Portfolio I, II, & Final Exam

Alex Tabish

PADM: 7140: Governmental Budgeting and Finance

Dr. Rabidoux

Summer 2016
Tabish Final Project

Portfolio 1
Chapter 1: #1

Line-item budget for the FY2014 and FY 2015 for the City of Bradleys

Recycle Department. We wanted to ensure there was some funds available

from our budget that are left over in the case of an emergency. As a public

servant, it is important to spend tax payers dollars efficiently and

responsibility. The left over money will rollover to the upcoming years,

allowing the department to grow and scale.

A. Line Item Budget

Personnel FY2014 FY2015
Salaries $170,000 $190,000
Fringe benefits $22,000 $28,000
Retirement $8,600 $9,000
Insurance $10,000 $12,000
Training $5,000 $5,000
Subtotal $215,600 $244,000

Operating FY2014 FY2015

Containers $50,000 $60,000
Trash cans $15,000 $25,000
Batteries $25,000 $25,000
Repairs $10,000 $13,000
Subtotal $100,000 $123,000

Capital Outlay FY2014 FY2015

Equipment $25,000 $30,000
Desks $35,000 $35,000
Automobiles $40,000 $35,000
Property taxes $10,000 $12,000
Subtotal $110,000 $112,000

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TOTAL $425,600 $479,000

BUDGET $450,000 $500,000
$24,400 $21,000

B. Program Budget
City of Bradley, FY2014
Recycling Department

Objectives:
I. Restore, protect and enhance the environment, to ensure
public health, environmental quality and economic vitality
II. Provide more containers and availability for residents to
recycle
III. Provide more containers and availability for residents to
recycle
IV. Provide easy to access containers that promote recycling
V. Identify the least commonly recycled object and increase the
occurrence of that object being recycled

Divisions:
a) Aluminum $95,000
b) Steel $105,000
c) Plastic $40,000
d) Papers $70,000
e) Glass $85,000

TOTAL: $395,000

Program Budget
City of Bradley, FY2015

Recycling Department

Objectives:
I. Restore, protect and enhance the environment, to ensure
public health, environmental quality and economic vitality
II. Provide easy to access containers that promote recycling
III. Identify the least commonly recycled object and increase the
occurrence of that object being recycled
IV. Provide more locations and availability for residents to recycle

Divisions:

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a) Aluminum $100,000
b) Steel $115,000
c) Plastic $80,000
d) Papers $85,000
e) Glass $90,000

TOTAL: $470,000

C. Performance Budget: Recycling Department

City of Bradley, FY2014-FY2016

FY2014 FY2015 FY2016

Operating Expenses Actual Recommended Projected
$215,60
Personnel Services 0 $220,000 $230,000
$100,00
Supplies 0 $110,000 $107,000
Containers $95,000 $115,000 $115,000
Marketing $15,000 $18,000 $17,000
$425,60
0 $463,000 $469,000

Program Performance Objectives

1. Expand the containers city-wide, increasing the availability
2. Create a new marketing and PR campaign, advocating for
more recycling and incentives
3. Increase the numbers of trucks to handle the additional
containers

FY2014 FY2015 FY2016

Performance Review Actual Recommended Projected
Neighborhoods served 8 12 14
Containers available 80 120 140
Materials recycled 8 tons 12 tons 14 tons
Marketing materials 0 1200 1000

Chapter 1: #2A

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For this project, the recycling department wanted to increase awareness,

advocating for more recycling within the community and increase the

availability of containers and access to recycling services. Therefore, the best

budget that captures what we are trying to achieve is the performance

budget. According to the author, Charles Menifield (2013), performance

budgets are best when you are attempting to capture activity based on

purchases, rather than the purchases of resources. As we are hoping to

increase more activity in the form of recycling, as well as the availability to

recycle (in the form of containers), a performance budget would accurately

describe the scope of the effect of our resources. Furthermore, multi-faceted

approach of accountability and operational and strategic planning accurately

capture the holistic impact that we were hoping to achieve through our

objectives.

Chapter 3: #1
1. Terms
a. Marginal cost: the incremental cost (either up or down) in your
total cost that one item has
b. Recurring cost: cost that repeatedly occurs, whether through
production (such as an item made) or service performed (such as
salaries).
c. Fixed cost: the cost of an item that does not change or
fluctuate up or down depending on the outputs or sales.
d. Up front cost: an expense that occurs before the service or
production has begun.
e. One-time cost: expenses that do not occur on a repeated basis.
f. Operating cost: the cost of a product made or service being
done that occurs on a continuous process. They usually occur
once the product has been created, not during the development.

