Budget making : a handbook on the forms and procedure of budget making with special reference to states

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Preface

It is not the purpose of this handbook to discuss the philosophy and theory of the budget, but to present model budget forms and to outline the procedure of budget making in such a way as to be of assistance to those engaged in the actual work of preparing budgets. Although the book is written with special reference to state budget making, it is also applicable to city budget making. Illustrations of the various forms and methods of budget making are drawn from the practices of both state and city governments. It is hoped that the treatment of the subject is such as to make this book of value not only to administrative officers and members of legislative bodies, but also to the general public and students of government.

The outline in Chapter II of all state budget-making authorities and their staff agencies makes this chapter somewhat of a catalogue of facts. Although this was not the intention of the writer, it seemed that the detailed information could not be omitted and at the same time a comprehensive discussion be given of a very important question in budget making, namely, who should prepare the budget and what assistance is needed. The discussion of the technique of practical budget making begins with Chapter III and extends through Chapter X. Chapters XI and XII are added because of the great importance of proper administrative organization and methods in the carrying out of the budget plan after it has been formulated and adopted.

Valuable suggestions have been received from several persons engaged in actual budget-making work who have read parts or all of the manuscript. The writer is also indebted to his associates of the Bureau of Municipal Research for much helpful advice.

A. E. Buck

Contents

CHAPTER PAGE

Preface . vii

I. The Budget and Its Relation to Government Work . 1

Chapter II Budget-making Authorities And Their Staff

AGENCIES

I. Budget-Making Authokities

One of the first questions to be settled by a government in adopting a budget system is the determination of the agency to be responsible for preparing the budget. As a matter of convenience this agency may be designated the budget-making authority. In constituting the budget-making authority, it is necessary to take into consideration the organization and the existing methods and procedure of the government. This accounts largely for the diverse character of the agencies that have been constituted by states and cities to prepare the budget.

In most of the states the budget-making authority is either the governor or a board. Some states, like Illinois, have sought by administrative reorganization to center full responsibility in the executive; others, like Wisconsin, have sought to build up expert staffs to handle most of the activities and have placed these staffs under the direction of boards, the members of which have long and overlapping terms of office. In states of the former type the governor has become the budget-making authority, in states of the latter type a board, or super-board, generally composed of representatives of the more important administrative boards, has been constituted for this purpose. Most states, however, that have adopted budget methods have not yet attempted administrative reorganization, and in these states either the governor, or a board, or a legislative committee acts as the budget-making authority.

In a large proportion of the cities the chief executive, that is, the mayor or the manager, formulates the budget plan. Among commission-governed cities, the budget is prepared by the commissioners acting as administrators and authorized by them sitting as a council. In a number of cities the budget is prepared by a board, usually called a board of estimate, composed of members representing the more important administrative departments and, in most cases, the council. In a few cities an agent or committee of the council prepares the budget.

Classification of Budget-Making Authorities

As indicated by the above brief statement, the budget-making authorities of states and cities may be classified under three general types, namely, (1) the executive type, when the chief executive officer is responsible for the formulation of the budget; (2) the board type, when a group of administrative, or administrative and legislative, officers is responsible for the preparation of the budget; and (3) the legislative type, when the legislative body, through one of its committees or agents, formulates the budget. Only in the executive type is the budget-making authority of such a character that responsibility can be definitely placed for the formulation of the financial plan.

The Executive Type

The budget plans of 24 of the 46 states that have provided either by statute or constitutional amendment for budgetary procedure may be classified as belonging to the executive type, the governor being responsible for the initial budget plan. These states are as follows: Arizona, Colorado, Delaware, Idaho, Indiana, Illinois, Iowa, Kansas, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, Ohio, Oklahoma, South Carolina, Utah, Virginia and Wyoming. 1 The budget plans of three of these states introduce variations from the true executive type, which should be noticed. The budget law of Indiana provides that the state examiner of the state board of accounts (composed of the governor, auditor, and state examiner appointed by the governor) shall compile the estimates, which the governor shall transmit to the legislature together with executive recommendations. Under the provisions of the New Hampshire budget law, the state treasurer (appointed by the legislature) compiles the estimates and the governor-elect makes recommendations thereon to the legislature. The South Carolina budget law^provides that the chairmen of the house ways and means committee and of the senate finance committee shall sit with the governor at the public hearings on the estimates, but responsibility for submitting budget recommendations to the legislature is placed upon the governor.

