Decision about how much of society’s resources we want to take from the private sector to use for problems of broader public interest

line item -- emphasize control pushes policy into background minimizes conflict

program budget -- emphasize policy what should government do requires more analysis

performance budget -- emphasize management productivity of specific tasks, not overall goals administrative outcomes

Federal: economic and political perspectives expenditure driven entitlements defense

State/Local: organizational and administrative perspectives revenue driven more unified executive control more issues concerning citizen input

Theory: a framework for accumulating knowledge

Normative, descriptive, positive normative -- what should be descriptive -- what is positive -- what will be (predictions)

V. O. Key 1940 question in search of normative theory:

“On what basis should it be decided to allocate X dollars to activity A instead of B”

Aaron Wildavsky

◦ normative theory impossible -- utopian

◦ descriptive theory: incrementalism how decisions are made (process or outcome?) how strategies selected main theory today but partially discredited

how much can revenue estimates be politicized before other means are found?

how much of the political can be treated technically without loss of political accountability?

how does the political or technical become more dominant at one stage or another or in various circumstances?

when does executive v legislative have upper hand?

does citizen participation in resource allocation increase support for government?

Traditional

focus on control centralized private exercise of admin

power line item format formulas minimal flexibility for

managers accountability for inputs

Contemporary

Focus on policy/performance

decentralized public sharing of

information program format priorities maximum flexibility for

managers accountability for

outcomes

Greater executive control than in Federal process

Budget balance requirement Focus on agency programs and policy One committee, one bill, one process in each

house Senate Budget and Fiscal Review Assembly Budget Appropriations committees no budget bill role

Trailer Bills Governor’s Budget sets agenda for budget

hearings LAO gives item by item analysis (not done by

CBO)

Governor Department of Finance (equivalent of

federal OMB) Executive agencies Senate and Assembly budget

committees/subcomm. Legislative Analyst’s Office (equivalent of

federal CBO) Timeline (about 12 months)

Initial preparation: July-August Agency budget development (BCPs): Sept - Dec Governor’s Budget Presented: January 10 LAO Analysis published: mid-February Budget subcommittee hearings: February - May May Revise Conference Committee/”Big Five”: June Constitutional Deadline for Legislature: June 15 Start of fiscal year: July 1

Assembly Education Resources Health and Human

Services State Administration Information

Technology / Transportation

Senate

Education

Resources

Health

General Government

Energy

Purpose: how do issues rise and fall on the agenda? how do agendas translate into policy? how can non-incremental change be explained?

Key feature: distinction between agendas (problems) and alternatives (policies) different processes different participants and roles Major challenge to linear models of policy

making!

Three streams or processes problems (agendas) policies (alternatives, solutions) politics

Two types of participants visible cluster (dominate agenda and political

streams) hidden cluster (dominate policy stream)

Window of Opportunity predictable, e.g. elections, budget process unpredictable, e.g. natural disaster

Three streams must converge Being on agenda is necessary but not

sufficient need solutions and ripe political conditions

Role of the policy specialists form communities and work on alternatives look for opportunities to match to problems

policy entrerpreneurs bring the solutions together with problems importance of framing

key concept: understanding budget problems as policy problems◦ not a question of economic efficiency but values◦ allows application of Kingdon

how do budget issues get on the agenda? how does budget policy get made? State Budget Offices play a key role

◦ gatekeepers◦ how do they make decisions? (micro model)

Control orientation◦ Compile agency requests◦ Don’t question policy orientation◦ Budget execution emphasis◦ Far removed from Governor’s policy staff

Policy orientation◦ Analyze agency proposals against Governor’s policy◦ Develop alternatives◦ Proactive on major policy/budget issues◦ Focus on agency mission and effectiveness◦ Closer involvement with Governor’s policy staff

Budget analysts are like Kingdon’s policy entrepreneurs◦ nexus of macro and micro budgeting

manage top down and bottom up information flow◦ bring together problems, solutions, politics◦ part of “hidden” cluster of actors (institutional

memory)◦ two major deadlines provide windows

Skills used◦ efficiency analysis: technical/economic◦ effectiveness analysis: political, social, legal

More constrained—less discretionary Less political executive influence More managerial/staff-driven

◦ city manager drives budget◦ mayor policy positions not very public

More expectation for direct citizen access and participation

More or less ideological?