Chapter 3: #2

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SS Life
FT Medicar Healt Trainin Clothin Grand
Position Salary (12.4 Pension Insuranc
E e (2.9%) h g g total
%) e
Program FT $85,00 $5,44 $1,232. $8,075. $3,00 $102,772.
$25 - -
Director E 0 0 50 00 0 50
Secretar FT $38,00 $2,43 $3,610. $3,00 $47,618.0
$551.00 $25 - -
y E 0 2 00 0 0
Marketin
FT $60,50 $3,87 $5,747. $3,00 $74,021.7
g $877.25 $25 - -
E 0 2 50 0 5
Director
Driver FT $80,00 $5,12 $1,160. $7,600. $3,00 $100,030.
$50 $1,600 $1,500
(x2) E 0 0 00 00 0 00
Tourism
$60,00 $3,84 $2,850. $1,50 $72,072.5
Director - $870.00 $13 $1,500 $1,500
0 0 00 0 0
(x3)

Portfolio 1: Part 2
For the first section of the Portfolio, I chose to analyze the FY 2016 budget for my

hometown, the city of Missoula, Montana. Mayor John Engen submitted the budget and

wrote the budget message to accompany the document. The budget outlines the short

and long-term objectives of the city, current challenges the city and state face, as well as

the progress made in the past years. Mayor Engen addressed some new reforms in the

budget approach and updated the residents on the current status. There was no City

Manager letter attached to the budget, so there was no comparison. However, the city

of Missoulas objectives and challenges reflect the same challenges the state faces.

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The main message that seemed to resonate within every point was the strategic

nature Engen was taking with his budget. There are countless mentions of the strategic

planning, whether it be short-term or long-term. Part of this strategic planning comes

through the implementation of the performance-based budgeting. The new style of

budgeting was implemented when Engen took office in 2008 and has continued ever

since. Engen mentioned how the performance budget increases accountability for the

implementation and success of the strategic planning. This shift is similar to a New

Public Management style, where the focus is based on results. This is echoed by

Engen, who stated he wanted to shift away from the inputs and focus on the outputs, in

his letter (Engen, 2016). This type of system can highlight the accomplishments of the

program objectives of a smaller town, due to fewer resources and services in demand

compared to those in a metropolitan city.

The new changes come at the recommendation of the National Advisory Council

on State and Local Budgeting (NACSLB). The NACSLB often provides best practices,

tools, resources, and other insights that can foster more long-term development and

multi-year planning. One of the recent suggestions by the NACSLB was the

implementation of a performance budget, according to the budget. Again, the language

here describing the use of the new budget, the definition of such budget, and the

implementation, all focused on long-term planning and strategic thinking. For example,

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under the Performance Budgeting subcategory, it mentioned the budget would take 3-5

years for full implementation and wanted to incorporate a long-term perspective to the

budget (Engen, 2016). Moreover, it stated the new budgeting system will make clear

that the budget process is not simply an exercise in balancing revenues and

expenditures one year at a time, but is strategic in nature, encompassing a multi-year

financial and operating plan that allocates resources on the basis of identified goals

(Engen, 2016).

The City of Missoulas priorities were clear and specific in the budget message.

Engen stated Montana, as a whole, has shifted to a developing a performance-based

budget, a strategic plan that contains measurable goals and objectives. Through the

new performance-based approach, Engen aims to increase the level of accountability.

This initiative was started in FY 1992, received an upgrade and implementation in FY

2010, and has continued since. This main goal of this new approach is to make the

government more approachable, Engen stated. All of the stakeholders in the state on

Montana, residents, and taxpayers alike, should have a better understanding of the

government and its spending.

Missoulas goals are broken down to address both short-term and long-term

objectives. The first goal is focused on funding and service. In order to address this

issue, the city developed three actions that encompass the overall development of

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increasing funds and services. The city will maintain or improve the level of service to

citizens, work towards sustaining and diversifying fiscal resources, and work with public

and private sector partner in great numbers to find new ways to diversify Missoulas

economy (Engen, 2016). This first goal coincides with the overall message can be fond

throughout the budget until this point. The decrease in the general budget and

becoming more self-reliant are issues Missoula must address in the short-term.

The second priority is the advancement of natural and built environments.

Missoula and Montana as a whole are known around the country for their natural

qualities and habitats that cannot be found anywhere else. The Rocky Mountains,

Yellowstone Natural Park, and Glacier National Park remain a centerpiece for the state.

According to reports, in 2014 over 11 million tourists came to the state and spent a

record $3.98 billion in economic activity (Erickson, 2015). Therefore, as a major

component of the states economy, all of the cities need to ensure they are creating a

sustainable future that can continue to produce record levels of revenue. Part of this

priority means providing citizens access to parks and open spaces within the natural

environment, as well as the development of sustainable, clean transportation and

building designs (Engen, 2016).

The third priority for the city was the improvement of the quality of life for all

citizens. This remains a common priority found within budgets, especially with the

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challenges found in healthcare and poverty. Homelessness in Montana has become a

significant issue within the past few years. Currently, Montana is ranked #13 in terms of

homeless population per capita, a jump up from #19 in 2010 (Allan, 2015). Engen

stated meeting basic human needs, addressing more affordable housing needs, and

supporting program that promotes a healthy lifestyle are the means the city will take to

address this issue.

