Revenue Estimates in Budgets

Introduction

Public budgeting can be described as the vital practice of revenue allocation for a given government or organization for it to achieve its economic and social obligations. Additionally, budgeting may consist of management of public expenditures in manner that will ensure that the most economic impact is realized (Chantrill, 2011).

In the United States, the federal Government, all the states, agencies and local governments utilize public budgeting process to ensure that the financial resources are properly planned for and managed. The budgeting process for any organization often involves the following steps: Preparation, authorization, execution and accountability.

Revenue estimation is usually a vital component of the budgeting process due to ensure that the expenditure is in line with the receipts and is sufficient for the different programs that are being budgeted for (Kolawole, 2011).

This paper seeks to review the revenue estimates for Federal, State, local and agency budgets. The analysis will include: description of every budget and identification of the important steps in the budgeting process employed for each of them. The paper will identify examples in each category and use them in the analysis.

Description and examples of federal, state, local and agency budgets

Federal budget

Federal budget for the fiscal year 2012

This budget estimates reflect the revenue estimates for the Federal budget proposed by the Obama administration. The budget basically contains $ 2.627 trillion in revenues and $ 3.729 trillion in outlays (Kolawole, 2011).

Table1: Total receipts

The fiscal year 2012 is estimate to have a total of $ 2.627 trillion receipts.

Item Feb 2011 Obama Administration Request
Social Security and other Payroll tax $925 billion
Other miscellaneous receipts $20.0 billion
Individual income tax $1.141 trillion
Excise tax $ 103 billion
Estate and gift taxes $14.0 billion
Deposit of earnings and federal reserve system $66.0 billion
Custom duties $30.0 billion
Corporate income tax $329 billion

Source: Chantrill, C. (2011). Comparison: State Spending-Debt-GDP-Population. Retrieved November 22, 2011, from U.S. Government Spending.

Table2: Total spending $ 3.729 trillion

Item February 2011 Obama Administration request
Interest on National Debt $242 billion
Medicaid and the State Children’s Health Insurance Program (SCHIP) $269 billion
Medicare $485 billion
Social Security $761 billion
Troubled Asset Relief Program $13.0 billion
Unemployment/welfare/ other mandatory spending $612 billion

Source: Chantrill, C. (2011). Comparison: State Spending-Debt-GDP-Population. Retrieved November 22, 2011, from U.S. Government Spending.

Table 3: Agency breakdown

Item February 2011 Obama Administration request
Department of Defense $553.0 billion
Overseas Contingency Operations $118.0 billion
Department of Health and Human Services $79.9 billion
Department of Education $77.4 billion
Department of Veterans Affairs $58.8 billion
Department of Housing and Urban Development $49.8 billion
Department of State and other International programs $50.1 billion
Department of Homeland Security $43.2 billion
Department of energy $29.6 billion
Department of Justice $28.2 billion
Department of Agriculture $23.8 billion
NASA $18.2 billion
Department of Transportation $13.4 billion
Department of the Treasury $14.0 billion
Department of interior $12.1 billion
Department labor $12.8 billion
Department of Commerce $8.8 billion
Army Corps of Engineers $4.6 billion
Environmental Protection Agency $9.0 billion
National Science Foundation $7.8 billion
Small business Administration $1.0 billion
Corporation for National and Community Service $1.3 billion
Disaster Costs $6.0 billion
Other On –budget Discretionary Spending $44.9 billion

Source: Chantrill, C. (2011). Comparison: State Spending-Debt-GDP-Population. Retrieved November 22, 2011, from U.S. Government Spending.

Description of the federal budget

The federal budget can be defined as a proposal by the President of the United States to the Congress, recommending the revenues and expenditures for the coming fiscal year (Huddleston, 2005).

The congress invokes legislative rules to make appropriate decisions regarding the budget; this may include accepting, rejecting or recommending changes to the presented budget. Much of the budgeting activities are often carried out by various government agencies that may include: the Congressional Budget Office, the Office of Management and Budget (OMB), the United States Treasury Department and the Government Accountability Office (GOA) (Kolawole, 2011).

