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Government Finance and Budgets, Essay Example

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Introduction

The below report is designed to evaluate U.S. Department of Health & Human Services’ Administration for Children and Families agency’s financial documents, plans and budgets for the recent years. According to Mikesell, (470), the main focus points of evaluating budgets should be the structure efficiency of information delivery, transparency and forecasts. The authors have chosen the Administration for Children and Families (ACF) as it is a government agency with several public policies, administration and reporting issues, as well as goals determined by the Senate. The financial reports will be reviewed alongside with the mission, performance and reporting practices of the HHS in order to build a complete picture of the organization and its strategies.

Nature of the Organization

The organization is a public service government agency, responsible for delivering family care services, carrying out legislative changes in the health care and human sector according to the decisions made by the Senate. The main priorities of the organization for the current year, among others are set as the support early childhood development, faith-based partnerships, tackle human trafficking and to ensure that families benefit from the health care reform.

Mission. According to the statement of the Administration for Children and Families, the agency is committed to “foster health and well-being by providing federal leadership, partnership and resources for the compassionate and effective delivery of human services”. Through their services, the agency is working on ensuring that families feel secure, healthy and economically safe in the United States.

Local Economic Environment. While the government agency belongs to the Federal Government and is led by the Health Secretary, there are ten different regional offices operating in the United States. These all have to deal with state-wide and regional variances and create a priority that matches the public needs of the area. Further, there are eighteen dedicated offices for various support functions, such as the Children’s Bureau, the Administration for Native Americans and the Office of Refugee Resettlement. According to the 2012 Justification report (3), the economic downturn in America and the over 9 percent unemployment rate negatively effected the support enforcement program, however, the child support program delivered by ACF remained cost-effective. See Table below. (Justification of Estimates for Appropriations Committees 58)

Performance. According to the 2012 performance report of the ACF, created by Office of Planning, Research and Evaluation (19), the agency’s budget was cut from the previous year, however, working on the allocation of the funds, the following priorities were selected:

a. child care assistance programs funding increase

b. Head Start program budget increase

c. targeted investments for vulnerable families and children, such as adoption incentives

d. funding of the “Strengthening Communities” program by $20 million

The following programs, however, were eliminated from the budget to cut the costs of operation: Community Services, Mentoring Children of Prisoners, the LIHEAP block grant, Voting Access for Individuals with Disabilities, and the Development Disabilities Projects of National Significance program. One of the success stories for 2012 was foster care programs, where the agency over-achieved the goals in four consecutive years between 2006 and 2009. The assistance provided for callers who were victims of domestic violence also increased every year between 2003 and 2009.

Size. The Department of Health And Human Services’ Administration for Children and Families is led by David A. Hansall, Acting Assistant Secretary, supported by three deputy assistant secretaries and an acting executive director. The thirteen different administration areas all have their directors or commissioners, as well as the regional office administrators assigned to each office. The size of the organization indicates that the agency is one of the main government employers in the United States, providing public services through research, development, planning and program execution.

Budgeting Methods

Budgeting Type. ACF operates a budget based on the funding requests submitted to the federal government for different programs. The enacted budget is based on the initiatives of the government, the requested and decided funding and the expenditures calculated for the fiscal year. The Office of Legislative Affairs & Budget published the all-purpose table of the agency for the year 2013. (Online) The breakdown of the budget is based on the different programs received by the Federal Government, as well as the money spent on programs allocated to the agency. Government agencies in the United States use fund accounting methods (Mikesell 50), to report on the fixed assets within the financial system.

The Budget Process. The budget is created by ACF, containing the funding request and submitted to the Congress. Upon approval, the budget is processed and funds are allocated to the different programs across the organization. The summary is provided by the “all purpose table” for the year, featuring the actual dollars provided by the Congress for ACF funding each program. The Congress also needs to consider the program initiatives and priorities set by the government agency when reviewing the budget. Further, the report includes the list and description of the discretionary programs, as well as the mandatory ones. It also has a table for administrative expenditures proposed for the year.

According to Mikesell (49), the Financial Accounting Standards Board determines the rules and regulations regarding the budgets of federal agencies. The accounting system consists of the following elements: source documents, journals, ledgers and procedures and controls, determining which data needs to be reported and in what form. The fiscal control in the United States is transferred to the relevant agency of the federal government. As the Budget and Accounting Act of 1921 (Mikesell 97) requires, agencies need to submit a budget message or proposal for the Congress for approval. The main change in the U.S. budgeting system was made in 1990, by the Budget Enforcement Act, focusing on controlling spending and reducing deficit. (Mikesell 91). The budgeting of government agencies have three main phases: the Formulation Phase, when agencies receive the planning guidance and priorities and budget submissions are completed, the Congressional Phase when the Congress reviews the views and estimates and completes the resolution, and the Execution Phase, when the fiscal year begins and funding of programs, distribution of funds and sources, delivery of services is completed.

