Budget Components (Policy Document, Financial Plan, Operating Term Paper

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budget components (Policy Document, Financial Plan, Operating Plan, Communications Device), rank them in order of importance in your opinion and justify your rank order.

Rank 1: Policy Document: The Policy Document is synonymous with a Budget Document. The budget document can be a line item detailed listing of every expenditure for every department within the government operation. The document conveys the policies and procedures of the administration and outlines its funding.

The expenditure amount is a further clarification of the entity's commitment to their underlying cultural and operating practices which complement their specific organizational goals and organizational strategies. Organizational strategies in accordance to the Policy Document include the Strategic Planning Document which details how the organization will propel itself into the coming years as a strategic city seeking to attract the best and the brightest to start businesses and to be residents. As the underlying specific goals to the macro strategy, such documents include the long-range financial forecasts for revenues and expenditures in the operating funds.

Rank 2: Communications Device: According to Blocksidge (1995), "Ultimately, the budget document is a medium for communication. Within Allegheny's document, summary information in the operating and capital sections explains the budget planning process. And an overview of the local government, including its organization, the community, population and other background data, is present to assist the reader in understanding the county. According to the Government Finance Officers Association (GFOA), a successful budget document will serve as a policy document as well as an operations guide, a financial plan and a communications device." (Blockslidge, 1995) Additionally, the budget document is best conveyed to the constituency when uploaded onto an administrative website, such as local or county government websites under the financial documents link.

Rank 3: Financial Plan: The financial plans are a comprehensive set of documents and policies that outline and detail the administration plan for operations. Additionally, the financial plan contains the legal authority to which the government is able to conduct business each fiscal year. The financial plan also details how held assets will be used to benefit the constituency and in how assigned resources will enable expected outcomes via a projection of revenues and the expenditures that will generate those revenues. Additionally, the financial plan may be used as a means to advance agendas or policy initiatives, often see this to be true with the budget document. The budget is also a function within the financial documents, and as such has an impact on the importance of the financial documents in aggregate.

Rank 4: Operational Plan: According to Thomas (1984), "Operational Plan Framework (OPF), which is being used in the Canadian public sector, is an approach to management that emphasizes: 1. The unity of management activities and processes, 2. Primacy of departmental management needs, 3. Positive consultation between departments and central agencies. An OPF contains 6 separate, but interdependent components: 1. Planning elements 2. Results statements, 3. Organizational arrangements, 4, resourcing formulae, 5. Reporting arrangements, and 6. Program evaluation arrangements. OPF has generally been favorably received. When properly developed, OPF can produce smoother running departments by: 1. Resolving problems, 2. Establishing better direction, and 3. Boosting confidence that managerial accountability has increased." (Thomas, 1984) The operational plan inherently is a function of the previous plans. Therefore, without the prior three documents, the operational plan is without traction and has no basis in reality. In addition, without a budget and taxpayers to support the budget, the operational plan will likely fall short of its ambitions and cause the constituency to force a referendum.

2. What were the three basic forms of municipal budgeting by the end of the 1890s and describe in detail the five basic budgeting formats that evolved from budget reform in the United States and your opinion of the strengths and weaknesses of each.

The end of the 19th century marked the period of where the tax levy was the major generator of revenue for the government. According to Tyer & Willand (1997), "By the end of the 1890s there were three basic forms of municipal budgeting. Some cities simply used a tax levy, an approach disliked by reformers due to the lack of control through inattention to the expenditure side of budgeting, coupled with dominance by the city council. Another approach was a tax levy accompanied by detailed appropriations. Missing there, of course, were details regarding revenue estimates. Still others used a tax levy but preceded it with detailed estimates of receipts and expenditures, a practice which found favor with business and middle-class reformers. However, city councils were not legally bound to adhere to these estimates (Schiesl, 1977:89).

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" (Tyer, Willand, 1997)

Therefore, the three municipal revenue generators were all a function of the tax levy with differing qualifiers. A strong council with a tax levy on the people was likely in the more lavish locations. A tax levy with detailed appropriations did list the expenses but did not tell what revenue was generated from the appropriations. This is a fail in accountability to the tax payer. Finally, a tax levy with detailed estimates of receipts and expenditures appears to be the most comprehensive and the choice that offers ostensibly full disclosure of all operations to the constituency.

The five formats with regard to budgeting documents are the following:

Line-item Budgeting:

A line item budget is what it would sound like. A budget with lists, line by line, each category of expenditure, and each expenditure within that category, with the cost of each expenditure broken down by quarter over the year. Line item budgets are very detailed and require the cataloguing and coding of the hard assets and equipment such as IT as to document the expenditure as a function of its expense over the fiscal operating year.

According to www.oup.com, "A line-item budget lists, in vertical columns, each of the city's revenue sources and each of the types -- or classes -- of items the city will purchase during the fiscal year. Following is an example of how line-item budgeting would be used in a small town public works department. The line item budget, which is the most widely used of all budgeting systems, offers many advantages. It is comparatively easy to prepare and doesn't require sophisticated financial skills. Also, the line-item budget is straightforward, simple to administer, and readily understood by the city council, city employees, and citizens. Moreover, the simplicity of the system makes it easier for the city council and administrator to monitor revenues and expenditures, which is important in this era of shrinking resources." (www.oup.com/us/static/companion.websites/9780195387452//Budget%Formats%204-10.pdf)

Strengths:

Full Disclosure: Each expenditure item is listed (itemized) for review along with the requisite expenditure amount.

Full Accountability: The department is held full accountable to their line-item budget given the request for each item approval and for the provided amount.

Budget expenditure is clear

Weaknesses

Very long/tedious process

Is perceived to be a waste of valuable capital and technological resources to create

Is not 'bendable' as there is no leniency throughout the budgeting process to handle deviations from the proposed budget

Program Budgeting:

Program Budgeting is a function of the underlying programs, usually social programs that the city has undertaken. The police department often has its own budget, and therefore the programs that it ensues are a function of its own budget, that must be approved by the city council.

According to www.oup.com, "Unlike the line-item budget, which lists total departmental appropriations by items for which the city will spend funds, a program budget displays a series of "mini-budgets," which show the cost of each of the activities that city departments perform. In the case of the water department, for example, a separate mini-budget would be established for water production and distribution, water system repair and maintenance, and meter reading." (www.oup.com/us/static/companion.websites/9780195387452/Budget%20Formats%204-10.pdf

Strengths

Easier to create than a line-item budget

Provides the total expenditure amount and details the major spending categories (programs)

Weaknesses

Lack of detail, accountability and disclosure

Program costs can be manipulated and monies can be misappropriated

Performance Budgeting:

Performance budgeting is a function of justifying a budget based on the return or the benefit the program is earning during the course of the year. As performance-based budgeting requires input at every activity, it is rather difficult to track how well the program or activity is doing, and there is room for corruption to pad the numbers if the program is not justifying the cost.

According to www.oup.com, "Performance budgeting is the same as program budgeting, except that one additional component -- performance -- is included to tie expenditures for each program to specific goals established for that program. For example, the amount budgeted for street sweeping would be tied to an expected level of performance, such as sweeping "X" number miles of streets during the fiscal year." (www.oup.com/us/static/companion.websites/9780195387452/Budget%20Formats%204-10.pdf)

Additionally, according to www.oup.com, "Performance budgeting provides spending data that the city council and administrator can examine at the end of the fiscal year to identify the amount of service that each city department has actually produced. Additionally,….....

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