A budget is an important tool for financial planning for any given state. It is the process of allocating revenues and any other borrowed fund to meet both economic and social goals. It involves expenditure control and management depending on the collected revenue. Budgeting is important because it enables the state to plan and be able to manage its financial resources for supporting the implementation of existing programs.
States in the USA enact the budgets in a two-year cycle. This is termed a biennial budget cycle. The cycle begins on first July for each odd-numbered year. Their budgeting process involves many stages with different state agencies to be fully enacted. In any budget process, there must be sources of revenue and the laws that govern revenue allocation for each fund. Some restrictions are placed on revenues and the public policy issues on the budgeting procedure. Due to inflation and deflation in the economy, the revenue might be affected in most cases.
How the revenues are derived
The revenues for the United state government agency is derived from taxes. These taxes are obtained from the employees through the income tax department. Other taxes are realized through sales. Sales tax is made when goods and services are sold in a given state. Some states exempt certain goods and services from taxation. Food, clothing, and medicine are some of the untaxed items in some states. Income tax is from employees of the state and private businesses. There are also federal grants. These federal grants are from the federal government. In addition, there is revenue from licenses, permits, and fees charged from small business owners. The licenses are from professionals namely teachers, plumbers, and doctors. The other source is also charges and miscellaneous revenues from lotteries. All are useful in the budgeting process (Tracey, 1997).
Uses of revenue
Revenues are used in different state organs to help governmental spending effectively. The legislature and the government have got greatest discretion over how the spending of state revenues is done. Many programs supported by the General Fund State receive reasonable attention on budget deliberations. The capital budget is used in renovations of the state machinery. General state tax supports the operating expenditure while the general fund is useful in the general obligation bonds which are developmental services.
The revenue state expenditure usage is grouped in seven categories explained below.
Human services: this is mainly in the health sector, public, and correctional facilities. Secondly, there is revenue usage in public schools. This includes support of education in kindergarten Grade 12. It is also used in public Universities and technical community colleges. Thirdly, revenue is used in government general operations in cases of administration and legislative services. In addition, it is also used in other general miscellaneous expenses like pension schemes for judges, firefighters, and law enforcement officers. This is a pivotal role that it serves (Office of Management and Budget, 2010).
The other important use is in natural resources. Majorly the allocation in this sector gets a good part of the revenue for the protection of the environment and recreation purposes. The state usually plays this role effectively as one of the protection measures to our surroundings. The last use is in the transportation sector. It is an extremely important part of infrastructural development. This is for usage in highway maintenance and ferry operations. The road development network has a significant role in rejuvenating the economy (Office of Management and Budget, 2010).
Restrictions placed on the revenues
There are government policies that help in the control of revenue spending by the state government. These include discretionary spending caps. Congressional caps provided for an overall discretionary limit of spending any revenue. These were legislated in the assembly. The states get money from the federal leases in two ways. There is revenue tightly restricted while the other is not. The restrictions are to make sure proper usage and wastage avoidance. It also perfects the flow of revenues (Tracey, 1997).
The states cannot get taxes from the public. The federal government cannot stop any state agency from executing its duties according to the constitutional provisions. The BEA (budget enforcement act) created limits on discretionary spending of the revenue. BEA provides that if the appropriation bill estimates are above the general level on discretionary spending limits, then the president is can issue an order for the reduction on such accounts (Lee, Johnson & Joyce, 2008). BCA also provided enforcement methods to maintain spending at cap levels. Mandatory spending is one of the revenue restrictions mechanisms. One of these mechanisms is Pay as you go in the senate. This rule provided for better legislation by new senators on any payments on the creation of new programs. This increases direct spending. The legislation on this changes revenue allocation from one item to another.
Fund state expenditure is one of the revenue limits created on the fiscal growth factor” (Lee, Johnson & Joyce, 2008). It provides for the creation of the state expenditure committee to balance any expenditure of revenue on education account, health and public safety account (Lee, Johnson & Joyce, 2008). The committee accepts expenditure above any prescribed limit after the pronouncement of an emergency. There is also a provision of the debt limit. This is 9% of all the state revenue combined for the three preceding fiscal years (Lee, Johnson & Joyce, 2008).
Evaluation on how public policy decisions affect the receipt of revenues
Public policy decisions affect the receipts of revenues in various ways. Based on some legislated laws, the revenue collected can be authorized to be directly credited to the account where the money is spent. These are known as offsetting collections. These offsetting collections are linked to the discretionary program. For example, offsetting receipts like proceeds from park fees are always not credited against spending for the park service but the tax is deducted from the total budget figure allocated for the park. This is a way of analyzing public spending policy.
The economic conditions that affect revenue projections
These conditions are either due to inflation or deflation in the economy of the state. Some of these conditions include a deficit in the budget and the Federal debt. Surplus or deficit in the budget is an important concept in understanding the fiscal policy to the economy of the state. This majorly takes place if the total expenditure is more than the revenue collected, then this results in a deficit. In this case, it would be impossible to have any revenue projections.
In summary, the baseline is the starting point for budget projection purposes. To have a proper formulation of a budget, there is a starting point. In the absence of the same, the programs and policies of the upcoming fiscal year may not be tabulated. This automatically leads to failure in the revenue projections. The baseline adjusts programs for inflation in situations where the law requires that. Initial projections are either bellow, above, or equal to baseline. Finally, it is crucial to note that budgeting is a very important reason for a stable economy.
- Lee, R.D., Johnson, R.W & Joyce, P.G (2008). Public Budgeting Systems. (8th Ed.). Sudbury, MA: Jones and Bartlett. ISBN: 9780763746681
- Office of Management and Budget (2010). “Fiscal 2012 Analytical Perspective.” Budget of the United States Government. Washington, DC: U.S. Government Printing Office. ISBN 978-0-16-0816-087369-0
- Tracey, L. (1997).The Budget Kit. New York, NY: Macmillan General Publishers. ISBN-13: 978-0028614427