California State University Long Beach
Graduate Center for Public Policy and Administration
Summer 2002, Third Session
PPA 590 WOMEN & PUBLIC POLICY
BUDGETING
Line Item Budgeting.
Over time, various types of budgets used in public organizations have evolved. The first, the Line Item Budget (now called traditional budgeting), was developed under pressure from Reformers as an anti-corruption measure (1920-1940), which also included a movement toward administrative integration, built-in honesty through competitive bidding, centralized purchasing, and standardized accounting and auditing. This was reflected at the Federal level in the establishment of the Bureau of the Budget and the General Accounting Office.
The Line Item budget is seen as an instrument of control. It encourages incremental thinking. Each line item is given the same weight or importance even though some are more complex. It gives little attention to policy. Line item budgets outline the items on which money will be spent, but provide little or no information on what exactly will be done. It tends to perpetuate the status quo incrementally. Expenditures often will creep up but the proportion allocated among various categories will stay the same. Generally a line item budget has categories such as personnel, equipment, maintenance, etc. When faced with cuts, maintenance often goes first and personnel last, versus a uniform reduction. Bargaining goes on as department heads overestimate the costs while top management/the legislature cuts automatically. There may be fiscal year end spending sprees to use up surpluses.
Performance Budgeting.
First developed in New York (1940-1960), it recommended the classification of expenditures by administrative units, by functions, and by items. During the New Deal line item budgeting and accounting systems were firmly established so budgeting itself was not seen as the watchdog to keep bureaucrats honest. Also, government was expanding and there was a need to centralize budgeting: the Federal budget doubled from 1932 to 1940. Finally, the government was perceived as a service delivery agency and the budget could measure management delivery, reflecting the influence of administrative management and scientific management trends. Gradually the transition was made to a functional or program budget. The demise of the line item budget was accompanied by the transfer of the Bureau of the Budget into the new Executive Office of the President and its staff increased tenfold.
Performance budgeting looks at outputs as well as inputs to government activity. Administrative skills are emphasized; activities are given preference over item purchases; management responsibility is centralized; and policy-making remains incremental. The role of budget officers increases from accounting to include:
-development of activity classifications;
-description of agency programs and performance;
-exploration of cost/work measurement;
-decentralized planning;
-using the budget to perform an efficiency function.
Comparison of Line Item and Performance Budgets:
Line Item Budget Performance Budget
1. Military personnel 1. Defensive capability
2. Operations and maintenance 2. Offensive capability
3. Construction 3. Specialized responses
4. Research and Development
Program Planning Budgeting .
PPB came onto the scene from 1960 to 1972. Planning is the choice of goals for the agency and the choice of methods to achieve them over time. Programming is the scheduling and implementation of the particular projects chosen to fulfill the agency's goals in the most efficient and effective way in the given time period. Budgeting is the estimation of the price of each goal, plan, project, and program. PPB had been used by General Motors in 1924 and was introduced into government by Secretary of Defense McNamara in 1960; in 1965 then President Lyndon B. Johnson ordered it applied throughout the Federal Government. PPB met its demise during the Nixon administration (1968-72) and the Bureau of the Budget was re-titled the Office of Management and Budget.
Traditionally, the description of an agency's program that accompanied line item budget requests was transformed into a justification of the bureaucracy. The emphasis on efficiency didn't ask whether a program was needed or why an agency existed. Under PPB, an effort was made to systematize political choice through budgeting. Decision-making becomes less incremental and more systematic. Management grows more supervisory and planning becomes more centralized. PPB is concerned with inputs, outputs, and effects/alternatives. Advantages are that it sharpens and clarifies policy options (given the organizational mission) and that it enhances coordination because of increased attention paid to interrelationships among various agency programs.
Disadvantages are that it places stress on quantification (versus values) in making choices and is complex; there is a demand for hard to get information (on cost/benefit of program effects); it is more useful for "hard" technology areas than for other programs; it has a centralizing bias because it forces decision-making "up" in the bureaucratic hierarchy through emphasis on planning, goal-clarification and scientific/systematic decision-making (all the knowledge must be available before a decision is made and in bureaucracy knowledge is all-inclusive only at the top); and it reduces legislative control over administrative agencies. There may be hostility to alternative programs that might do away with existing structures. Also, some alternatives might not be politically acceptable (e.g., publicity campaign to make motorcycle riders wear helmets). What remains is a global way of thinking about problems.
PPB Budget Example
Goal: Protection of People, Rights, and Property
A. Crime Prevention and Control
1. Prevention Police, K-9 Corps, Medical Examiner,
2. Investigation Investigations, Juvenile Court,
3. Support services Police Headquarters
B. Courts
1. Adult Cases Circuit court, state prosecutors
2. Juvenile Cases Juvenile Court, public defenders
3. Support services County sheriff, marshals
C. Criminals
1. Confinement Courts, jails
2. Support services Probation
D. Traffic
1. Monitoring Traffic engineering, public works
2. Control Roads commission, traffic court, meter maids
Management by Objectives.
