Glossary

10.2 Types of budgets (line-item, program, performance)

9 min read•august 21, 2024

Budgeting is a crucial aspect of urban fiscal policy, with different approaches offering unique benefits and challenges. This topic explores three main types of budgets: line-item, program, and performance budgets, each with distinct features and applications in urban settings.

Understanding these budgeting methods is essential for effective urban fiscal management. The choice of budget type impacts resource allocation, accountability, and the ability to align spending with policy goals. As cities evolve, hybrid approaches combining elements of multiple budget types are becoming increasingly common.

Line-item budgets

  • Fundamental budgeting approach in urban fiscal policy focuses on itemized expenditures
  • Provides detailed breakdown of costs categorized by specific items or accounts
  • Widely used in municipal governments due to its simplicity and ease of implementation

Structure of line-item budgets

Top images from around the web for Structure of line-item budgets

  • Exploring the Hierarchical Structure of DataFrames and CSV Data – OUseful.Info, the blog… View original

    Is this image relevant?

  • Organizational Design Considerations | OpenStax Intro to Business View original

    Is this image relevant?

  • Exploring the Hierarchical Structure of DataFrames and CSV Data – OUseful.Info, the blog… View original

    Is this image relevant?

1 of 3

Top images from around the web for Structure of line-item budgets

  • Exploring the Hierarchical Structure of DataFrames and CSV Data – OUseful.Info, the blog… View original

    Is this image relevant?

  • Organizational Design Considerations | OpenStax Intro to Business View original

    Is this image relevant?

  • Exploring the Hierarchical Structure of DataFrames and CSV Data – OUseful.Info, the blog… View original

    Is this image relevant?

1 of 3
  • Organizes expenditures by object codes (salaries, supplies, equipment)
  • Presents budget in a tabular format with columns for item descriptions and allocated amounts
  • Includes comparative data showing previous year's actual spending and current year's estimates
  • Often structured hierarchically with departments, divisions, and individual line items

Advantages of line-item budgets

  • Facilitates easy comparison of expenditures across fiscal years
  • Enhances control over spending by providing detailed cost breakdowns
  • Simplifies budget preparation and review processes for finance departments
  • Aligns well with traditional accounting systems used in urban governments

Limitations of line-item budgets

  • Focuses on inputs rather than outcomes or program effectiveness
  • Lacks clear connection between expenditures and strategic goals of the city
  • May encourage incremental budgeting without thorough program evaluation
  • Can lead to difficulty in understanding the overall impact of spending on urban services

Applications in urban settings

  • Commonly used in smaller municipalities with limited administrative capacity
  • Serves as a foundation for financial reporting and auditing in local governments
  • Applied in specific departments where detailed cost tracking is crucial (public works, procurement)
  • Often combined with other budgeting approaches in larger cities for comprehensive fiscal management

Program budgets

  • Aligns urban fiscal policy with specific programs and services provided to citizens
  • Emphasizes the purpose and objectives of government spending rather than just line items
  • Facilitates better understanding of how resources are allocated to achieve urban policy goals

Key features of program budgets

  • Organizes expenditures by programs or activities rather than by object codes
  • Includes program descriptions, goals, and performance indicators
  • Presents costs associated with achieving specific outcomes in urban services
  • Allows for cross-departmental analysis of program effectiveness and efficiency

Benefits of program budgeting

  • Enhances decision-making by linking spending to program objectives
  • Improves public understanding of how tax dollars are used to deliver city services
  • Facilitates prioritization of programs based on their alignment with urban policy goals
  • Enables better evaluation of program effectiveness and resource allocation

Challenges in implementation

  • Requires significant organizational restructuring and staff retraining
  • Demands more sophisticated data collection and analysis capabilities
  • May face resistance from departments accustomed to traditional line-item budgeting
  • Necessitates clear definition and measurement of program outcomes in urban contexts

Urban program budget examples

  • Transportation encompassing road maintenance, public transit, and traffic management
  • Community development program budget including housing assistance, economic development initiatives, and neighborhood revitalization
  • Public safety program budget covering police, fire, and emergency management services
  • Parks and recreation program budget for maintaining green spaces and providing recreational activities

Performance budgets

  • Focuses on measuring and evaluating the outcomes and efficiency of urban government services
  • Integrates performance information directly into the budgeting process
  • Aims to improve accountability and effectiveness in urban fiscal management

Performance measures and indicators

  • Quantifiable metrics used to assess program effectiveness and efficiency
  • Include input measures (resources used), output measures (services provided), and outcome measures (results achieved)
  • Tailored to specific urban services (response times for emergency services, crime rates, road condition indices)
  • Requires establishment of baseline data and target performance levels