Determination of the amount of resources required for different programs in the federal budget are often calculated using cash techniques. Determination of outlays and revenues is done at the end of transactions. Some basic aspects of accrual accounting are employed to recognize revenues and debts at the end of transactions. Traditionally, a thirty five year baseline is used for financial projection and this is vital for the budgeting process. There are some years when slight variations have been used. The main importance of the projection is to benchmark spending into the United States law.

An important resource for the federal government comes in the form of taxes. Personal income taxes are levied on progressive basis, meaning that higher incomes often attract higher taxes. The payroll tax that is often finances social security and Medicare activities is usually levied on a flat basis.

Employers and employees are required to contribute 6.2% of their gross pay to the social security kitty. This amount is deducted from persons who earn $ 106,800 and below; higher salaries do not attract social security deductions. For the Medicare contribution kitty, all employees and employers are required to pay 1.45% of there gross income. Some consider the payroll tax to be some form of insurance due to the fact that it pays out some benefits to individuals who are qualified to receive them.

Social Security, Medicare, and Medicaid are catered for by permanent appropriations and thus are considered to be mandatory spending. Nearly every person pays money to go into these programs for their entire lives but a few individuals are eligible under some legal requirements.

Other than social security, Medicare and Medicaid, the other spender of the U.S tax payers’ money is the military. Current military spending is about 6% of the GDP for both Homeland Security and the Department of defense. In the recent past, military funding particularly for wars in Iraq and Iran have fallen under the emergency appropriations bills (Kolawole, 2011).

It’s important to note that the federal budget has accrued deficits for almost all fiscal years since 1970. This has led to the accumulation of debt in excess of 15 trillion by the end of 2011.

United States as a country has witnessed some devastating effects of the financial crisis though some other factors such as poor policy have played a role.

State budget

Example of State Budget: Arizona State Budget FY 2012

The Arizona State’s total budget for the fiscal year 2012 is $26.9 billion. About $8.32 billion is slated for the general budget while the rest falls under non general fund money (CNN Money, 2011). The general fund budget currently includes major cuts that are intended to cushion the state against a projected shortfall of about $1.1 billion (CNN Money, 2011).

The Arizona state budget for fiscal year 2012 was signed into law by the Government brewer on April 2011 (CNN Money, 2011).

Description of State Budgeting process

The crafting of State budget estimates is carried out by state agencies. It’s then submitted to the governor of a given state. Once the budget is enacted by the “legislature, various agencies then implement the approved policies and programs within the budgetary limits imposed by the legislation” (Chantrill, 2011, p. 4).

The governor’s role in the budgeting process is to recommend the budget to the legislature. This has to be done in accordance with the executive policy priorities of a given state. Just like in the federal system, appropriation bills are often subjected to scrutiny by the responsible authority and mighty be accepted, rejected in part or rejected wholly.

Most states receive their revenues from “taxes, licenses, permits and fees, and federal grants” (Chantrill, 2011, pp. 5). The different revenue sources are slated for different accounts designated by the law. The accounts are in turn used for the execution of state operations or capital expenditures.

About 45% of funds are raised from taxes, an estimated 25% from federal grants, about 25% charges and miscellaneous revenues, and 3 to 5% from licenses, permits and fees (McNichol, Oliff, & Johnson, 2011).

The specific figures for all the state budgets are too complex or not available for analysis in this document. However, many of the states are going through similar financial situations that will be generally discussed in this document.

State budgeting has been a really tricky exercise since the financial recession witnessed in 2008. As the U.S economy takes reels under the effects of the financial crisis so are the state revenues. For instance, in New York, the official estimate of the state’s budget short fall for fiscal year 2011 worsened five times (The PEW Center of the States, 2011). The budget gap widened from $4.6 billion to $9 billion in a span of 10 months.

Missouri State also provides a case that can be used to describe the volatility associated with state revenues. In the Missouri State, during the 2010 legislative session, Governor Jay Nixon together with the state legislature reached an agreement that the revenue for the 2011 fiscal year would stand at $7.2 billion (McNichol, Oliff, & Johnson, 2011). Eight weeks after this announcement the revenue estimate was cut by about $484 million by law makers who thought they had resolved the crisis. However, after several weeks the Governor had to trim a further 301 million (The PEW Center of the States, 2011).

States across the country are faced with challenging budgets. The public sector is bearing the brand of the cuts that following budget short falls.