The Capital Improvement Plan (CIP) was laid out in its own section by Mayor

Engen. The purpose of the CIP is to ensure all expenses are done in a cost effective

manner. According to Montana legislature, the CIP allows a municipality to set aside

funds from its general all-purpose levy for replacement and acquisition of property plant

or equipment costing in excess of $5,000 with a life expectancy of five years or more

(Engen, 2016). The projects which were identified within the budget are major

improvements, rather than smaller, yearly projects which do not need the significant

amount of attention or resources. The citys CIP does not obligate them to any projects,

but rather allows some flexibility and control, should another recession hit. Engen noted

that his CIP is based on conservative financial forecasts, which is a wise move, as

increasing the taxes due to underfunding would not be a professional move on his part.

Part of the CIP is focused on a balance between capital replacement projects, such as

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purchasing and replacing equipment, vehicles, as well as other resources, and capital

facility projects, aiming to expand the citys fixed assets.

According to the budget, the purpose of establishing a five-year budget

includes the following five points: To ease the review of the annual capital budget

through a uniform process, to broaden public participation in the budget process by

providing documentation and scheduling hearings early in the process, to link capital

budgets with the strategic plans, adopted policies, and other plans, to link capital

expenditures with operating budgets, and to increase coordination between

departments, agencies, and other political jurisdictions (Engen, 2016).

Previous major capital projects listed in the budget include Open Space

acquisition and the 2006 Fire Station General Obligation Bond Construction. The year-

end fund balance for FY 2015 was negative, according to the budget. However, with no

new major capital projects in the foreseeable future, Engen stated this should be

eliminated within FY 2016. Current initiatives include the Bicycle Commuter Network

project and the acquisition of space on Mt. Sentinel, the major mountain in the middle of

the city. Additional funds from the budget will focus on the acquisition of more land in

the growing neighborhoods to develop into parks and open areas that can be enjoyed by

future residents.

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In terms of tone, Engens budget was rather cautious. To start his budget letter,

he addressed the general fund, which had a year-end total decrease from the previous

year from $5.58 million to $5.63 million. While this is not a significant loss or something

that should cause concern for the citizens of Montana, it seemed to cause some

concern for the Mayor. He addressed the two issues that accounted for this loss, one

being legal costs for two difficult lawsuits and the other was a shortfall in budgeting

revenue during the building of the Development Services Department. In the

aforementioned lawsuit, the city widened a major street and claimed they had the right-

of-way, therefore not offering any type of compensation for landowners. While the

widening of the street increased the bicycle lands and increased the value for property

owners along the street, the city was found to be in the wrong.

Nonetheless, throughout the budget, there are no overly ambitious plans to

develop any new services, acquire any new resources, or bring on the additional

workforce to address any serious issues. A measly increase of 5.09 FTE is expected in

FY 2016 to address the Building and Transportation Department.

The only aggressive measure was the increase on property taxes. While the

adjustments were rather small (e.g., property tax increased 4.7 percent and Planning,

Fire, Special Events, and Business Licensing taxes increased 3 percent). These

increases come in a year when the tax revenue is higher than it has been in the

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previous year, sitting at $452,529 in FY 2016 (compared to $195,197 in FY 2015 and

$299,612 in FY 2014). The justification for the increases comes from the decrease in

the general fund and to compensating for the lack of taxes the previous two years for

the Citys Health Plan. Currently at FY 2016, the citys Health Plan had increased for

seven consecutive years. This usage is not sustainable and will continue to drive down

the surpluses.

The cautiousness of the budget was not something that was very encouraging for

my home city. The state is currently at a significant point in its history, having managed

the Great Recession relatively successfully, only to be hit with other issues. Obamas

Clean Air Plan will have a significant impact on the state, however, that is mostly

Eastern Montana, where a majority of the natural resource plants are located. Much like

the city of Valdosta, Georgia, Missoula is a city that ebbs and flows with the university.

A 2010 study found the interaction between the University of Montana and the city

accounts for 9,700 jobs, $1 billion after-tax revenue, $200 million in state revenues, and

increased the average compensation per job throughout the state by $1,346 (Bureau of

Business and Economy Research, 2010). However, the university has recently had a

decrease in the enrollment, which leads to a recent series of layoffs, leaving the city

uneasy and frustrated, as they know the sustainability of the city is correlated to the

success of the university. Fall enrollment during the 2014 year at the university dropped

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by 573 students from the previous year, and fall enrollment in 2015 fell another 594

students, totaling almost 2,400 students less since 2011 (University of Montana, 2015).

The results of these enrollment figures led to 201 faculty and staff jobs being cut in 2015

(Szpaller, 2015). While this is an issue that is impacting a significant amount of

universities and cities alike, the current budget did not address how they were going to

make the city more of a destination for the younger generations.

I do like Montana using a performance-based budget when assessing the

effectiveness of their services. While this would not be possible in a larger city due to

the secondary and outside factors, this is something that can eliminate the waste and

make scientific decisions based on objective data.

