Financial

Financial Management
Management Series
Series
Number
Number 99

Local
Local Government
Government Budgets:
Budgets:
Approaches
Approaches &
& Traits
Traits
Alan Probst
Local Government Specialist
Local Government Center
UW-Extension
 What
What is
is the
the Purpose
Purpose of
of aa
Budget?
Budget?
 An accounting document (record & control
expenditures)
 A management document (determines who
can spend how much)
 Decision-making document (basis for sound
decision-making by council & staff)
 Communications document (informing public
of how their money is being spent)
 Budget
Budget Approaches
Approaches
 Line-Item Budgets

 Program Budgets

 Performance Budgets

 Zero-Based Budgets
 Line-Item
Line-Item Budgets
Budgets
 Most common format

 Connects & reports information on inputs

used to produce government services

 Emphasizes control & oversight

 Downplays trust, communication & flexibility

Line Item
Operating
Budget
 Line-Item
Line-Item
GENERAL FUND FY 09/10

100
Administration Dept 100

Description FY04 Budget FY04 Actual FY05 Budget FY05 Project FY06 Budget Comments

101 Wages & Salaries $1,463,450 $1,461,320 $1,513,880 $152,420 $1,609,210

Board directed
101-1 City Manager $82,000 $82,000 $84,525 $84,525 $95,000 increase

Increase per labor

101-2 Office Staff $46,000 $46,293 $47,000 $47,442 $49,816 contract

Secretary $12.75 per hour $26,520

Insurance clerk $11.20 per hour $23,296

Total $49,816

Total $108,000 $108,293 $111,525 $111,967 $114,816

102 Benefits
 Program
Program Budgets
Budgets
 A Program Budget allocates money to major
program areas or activities rather than to
specific line items

 More centralized than other approaches

 Focuses on program goals

 Examines all alternatives that may achieve

program goals
 Program
Program Budgets
Budgets

Program budgets include both revenue and expenses

for the major activities of an organization. Helps
managers focus on sources of profits and losses of
programs that could be expanded or discontinued.
($000’s) Oncology Rhinoplasty Cardiac Total
Revenues $40,000 $ 8,150 $50,000 $ 98,150
Expenses 37,000 17,000 46,000 100,000
Profit/(Loss) $ 3,000 $(8,850) $ 4,000 $(1,850)
 Program
Program Budgets
Budgets
 Program budgets allocate money to major
program areas or activities rather than
specific line items
 A Police Department might be broken down
as such:
1. Administration
2. Patrol
3. Investigation
4. Community support
Instead of by line items
 Program
Program Budget
Budget Challenges
Challenges
 Goals can be difficult to formulate and
define
 Goals are subject to change; program
structure must be changed in response
 Sometimes difficult to obtain objective
measures of benefits
 Can be difficult to determine inter-
program efficiency
 Performance
Performance Budgeting
Budgeting

 Under a performance budget approach,

a program budget format is adopted to
the existing organizational structure

 A performance budget is essentially a

program budget with performance
measurement methodology used to
make budget decisions.
 Performance Budgeting
 Initiative in budget preparation lies with
performance unit
 Government activities are divided into major
functions
 Each activity must yield an identifiable
output
 Management, administration, and overhead
costs are distributed among the various
activities of the performance unit
 Purposes
Purposes of
of Performance
Performance
Budgeting
Budgeting
 Better evaluates results of program
operations
 Provides decision-makers and public
with better information on quality of
public services
 More popular as citizens lose
confidence in government
 Zero-Based
Zero-Based Budgeting
Budgeting

Zero-Based Budgeting (ZBB) organizes

information into decision packages, i.e.
incremental spending levels that reflect
varying levels of effort and costs
 Zero-Based Budgeting
In theory, each department prepares at
lest three (3) packages:

 A base-level, meeting the program’s minimum

requirements

 Current-level funding

 Enhanced package – to address unmet needs

 Zero-Based Budgeting
 Packages from all departments are then
ranked according to perceived need for
the package

 Unlike PBB, which uses more objective

criteria, ZBB relies on subjective
judgment of decision-makers in ranking
packages
 Incremental
Incremental vs.
vs. Zero-Based
Zero-Based
Budgeting
Budgeting

Incremental budgeting starts with current

revenues and projects next year by
adjusting for inflation, volume,
efficiency, technology, etc.
 Incremental
Incremental vs.
vs. Zero-Based
Zero-Based
Budgeting
Budgeting
Zero-Based Budgeting:
 calls for a total re-evaluation of all
programs and activities
 requires that decision packages be prepared
for each separable activity or level of activity
 Ranks the packages

 Selects packages for adoption or rejection

 Why
Why the
the “zero”
“zero” in
in ZBB?
ZBB?
 In theory, decision-makers conduct an
annual evaluation on each program’s
purpose and priority, weighing it against all
other spending possibilities
 As a result, decision-makers may decide not
to renew funding for existing program and
shift those funds to another, possibly entirely
new, program
 In reality, this reallocation rarely occurs
 References
References
“Management Policies in Local Government Finance” Fifth
Edition, ICMA, 2004

MPA 752 “Public Budgeting and Finance” Professor Craig Maher,

University of Wisconsin-Oshkosh

“Performance Measurement: Getting Results” Harry P. Hatry, The

Urban Institute Press, 2006