Government Budgeting 101

Business & Government budgeting are more different than alike!

Business revenue is not constrained; a business can do a lot of things to increase revenue.

Government budgeting is concerned with allocating scarce resources among many competing demands.

Some Basic Differences

GOVERNMENT BUDGETING Formal budgeting is legally required for all government entities.

First a budget request is submitted.

After money is appropriated, the budget document becomes legally binding on the agency.

The Agency must stay within amounts appropriated for each expenditure category.

Any changes from the established budgets need formal approval and can be difficult to get through the system

Government must raise taxes or increase the tax base to spend more.

BUSINESS BUDGETING

A business is not legally required to use budgeting.

A business can implement and use its budget as it pleases and can even abandon its budget in midstream.

A business can pass its costs to its customers in the sales prices it charges.

Where does the money to run a

government agency come from?

Three revenue bases for Government Agencies

Property Tax

Income Tax

Revenue from Fees

Property Tax

Income Tax

Revenue Classification

Matrix

Some Vocabulary

Direct Costs – cost that can be directly attributed to a program or event.

Indirect Costs – cost that can not be directly attributed to a program or event.

Encumbered - An encumbrance is the amount of money a department has contracted to spend through procurements and purchase orders. Once the department has contracted to make the purchase, the money becomes obligated or encumbered.

Revenue Classification Matrix

Revenue Neutral Programs

Fee contribution a minimum of 100%.

Subsidy level 0%.

Generally this type of program has a limited enrollment to provide a high quality of instruction or experience to each individual.

It is considered that this type of program offsets all direct cost and 30% indirect cost.

Revenue Neutral Programs

Revenue Classification Matrix

Merit Programs

Fee contribution 50% - 25%.

Subsidy level 50% - 75%.

Part of the benefits from merit programs are received by the individual and part are received by the public in general.

It is feasible and generally desirable to charge for these services, but only to the extent that the individual users pay part of the costs.

Merit Programs

Revenue Classification Matrix

Service Programs

Fee contribution 25% - 0%

Subsidy level 75% - 100%

In its pure form, the program is equally available and beneficial to all citizens in a community.

Service Programs

Revenue Classification Matrix

Daily Admissions/Drop Ins

Fee contribution 75% - 100%

Subsidy level 0% - 25%

Entry and exits are normally controlled, and attendance is regulated.

Daily Admissions/Drop In Programs

Cost Analysis Track all of your classes. How much did you spend,

what did it bring in.

When to cut a class – not always by the CPRP book.

Divisional Budgets