Overall, I am torn regarding my positions for the city of Missoulas budget. While it

is a dire necessity to address the enrollment issues at the school, higher enrollment

leads to higher population and inflation of services in Montana, which the lack thereof

remains its true beauty. In a historically Republican state, Missoula remains significantly

Democratic and progressive due to the university and demographic makeup. The

additional taxes and fees implemented for FY 2016 on businesses do not help the

advancement of local businesses and brick and mortar shops. While the problems

facing the small city of Missoula are certainly not unique, I wish their approach would

be. The lack of attention on boosting Montanas economy is very troublesome. In a

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state which ranks 49th in terms of wages (Wagner, 2015) I wish Engen would have

made more of a conscious effort to address boosting the economy. Whether it come

through tax cuts for businesses, offer some type of forgiveness for resident student

loans and incentivizing residential entrepreneurship, or help residents services that help

refinance mortgage rates. However, I remain optimistic about the future for the Big Sky

State; If the long, cold winters have taught the residents anything, its the importance of

resistance and resilience.

Portfolio 2
Justifying Public Spending
In 2015, the Obama administration in collaboration with the Environmental Protection

Agency (EPA) finalized the Clean Power Plan. The new plan aims to limit the amount of

carbon pollution put into the environment by power plants. Under the guidelines put forth

by the EPA, every state is required to significantly lower the carbon emissions produced

in their state. Under the new plan, Montana goal is to reduce the carbon pollution output

by 37 percent. While the goal is rather lenient compared to other states, the sanctions

will have significant impacts. When this law passed, all eyes turned to Montana, which

holds 25 percent of the nations recoverable coal reserves. According to a recent study

put out by the University of Montana Bureau of Business and Economic Research

(BBER), the impacts from the new plan could cost Montana up to 7,100 jobs. The same

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report claimed that Eastern Montana would be hit the hardest, potentially losing 7

percent of its current workforce.

Such potential loss could significantly impact the state of Montana. A recent report

by Wallhub (2016) examining the reliance on federal grants and money, found Montana

to rank as the 6th most dependent state on federal money. Without a strong state

economy, the reliance will fall onto tourism, which only produces low-paying, seasonal

jobs. Montanas government needs this money to invest in state-of-the-art clean energy

solutions that will comply with the EPA, keep the power economy strong, and

unemployment rates from falling. With this $12.5 million, the state of Montana could

update and improve the current coal-fired power plants to become EPA compliant. With

this money, the state of Montana will have the availability to develop alternative forms of

energy without being a down time in job rates. A hydro dam and wind farm are potential

options that would create enough energy to keep the power plant sustainable.

Projects and costs

Updates the current coal-fired power plants: Two major plants in Colstrip,

Montana are two of the biggest plants in the Western United States. With the

installation of electricity generators in the plants, the jobs would remain and

power would continue to be produced. ($2.5 million each; $5 million total)

Development of government owned solar energy: the government should also

begin to develop their own services that offer solar energy to their citizens. While

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this competes with the current power plants, the equipment, and development by

the government would not impact jobs. ($2 million)

Installation of new wind farms in Eastern Montana: In order to keep the power

plant generated, the use of wind farms can be installed to create sustainable

energy. The energy would meet the requirements put forth by the EPA and

create new jobs during the development ($3 million)

Installation of new hydro dams in Southwestern Montana: Montana remains one

of the top states with the amount of rivers throughout the state. Similar to the

previous points, the development of alternative energy would keep job rates high

throughout the state. (2 smaller damn, $1 million each; $2 million)

Purchase of new equipment to increase the availability to sell surplus energy:

filling in some of the lack of availability that other areas of the state and

neighboring states have. ($500,000)

Background information
In 2015, President Obama signed into legislation the Clean Power Plan, a move

to reduce the United States carbon pollution from power plants.

According to the Environmental Protection Agency (EPA), power plants are the

largest source of carbon dioxide emission in the United States and make up

roughly one-third of all domestic greenhouse emissions.

Under the new EPA plan, the United States aims to cut carbon pollution levels by

32%
Many Montana residents have advocated for action on climate changes, including

veterans, scientists, smokejumpers, medical providers, and business owners.

The Colstrip Power Plants are the largest coal-forced power facility in the state

and one of the biggest in the Western United States

The University of Montana Bureau of Business and Economic Research (BBER)

estimates the state will lose up to 7,100 by 2025 due to layoffs.

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According to the same study, these layoffs will result in over $500 million in

annual income lost in Montana households.

BBER also estimates that Montana businesses will lose more than $1.5 billion in

gross output
Patrick Barkey, director of the University of Montanas Bureau of Business and

Economic Research, said this will be the biggest economic events to impact the

state in three decades.