Linking resources to outcomes

  • Establishes clear connections between budget allocations and expected results
  • Utilizes to assess the value of urban programs and services
  • Incorporates performance data into budget justifications and decision-making processes
  • Enables policymakers to identify high-performing and underperforming urban initiatives

Advantages of performance budgets

  • Enhances accountability by focusing on results rather than just spending
  • Provides a clearer picture of service delivery effectiveness to citizens and stakeholders
  • Facilitates continuous improvement in urban service delivery through data-driven decision-making
  • Encourages innovation and efficiency in achieving urban policy objectives

Obstacles in performance budgeting

  • Difficulty in defining and measuring meaningful performance indicators for all urban services
  • Potential for manipulation of performance data to justify budget requests
  • Complexity in attributing outcomes solely to specific programs or expenditures
  • Requires significant investment in data collection, analysis, and reporting systems

Comparison of budget types

  • Examines the strengths and weaknesses of different budgeting approaches in urban contexts
  • Considers how various budget types address the unique challenges of urban fiscal management
  • Explores the potential for combining elements of different budget types for optimal results

Line-item vs program budgets

  • Line-item budgets focus on detailed cost control while program budgets emphasize purpose and outcomes
  • Program budgets provide better insight into service delivery but may sacrifice granular financial control
  • Line-item budgets are simpler to prepare but offer less information on program effectiveness
  • Program budgets facilitate strategic planning and resource allocation aligned with urban policy goals

Program vs performance budgets

  • Program budgets organize spending by activities while performance budgets link resources to measurable outcomes
  • Performance budgets require more sophisticated measurement and analysis than program budgets
  • Program budgets focus on intended purposes while performance budgets emphasize actual results
  • Performance budgets provide greater accountability but may be more challenging to implement fully

Suitability for urban contexts

  • Line-item budgets may be more suitable for smaller municipalities with limited administrative capacity
  • Program budgets can be effective for mid-sized cities focusing on improving service delivery
  • Performance budgets are often adopted by larger urban areas with complex service portfolios and data analysis capabilities
  • Hybrid approaches combining elements of multiple budget types are increasingly common in urban settings

Budget reform and evolution

  • Reflects ongoing efforts to improve fiscal management and accountability in urban governments
  • Responds to changing citizen expectations and technological advancements in public administration
  • Aims to enhance the effectiveness and efficiency of urban service delivery through improved budgeting practices

Transition between budget types

  • Often involves gradual implementation starting with pilot programs or specific departments
  • Requires comprehensive staff training and education on new budgeting concepts and practices
  • May necessitate changes in organizational structure to align with new budgeting approaches
  • Involves developing new reporting formats and performance measurement systems

Hybrid budget approaches

  • Combines elements of multiple budget types to leverage their respective strengths
  • May include line-item detail within a program budget structure for financial control
  • Incorporates performance measures into program budgets to enhance accountability
  • Allows for flexibility in adapting budgeting practices to specific urban needs and capacities

Technology in budget management

  • Utilizes advanced software systems for budget preparation, execution, and monitoring
  • Enables real-time tracking of expenditures and performance metrics
  • Facilitates data visualization and reporting to improve budget transparency
  • Supports integration of financial management with other urban planning and service delivery systems

Stakeholder involvement

  • Recognizes the importance of diverse perspectives in urban fiscal decision-making
  • Aims to increase transparency and accountability in the budgeting process
  • Enhances the alignment of budget priorities with community needs and preferences

Role of elected officials

  • Set overall policy direction and priorities for urban budgeting
  • Review and approve budget proposals submitted by city administrators
  • Represent constituent interests in budget allocation decisions
  • Balance competing demands for limited resources in urban settings

Public participation in budgeting

  • Includes mechanisms for citizen input such as public hearings, surveys, and initiatives
  • Enhances budget legitimacy and community buy-in for fiscal decisions
  • Provides valuable insights into community needs and preferences for urban services
  • Challenges include ensuring representative participation and managing expectations

Department heads and budget types

  • Play crucial role in preparing budget requests aligned with chosen budgeting approach
  • Responsible for defining program objectives and performance measures in program and performance budgets
  • Must adapt management practices to support new budgeting methodologies
  • Serve as key liaisons between frontline service delivery and overall fiscal management

Fiscal transparency

  • Essential principle in urban fiscal policy to maintain public trust and accountability
  • Involves making budget information accessible and understandable to citizens and stakeholders
  • Supports informed public discourse on urban fiscal priorities and decision-making

