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How Do Our Budgets Measure Up?

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Minch Lewis 
May 19, 2017


Many times, the public sector has been called upon to do “more with less.” Today, with the earthquake emanating from the Trump administration, the public sector will be fortunate to do “the same with less.” Accountability and resource allocation are taking on new importance. Budgeting is the key factor in the new mandate. So, it is appropriate to ask, “How are our budgets measuring up?”


What should governmental budgets measure up to?

The Government Finance Officers Association’s idea of budgeting is threefold: policy, control and planning. However, a study by Paul C. Nutt at The Ohio State University comparing public and private sector decisionmaking found private sector managers are “more apt to support budget decisions made with analysis.” Public sector managers are “more likely to support those that are derived from bargaining with agency people.” With governmental earthquake warnings every day, the public sector should take a budget hint from the private sector. But government is suffering from four institutional roadblocks.

Line Item Budgeting — simple but ineffective:

The first roadblock pops up when budgeting starts off wrong. Many governments are mired in the line-item budget review process which creates only a superficial analysis of expenditures. Most legislative review involves grilling agency managers on what they are spending and bargaining about incremental changes in a few objects. The focus is not on what they are doing. Analytical performance budgeting needs to replace the micro-management of the line-item review with a program-oriented approach. The Government Accounting Standards Board (GASB) strengthened program budgeting when it issued the GASB-34 reforms. The Statement of Activities identifies program categories with revenues and expenses grouped together. When budgeting begins with identifying program finances, reporting can support meaningful decisions.

Sun-lit transparency — in the shadows:

Another roadblock results when financial reporting is delayed. Few public agencies have timely reporting requirements. Public housing authorities have nine months to submit audited financial statements — General Motors has nine weeks. This demonstrates two weaknesses: First, audit standards require complete, consistent, accurate and timely information reported in standard financial statements. Many agencies go through a torturous process of cleaning up their financial records in preparation for an audit. This means that they did not have appropriate information for monitoring their performance on an on-going basis. Secondly, it means they are not relying on standard financial statements to monitor their performance compared to authorized budgets. Even sun-lit transparency will not assure accountability when the information has been in the shadows for nine months.

Numbers and more numbers — glazed over looks:

A third roadblock springs up due to the complexity of the reporting information. Governmental units serving significant client groups generate thousands, and sometimes millions, of financial transactions. The financial reporting system summarizes each transaction. Due to the complexity of governmental structures, they don’t look like QuickBooks. So, using them requires some front end orientation. Few citizens and fewer legislators are prepared to interpret the financial reports that are currently available. The GASB made a valiant effort to produce user-friendly statements in the GASB-34 reforms, but the average citizen experienced increased complexity. A more descriptive use of the Management Discussion and Analysis (MD&A) section of GASB-34 financial statements could counter this disadvantage. But current accounting standards limit this information to a simple summary of the changes from the prior period. They don’t attempt to explain why the change occurred or whether the change is for the better.

No way to compare results:

A fourth roadblock undermines budgeting in achieving better decisionmaking. The standard financial reports do not measure accomplishments. In reviewing a government’s general purpose financial statements, interested citizens may find that transportation programs cost millions of dollars, but they will get more information about the effectiveness and efficiency of the program from the local news media. In 2010 the GASB recognized this shortcoming and issued voluntary guidelines to promote Service Efforts and Accomplishments (SEA) reporting.

Improving financial reporting and budgeting infrastructure:

All the above roadblocks result from an inadequate infrastructure for the public sector. This infrastructure is more difficult to strengthen than our highways, bridges or water systems. It is not merely a matter of money. Major changes are required in management. The technology exists. Resources have been committed to the computers. But the return on that investment has not been realized. Financial reports and budgets are still viewed in a political context. This is understandable but not acceptable. Less information means less potential for political attack. And as Bureaucracy 101 teaches, it is better to set a low goal and hit it than to set a higher goal and miss it.

Strengthening the financial management and budgeting infrastructure can provide many benefits to offset the risk. The goal is to create a system where state-of-the-art budgeting and financial reporting empowers executives, legislators and citizens to tailor government to meet their perceived needs —critically important in this unstable “earthquake prone” period. Governmental budgeting should measure up to allocating evermore-scarce resources to maximize the common good.

Author: Minch Lewis is an adjunct professor at Syracuse University’s Maxwell School. He served as the elected City Auditor in Syracuse, NY, for 9 years. He has developed financial management systems for the affordable housing industry. He earned his master’s degree in Public Administration at the Maxwell School. He is a Certified Government Financial Manager. Lewis can be reached at [email protected] .

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