Public Budget

Definition of a Budget
• A budget is a microeconomic concept that shows
the tradeoff made when one good is exchanged for
another. An estimation of the revenue and expenses
over a specified future period of time.

• A budget can be made for a person, family, group

of people, business, government, country,
multinational organization or just about anything
else that makes and spends money.
 Types of Budget
• Capital
• Operating
• Line-Item
• Performance
• Zero-Based

Public Budgets are Capital Budget and Operating

Budget
• Capital Budget : A long-term plan that deals with the financing of capital projects,
investments that include buildings, bridges, and quality of life projects such as parks.
Financed through borrowing, usually in the form of bonds. States, counties, municipalities
issue bonds to raise revenue. Investors buy the bonds and earn interest on them. In most
instances, interest made on government bonds is tax exempt, thus increasing their appeal
from an investment perspective. There is no capital budget at the federal level.

• Operating Budget : A short-term, year-to-year budget that plans how resources be

allocated for government agencies and programs. Based on estimates of income and
expenses associated with the organization’s operations. Administration, marketing, labor,
manufacturing, and any other production associated costs are included, whereas long-term
items such as capital debt and income not associated with company operations, such as
investments are excluded
• Line-Item Budget : Most popular among local governments, given its relative simplicity.

Illustrates where public money will be spent item by item. The amount that will be spent is

clearly defined to keep spending under control. Simple tool for keeping tabs on where

money goes, ensuring that funds are spent appropriately. Personnel costs, office supplies,

and the like are projected each year and are lined up beneath one another.

• Performance Budget: Commonly used by the government to show the link between the

funds provided to the public and the outcome of these services. Allocation of funds and

resources are based on their potential results. Place priority on employees' commitment to

produce positive results, particularly in the public sector. Reflects the input of resources

and the output of services for each unit of an organization.

• Zero-Based Budget: Starts from a "zero base" and every function within an
organization is analyzed for its needs and costs. Budgets are then built around
what is needed for the upcoming period. All expenses must be justified for each
new period. All departments must defend their programs and consequently their
level of funding each year. Department head must demonstrate how different
levels of funding would impact the delivery of a given program’s services.

• Planning Programming Budgeting System (PPBS): Based on the principles of

rational decision making, mirrors the aim of cost- benefit analysis. Program costs
are compared to program benefits, both of which are expressed in monetary terms.
Results are presented as a benefit-cost ratio, which equals the benefits of a
program divided by its costs. If the benefit-cost ratio is greater than 1.0, the
benefits of the program are greater than its costs.
• Budget Surplus : Budget Surplus = Savings . A company's or individual's
income exceeds its expenditures over a particular period of time. The
amount by which government revenues exceed government spending. A
surplus is considered a sign that government is being run efficiently. Used
to pay off debt, save for the future, or to make a desired purchase that has
been delayed.

• Budget Deficit : Budget Deficit = Shortfall . A company’s or individual's

liabilities exceeds its assets over a particular period of time. The amount
by which government spending exceeds income in any one fiscal year.
Financed by borrowing money and paying interest on the borrowed funds