Montana is currently ranked 49th nationally in terms of annual wages

Portfolio Exercise: How Best to Finance

The initial estimates for the citys new museum/educational center are around

$45 million. While it is noted that $15 million in a rainy day fund, I think it is essential

that money remains in escrow. As we saw in 2008, having money readily available can

help alleviate some of the financial pressures that begin to occur when a recession or

down-term starts. More recently, we are seeing problems with emergency funding for

issues such as the Zika and Ebola viruses, as well as natural disasters such as

hurricane Katrina. Therefore, I think having money set aside for emergencies is much

more important than liquidating the account on a tourist attraction.

I would not rely on one sole method to raise $45 million alone, rather a

combination of two of three approaches. The first option I would consider would be

borrowing from the state budget. The museum is an investment for the future, such as

that of a road, park, or hospital. The future attraction will hopefully stimulate the

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economy and generate increased revenue in areas such as sale tax, parking, and other

forms. Therefore, the loan could be paid back rather quickly without having to increase

any taxes or cut and spending. The bonds could be bought up and refinanced based on

the foreseeable revenue increased from the attraction. This is a fairly common process,

as the Tax Policy Center (2015) noted that roughly 36% of local government revenue

comes from transfers at other levels of the government.

The second recommendation I would have would be considering temporarily

increasing user fees. While increasing taxes that are visible will always be a risky move,

it seems appropriate when the money is then invested in something that would be seen

as beneficial for the people. As noted in the scenario, this new business has the

opportunity to provide many beneficial services to its citizens, as well as the possibility

of commercial expansion in the area. While the new museum will not directly increase

the quality of life for the local citizens, it will be an additional luxury that will improve their

quality a life, similar to that of a park. When utilized correctly, user fees can result in a

significant figure. User fees can result in a quick turnaround for revenue or a slow

increase if implemented properly. I would recommend implementing the user fee in

recreation activities and licensing.

Lastly, the third option would be I would consider in order to raise long-term

revenues within the city would be tax cuts or eliminating corporate income taxes. The

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idea of cutting taxes remains controversial, with many academics and economists

claiming that it could hurt or help the economy and revenues. The unbiased IGM

Economic Experts Panel was recently surveyed and found that 43% agreed cutting

income taxes would lead to higher gross domestic products within 5 years and 48%

remained uncertain. Similarly, there was agreement that in a weak economy, a stimulus

package that cuts taxes would increase the economy. The Tax Foundation Taxes and

Growth Model suggest that by eliminating the corporate tax, that money would be

reinvested back into the economy thus increasing the revenue in the long run and

significantly boost the GDP.

Strapped for Cash

Whenever governments are faced with financial troubles or down-terms, the two

feasible conclusions are to either raise taxes or cut spending. As mayor of a small city in

Montana, I would use my leverage to make the most significant actions and cuts

necessary. In terms of the situation, there are a few notes that should be considered

when making these decisions. It is noted that mismanagement of funds and poor

investments have put the government in the current situation. Trust is one of the keys

aspects of being a mayor, especially in a small city. Therefore, we need to be meticulous

in our decisions, ensuring that we do not make the same mistake again and work to

correct the previous misdoings. The second aspect of the situation is noted that

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elections are right around the corner. Therefore, we need to appeal to the citizens and

make decisions that would be considered highly favorable.

I would propose three ways to increase revenue. The first would be cutting spending.

I think this is often the the most effective way to get back into the black and popular

move to citizens. The government should be held accountable for their spending and if

previous decisions were made to put them in the current situation, they should not rely

on increasing taxes to fix the situation. I would reevaluate positions within the public

sector, specifically overlapping money that can be done through government

contracting. I would renegotiate current real estate situations with commercial landlord,

leveraging the position for better rates. I would hold off on non-essential developmental

projects or government upgrades. Lastly, I would shift a majority of the services to online

and e-government based tools. This would cut down on shipping costs, printing costs,

and energy consumption. This reassessment can free up significant amount of funds in

a quick timeframe. Unfortunately, it would result in the loss of jobs at either the public or

private sector level. However, with the power of being the employer, we can make

judgments and decisions based on costs and choose the least expensive.

The second way to increase revenue would be increasing property taxes, specifically

through real property. I would reform the current taxes rates, creating additional taxes for

the wealthier individuals who own large amounts of land. This would serve an

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opportunity to get taxes from wealthier individuals who use Montana as a second home

and therefore pay income taxes in other states. In terms of land mass, Montana is the

fourth largest state in America. Unfortunately, much of that land has been bought up by

elites from around the world who can afford 20,000-plus acre ranches. While this

remains a risky move in terms of popularity, as noted, the individuals most affected by

this tax are not primarily Montana residents. Other forms of this could come in selling

off public equipment. The property taxes would most likely take a year or so before we

began to see real dividends in the revenue. However, due to the size of the state, the

amount of large pieces of private land, and different land owners, we expect this would

result in significant increases in the revenue.