What is rationality? The economics/politics debate

◦ do concepts of economic efficiency and rationality apply to politics?

◦ do they apply to budgeting?

Market Model Polis Model

unit of analysis: individual community

motivations: self-interest public interest and self-interest

chief conflict: self v self self v common

source of ideas: self-generated from outside

nature of collectiveactivity:

competition cooperation andcompetition

nature of information: accurate, complete ambiguous, interpretive

sources of change: material exchange ideas, persuasion,alliances

Rational-Comprehensive Method:

1. Clarify objective apart from policy choices

2. Ends-means analysis3. Good policy is the best

means to the ends4. Analysis is comprehensive

--accounts for all relevant impact

5. Information is conclusive and authoritative

6. Outcomes projected with certainty

Successive Limited Comparisons:

1. Objectives and choices are linked

2. Ends and means not distinct3. Good policy is one on which

agreement can be reached4. Analysis is always limited5. Information is ambiguous;

subject to interpretation/framing

6. Outcomes rationalized afterward

economic, not political based on analysis comprehensive review of options orderly decision rules allocated funds where they are most

needed by objective measures promote reallocation from lower to higher

priorities

Practical critiques:◦ comprehensive analysis is impossible◦ asks analysts to do what they cannot

Normative critiques◦ budgeting is about choosing among values◦ political process does a better job of solving value

problems◦ political strength of program = deserving of $$

support◦ incrementalism/bargaining is the most fair◦ process reflects political system – change system

not process◦ analysis must serve, not replace, politics

Proposed to replace line-item budgeting – why?

Performance budgeting◦ links inputs with outputs

Planned Programming Budgeting Systems◦ link program goals/strategic plans with program costs

Management by Objectives◦ links manager-driven objectives with budgets

Zero-Based Budgeting◦ justify all costs above specified level---------------------------------------------------

Do the outcomes justify the efforts?

rationality fixes have failed◦ technique cannot substitute for political judgment◦ role of Congress must be honored◦ implementation problems

process fixes have failed◦ procedures cannot substitute for political judgment◦ always a circumvention strategy◦ procedures cannot force unwanted decisions◦ creativity and game playing

Other foils:◦ top-down, centralized process open to interest

groups/closed to citizens◦ anti-tax sentiment◦ divided party government

Solution: political leadership confront controversy promote vision and values promote citizenship and sense of fairness define the public interest other characteristics of effective political

leadership? Would a greater sense of fairness of tax and

spending policies help? disconnection between who pays and who benefits should there be a closer connection?

Does the state face the same pressures toward deficits?

Do process or rationality “fixes” have a better chance of success at the state level?

Current deficit what’s the constituency for budget balance? what strategies (gimmicks) are being used? real alternatives – who is proposing them?

Proposed reforms ZBB Commission on Government Waste and Inefficiency

Are politics and analysis antithetical? How can analysis serve, rather than replace

politics? What should analysis try to accomplish? If analysis is rejected by decision makers, is it

useless? What should budget analysts try to

accomplish? Would unlimited analysis achieve rationality?