In practice the governor of New Jersey requires the assistance and criticism of the state comptroller and the state treasurer (both appointed by the legislature) in reviewing the estimates and in formulating the budget recommendations for the legislature. Likewise, the governor of Virginia designated (1920) an advisory board composed of two senators and three representatives of the legislature to assist him in the preparation of the budget.

i See Appendix I for a complete list of the citations of all state budget laws.

The recently adopted national budget plan belongs to the executive type, the President being responsible to Congress for the budget recommendations.

The best examples of the executive type of budget in cities are found in the centralized-mayor and the manager forms of government. Toledo, Cleveland, and Denver are perhaps the best examples of the centralized-mayor form of city government. In these cities, the organization is such as to place the mayor in a position not only to plan effectively, but to carry out the plan when it has been voted by the council. Dayton, Akron, Houston, and Grand Rapids are the largest of the two hundred and fifty or more cities now having city-manager government. This form of city government lends itself particularly well to financial planning and to the execution of the budget plan. In a number of other large cities, such as, Philadelphia, Detroit, Boston, and Cincinnati, and scores of smaller cities, the mayor is more or less responsible for the preparation of the budget.

The Board Type

Twenty-one states have budget plans that constitute budget-making authorities of the board type. In 13 of these states the board is composed entirely of administrative officers, and in the other eight of both administrative and legislative officers. The states having budget boards or commissions composed entirely of administrative officers are : Alabama, California, Connecticut, Florida, Kentucky, Louisiana, Michigan, Montana, Oregon, Tennessee, Texas, Washington, and West Virginia. The state budget commission of Alabama is composed of the governor, the attorney general, and the state auditor. It is also provided that three members and the speaker of the house and two members and the president pro tern of the senate shall sit with the commission in the preparation of the budget. The budget board of California, which has been constituted recently (1921) head of the newly created department of finance, consists of the state board of control (three members appointed by the governor). This board acts as a whole in the final determination of the state budget, which is prepared by one member of the board acting as chief of the division of budgets and accounts in the department of finance. The Connecticut state board of finance, which prepares the budget, is composed of three members appointed by the governor for overlapping terms of six years, the tax commissioner (appointed by the governor), the treasurer, and the comptroller. The budget commission of Florida is composed of the governor, the comptroller, and the state treasurer (all elective).

The budget appropriation commission of Kentucky consists of the governor, the state auditor, and the chairman of the state tax commission. Louisiana has a state board of affairs, which prepares the budget, composed of six members appointed by the governor and confirmed by the senate for overlapping terms of six years. The state administrative board of Michigan, which makes up the budget, is composed of the governor, the secretary of state, the state treasurer, the auditor general, the attorney general, the state highway commissioner, and the superintendent of public instruction (all elective). The Montana budget is prepared by the state board of examiners, consisting of the governor, the secretary of state, and the attorney general. The Oregon budget commission is the state board of control composed of the governor, the secretary of state, and the treasurer. The Tennessee state budget commission is composed of the governor, the auditor (appointed by the governor), the comptroller, the treasurer, and the secretary of state (last three appointed by the legislature). Texas has a state board of control that prepares the budget, consisting of three members appointed by the governor with the senate's approval for overlapping terms of six years. The Washington budget is prepared by the state finance committee composed of the governor, the treasurer, and the auditor. The budget amendment of West Virginia provides that the board of public works, consisting of the governor, the secretary of state, the auditor, the treasurer, the attorney general, the superintendent of schools, and the commissioner of agriculture (all elected by the people), shall be the budget-making authority. Of these 13 states, nine provide that the governor shall be a member of the budget board or commission and he controls by appointment the budget boards or commissions of the four remaining states.

