Budgetary Practice in the State and Local Governments of the US - Assignment Example

Public Budgeting System Q#1) OPTION A Option B Internal Rate of Return 22.45% 27.84% Net Present Value 85760 93600 Payback Period 8 years 7 years Working formula =Initial, investment/∑ net cash flows=1 (Buck, 2009) Q#2) While the project is faced by resource constraints, it is important to note that value of the project is better calculated by the use of then NPV, based on a number of metrics. For example, the Net payback period of project A is longer than the payback period of project B. Form project evaluation assumption and decision criteria, project with shorter payback period are less risky because for one the cost incurred in the project are recovered very soon and can be used again in other projects and the positive returns are not very uncertain (Buck, 2009). The payback period as it is a measure of risk is very important measure of risk is the most worthy method (Osborne and Gaebler, 1992). Project B is much shorter based on the two approaches. For one it has a short net payback period as compared to project A. Additionally, it has a positive NPV as compared to project A. this means that it is profitable when its NPV is discounted at the opportunity cost of the cost of capital. However, project B does not promise much because its internal rate of return is slightly higher than the opportunity cost of the capital involved (Osborne and Gaebler, 1992). The fact that the internal rate of return is higher than the opportunity cost of capital makes it risky, however, considering the fact that the other two approaches are showing that it has better potential than project A, it is advisable to implement it first, then use the resources it pays back to developed project A (Buck, 2009). Project A should be developed with the return produced by project B. Public budgeting systems involve state of budgeting throughout all level of the government. The budgeting systems emphasizes on the methods by which financial decisions are made within the system, together with the way the various types of information are used in budgetary decision making. A budget may be defined as the government’s plan on the application of public resources to satisfy the needs of the citizens (Lewis, 1988). Public budgeting has policy, political, and economic connotations that can be undertaken in a variety of ways such as application in general theory, appraisal of budget innovations, construction of empirical models, case studies, and focus on specific problems or issues pertaining to the public welfare (Buck, 2009). Therefore, the methods of public budgeting systems have certain drawbacks and challenges, which imply that lack of accepted systems and methodology cannot be an hindrance to continued research, theorizing, and application in the endeavors top improving how the job of public finances are handled (Buck, 2009). Policy, Political, and Economic Aspects of Public Budgeting Systems There are major differences between the policy, political, and economic aspects of public budgeting systems. Comparative analysis of public budgeting systems reveals multiple budget systems and contexts (Buck, 2009). Government’s needs to increasingly respond to the negative effects of globalization and global economic crisis on their revenues needed to finance various services. The policy and economic issues that impact significantly on public budgeting are issues as such as the collapse of the financial banking sectors, and the governments fiscal policies must respond effectively to the economic and political demands of the state (Buck, 2009). Government fiscal policies and performance is pegged in budgeting and financing government programs and services, which vary greatly among various nations, and it is important to understand the influences of the similarities and differences of the policy, economic, and political aspects of public budgeting. According to Hennessey, (1970), public budgeting is inherently political such as the short term partisan goals may over run the long term public interests and democratic processes, which in turn may erode the institutional and public capacity to address the collective problems of the society. In analyzing the federal, state, and local budgeting, more attention should be granted to the issues of federalism, which are very sensitive to power struggles among the various branches and level of government (Buck, 2009). The questions of how much level of autonomy should be found in each level of government, how much pressure and should be exerted from above the level of influence of elected leaders impact on government priorities, and the issues associated with resolving the conflicts and tensions between patronage, tax breaks, pork, in relation to the requirements of technical efficiency, prioritization, and balance. The project requires deep analysis as to the potential benefits it will offer to the users. On the other hand, Lewis, (1988), argues that the government should have a blue print detailing the level, of autonomies in its entire project. It is also imperative to ensure that the public resources should not be allocated for personal use or used by the office holders for the own private gains. Therefore the blue print should be developed by independent bodies that do not have any vested interest in the government project (Buck, 2009). This does not only ensure autonomy, but also equality in allocation of public resources for the betterment of the masses (Cozzetto, Kweit, &, Kweit, 1995) Budgetary and Financial Decision Making in Public Budgeting Systems A budget is the statement of the allocation of scarce recourses to achieve the governments’ objectives for a specific period of time, or fiscal period. In the United States, the budget system provides the means by which the president and the congress decide how much money to spend, what to spend on, and how they will raise the money that they have decided to spend. The budget system is mainly concerned with dollars, as well as other resources such as the federal employment (Osborne and Gaebler, 1992). The budget is needed for the accountability, so that the public is not taxed more that the needed level for appropriate government functions. The other reason of public budget is for prioritization, so as to identify the public functions in which the scarce resources should be allocated. Since the budget is the tool for controlling and managing project resources it is advisable to stick to the budgetary allocation of the whole project from inception of public project to the completion, this way, the company will not only benefit prom completed project, but also lack of corruption (Buck, 2009). Public budget systems have two major components namely revenue and expenditure. Revenues are the funds that are raised through various means, while the expenditure is the funds used for the spending on specific programs and capital projects. The major revenue sources for the government are federal government taxes such as corporate and individual taxes, state taxes such as fuel and sales taxes, licenses, lottery, and borrowings. Local government taxes such as user charges and property taxes (Buck, 2009). The major classes of expenditure are public program budgets due to costs of specific public policy programs, capital budgets for roads, sewage, and building costs, debt servicing budgets for repayment of borrowings, and administration budgets fro personnel and other general costs. Most of the budget approaches have managerial undertones in nature, depending on their sense of rational decision making process (Buck, 2009), Conclusion Public budgeting and financial systems in America are for control, management, planning, accountability, and prioritization (Buck, 2009). Budgetary functions of the United States at most levels of the government are dominated by the legislative branch of the government, in such a way that the departmental budgetary estimates within the local levels in most states and national governments are forwarded directly to the legislative body of the government. Budget reforms and innovations in the United States began with the idea of strengthening the executive, so as to establish a budget with the estimates of revenues and expenditure, plus other accompanying information. In this case the main aspect of control being the line item, or the object of expenditure (Buck, 2009). References Buck, A. E. (1929), Public Budgeting: A Discussion of Budgetary Practice in the National, State and Local Governments of the United States, New York: Harper and Brothers. Cozzetto, D. A., Kweit, M. G. and Kweit, R. W. (1995), Public Budgeting: Politics, Institutions and Processes, White Plains, NY: Longman Pub. Hennessey, T. (1970), "Problems in Concept Formation: The Ethos Theory and the Comparative Study of Urban Politics," Midwest Journal of Political Science, 14: 537- 564. Lewis, V. (1988). "Reflections on Budget Systems," Public Budgeting and Finance, 8: 4- 19. Osborne, D. and Gaebler, T. (1992), Reinventing Government: How the entrepreneurial Spirit is Transforming the Public Sector, From Schoolhouse to Statehouse, City Hall to the Pentagon, Reading, MA: Addison-Wesley Pub. Co. Read More