The third mean of increasing revenue would be through increasing sales of services

and service charges. In Montana, hunting and outdoor activities remain the staple to the

social makeup of the state. Some state services, such as hunting permits, are limited

on a lottery-based system and this is not due to the lack of animals in the state. For

example, the Montana Fish, Wildlife, and Parks records from 2015 found there to be

7771 non-resident applications for the first round and only 58 were chosen. Similarly,

there were over 70,000 applications by Montana residents solely for elk licenses and

only 16% were granted. By increasing the number of licensing and lowering the number

of pounds you were allowed to hunt, you would hopefully combat the potential of losing

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a significant amount of the elk herds. If you increase the number of permits available,

you would see immediate revenue increases. Similarly, park passes, parking permits,

dog licenses, and building permits are other services where increases could be made

without causing too much displeasure among the citizens. These charges would

increase the revenue in the short term, but only with small increments, as licensing and

permits are rather inexpensive.

Final Exam Questions

Question #1: Prepare a brief presentation on this topic that will give the top 5
things every new public manager must know about budgeting and finance and
Why.

#1 A budget is an essential document for success and sustainability

In the most basic sense, a budget is a detailed description of the expected

revenues and expenditures of a company, institution, or similar stakeholder. Menifield

(2013) defined public budgeting as the acquisition and use of resources by public

organizations for the purpose of providing a public service or good. Budgets do not

work on a calendar year cycle, but rather a fiscal year (FY). The FY starts July 1 st and

ends June 30th.

In regards to the public sectors, there are three primary components that make

up a budget. The first the economic ramifications, as balancing the budget, having

appropriate spending, allocating fund appropriately, and such are important aspects that

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need to be detailed. The second function is the political weight it carries. Budgets need

to be approved by elected officials. The political ramifications that can be associated

with a budget show where the priorities are, reflect some of the major objectives, and

prioritize other initiatives. The third component is the legal aspect of a budget. Since the

tax and spending systems in the United States are so complex, they are constantly

under critiques and investigations. Budgets must follow law and order so that it provides

the necessary services to the American people. Menifield (2013) notes that by law,

budgets must be balanced and open to public scrutiny by the end of the FY, a feature

that is the major differential factor between public and private sectors.

Budgets need to be properly prepared and presented. It is essential they are

honest and transparent. Transparency can increase governance and the relationship

between the public and government. Many policies manifest from the budgets, so in that

sense the influences, objectives, and priorities should be clear. Without having a

sustainable budget, the government could not grow and develop new services. The

spending should remain constant, allowing across year comparison. For example, you

would not completely wipe out the defense spending and allocate the all the money to

education. Rather, redistributing the funds to show a gradual increase can portray the

importance of education.

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#2 There are different types of budgets for different functions.

There are three different types of budgets: line-item, program, and performance.

All three take a different approach in presenting how the expenses are distributed. They

all present the budget in a holistic approach but in different ways.

A line-item budget is the most basic budget you can create. The budget is not

complicated, easy to create, and an individual needs very little background in budgeting

and financial management background to understand it. This budget is favorable due to

adaptability and lack of reporting needed at the end of the FY. In terms of comparison, it

is easy to graph the actual versus budgeted expenses while comparing them to previous

years. Figure 1 shows a traditional line item budget. The downfall of a line-item budget

is the lack of details that goes into the different spending and programs. In terms of

transparency, a line-item budget does not show details that would increase trust.

Figure 1. A typical line-item budget based on categories.

The second type of budget is a program budget. A program budget is made up of

many smaller budgets. The budget is broken down by category and department while

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addressing a specific need. This budget shows the expenses at many different levels

within a certain project and allows the executives to assess the different levels. A

program budget is much more details than a line-item budget, therefore, the time it takes

to develop and administer is much more significant. Figure 2 shows a typical program

budget.

Figure 2. A typical program budget with the different expenses.

A performance budget is most used in developmental settings. The budget is

similar to that of a program budget, in that is compares the smaller aspects of a single

project or initiative. The performance budget is focused on the outputs and compares

expenses. The goals that are associated with the budget can revolve around different

services that are offered by the public sector or something internally. Performance

budgets are beneficial when showing growth or making comparisons across years or

among similar stakeholders. The problem with performance-based budgets are those

metrics you want to assess are rather difficult to measure. The public agencies are

typically responding with services, so the lack of services offered could be due to

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outside factors, such as a low demand, not necessarily something wrong with the

department. Figure 3 shows a typical performance budget.

Figure 3. A performance-based budget based on planned and actual numbers with

performance goals.

#3 A Public Sector budget is not the same as a Private Sector budget

The first important note is to differentiate budgeting in the public sector from

budgeting in the private sector. The processes and purposes of the two vastly differ.

For starters, private sector companies want the highest profit margins, therefore they

focus on bottom-line outputs. In terms of sustainability, the margins need to be as high

as possible or they will close their business. This requires the private companies to be

more innovate and think out of the box when attempting to solve a problem. These new

ideas typically come from the top and most decision-making is done in a top-down

approach.