The eight states having budget boards or commissions consisting of both administrative and legislative officers are : Georgia, Maine, New York, North Carolina, North Dakota, South Dakota, Vermont, and Wisconsin. The budget and investigating committee of Georgia is composed of the governor, the attorney general, the superintendent of education, and the chairmen of the appropriation committees of the legislature. The Maine budget committee consists of the governor, the state auditor, the state treasurer (appointed by the legislature), and the chairmen of the committees on appropriations and financial affairs of the senate and of the house. The New York board of estimate and control, which makes tentative budget recommendations to the legislative budget committee, is composed of the governor, the comptroller, and the chairmen of the senate finance and the assemhly ways and means committees. The legislative budget committee, which is the final budget-making authority in New York, is made up of the members of the senate finance and the assembly ways and means committees, usually consisting of about 30 members equally divided between the two committees. The budget commission of North Carolina is composed of the governor, the four chairmen of the committees on appropriations and on finance of the house and of the senate, and a representative of the minority party of the legislature appointed by the governor. In North Dakota the state budget board consists of the governor, the auditor, the attorney general, and the chairmen of the senate and house appropriation committees of the preceding legislature. The South Dakota state budget board is composed of the governor-elect, the auditor, the chairman of the tax commission (appointed by the governor), the chairmen of the senate and house appropriation committees of the preceding legislature, and two members of the preceding legislature chosen by the governor from the two houses. The committee on budget of Vermont consists of the governor, the auditor, the treasurer, the commissioner of agriculture (appointed by the governor), the director of state institutions (appointed by the governor), a member appointed biennially by the governor, and the chairmen of the senate finance and the house ways and means committees and of the senate and the house appropriation committees. The state board of public affairs of Wisconsin, which is the budget-making authority, is composed of the governor, the secretary of state, the president pro tern of the senate, the speaker of the house, the chairmen of the senate and assembly finance committees, and fhree members appointed by the governor with the senate's approval and subject to removal by the governor. In every case the governor is a member of the budget board and is chairman of the body.

The budget-making authorities in practically all commission-governed cities belong to the board type and consist of the city commissioners, usually five or seven, sitting as a board. Executive responsibility is divided among the commissioners. Buffalo, Newark, New Orleans, Portland, Memphis, and Dallas are some of the largest of the four hundred or more commission-go v- J erned cities.

There is another group of cities in which so-called boards of estimate, or estimate and apportionment, have been constituted the budget-making authority. These boards are usually composed of the heads of the more important departments of the city administration and some representatives of the city council. A few of the largest cities may be taken as examples of this group. New York City has a board of estimate and apportionment composed of the mayor, the comptroller, the president of the board of aldermen, and the five borough presidents, the first three members casting nine out of a total of 16 votes allowed the board. St. Louis has a board of estimate and apportionment composed of the mayor, the comptroller, and the president of the board of aldermen. Baltimore has a board of estimates consisting of the mayor, the city solicitor, the comptroller, the president of the second branch city council, and the president of the board of public improvements. The Milwaukee board of estimate and taxation is composed of the mayor, the president of the common council, the comptroller, the city attorney, the commissioner of public works, the city treasurer, and the members of the finance committee of the common council. Other cities in this group are : Minneapolis, Kochester, Hartford, Syracuse, and a number of smaller cities mainly in New York State.

The Legislative Type

The budget law of Arkansas requires the budget to be prepared by the legislature through a specially constituted committee. This committee consists of seven members of the house appointed by the speaker and five members of the senate appointed by the president. The state auditor is required to gather the estimates and to compile them for this committee. Recently (1921) the state comptroller did this work for the state auditor.

The two remaining states, namely Pennsylvania and Ehode Island, which have no legal provisions for budgetary procedure, may also be regarded as coming under this type, since it is the practice in these states for legislative committees to gather whatever budget information is sought and to make recommendations to the legislature for appropriations.

The budget-making authorities in a number of cities belong to this type. Some of the most notable examples are: Chicago, Los Angeles, San Francisco, Seattle, Providence, and Atlanta. In Chicago the council has almost complete control over the formulation of the budget. The estimates are gathered and compiled by the comptroller who submits them to the finance committee of the council. This committee, by the aid of a staff, investigates the estimates and makes recommendations to the council. In Los Angeles and San Francisco the budget is prepared by the finance committee of the city council. In Seattle the finance committee, consisting of five out of nine members in the council, is the exclusive and final authority on all matters pertaining to the budget. Ratification of this committee's recommendations by the council is a mere formality, since the committee constitutes a majority of the council, and the appropriations in the form in which they are passed are not subject to veto by the mayor. In Providence and Atlanta, the budget is prepared by the finance committees of the council.

II. Budget Staff Agencies

Need for Staff Assistance in Budget Making

From the cycle of operations that constitutes the financial procedure of the government must be drawn the information for budget planning. If this information is to be complete, it cannot all be gathered at one time, but must be gathered continuously throughout the whole procedure. A photograph of the going concern of government cannot tell all the facts about its operation. For example, the financial condition of a state government may be photographed, and this is often done by means of the balance sheet, but such a picture contains very little information of value in budget making. It is only when a series of such pictures are compared that they really begin to have value for budget-making purposes.