Budget type impact on transparency

  • Line-item budgets provide detailed financial information but may lack context on program purposes
  • Program budgets offer clearer picture of how resources are allocated to achieve urban policy goals
  • Performance budgets enhance transparency by linking expenditures to measurable outcomes
  • Hybrid approaches can combine detailed financial data with program and performance information

Accessibility of budget information

  • Utilizes various communication channels including websites, public meetings, and published reports
  • Presents budget data in user-friendly formats such as interactive dashboards and infographics
  • Provides explanatory materials to help citizens understand complex budget documents
  • Considers diverse audience needs including language accessibility and disability accommodations

Accountability in urban finance

  • Establishes clear lines of responsibility for budget execution and performance
  • Implements regular reporting mechanisms to track progress against budget plans
  • Utilizes internal and external audits to ensure compliance with fiscal regulations
  • Incorporates citizen feedback mechanisms to address concerns and improve service delivery

Decision-making and resource allocation

  • Focuses on optimizing the use of limited resources to meet diverse urban needs
  • Involves balancing short-term operational requirements with long-term strategic goals
  • Requires consideration of equity, efficiency, and effectiveness in urban service provision

Budget types and policy priorities

  • Line-item budgets may emphasize cost control and fiscal discipline
  • Program budgets align resource allocation with specific urban policy objectives
  • Performance budgets focus on achieving measurable outcomes in urban service delivery
  • Choice of budget type influences how policy priorities are reflected in resource allocation decisions

Long-term planning considerations

  • Incorporates multi-year forecasting to anticipate future revenue and expenditure trends
  • Aligns budgeting decisions with comprehensive urban development plans
  • Considers long-term impacts of current spending decisions on urban infrastructure and services
  • Balances immediate needs with investments in future urban sustainability and resilience

Flexibility in urban fiscal management

  • Assesses the ability of different budget types to adapt to changing urban conditions
  • Considers mechanisms for mid-year budget adjustments and reallocation of resources
  • Evaluates trade-offs between strict budget control and responsiveness to emerging urban challenges
  • Explores innovative financing mechanisms to supplement traditional budget resources

Implementation challenges

  • Addresses practical difficulties in adopting new budgeting approaches in urban governments
  • Recognizes the need for organizational change management in budget reform initiatives
  • Identifies potential barriers to successful implementation of advanced budgeting techniques

Staff training and expertise

  • Requires comprehensive education on new budgeting concepts and methodologies
  • Involves developing analytical skills for performance measurement and program evaluation
  • May necessitate hiring or developing specialized staff for budget analysis and management
  • Includes ongoing professional development to keep pace with evolving budgeting practices

Software and systems requirements

  • Assesses need for advanced budgeting and financial management software
  • Considers integration of budgeting systems with other urban management information systems
  • Addresses data security and privacy concerns in budget information management
  • Evaluates costs and benefits of different technology solutions for urban budget management

Cultural shifts in budgeting

  • Addresses resistance to change from traditional budgeting practices
  • Promotes a results-oriented culture focused on outcomes rather than inputs
  • Encourages collaboration across departments in budget preparation and execution
  • Fosters a data-driven approach to decision-making in urban fiscal management

Performance measurement

  • Critical component of performance and program budgeting in urban contexts
  • Aims to quantify the effectiveness and efficiency of urban services and programs
  • Supports evidence-based decision-making in urban fiscal policy and management

Defining success metrics

  • Involves stakeholder engagement to determine relevant performance indicators
  • Balances quantitative measures with qualitative assessments of urban service quality
  • Considers both short-term outputs and long-term outcomes in urban program evaluation
  • Aligns performance metrics with overall urban policy goals and strategic objectives

Data collection and analysis

  • Establishes systems for regular and reliable data collection on urban service performance
  • Utilizes statistical analysis to identify trends and patterns in urban program effectiveness
  • Incorporates both internal data sources and external benchmarks for comprehensive evaluation
  • Addresses challenges in data quality, consistency, and comparability across urban services

Continuous improvement processes

  • Implements feedback loops to incorporate performance data into budget decision-making
  • Encourages regular review and refinement of performance metrics and targets
  • Promotes a culture of learning and adaptation in urban service delivery
  • Facilitates knowledge sharing and best practice dissemination across urban departments and programs

Key Terms to Review (15)