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On the other side, public sector budgeting process is not as focused on the

profits associated with their business. Government figures, most notably former

President Bill Clinton and his New Public Management approach, have tried to shift the

focus to be more results-based in order to mimic the private sector, hoping it would

create more efficiency, boost the economy, and remove waste. In terms of decisions,

because the budget is composed of taxpayers money, there is a certain amount of

participation the public is involved in. Whereas the private sector is focused on creating

jobs via their budget, the public sector is focused on creating services for people. Public

service jobs enjoy the luxury of great benefits and other job-related incentives, such as

pensions. Unfortunately, the public sector jobs ebb and flow with the economy. When

there is a recession or down-term, public spending is one of the first categories cut.

These cuts typically come in the form of jobs (as shown in Figure 4). Menifield (2009)

noted the primary differences between the two sectors is organizational needs and

funding for the budget in the public sector is directed through tax revenue.

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Figure 4. The Public vs. Private Sector employment stats dating back to 3/1/2008 the
beginning of the Great Recession.

#4 The federal budget is broken down into two categories

While this is not necessarily the case with all budgets, the federal budget is

broken down into two categories: mandatory and discretionary spending. Mandatory

spending stays pretty consistent, whereas the discretionary spending can change

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annually and must be signed off through Congress and the President. As you can see in

Figure 5, the mandatory spending in 2015 accounted for roughly 68% of the federal

budget un 2015. Mandatory spending has three main subcategories: Social Security,

Medicare, and Medicaid (as shown in Figure 6). All of these categories are meant to

serve as assistance to elderly, disabled, and low income families. The spending in these

categories is tied to the people who would be considered eligible to receive such

benefits in the United States.

The other category is discrepancy. The subcategories within discretionary

spending are primarily defense, transportation, education, and veterans health care (as

shown in in Figure 6). This spending tends to cause the most debate between the two

major political parties and in society, as services such as education receive more than

30 times less funding than the defense.

Figure 5. The total spending based in 2015.

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Figure 6. FY2016 mandatory and Discretionary spending. Mandatory spending

accounted for $2.44 trillion and discretionary accounted for $1.1 trillion spending.
Source: Office of Management and Budgeting, 2016.

#5 Where the government gets the money for the budget

The government gets its funds to fill the budget from a variety of ways. Some of

these means are more visible (e.g., sales taxes, incomes taxes) than others (e.g., small

user fees, parking). Taxation remains the primary source of income for the federal

government (as shown in Figure 8) accounting for $1.48 trillion, or 47% of the revenues.

This is followed by payroll taxes (34% or $1.07 trillion) and corporate income taxes (11%

or $341.1 billion). The income tax system is designed to reflect the individuals wealth,

with the wealthier paying higher percentages than the lower income individuals. As

shown in Figure 9, historically corporate tax has been significantly lower than individual

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income tax. There are many loopholes that are found within the corporate tax code,

causing billions of dollars to avoid tax liabilities.

A very common occurrence is the revenues are less than the government

spending for that year. For example, according to a White House.gov report the current

revenues are $3.34 trillion while the current spending is $3.95 trillion (Office of

Management and Budget, 2016). In an ideal setting, the revenues and spending should

run parallel with one another. As shown in Figure 10, you see the differences

comparisons, with a discrepancy found around 2009-2010, immediately after the Great

Recession. In that case, the government must borrow money to make up the difference.

This is done through selling bonds, which can be bought up by anyone. For example, in

2015 the federal government borrowed around $583 billion to account for the differences

in revenues and spending (National Priority Project, 2015). Other methods the

government receives revenues comes through fines, penalties, and fees through

providing a service that only the government can offer.

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Figure 8. The total revenue for FY2016 based on different methods of revenue.
Source: Office of Management and Budget, 2016

Figure 9. The differences between individual and corporate income taxes from 1914-
2015
Source: Office of Management and Budget & National Priorities Project, 2016

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Figure 10. The total revenue and total spending compared from 1990-2016.

Question #2: What one lesson or item from this course do you feel was most
important that you will apply to your future career in public
administration/management and Why?
The most important aspect of the class that I will take into my career of public

service was how grossly I underestimated the complexity of the federal budget. We

started the course off with a discussion regarding the average Americans ignorance of

the federal. That was an honest, quick reality that I too did not know about the federal

budget. My previous experiences with the budget were that of a normal citizen: paid the

taxes and hear the grips in the media and between the two major parties regarding

spending. As I learned more about the budgeting process, I saw that the federal budget

differs from the state governments. In some instances, such as Montana, the states rely

heavily on federal funding for basic services such as roads. The reliance, budgeting

process, and spending differs drastically from state to state.

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Even though the federal budget, and many other aspects of the federal

government, are very complex and multi-faceted, transparency remains a critical

element in public service. The United States has long been a Protestant country. Our

culture revolves around work and the citizens are proud of their jobs. In that sense,

financial issues will always remain at the forefront of our minds. As long as I can

remember, taxpayers have complained about the taxing and spending process.

