1. Public Financial Management
CHAPTER 13
Public Financial Management
Breena E. Coates, Ph.D.
Social Equity
The following are prohibited by law:
• any public performance or display, including transmission of any image over a network;
• preparation of any derivative work, including the extraction, in whole or in part, of any images;
• any rental, lease, or lending of the program.

2. Public Financial Management
Learning Objectives:
Understand the importance of public financial management and the duties of the public administrators involved.
Understand the theories behind the budgeting process and their applications.
Comprehend the innovations impacting the budgeting process, including contemporary budget reform.
Identify the Various methods of financing public expenditures.

3. Public Financial Management
Understand the role that debt plays in the budgeting process.
Comprehend the roles that monetary and fiscal policy have in public administration.
Identify major contemporary economic policy initiatives of the U.S. Congress and the American Presidency.
Define key terms at the bottom of the pages and at the end of the chapter.
Write short critical essays on major issues covered in the chapter.

4. Auditing
Auditing is a critical process that augments the decision-making process in public institutions.
The public budget, itself, is also a jurisdiction’s most important reference document, and must be audited.
Budgets record policy decision outcomes, cite policy priorities as well as program objectives, and delineates a government’s total service output. For these reasons financial management must be audited.

5. Public Financial Principles
Public financial management is a dynamic system with which citizens interact every day. At the heart of this system lie 6 principles:
Public Financial Principles
Democratic Consent
Equity
Transparency
Probity
Prudence
Accountability

6. Balanced Budgets
The balanced budget where the receipts are equal to, or greater than the government outlays is a sign of a financially healthy government.
There are also advantages, however, to “unbalanced” budgets where extra spending can stimulate a slow economy. Yet, such actions may adversely impact the value of currencies, as well as having a crowding-out effect on capital markets.
All budgets function within a designated 12-month calendar.
The govt.’s fiscal year runs from October 1-September 30.
As the budget process is slow, budgets can be extended into a new fiscal year through the use of continuing resolutions.

7. Budget Theory & Practice
A public budget has 4 critical dimensions—it is a:
allocates scarce resources
specifies “ways & means for programs
drives an area’s growth
holds workers accountable
Political Instrument
Managerial Tool
Economic Instrument
Accounting Instrument

8. Historical Highlights of Budgetary Reform
The Taft Commission, 1912, recommended a national budgetary system.
William Willoughby wrote The Movement Towards Budgetary Reform in 1918 which suggested reform at state & local levels.
The General Accounting Office was established in 1921, with the passage of the Budget and Accounting Act.
V.O. Key in 1940 bemoaned the lack of a budgetary theory among budgetary writers.
John Maynard Keynes influenced President Franklin Roosevelt’s administration with his theory of using fiscal & monetary policy to stimulate the economy.
Aaron Wildavsky wrote The Politics of the Budgetary Process in 1964, arguing that budgeting is a political and economic process, rather than simply a set of mechanical steps

9. Objectives of Budgeting
These are:
OBJECTIVES
Allocation
Distribution
Stabilization
Growth
2 kinds of budgets exist here: Capital & Operating

10. Budgetary Waves of Innovation
These waves of innovation have led to evolution of different types of budgeting which include:
Executive Budgeting submitted by the chief executive to the Legislature for action.
Line-Item Budgeting: classification of accounts according to detailed objects of expenditure.
Performance Budgeting: performance requirements are stated alongside line items.
Incremental Budgeting focuses on incremental increases and decreases in a budget.
PPBS: planning, programming, budgeting systems detailing objectives and measures.
Zero-Based Budgeting calls for re-justification of the entire budget.
Integrated Budgeting: consolidating receipts/outlays into 1 budget.
Multi-Year Budgeting covering a time span of numerous fiscal years.

11. Financing Public Expenditures
Governments may raise monies in the following ways:
Imposing a direct tax paid by the taxpayer to the government.
Imposing a direct tax paid to a 3rd party, who then pays govt.
Imposing user charges.
Attaining grants from other levels of government.
Generating profits from activities of public enterprise.
Borrowing from the public through bonds or private lenders.
Using innovative finance techniques as public-private alliances.
Generating earnings from savings or investments.

12. The Problem of Debt
The national debt is the total outstanding debt of the national government.
In recent years the growing U.S. debt is a major concern.
Debt must be viewed from a historical & comparative perspective.
The government can borrow money when a clear purpose exists.
The sale of municipal bonds is another way of raising money.

13. Local Government Financial Management
There are 80,000 local governments, school districts, and other small bodies in the U.S.
80,000 local Govts
School Districts
Water Districts
Various local bodies
There are 3 major methods of funding: Property tax
School Tax
Sales Tax

14. Economic Policy
Economic policy is the process by which nation manages its trade, business and finances. It traditionally consists of 3 dimensions:
Fiscal Policy: deals with size of the budget, deficits & taxes.
Monetary Policy: deals with the quality & cost of money and credit in the economy.
Those facets of Public Policy w/-Economic Implications, e.g., farm and labor policy