Does this budget
format look
familiar?

If this were a
budget proposal
how would you
react?

Are the
questions posed
really about
policy?
 That Being Said Does it
Really Matter?
Assumed by Reinventing Government,
National Performance Review,
Government Performance Results Act,
Presidential Management Agenda and
Program Assessment Rating Tool result
in cost savings
Let managers manage! (Kettl, 1997) By
giving people the power to make
decisions, individuals are motivated and
use their initiative and innovate, to the
good of the organization
 Budget Design Types
Line-Item

Program-Based

Performance-Based

Zero-Based
Performance Budgeting
Gained popularity in the 1950s, then
again in 1980s and 1990s (recent
research finds there prevalence
decreasing

Experienced a resurgence as a result

of such innovations as management-
by-objective (MBO), Total Quality
Management (TQM) and former
President Clintons National
Performance Review

arguably also more popular as citizens

Purposes of performance
budgeting
to better evaluate results of program operations

provide decision-makers and public with better

information on quality of public services

very similar to logic modeling approach where

focus is on outcomes, not inputs

most advanced in WI is Eau Claire County

Eau Claire County Proposed Budget 2011
 Zero-Based Budgeting
In the 1970s, an alternative approach to determining
spending priorities ZBB was developed by T.I. and
spread rapidly to local governments in TX, and was later
popularized by the Carter Admin.
ZBB organizes information into decision packages that is,
incremental spending levels that reflect varying levels of
efforts and costs
In theory, each department (or decision unit, which is the
lowest level in the organization at which budgetary
decisions are made) prepares at least 3 packages
1. A base-level, meeting the programs minimum
requirements
2. Current-level funding
3. Enhanced package to meet unmet needs
Packages from all decision units are then ranked
according to perceived need for the package.
Unlike PPBS, which uses more objective criteria, ZBB
relies on the subjective judgment of decision-makers in
ranking packages
 Incremental Versus
Zero-Based Budgeting

n
Incremental budgeting starts with current
revenues and expenses and projects next year
by adjusting for inflation, volume, efficiency,
technology, etc.

n
Zero-Based Budgeting
- calls for a total reevaluation of all programs
and activities.
- requires that decision packages be prepared
for each separable activity or level of activity.
- ranks the packages.
Finkler: Financial-Management
selects packages
For Public, forOrganizations,
Health, And Not-For-Profit adoption
nd or rejection.
2 Ed. Prentice Hall Publishing 2005
 Why the zero in ZBB?
In theory, decision-makers conduct an annual
evaluation on each programs purpose and
priority, weighing it against all other spending
possibilities; as a consequence of this
evaluation, decision-makers may decide not to
renew funding for an existing program,
choosing instead to fund an enhanced
spending package for another decision unit or
even provide base level funding for an entirely
new program
- in reality, such reallocation rarely occurs
 How Else Can Information
be Presented?

Trend analysis

Compared to like-sized communities

 GREAT
Graphing Revenues,
Expenditures and Taxes
(UW-Extension)
What is it?

How is it used?

From where do the data come?

How can I access the data?