The budget of ACF needs to be not only submitted to the Congress, but there is also a need for submitting supporting reports. In 2013, there were several progress reports created and submitted on individual programs, related to the work and projects completed by the Administration for Children, Youth and Families, Administration for Native Americans and the Children’s Bureau. As child support enforcement is one of the main target areas of the government, this sub-agency also creates annual reports for the Congress.

Recent Budget Documents. The recent Congressional Justification document for 2012 and 2013 includes funding requests for 2012 and 2013. The budget brief (online) also includes information on funding statistics overall related to the whole organization of HHS. According to the brief, the majority of federal funding is spent on Medicare and Medicaid programs, while only 3 percent of the whole HHS budget is allocated for Children’s entitlement, eight percent for discretionary programs and one percent for further mandatory programs.

The allocation of funding for the Administration for Children and Families has slightly increased from 2012 to 2013, however, there was a drop in the budget authority and outlays funding from 2011 to 2012. (Budget in Brief 10)

Expenses. The expenses of the agency are made up of budgets for funding government programs and operating expenses. The 2013 budget’s main expenses are related to temporary assistance for needy families (87), making up a total of 35 percent of the budget. The spending on Head Start program in 2013 is a total of 16 percent of the expenditure, while 14 percent is spent on foster care and permanency services.

Performance and Measures. The 2013 Fiscal Year Budget in Brief (97) also includes proposals for future costs. Mandatory costs on entitlements are likely to increase, according to estimates of the research service. Child Care development fund, family support and emergency funds are likely to increase in the next ten years, according to the ACF Mandatory – Legislative Proposals in Outlays (98)

Performance measures need to represent figures that clearly indicate the level of success the agency achieves in delivering priority and mandatory government services, according to the initiatives. The performance measures are set by the Office of Child Care, in association with the Congress’ budget justification committee. (OCC)

Currently, there are four main measures set to assess the performance of the agency, and these are:

a. Access to child care assistance

b. Quality rating and improvement systems

c. Professional development systems

d. early learning and development standards

Further, the government has indicated federal priorities that relate to states implementing quality rating and improvement systems into the agency’s work, as well as the increase of the number of children in high quality classrooms, according to the Head Start project. The agency needs to be able to perform according to these priorities, as well as the four measures above.

According to the Performance.gov website’s data, the agency has increased the number of states implementing QRIS meeting high quality standards from 17 to 19 in 2012. However, the other main priority measure cannot be measured against previous data: currently 25 percent of Head Start grantees receive low scores in Pre-K. The goal of the agency is to reduce this measure by 2 percent by the last quarter of 2013 and further 2 percent by the last quarter of 2014.

Major Revenue Sources

The agency’s main revenue source is federal government direct funding. It consists of various grants and funds provided for the agency to be distributed in the public sector. The discretionary programs include:

Low income home energy assistance program grant

Child Care Development Fund

Various children and families programs, including the Head Start program and Child Abuse program funding

Payments to states allocated for child support enforcement and family support

Children research and technical assistance

Temporary Assistance for Needy Families (TANF)

Foster care and permanency payments

Safe and stable family promotions.

The Major Revenue Source. Block Grants are provided for the agency, covering the cost of funding, grants provided, operating expenses and delivery of public services and research. This, on its own does not tell the authors much about the way and effectiveness of how ACF allocates the funds and how much support is delivered to the public. Indeed, the budget, as it is based on direct government funding assumes that the expenditures of the agency match the allocated funding.

Budget Revenue Section. It is hard to determine the revenue measures and effectiveness of ACF, as funds from the federal government are allocated on a per-program basis, including the services, infrastructure, human resource and operation costs of the delivery, as well as the research. Examining the programs separately, however, provides the authors with an idea of the cost of delivery. Looking at the TANF block grant, it is visible that around 28 percent of the funds is spent on basic assistance delivery, 7 percent on administration, around 7 percent on work expenditures, 16 percent on childcare delivery, 9.6 percent on other work support and 31. 7 percent on other expenditures.

Revenue Changes. The changes in the revenue are directly determined by the Federal Government’s priorities and budget approval. It is clearly visible that after the long recession in the United States, the revenues of the agency were slightly decreased, however, not as much as other government agencies’. While – as it has been proven before – the main budget of the Department of Health and Human Services is allocated for Medicare, Medicaid and the delivery of the Health Care Reform in the U.S., one of the government’s priorities still remains ensuring that families in the country are provided support and health care services, preventive measures.

