Budgeting Report: US Federal vs State/Local Finance Comparison

This report provides a comprehensive comparison of the US federal budget process and state/local budgeting, examining their key differences and similarities. It delves into two prominent theories that explain budget changes over the past 50 years, offering insights into the dynamics of public finance. The report then analyzes the features, advantages, and disadvantages of item budgeting, performance budgeting, and zero-based budgeting, providing a detailed understanding of each method. Furthermore, it discusses the distinctions between capital and operating budgets, highlighting the factors that public managers should consider when making expenditure decisions. The report concludes with a discussion of how public managers should consider various factors like the financial situation, revenues and funds available, company goals and industry outlook to maintain effectiveness in budgeting. This assignment is a valuable resource for students studying finance and public administration, offering a clear and concise overview of budgeting principles and practices.

Running Head: Finance
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Budgeting
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Contents
Compare the US federal budget process and state/local budgeting. Discuss at least two theories
that explain federal and state budget changes over the last 50 years...............................................2
What are the features, advantages, and disadvantages of item budgeting, performance budgeting,
and zero base budgeting...................................................................................................................3
Discuss the differences between a capital budget and an operating budget. In terms of assessing
expenditure decisions, discuss the factors that a public manager should consider.........................4
References........................................................................................................................................6

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Compare the US federal budget process and state/local budgeting. Discuss at least two
theories that explain federal and state budget changes over the last 50 years.
US Federal Budget: This is the budget in which the government estimates the spending
and revenues for each fiscal year. For the upcoming fiscal year, the federal budget of the itemizes
the expenditure of the funds of the public. The US federal budget is compromised of the
economic philosophies and the historical debates including the financial representatives of the
government. This budget is the important policy instrument for the government and manages the
federal purse by fulfilling the constitutional responsibilities. Federal budget is very helpful as it
helps in taking the decisions regarding the spending and the tax of the US and also helps in
evaluating lending and borrowing the money. With the help of this budget the government
invests in the technologies and the education of the US country and benefits the American people
by providing them the goods and services. The areas where the resources are required are
evaluated by them so it helps the government in allocating the resources in the sustainable
manner.
State Budgeting: The state budget includes the budget of the state which includes the
state public sector income and expenses and it also affects the state taxes. For the fiscal year, a
detailed financial plan is provided which includes expenditures and the financing with the
legislative executive budgetary. In this budget all the revenues related to the tax and non tax are
stated and with the help of this the government evaluates the budget for making the development
of the state.
Theories of this budget: A theory of budgetary process is applied so that fiscal
federalism structure in the United States can be applied. The capital flows, the expenditures
made by the government on the different project cam are evaluated through the budget theory.
there is another theory of the fiscal federalism which is adopted in the budget where the
government functions are divided and the different level of the federal and the state government
is also differentiated which helps in making the budget easy (Chung, 2019). The theory of fiscal
federalism is applied as it helps in evaluating the instruments and the functions that which level
of the government is centralized and which are decentralized.

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What are the features, advantages, and disadvantages of item budgeting, performance
budgeting, and zero base budgeting
A line Item budgeting: In this budgeting, as per the nature, the income sources and
expenses are grouped and then forecasted financial report are prepared. The potential areas are
identified and within the income section, the opportunities are improved (Rossi, et al., 2014).
Advantage of this budget is that it helps in evaluating expenses can be cover up with the
sufficient income or not. Disadvantage of this budget is that it cannot demonstrate the return on
investment. Line budgeting is easy to create for the companies and easy to understand and
analyses as this budget is the straightforward and expense is spelled out in the line. Another
drawback of this budgeting is that this budget is difficult to adjust and there are no room of
justifications as this budget includes the expenses only. The current and the future financial
estimated figures can be compared by using this budgeting.
Performance budgeting: This budget helps in evaluating the performance of the
company by providing the objectives and the purpose to accomplish this through the cost of the
programs and the funds. For the each unit in the organization in this budgeting, both the input
and the output of the resources are reflected (Ibrahim, et al., 2017). The advantages of this
budgeting are that it helps in improving the units in the continuous manner. In terms of allocation
of funds this budgeting helps in taking the decisions and brings the transparency. Disadvantages
of performance budgeting is that it focuses on quantitative evaluation rather than the qualitative
evaluation. The social benefits are difficult to quantity in this budgeting. Performance budgeting
has several benefits such as it allows for the better cost estimates, helps in evaluating the areas
for the improvement and also cut the unnecessary cost. There are some drawback of this
budgeting that everyone has different ideas so it becomes difficult to evaluate where the money
go. This budget can be easily manipulated to reach the specific targets.
Zero based Budgeting: The budget states from the zero bases in which all the expanses
for the year is justified for the new period. The advantages of the zero based budgeting is that it
helps in identifying the redundancies and helps in eliminating the waste (Joyce, 2011). This
budgeting focuses on the use of the resources and justified the spending. The disadvantages of
this budgeting are that this budgeting is complex and costly and not useful in the manufacturing
process. This budget helps in identifying the opportunities for outsourcing and also eliminates