Budget cycle: The budget cycle refers to the series of steps that governments and organizations follow to prepare, approve, implement, and evaluate their budgets over a specific period. This process typically includes stages such as planning, formulation, approval, execution, and auditing, which ensure that financial resources are allocated effectively and align with organizational goals. Each step in the budget cycle plays a crucial role in maintaining fiscal responsibility and transparency, contributing to both short-term and long-term financial planning.
Budgetary control: Budgetary control is the process of managing and overseeing an organization's budget to ensure that spending aligns with planned expenditures and financial goals. This involves continuous monitoring, comparing actual results against budgeted figures, and making necessary adjustments to maintain fiscal discipline. It is essential for effective financial management and helps organizations in making informed decisions regarding resource allocation.
Cost-benefit analysis: Cost-benefit analysis is a systematic approach used to evaluate the economic pros and cons of a decision by comparing the expected costs and benefits associated with that decision. This method helps determine the feasibility and effectiveness of projects or policies, providing a foundation for informed decision-making in urban fiscal policy.
Expenditure management: Expenditure management is the process of planning, controlling, and monitoring spending to ensure that resources are used efficiently and effectively in public finance. It plays a crucial role in balancing budgets and optimizing resource allocation, especially within various budget types, including line-item, program, and performance budgets, which each have different approaches to how expenditures are organized and assessed.
Fiscal Accountability: Fiscal accountability refers to the obligation of government entities to manage public funds responsibly and transparently, ensuring that financial resources are used efficiently and for intended purposes. This concept emphasizes the importance of reporting, oversight, and ethical management in budget practices, enabling stakeholders to assess how well governments are meeting their financial commitments and responsibilities.
Line-item budget: A line-item budget is a financial plan that lists each item of expenditure separately, allowing for detailed tracking and accountability of spending. This type of budget provides a clear breakdown of costs associated with specific items, such as personnel, equipment, and supplies, which can help in ensuring that funds are allocated correctly. By focusing on individual line items, it simplifies financial oversight and makes it easier to identify variances between budgeted and actual expenditures.
Participatory budgeting: Participatory budgeting is a democratic process in which community members directly engage in deciding how to allocate a portion of a public budget. This process enhances transparency and accountability, allowing citizens to voice their needs and priorities while also influencing government spending. By involving the public in the budget cycle, it fosters civic engagement and encourages collaboration between citizens and local governments.
Performance Budget: A performance budget is a budgeting approach that focuses on the relationship between funds allocated and the outcomes achieved by those funds. This method emphasizes results and efficiency, contrasting with traditional budgeting methods that are primarily focused on line items or historical expenditures. By aligning resources with measurable goals, performance budgets aim to improve accountability and drive better decision-making in public finance.
Program Budget: A program budget is a financial plan that focuses on the allocation of resources to specific programs or projects, rather than merely listing expenditures by line items. This approach helps organizations assess the effectiveness and efficiency of different programs, as it connects funding directly to outcomes and outputs, allowing for better evaluation and prioritization of resource allocation.
Public Reporting: Public reporting refers to the process of making financial and operational information accessible to the public, ensuring transparency and accountability in governmental and organizational practices. This practice is crucial for fostering trust among stakeholders and citizens by providing insights into how public funds are utilized and the performance of various programs and services.
Revenue Forecasting: Revenue forecasting is the process of estimating future revenue based on historical data, economic trends, and various other influencing factors. This practice is crucial for effective financial planning, allowing governments and organizations to anticipate their income and allocate resources accordingly. It plays a vital role in shaping budget proposals and ensures that funding aligns with projected needs.
Tax Base: The tax base is the total amount of assets, income, or transactions that are subject to taxation by a government. It serves as the foundation upon which tax rates are applied, impacting revenue generation for various levels of government and influencing fiscal policy decisions.
Unemployment rate: The unemployment rate is the percentage of the labor force that is jobless and actively seeking employment. It serves as a key indicator of economic health, reflecting not only the availability of jobs but also the broader economic conditions affecting the workforce.
Variance analysis: Variance analysis is a financial management tool used to evaluate the difference between planned financial outcomes and actual results. It helps organizations identify discrepancies in budgeting and spending, enabling them to make informed decisions about resource allocation and future financial planning. By analyzing these variances, decision-makers can pinpoint areas needing improvement and adjust their budgets accordingly, which is crucial during budget cycles and when implementing various types of budgets.
Zero-based budgeting: Zero-based budgeting is a financial management approach where all expenses must be justified for each new period, starting from a 'zero base' rather than using the previous year's budget as a baseline. This method encourages organizations to think critically about their spending and allocate resources based on current needs and priorities rather than historical expenditures, making it relevant in understanding budget processes, types of budgets, and issues related to structural deficits.
© 2024 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.
Back
Practice QuizGlossary
Practice QuizGlossary
Next guide