Lecture-6-Theories+of+Public+Budgeting

18 18 classicbudgettheories

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Unformatted text preview: ed as a percentage, and e is an error term. Stated in words, the equation stands for a process of budgeting in which a current decision is a fixed percent of a previous decision plus or minus a sum of money. The term bX is the incremental decision rule­e. g. , “90 percent of last year’s appropriation”­and is constant over a designated period of time. The e term reflects considerations outside the incremental rule and varies from budget period to budget period. 17 17 Classic Budget Theories What are incrementalism’s major tenets? Taking a cue from the work of Lindblom (1980),Wildavsky and his colleagues (Davis, Dempster and Wildavsky 1971) contended the following: 1. Time and cognitive constraints preclude a rational assessment of the benefits and costs of all but a handful of budgetary and policy alternatives; decision makers are forced to utilize a handful of simple budgetary rules to address the political and technical complexity of the budgetary process. 2. With point one in mind, decision makers are likely to anoint (rub with oil) a budgetary base or locus of programs that remain essentially untouched in the annual budget process; changes to this base are likely to be small or incremental in size. 18 18 Classic Budget Theories 3. During hard financial times, rules of fairness will dictate across­the­board budget cuts rather than careful prioritization; these budget cuts might lead to wholesale elimination of some programs as a means of preserving or enhancing others. 4. Line­item budgeting will be a preferred format. Rational budget types such as program budgeting, zero­based budgeting, or management by objectives, introduce too much political conflict by clearly specifying intended program outcomes. Equally important, the bureaucracy is generally ill­ equipped to implement these intelligent forms of budgets, which elected officials fail to understand in 19 the first place (Pilegge 1989). 19 Classic Budget Theories The inescapable conclusion of incremental thought is that budgeting is essentially a suboptimization effort in which the typical agency accepts a small increment (perhaps as little as 3%) in any given budget year. This increment is more likely than not the outcome of a gaming process in which the agency requests an amount in excess of what is expected with the knowledge that the amounted requested will be reduced by the budget office or by some other actors. But this cooling out process will result in a budget that remains more or less static over time. The incremental mindset connotes a downplaying, if not derision, of rational analytic techniques such as benefit­cost analysis or program evaluation. 20 20 Classic Budget Theories This was an American era of good feeling (Halberstam 1994), when Americans’ real wages were increasing and social issues such as race and crime were relatively moot. Against this backdrop, a theory of budgeting based on essentially inviolate budget bases and limited political conflict made eminent sense. This era of social tranquility and economic growth coupled with low inflation came to a painful end in the 1970s when America was confronted with a previously unheard of combination of economic stagnation and high inflation known as stagflation. As Americans’ real earnings shrank, their anti­tax sentiments grew (Kirlin 1982). The incrementalist mindset of a stable budgetary base came to an abrupt end in an era typified by increased political conflict and decreased 21 21 financial resources: Incrementalism­Key Stages The key stages are: establishing the base – to do this it is necessary to decide what is committed expenditure and then make adjustments to reflect unavoidable changes, e.g. full year effects of staff appointments; full year effects of the capital programme; salary increments; non recurring items which should be removed; external factors e.g. changes in legislation or government funding regimes. updating for changes in price levels for labour, goods and services; adding to the implications of the development budget to reflect proposed savings and growth; aggregating and producing the new budget. 22 22 Incrementalism­merits it is easy to understand as it is retrospective, makes marginal changes and secures agreement through negotiation and consensus; it is cheap; it allows concentration upon key areas of change as far as policy makers are concerned; in the public sector it is useful because outputs are difficult to define and quantify; the budget is stable and change is gradual. 23 23 Incrementalism­demerits it is backward looking as it looks to past budgets rather than future o...
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