Balanced budget requirement More intense efforts to hide deficits Fewer macroeconomic issues to consider Greater influence of environment on

balance/deficit Deficits don’t (usually) accumulate--

problems more tractable Temporary, not structural deficits -- more

fixes available

The problem: getting support for increasing revenues is much harder than getting support for spending proposals

1. Public officials must go about getting support very carefully

2. “anti-revenue” politics: politics of protection from taxation, tax reductions, exceptions

3. Attention to protecting individuals, interest groups, regions from taxation leaders to piecemeal, complicated, inconsistent, inequitable structures => pressures for reform

Confront issues of fairness, public good, options

Accountability for use of funds Timing – e.g. crisis Earmark revenues

example: California Lottery Temporary increases Tax politically weak/outsiders Gimmicks (smoke and mirrors)

Equity◦ similar situations treated similarly◦ differential burdens fair

Administrative feasibility◦ efficient, uniform◦ high degree of voluntary compliance

Appropriateness ◦ sufficient; stable; predictable

Political feasibility (acceptance) Accountability/Visibility

◦ payer understands charges

Logic: capacity to pay as measured by earnings

Importance: over half of State General Fund

Policy issues◦ tax rates v tax base (deductions, exclusions,

credits)◦ simplification (relates to acceptance)◦ reliance on volatile source

Logic: capacity to pay as measured by consumer spending

Importance: provides about 1/3 of state and city revenues

Policy issues: Role in local finance (regional growth) Exemptions of household purchases Tax expenditure programs Include services in addition to goods –

erosion of base Internet sales

fairness and revenue issues

Logic: capacity to pay as measured by property holding

Importance: about 30% of local revenues

Policy Issues public opposition – ideological reasons equity allocations by state among local governments assessment methodology (subjectivity leads to

public opposition) importance to school finance (other states)

Purposes Promote certain economic behavior

e.g. research and development Prevent harmful activity

e.g. tax benefits for alternative fuel Tax relief for certain segments of society

e.g. low-income tax credits Facilitate tax administration

e.g.conform to Fed taxCriteria Efficient accomplishment of policy goal Subject to review and periodic reporting

Similarities to budgeted expenditures aimed at accomplishing public policy objectives cost to the taxpayer subject to interest group pressure pork for constituents

Differences from budgeted expenditures not directly measurable--must estimate (indirect

effects) subject to far less analysis less visible; beneficiaries harder to discern more resistant to cuts -- become entitlements

Board of Supervisors used to set a countywide property tax rate to fund countywide services

Counties had a greater share of the costs of human services programs

VLF was a much less significant revenue source

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Board of Supervisors had discretion over property tax rate & property tax revenue

There was a political balance between taxing and spending.

An elected official could gain political credit for keeping tax rates down

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Property tax rate reduce to 1% Base growth capped at 2% System forced to use growth to maintain

base spending Subsequent Ballot Initiatives:

◦ Shifted of property taxes from schools to local government

◦ Had the State of California assume greater share of human services

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The state’s support of local government was withdrawn in the early 1990s

Realignment -- share of sales tax replace shares of support for human service programs

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Funding mandates◦ County shares of state & federal programs

Honoring contracts◦ County workforce◦ Debt

Political priorities◦ Some are more equal than others

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The Budget Cycle

Revenue Growth Caseloads

Requirement◦ Appropriations◦ Reserve

contributions

Financing◦ Fund Balance◦ Revenues◦ Reserve releases

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Net cost of programs is determined & compared to general purpose financing

Net cost is equal to program expenditures less program revenues

General purpose financing is not linked to specific programs or groups of programs

No link between program net cost & availability of general purpose financing

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baseline cost/workload data (which base year to choose?) justify changes from base (e.g. quantify workload increase) comparisons (relevant) formulas and standards (appropriate and inappropriate

uses) “fair share” research on cause and effect best practices pilot (where research may be lacking or inconclusive) fit under budget office guidelines, strategic plan, etc. propose accountability measures check to avoid “the big mistake”

Frames request in terms of program priorities/strategic plan

Provides baseline data for a few years, for context Clearly lays out different parts of request Deals with each part in turn (and they add up!) Provides quantitative justification for dollar

amounts Makes logical arguments Reflects research – not the easy way out Doesn’t try to fool the analyst Honest about current resource availability Addresses issues of priority within the department Acknowledges recent history of budgeting in the

unit Addresses one-time v on-going needs openly Includes objectives, expected results, and

performance measures