Forecasting Methods. The budget forecasts are detailed in the enacted all purpose table, submitted to the Congress for approval. However, after the budget is approved by the government, there is a need to submitting a justification budget that details how the money provided by the federal government for different initiatives and programs was spent and measuring the outcomes of different performance measures and priorities. This also means that the accuracy of the enacted budget needs to be carefully thought over initially, considering the goals, initiatives, statistical and research data related to children’s services. Any request for the increase of government funding needs to be explained in the document, while the estimates need to match the cost-effectiveness measures of the government.

The strict requirements of receiving direct federal government funding for programs means that the responsibility for compliance, delivery and administration of child and family welfare programs ensures that the agency performs according to the regulatory expectations of the government.

ACF also monitors state-wide performance against the compliance measures. According to the Annual Report to Congress in State Child Welfare Expenditures Reported on the CFS-101 dated for 2012, the planned expenditures of the agency were distributed the following way: Over 30 percent of the funds were planned to be spent on protection service design and delivery, with the next two priorities being family preservation and preventive and family support. Administrative costs had six percent of the total funds allocated. The planned use followed the patterns of previous years, however, the allocation for family support services increased from 2009.

Rates and Charges. The agency, being a non-profit government organization does not charge for its services, and its main task is to successfully, fairly and effectively allocate funds provided by the Federal budget to families needing support, according to state and federal regulations, priorities and program arrangements. While the service delivery, training, human resources and operation costs add up to a substantial amount, these operating expenses are included in the block grant allocation. This also means that the agency needs to meet its targets while staying within the proposed and approved budget.

New Revenue Sources. Introducing new revenue sources into the organization of ACF is not possible, as – according to the Constitution of the United States – the direct government funding is designed to ensure that there is no conflict of interest between sponsors and that the legislation, regulation and initiatives of the government are closely followed.

By providing block grants, the Federal Government does allocate funds for the agency to be used for delivering grants, funds, financial and training support, as well as the service. This also means that every single block grant needs to be reviewed against performance measures.

As every block grant has a variable funding level year by year, determined by the government, this also indicates that the revenue sources vary from one grant to another. As an example, The TANF funding block grant consists of seven different funding sources. These are:

a. State family assistance grant

b. Supplemental grants

c. Healthy marriage / responsible fatherhood grants

d. Grants to the territories

e. Grants for tribal work programs

f. Regular contingency funds

g. Emergency contingency funds

Reviewing Table I of the TANF CRS Document (Falk 1) below, it is important to note that the allocations of funds for the program seem to be consistent, except for the two contingency funds, which can be changed according to the priorities, economic requirements and support needed. After the recession, Regular contingency funds were increased, while the Emergency contingency funds were added to the budget of the TANF program.

Debt Management

Government agencies have their own debt management procedures, detailed in the MEFMI document (8). The authorization process involves the review of the agency’s performance, the source of debt. In case of external debt, the government’s debt management agencies get involved in the recovery of funds. When the agency spends more than the allocation amount. There is a review of the budget documents and the statutory bodies, private organizations are contacted by the debt recovery agencies. It is also important to note that the government’s debt management principles are applied in every agency. Government guarantee limits are determined in the beginning of the fiscal year, therefore, even when funding is not available for the programs, they can carry on using the public debt processes of the Federal U.S. Government.

The authorization process of debt within government agencies is in line with transparency and accountability guidelines and regulations set by the government. The terms and conditions of loans provided for the agency need approval of the Federal Government. Government security funds need to be specified and approved by the Accountant General. The Department of Treasury is the financial executive office of the U.S. Federal government. It is responsible for collecting taxes, duties and other payments in order to make them available for the next year’s budget This office also manages the United States’ public debt, including individual agencies’ outstanding payments and finances.

Debt Information. As the U.S government operates a strict and well outlined Federal Reserve system, it ensures that funds for government operations and programs are available when agencies call for them. The U. S. federal budget contains a section of assets, liabilities and details the yearly budget on a national level. The debt information of ACF is not available through common Internet publications of the government, therefore, the authors can assume that these are handled by the federal Office of Legislative Affairs & Budget, publishing financial projections, budget proposals and justification documents. Debt information, however, is found in the justification budget document’s unfunded authorization section, where the funds not available for the delivery of the program are detailed.

Debt Management Practices. Debt management is handled by issuing Agency Bonds, however, only a few agencies use this practice. Unlike government sponsored enterprises, funding of loans is not the agency’s responsibility, but the federal government’s.

Debt Burden and Debt Service. As mentioned above, government agencies’ debt is handled by the federal administration, therefore, it is not included in the budget document. However, it is important to note that without this information it is hard to measure the performance of the agency, as well as the effectiveness of public service delivery.

Debt Issues. There are currently no debt issues arising in the budget of the ACF, and this is due to the strict government regulation, the presence of the overseeing bodies in the financial management system of the agency, as well a the guarantees provided by the Senate for the programs funds are allocated for.