Recently, a Reason-Rupe (2015) poll found that 79% of Americans believe the excess

spending since 1992 has not improved quality of life and 40% actually said it decreased the

quality of life. Similarly, a Gallup (2016) poll shows that Congress approval rating has

fluctuated between 11% and 16%, with a low-point of 9% after the 2008 economic crash.

Whether it be debates over a flat-tax or tax increases for the wealthier, your average

American is not pleased with the results. The federal government should create service

for the American people and best reflect their desires. With the influx of spending on

out defensive category the past decade, the American people have become more

disinterested with the government. Transparency with our spending and our goals,

objectives, and foreign affairs could help rebuild the disconnect that has occurred. I

think this trait is something that is especially important with spending, but also every

other aspect of public service, as the public sector runs on taxpayers money. While

many of the issues and processes remain too complicated and complex for the average

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citizen, having the available information available is crucial in keeping the relationship

between the government and its people strong.

Portfolio Exercise: Chapter 7: #1a & 1b

Scenario #1
Glossary
B = 65
T= 15,000,000
I = .03
V = .05

The Optimal Initial Cash Balance:

c = 2bT /i
c = 2 ( 65 )( 15000000 ) .03 = 254950.9757 = $254,950.98

Calculating the total cost of cash management:

P = b (T/c) + vT + i (c/2)
P = 65 (15000000/254,950.98) + (.05)(15000000) + .03 (254,950.98/2) = 757648.5293

Total cost of cash management = $757,648.53

Optimal initial cash balance = $254, 950.98
Average cash balance = 254,950.98/2 = $127,475.49
Number of transfers = 15,000,000/254,950.98 = 58.83

Scenario #2
B = 55
T= 13,000,000
I = .05
V = .04

The Optimal Initial Cash Balance:

c = 2bT /i
c = 2 ( 55 ) ( 13000000 ) .03 = 169115.3453 = $169,115.35

Calculating the total cost of cash management:

P = b (T/c) + vT + i (c/2)

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P = 55 (13000000/169115.35) + (.04)(13000000) + .05 (169115.35/2) = $528,455.77

Total cost of cash management = $528,455.77

Optimal initial cash balance = $169,115.35
Average cash balance = $169,115.35/2 = $84,557.68
Number of transfers = 13,000,000/169,115.35= 76.87

References

Allan, L. (2015). This Interactive Map Shows How Each State Stacks Up in Terms of

Homelessness. Movoto Blog. Retrieved from:

http://www.movoto.com/blog/opinions/homelessness-in-america-maps/

Bureau of Business and Economic Research. (2010). The University of Montana:

Growing Montanas Economy. The University of Montana. Retrieved from:

http://www.bber.umt.edu/pubs/econ/universityreport1.pdf

Ekins, E. (2015). Poll: Americans Like Free Markets More than Capitalism and

Socialism More Than a Govt Managed Economy. Reasons Polling. Retrieved

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Erickson, M. (2015). Report: Tourism spending in Montana increased to nearly a billion.

The Missoulian. Retrieved from: http://missoulian.com/news/state-and-

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regional/report-tourist-spending-in-montana-increased-to-nearly-billion-

last/article_1be29f8c-f586-59a7-827d-26eff5999d5a.html

Engen, J. (2016). Summary Budget Fiscal Year 2016. The City of Missoula. Retrieved

from: http://mt-missoula2.civicplus.com/DocumentCenter/View/32964

Kiernan, J. (2016). 2016s States with the Highest & Lowest Tax Rates. Wallethub.

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taxpayer/2416/

McCarthy, J. (2016). No Improvement in Congress Approval, at 13%. Gallup Polling

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congress-approval.aspx

Menifield, C. (2013). The Basics of Public Budgeting and Financial Management: A

Handbook for Academics and Practitioners (Second Edition). Boulder: University

Press of America Inc.

Montana Fish, Wildlife, and Game. (2016). 2015 Elk Permit Drawing Statistical Report.

Retrieved from: http://fwp.mt.gov/hunting/planahunt/drawingStatistics/elk.html

National Priorities Project. (2015). Federal Spending: Where Does the Money Go.

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101/spending/

Office of Management and Budget. (2016). The President's Budget for Fiscal Year

2017. Retrieved from: https://www.whitehouse.gov/omb/budget

Szpaller, S. (2015). UM will cut faculty, staff jobs because of falling enrollment. The

Missoulian. Retrieved from: http://missoulian.com/news/local/um-will-cut-

faculty- staff-jobs-because-of-falling-enrollment/article_0fc57879-3ff6-5283-86d1-

1fddd8026b06.html

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University of Montana Bureau of Business and Economic Research. (2015). The

Economic Implications of Implementing the EPA Clean Power Plan in Montana:

the Final Report. Retrieved from:

http://www.bber.umt.edu/pubs/Econ/EconImpactEPACPP2015.pdf

Wagner, B. (2015). Montanas Growing Wages: Montana Economy at a Glance.

Montana Department of Labor & Industry. Retrieved from:

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MontanasGrowingWages.pdf

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