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the wastage which is out of date operations. The mission of the company is linked with the cost
centers so that objectives of the organization can be achieved. Some of the disadvantages of this
budgeting are that it requires a lot of manpower so it becomes quite expensive to hire them. The
uniformity in this budgeting is required and it can be successful implemented if knowledge is
properly acquired by the experts.
Zero based budgeting should be used today as it helps in responding to the changes in the
business environment and helps in allocating the resources in the effective manner. The
operations which are obsoleted and inefficient are elated through this method of budgeting so
this is appropriate to use today. For the public administration the Zero based budgeting is the
most appropriate as it is in popular in the public sector and in today’s scenario this budget suits
more appropriate.
Discuss the differences between a capital budget and an operating budget. In terms of
assessing expenditure decisions, discuss the factors that a public manager should consider
There is a much difference between capital budget and operating budget. Capital budgets
are paid out for the future cash flows from the projects. The cash flows the affect the overall
projects. It represents the sources of funding and purchases the fixed assets. Whereas operational
budgets project the activities of firm in buying, selling and paying bills and it is done an annual
basis. These two-budgeting processes are different from each other as one is related to the cash
flows and other is related to the operations of the business. The bills are the important process in
the process of budgeting.
Capital budget basically deals with the capital funds and the assets of the company
whereas the operating budget deals with the income and expenditure of the company. Capital
budgets are made for more than 1 year period as this budget have the significant value whereas
the operating budget is made for the day to day expenses and revenues. Capital budget are static
while the operating budgets are not and capital budget came from the fluctuating interest while
the operating budget is scrutinized from the cist cutting efforts.
The capital expenditure is money that used to buy, improve or extend the life of fixed
assets. This expenditure is considered by the public manager and it determined the purchasing

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process of the capital items. There are various methods that fiancé the capital projects as these
methods are used in the overall process of financing (Wexler and Kates, 2014). The different
methods include loans, equity investors, venture capital and grants. All these processes are used
for financing the capital projects and make the project easier. By these processes, the completing
of projects become easier and gets the proper fund related to their work. The public manager
should consider the different factors while making the budget such as the financial situation of
the company, the revenues and the funds available to them, the goals of the company and the
outlook for the industry in which they are operating so that effectiveness in budgeting can be
maintained.

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References
Chung, I. H. (2013). ADOPTION OF A SEPARATE CAPITAL BUDGET IN LOCAL
GOVERNMENTS: EMPIRICAL EVIDENCE FROM GEORGIA. Journal of Public
Budgeting, Accounting & Financial Management, 25(4).
Chung, I. H. (2019). Does the budget process matter for infrastructure spending? Capital
budgeting in local government. Public Money & Management, 39(3), 193-200.
Frederickson, H. G. (2015). Social Equity and Public Administration: Origins, Developments,
and Applications: Origins, Developments, and Applications. Routledge.
Ibrahim, M., Ashigar, A., Bello, B. M., & Mamuda, A. U. (2017). Zero-Based Budgeting is a
Panacea to Fiscal Distress: Do the Perceived Benefits Significantly Influence its
Adoption in Borno State?. Saudi Journal of Business and Management Studies, 2(10),
943-950.
Joyce, P. G. (2011). The Obama Administration and PBB: Building on the Legacy of Federal
Performance‐Informed Budgeting?. Public Administration Review, 71(3), 356-367.
Rossi, M. (2014). Capital budgeting in Europe: confronting theory with practice. International
Journal of Managerial and Financial Accounting, 6(4), 341-356.
Wexler, A., & Kates, J. (2014). The US Global Health Budget: Analysis of Appropriations for
Fiscal Year 2014. Henry J. Kaiser Family Foundation.
Zhao, B. (2014). Saving for a rainy day: Estimating the appropriate size of US state budget
stabilization funds.
Zinyama, T., & Nhema, A. G. (2016). Zimbabwe Performance-Based Budgeting: Concepts and
Success Factors. Public Policy and Administration Review, 4(1), 33-60.