MBO (1970-1976) is a process whereby organizational goals and objectives are defined through the participation of organizational members in the setting of expected results. In 1954 Peter Drucker began the development of MBO by trying to incorporate Theory Y management style principles into budgeting. MBO emphasizes "common sense" management expertise, de-emphasizes scientific/rational decision-making methods, encourages self-management, decentralization, an integrated approach to total management, communication and feedback, organizational development and change, and policy research and the support of top management. MBO attempts to set objectives, track programs, and evaluate results. It is a return to performance evaluation/budgeting (since it is not concerned with alternatives). MBO emphasizes productivity measurement, program evaluation, and the effort to establish social indicators of program effectiveness.
Zero Base Budgeting.
ZBB was introduced as a rational budget innovation into the Federal government by President Carter in 1976, along with the concept of "Sunset" legislation (a program or an agency expires after a certain amount of time unless specifically renewed). ZBB mandates that the entire budget of an agency be reviewed at periodic intervals and all positions and programs be rejustified. The steps in the process are to define the decision unit, formulate the decision packages (at different levels of service--minimal, reduced, current, or enhanced) and to rank the decision packages in terms of agency priorities. Each decision package is reviewed by top management to see if it will be funded and at which level. It considers inputs, outputs, and alternatives (like PPBS) but it does not consider the hypothetical question of what could be done with the same money if it were not committed to this agency (ZBB could only really be effective at the national level). ZBB does not require additional information (unlike other systems) but may be better suited to smaller organizations.
Example 1: Different levels of the same service
Army Corps of Engineers, one decision unit
Five decision packages
Zero Base Budget Cost Damage Reduction Net Ratio
No protection 0 0 0 0.00
Levees $3,000 $6,000 $3,000 1.00
Small Reservoir $10,000 $16,000 $6,000 0.60
Medium Reservoir $18,000 $25,000 $7,000 0.38
Large Reservoir $30,000 $32,000 $2,000 0.07
Decision packages are ranked in order of preference, for example, 1) Levees; 2) Small reservoir; 3) Medium reservoir; 4) No protection; 5) Large reservoir.
Example 2: Different levels of different services
Air Pollution Control Agency
Two decision units: air quality monitoring; and on site inspection.
Six decision Packages
Air quality monitoring On-Site Inspection
Minimum: $150,000 (70% coverage) $50,000 (# of inspections)
Current: $200,000 (80% coverage) $100,000 (# of inspections)
Improved: $300,000 (90% coverage) $200,000 (# of inspections)
Ranking: Cost Cost Increase Cumulative Cost
1. Air monitoring (minimum) $150,000 $150,000 $150,000
2. Air monitoring (current) $200,000 $50,000 $200,000
3. Inspections (minimum) $ 50,000 $50,000 $250,000
4. Inspections (current) $100,000 $50,000 $300,000
5. Inspections (improved) $200,000 $100,000 $400,000
6. Air monitoring (improved) $300,000 $100,000 $500,000
The Politics of the Budgetary Process.
A budget is a series of goals with price tags attached: an attempt to translate financial resources into human purposes. A budget is a contract between the public and the agencies of government (money must be spent in the way it was intended); it is also a superior-subordinate contract, a social as well as a legal relationship. A budget is a tool which communicates preferences.
Most funds are 70% to 80% committed, with the rest being discretionary. Most agencies build up a base of programs that are expected to continue and are rarely questioned. Agencies become accustomed to demanding their "fair share" of the budge--compared to other agencies: e.g., the Department of Defense budget is allocated 47% Air Force; 29% Navy (& Marines); and 22% Army. Discussion is sometimes inversely proportional to the cost involved.
Budget officers are seen as activists who defend their agency's budget request from competitors and who generally seek to increase their allocation. They may use various strategies in deciding how much to ask for, depending on the short- or long-term nature of the project and whether a small or a large amount is more likely to be granted. If too much is requested, it may set a precedent for always cutting the budget; if too little is requested, then the agency will be left short when the budget it trimmed. By the same token there are spending strategies: overspending forces additional allocations to be made, while underspending may result in budget cuts if a surplus is left. The best strategy is to underspend by about 1% to 5% (shows economy mindedness).
A question of what ought to be in the budget is really a question of what government ought to be doing: who should get services and whose values should be taken into account. This is never done comprehensively but fragmentally and incrementally; not rationally but through bargaining. No one ever works on the whole but on a few pieces at a time; only a few interests are involved. There is no single authority who determines what will be in the budget.
Incremental (line item) budgeting increases agreement among participants through bargaining; it facilitates bargaining because what is being swapped are dollars, not program objectives. Program budgeting reduces bipartisanship because policy implications must be spelled out, and policy is not divisible as are dollars. But budgeting cannot be rational-comprehensive; it is fragmented but not uncoordinated. Some interests may be neglected at one point but will be picked up at another time. Budget officials are expected to represent their own agency's interests--not the public interest as a whole. Agencies are expected to use strategies to gain allocations. And finally, in a democracy, programs may not be adopted on their merits but according to how much public support there is for them.