In fact the “center on Budget and Policy Priorities (CBPP) has reported that from fiscal years 2009 to 2011, States have closed a cumulative budget shortfalls amounting to $430 billion” (Chantrill, 2011, p. 12).

Local government budget

Example of local government budget: County of Los Angeles 2011-12 Final Adopted Budget

The Los Angeles 2011-12 budget amounted to $ 24.346 Billion. The budget had up to $ 17.899 billion or 73% allocated for the fixed costs or program specific revenues (McNichol, Oliff, & Johnson, 2011). The Net County costs were $ 6.447 billion or 26.5% of which 15% or $3.740 were for the flexible costs and $2.7 billion or 11.1% for the non-flexible costs (Huddleston, 2005).

Table: Fixed costs breakdown ($ 17.899 billion)

Item Amount in millions
Health/social services $ 9,416.4
Property Tax administration $ 88.3
Proposition 172 – Public safety Augmentation fund $ 550
Special Fund/Districts $ 5,847.9
Revenue that offsets costs $ 1,820.2
Trial Court Funding $ 144.8

Source: Source: Chantrill, C. (2011). Comparison: State Spending-Debt-GDP-Population. Retrieved November 22, 2011, from U.S. Government Spending.

Local government budget estimates

There are thousands of local governments in the US. These governments can be categorized as general purpose governments that offer several different public goods and services or special purpose governments that provide a specific good or service (Huddleston, 2005). There are local governments for cities, others for rural areas and some representing both cities and rural areas. In some states, municipal governments provide public education while in others pubic education is catered for by special purpose governments (Huddleston, 2005).

This diversity in local governments is also reflected in their budgets as well. However, the underlying factor in all these budgets is raising and spending of public money (Chantrill, 2011).

Budgets of general purpose local governments are usually composed of three distinct parts that operate together: annual operating budget; capital budget; and the enterprise or utilities budget (Chantrill, 2011).

The annual operating budget outlines the anticipated spending for all agencies under the municipality in the coming year. For example, this may consist of expenditure for public safety, planning and development, and social services among others (Huddleston, 2005). The annual operating budget also includes the revenues which local government expects to receive in the course of the year. The capital budget includes the forecasted expenditure on the required infrastructure projects that will be useful for a long time to come (Kolawole, 2011). Capital budgets are formulated following extensive planning process that indicates the precise spending that will be accrued on capital items in the coming year.

General purpose local governments usually identify public services whose beneficiaries can be established. Different local government enterprises finance themselves in the sense that annual revenues cover for the annual costs accrued (The PEW Center of the States, 2011).

Table3: Different categories and number of U.S local Governments

Category Number Description
Counties 3,043 They offer general government services. Counties can be found across all states in the United States except Connecticut, Rhode Island and the District of Columbia. They include boroughs in Alaska and parishes in Louisiana.
Municipalities 19,372 Municipalities provide basic government services to specific population groups. This include cities, boroughs (except Alaska), villages and towns ( except New England states, Minnesota, New York and Wisconsin)
Townships 16,629 They offer general government services to areas that have no population concentrations. These include towns in the New England states, Minnesota, New York and Wisconsin and Towns in eleven other states.
Special Districts 34,683 Special districts provide a single or limited number of designated services and have sufficient administrative and fiscal autonomy to qualify as independent governments
School Districts 13, 726 They provide public elementary, secondary and/or higher education and have sufficient administrative and fiscal autonomy to qualify as independent governments. Schools Districts that are administered as part of a county, municipal, town or state government are excluded.

Source: Huddleston, J. (2005). An Introduction to Local Government Budgets: A Guide for Planners. Wisconsin: University of Wisconsin-Madison.

Local governments often collect over $ 1 trillion. Schools often collect more revenues, followed by municipal county governments. Townships and Special districts often account for close to 60% of the local government units which account for about 15% of the total revenues raised by all local governments (Huddleston, 2005). The revenues collected from all local governments usually consist of: general revenue that is generated from each type of government’s taxes, charges or other miscellaneous revenues; funds transferred from other governments; other revenues that are raised from enterprises or utilities associated with each type of government (Huddleston, 2005).

