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Unformatted text preview: rganisational requirements; it does not allow for an overall view of performance; it does not facilitate identification of budgetary slack (when the people involved in creating a budget deliberately underestimate the amount of revenue to be generated, or overestimate the amount of expenses expected to be incurred )which has been identified by Schiff and Lewin as being something which managers attempt to secure within the overall negotiation process; use it or lose it
24 24 Incrementalismdemerits Still another technical question concerned the role of inflation: a small budgetary cut or increment may be augmented or eliminated when inflation is factored into the model. it is often underpinned by data or service provision which is no longer relevant or is inconsistent with new priorities and objectives; it encourages inertia and empire building; discourages competition it is reactive rather than proactive; 25 25 Classic Budget Theories In essence, the budgetary base may have never been as inviolate as some of incrementalism’s critics assert. Second, legal obligations, union contracts, program commitments, and politics suggest that a budget process for year X cannot ignore year XK1. Yeartoyear uncontrollability is an everpresent reality; the past simply cannot be denied. And lastly, the incrementalist skepticism regarding rational analytic tools—including the current emphasis on performance budgeting—has a rightful place in the intellectual quiver used to understand budget process and outcome.
26 26 Economicbased Models As noted at the outset, economics has been the keystone in budgeting theory. This is to be expected given that budgeting ultimately deals with the allocation of scarce resources, and the raison d’etre (reason for existence) of economics is how to answer the questions concerning resource allocation.
The economic approaches that have dominated budgetary thinking are embedded in diametrically opposite views of government’s potential as a service provider. Notwithstanding this difference, economic thinking lies at the core of classic and contemporary budget theory.
27 27 Model of Optimization Assume for a moment that you are a city commissioner or city manager deliberating on the coming fiscal year’s budget. Should you, for example, put incremental dollars into police or recreation? If you say the former, should the money be spent on enhanced street patrols or new data
sharing computers? If the latter, should it be for more midget league football or more day care? Presumably, these choices are not all
ornothing in nature: street patrols would not be eliminated to enhance computing; midget league football would not be eliminated altogether to enhance day care; nor would the opposite be the case. The question would be decided at the margin with economic tools related to estimation of benefits and costs making the allocation simpler.
28 28 Model of Optimization The end result is an optimal allocation in which the marginal benefits and costs of a number of programs would be maximized at levels which maximize social welfare. This optimization is normally associated with welfare economics and the work of Musgrave (1980) and Pigou (1947). This mindset may seem strange, indeed almost religious, to readers who have come of age in an era of governmental restraint and frequent doubt about government’s ability to deliver what it promises. But as Howard McCurdy (1986) notes, the early1960s marked a heyday for governmental intervention in the economy, and the applied microeconomic theories (as well as macroeconomic theories of full employment) were driven by optimization of government output based on marginal 29
analysis. Model of Optimization The Pigovian perspective laid the groundwork for two major theories in budgeting: planning, programming, and budgeting systems (PPBS) and zerobased budgeting (ZBB). PPBS was an outgrowth of Rand Corporation thinktanking, an outgrowth that was applied to the allocation of resources for the American armed forces during World War II. Its introduction into the federal budget in the Defense Department in the 1960s was spearheaded by Robert McNamara and other whiz kids (1990) who were responsible for Cold War defense policies—most notably for the creation of credible nuclear deterrents and at the same time for the maintenance of nonnuclear capabilities in potential theatres of operation around the world. 30
30 Why PPBS? Proponents of PPBS b...
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This note was uploaded on 02/11/2014 for the course MANA 2028 taught by Professor Sisterennis during the Winter '12 term at Marquette.
- Winter '12