All the facts essential in budget making cannot be gathered in two or three months near the end of the year or the biennial period. The operation of the budget should be watched continuously during the entire period and the significant facts recorded for use in the preparation of the next budget. To do this, there should be some agency, or staff, whose duty it is to gather these facts. There should be a uniform system of accounting and reporting ;

the reports of the spending agencies should be rendered currently ; and the facts they contain should be compiled and analyzed in such manner as to provide a means of keeping the budget-making authority continuously in touch with the conduct of governmental affairs. When the estimates are submitted, the spending agencies should be investigated as to their organization, the methods they employ, the quality of service rendered by them, and their general needs in order to determine the propriety of their demands. Budget making is, therefore, not a simple, but a complex, operation; not an intermittent, but a continuous, procedure; not an undertaking for amateurs, but for trained specialists.

Any staff agency, when organized to assist effectively in budget making, should be a permanent body, should be composed of a trained personnel, and should have the authority to secure all the information needed in the preparation of the budget. It will be seen that only a few of the states and cities have agencies that measure up to all these requirements.

Kinds of Staff Agencies Assisting in Budget Making

In a majority of the states adopting budgetary procedure no provisions have been made for staff assistance in the preparation of the budget. It seems that most states do not recognize the need for anything more than the fixing of responsibility for budget making upon some one agency of the government. This having been done, the agency is left to its own initiative in securing needed assistance and in devising forms and methods for gathering the data needed in preparing the budget. As a result, in many of the states the budget-making authority is without permanent, or even temporary, staff assistance and must depend for the budget information upon other agencies of the government, many of which are independent of the agency making the budget.

Only a few of the cities have yet provided a special staff agency to assist the budget-making authority in the preparation of the budget. In all the larger cities, there is a real need for such an agency.

The agencies that have been provided in several states and cities to assist the budget-making authorities in the preparation of financial plans may be divided into four classes: (1) departments and offices of general administration under the chief executive; (2) budget bureaus and assistants to the chief executive; (3) staffs of budget boards and commissions; and (4) budget assistants to legislative committees.

Departments and Offices of General Administration

In the reorganized and consolidated administrations of Illinois, Nebraska, and Ohio, departments of finance have been created that exercise powers of general administration over the other departments and agencies of government, especially over the other consolidated departments. These departments of finance each have the authority to correlate administrative work and to standardize financial practices and procedure. In each case they are under the control of the governor and assist him in the gathering of data and in the preparation of the budget. The supervisor of administration of Massachusetts also occupies a position in which he exercises certain powers of general administration. In the recent consolidation (1919) of the administration, he was placed under the governor and council. He prepares the budget, which is submitted by the governor to the legislature.

Eecently (1921) the department of finance and purchase was created in Utah, to assist the governor in budget making and to direct certain work of a general administrative character.

The department of finance of Illinois was created by the civil administrative code of 1917. It is not, strictly speaking, a spending agency, that is, it is not concerned directly with the spending of money in performing the functions of the state government. By virtue of this position it is given administrative supervision and financial control over the other departments that expend money. At the time the department of finance was created this supervision and control constituted practically a new field of work in state government. The department took over no work performed by previously existing agencies, except the functions of the governor's auditor and the compilation of the budget estimates by the legislative reference bureau. It is headed by the director of finance, who is appointed by the governor with the senate's approval for the same term as the governor, that is, four years. He receives an annual salary of $7,000. The subordinate officers, as specified by the code, are the assistant director of finance, the administrative auditor, the superintendent of budget, and the superintendent of department reports, all of whom are appointed by the governor. The superintendent of budget is concerned mainly with the compiling and analyzing of the estimates and other data relative to the budget. Ten or twelve persons constitute the office force of the department.

Briefly, the functions of the department are to prescribe and require the installation of uniform methods of accounting and reporting; to examine the accuracy and legality of accounts and expenditures of other code departments; to maintain controlling accounts with the other departments; to examine and approve, or disapprove, all vouchers, bills, and claims of the other departments ; to formulate plans for better coordination of the work of the departments ; to prescribe uniform rules governing purchasing methods and procedure; and to prepare the budget for the governor. Under the finance code of 1919, the powers of this department are extended to a considerable measure over all departments and agencies of the government.