Counties, municipalities and townships the general funds raised by local governments from their own sources often form a larger portion of the all the funds available to them. This can range from 59% in the municipalities to up to 73% for townships. Generally, schools special districts get less than half of their total revenues from their own sources, this can range from 43% for schools to close to 50% for special districts (Huddleston, 2005). The revenues received from other governments often contribute about 25% of all revenues for the general purpose governments.

Schools and special districts are the largest beneficiaries of the inter-government revenues, for instance, schools receive up to 60% of all their revenues from the intergovernmental transfers and for special districts this accounts about a third of their revenues (McNichol, Oliff, & Johnson, 2011). The largest portion of the transfer funds usually comes from the State governments. Funds transferred from the federal government are often small, amounting to about 4% of the total local government revenues with the exception of payments remitted to special districts.

In general terms, own source revenue that is generated by various local governments’ taxes on properties contribute the largest source of revenue, except for the special districts. Municipalities and counties also rely a lot on the property taxes and often get up to 20% of their revenues from the property taxes (Huddleston, 2005).

The largest expenditure by local governments is often associated with public safety, mostly as it pertains to municipalities. This is closely followed by expenditures on environment and housing (The PEW Center of the States, 2011). A larger share of the funds is also spent in the operation enterprises and utilities.

Townships spend up to 25% of the revenues on education, particularly on transportation, public safety, and environment and housing (Huddleston, 2005).

Agency Budgeting

Example of Agency budget: Department of Veterans affairs

The budget for the Department of Veterans Affairs often divides its spending budget into two separate components, the mandatory outlays and the discretionary budget authority (Kolawole, 2011). For the fiscal year 2012, the discretionary budget authority is estimated to be $ 58.7 billion. The major component of this budget is Medical care which amounts to $ 50.8 billion. The mandatory outlays budget estimated to amount to 65.6 billion. The major components include the disability compensation and pensions which makes $ 53.3 billion of the total amount and the education benefits at 9.9 billion (Kolawole, 2011).

The Department of Veterans Affairs has some credit activities that are mainly in the form of loan disbursements. For the FY 2012, the department will collect an estimated $ 57.5 billion from Veterans home loans (Kolawole, 2011).

Description of agency Budgeting

In the United States, agency budgeting is often not done as a separate exercise, usually it’s carried out as a component of the federal and state budgets, depending on the jurisdiction of the agency in question. There are several agencies that are allocated revenue in the federal budget, this agencies include: CIA and other intelligence agencies; the department of defense; food and drug administration; housing and urban development; health and human services; department of energy; the interior department; the treasury; justice department; environmental protection agency; U.S. Department of agriculture; department of labor; department of transportation; NASA; state department/USAID; the national Science foundation; department of homeland security; veterans department; and the department of education (Kolawole, 2011).

The department of defense often gets the biggest revenue that amounts to up to 5% of the GDP. Other departments such as homeland security and the department of veterans affairs also account for a significant amount of revenue allocated for use by government agencies.

Conclusion

This paper sought to review the revenue estimates in Federal, State and local Budgets. The review included: Basic description of each budget- federal, state and local budgets; identification of examples of budgets for the different categories, noting the differences. The federal estimates have been effectively analyzed, particularly by the use of the FY 2012 proposed by the Obama Administration.

The agencies that take much of the federal revenues have been identified. The states’ and local governments’ budgeting processes have also been reviewed. Most importantly, the economic challenges that are being faced by the federal government, states and local governments have been pinpointed and some solutions recommended for the budgeting process.

References

Chantrill, C. (2011). Comparison: State Spending-Debt-GDP-Population.

CNN Money. (2011). Arizona Budget proposals to phase Out Utilization of Private Prisons Outside of Arizona. CNN Money.

Huddleston, J. (2005). An Introduction to Local Government Budgets: A Guide for Planners. Wisconsin: University of Wisconsin-Madison.

Kolawole, E. (2011). Federal Budget 2012: Agency Analysis.

McNichol, E., Oliff, P., & Johnson, N. (2011). States Continue to Feel Recession’s Impact. Washington DC: Center on Budget and Policy Priorities.

The PEW Center of the States. (2011). States Revenue Estimating: Cracks in the Crystal Ball. Washington DC: The Nelson A. Rockefeller Institute of Government.