Information necessary in the formulation of the budget is automatically and continuously brought together in the department of finance by the exercise of its powers of general administration. The director of finance, through his power of supervision over the expenditures of the state government, is in effect preparing the budget from the beginning of one fiscal period for the next fiscal period. In approving items of expenditure, he must constantly make investigations as to the need for such expenditures. In this way he becomes thoroughly familiar with the current requirements of each department. When the budget estimates are submitted to him, he has in his department an organized mass of information covering every phase of the expenditures made by the several departments. This information can be used immediately for comparative purposes in determining the propriety of the estimates. Such additional information as is needed can be gathered by staff investigations. If the information desired is of a special or technical character, he may secure specialists from the other departments to make the investigations. The director of finance may call any of the department heads, or any of their subordinate officers, before him when reviewing the estimates. In revising the estimates, he has unlimited power over those of the code departments. If protest is made against the action of the director in revising the estimates, the matter is referred to the governor for final settlement. When the budget has been prepared, it becomes the governor's plan and he assumes full responsibility for initiating it in the legislature.

The department of finance of Nebraska was established by the civil administrative code of 1919. It is under the control of the secretary of finance, who is appointed by the governor with the approval of the senate for a term of two years. This department exercises powers that are similar in scope to those of the Illinois department of finance. It prescribes and requires the installation of uniform accounting methods and procedure ; controls the expenditures of the other departments and supervises their financial reports; investigates duplication of work among the departments; prescribes rules governing the purchase of supplies; and acts as a staff agency to the governor in the preparation of the budget. The estimates are sent to the secretary of finance, who has power to review them. He may revise all estimates in his discretion, except those of the elective officers, the judiciary, the normal schools, and the state university. From the revised estimates the governor makes up his budget for presentation to the legislature.

The department of finance of Ohio was established by the administrative code of 1921. It is modeled after the Illinois department of finance. The director of finance, who heads the department, is appointed by the governor with the approval of the senate and serves at the pleasure of the governor. His salary is $6,500 per year. There is a superintendent of budget in the department appointed by the director at an annual salary of $4,000. This department installs uniform accounting methods, audits the accounts of the administration, controls the purchase of all departmental supplies, supervises state taxation, investigates inefficiency in the departments, and prepares the budget for the governor. The budget estimates are collected by the department and the director is given authority to make such revisions in them as he deems wise before they are compiled and sent to the governor. From this information the governor prepares his budget for submission to the legislature.

The office of supervisor of administration in Massachusetts was created in 1916. It assumed the powers and duties of the commission on economy and efficiency and the state board of publication, which were abolished. The supervisor of administration is appointed by the governor with the consent of the council for a term of three years at an annual salary of $5,000. He may be removed for cause by the governor with the approval of the council. The office acts as a staff agency to the governor in making investigations. It exercises general administrative powers over state employment, state printing, and state purchasing. Standardization, rating, and promotion in civil service are largely under the control of this office. The supervisor of administration is authorized to collect the estimates, review them, and prepare the budget for the governor, who submits it to the legislature.

In 1921 the department of finance and purchase was created in Utah. Its head is the director of finance and purchase, appointed by the governor and serving at his pleasure. The director's salary is $5,000 per year. This department controls all purchasing and contracting for the state departments and agencies; it keeps accounts and checks the expenditures of all state agencies ; it makes investigations relative to waste and inefficiency in the administration; and it gathers the estimates, makes investigations and prepares the budget for the governor.

A Missouri law was enacted in 1921 that created a department of budget having functions with reference to purchasing and budget making similar to those of the Utah department of finance and purchase. Since this law was passed referendum petitions of sufficient number have been filed with the secretary of state to prevent it from becoming operative until voted on by the people at the general election of 1922.

In Cleveland and Toledo the mayor is assisted in the preparation of the budget by the department of finance. In each case the director of finance is an appointee of the mayor and supervises the principal financial operations of the city government. He is, therefore, the chief financial adviser of the mayor, and his office contains most of the information necessary for budget-making purposes. Likewise, in Dayton the city manager is assisted in making up the budget by the department of finance, which has powers similar to those above.

Budget Bureaus and Assistants to the Executive

The outstanding example of this class of budget staff agencies is the Bureau of the Budget of the national Government. While this Bureau is nominally placed in the Treasury Department, it is in practice directly under the control of the President's office. The head of the Bureau, called the Director, is appointed by the President without confirmation by the Senate and holds office at the pleasure of the President. The salary of the Director is $10,000 per year. There is an assistant director appointed by the President at a salary of $7,500 per year and four other assistants appointed by the Director at salaries not to exceed $6,000 per year. The remainder of the office staff is recruited subject to civil service regulations and no one is to receive more than $5,000 a year. Each department and agency of the Government is required to designate one of its officials as budget officer who is responsible for the preparation of the estimates of that particular department or agency. The Bureau of the Budget investigates the work of the departments and agencies of the Government, collects and tabulates the estimates, and, when the President has made his recommendations, prepares the budget for submission to Congress.