Transparency Issues

The existence of Block Grants in the federal government funding systems has been criticized by several senators and researchers, as it greatly affects transparency of agencies. While different funds and government initiatives, programs are broken down based on expenditures, as the agency operates in the public sector, there are no details published regarding its effectiveness of delivery; namely: how much of the funding goes directly to the families needing the support and how big the operating expenditure of the agency is. This is one of the main questions of transparency of governments today in America, and needs to be addressed.

While the government’s spending on budgets, programs, delivery and initiatives is clearly described in the budget, the background of funding this way is not promoting transparency. Local delivery systems are not reporting to the program’s management, therefore, the spending cannot be monitored or controlled. Spar (2), block grants, such as the Community Services Block Grant, administered by the HHS need authorization of the federal government. The allocation of funds is based on the CSBG Act, and this act provides estimated expenditure figures for agencies. For example, 1.5 percent of the program’s budget is reserved for administration, technical assistance and training. Funds are used for the government’s determined goals: for instance the CSBG is allocated for fighting the causes of poverty. The role of the Child Care Development Fund is to support working families’ children’s development.

The question of accountability and transparency, however, can be viewed from a different perspective, as well. By creating annual reports and research studies about the work completed by the agency, the government is able to oversee not only the budget and spending of ACF but the processes, effectiveness and performance against the targets. In this form, the transparency of the federal government directly determines the level of transparency within the agencies working alongside the State Departments. According to the Federal Government’s transparency initiatives, the executives’ budget proposal should include revenues, expenditures and debt information. Further, there is a need for comprehensive reporting, classification of transactions and liabilities. However, the initiative on the Government’s transparency website also calls for public access to detailed reports of spending, including contracts and subsidiaries. This information is not available for the public on the agency level in the case of ACF, therefore, there is a discrepancy and confusion about how public spending records are made transparent through the government. Still, on the program level, more importantly on the fund level, there is an overlap between programs, funds and state departments, making retrieving and analyzing data more complicated and confusing.

While the review of the Administration for Children and Families’ has produced a result of understanding federal government funding and spending through the programs, block funds and other provisions in place, it is also evident that the review of the budget is not comprehensive, and – due to the legislation related to government agencies’ reporting, as well as the budgeting structure -. there is a lack of information on how effectively ACF delivers public services. While the approximate and estimated costs of operation are included in the block funds and the budget of the organization, there is a lack of information on how much it costs for the federal government to deliver a program or an initiative.

While there are several federal and agency budget priorities determined every year by the Congress, and the reporting obligations require the agency to submit a performance report, as well as a justification budget for the foregone year, reviewing the spending of the government on a state, project and program level is still challenging. As the source of funds changes from one year to another, and the targets are variable based on priorities, the authors conclude that the budgeting system of federal government agencies does not fully serve transparency initiatives started by the current Congress.

Administration for Children and Families. Department of Health and Human Services. Fiscal Year 2012 Justification of Estimates for Appropriations Committees. 2012. Web.

Administration for Children and Families. Department of Health and Human Services. Fiscal Year 2013 Justification of Estimates for Appropriations Committees. 2013. Web.

Annual Report To Congress On State Child Welfare Expenditures Reported On The CFS-101. 2012. Web.

Falk, G. The Temporary Assistance for Needy Families (TANF) Block Grant: Responses to Frequently Asked Questions. Congressional Research Service 7-5700 October 17, 2013

Mikesell, J. L. (2011). Fiscal Administration. 8th Edition. Print.

Spar, K. Community Services Block Grants (CSBG): Background and Funding . CRS Document. 7-5700 May 24, 2013 Web. 2013.

U.S. Department of Health and Human Services. Fiscal Year 2013. Budget in Brief . 2012. Web.

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What is Public Finance?

Components of public finance, managing public finance, revenue and expenditures, additional resources, public finance.

How a nation manages its finances

Public finance is the management of a country’s revenue, expenditures , and debt load through various government and quasi-government institutions. This guide provides an overview of how public finances are managed, what the various components of public finance are, and how to easily understand what all the numbers mean. A country’s financial position can be evaluated in much the same way as a business’ financial statements .

The main components of public finance include activities related to collecting revenue , making expenditures to support society, and implementing a financing strategy (such as issuing government debt). The main components include:

Tax collection

Tax collection is the main revenue source for governments. Examples of taxes collected by governments include sales tax, income tax (a type of progressive tax ), estate tax, and property tax. Other types of revenue in this category include duties and tariffs on imports and revenue from any type of public services that are not free.

The budget is a plan of what the government intends to have as expenditures in a fiscal year. In the U.S., for example, the president submits to Congress a budget request, the House and Senate create bills for specific aspects of the budget, and then the President signs them into law. Read a copy of 2017 Budget of the U.S. government , as published by the Office of Management and Budget.

Expenditures

Expenditures are everything that a government actually spends money on, such as social programs, education, and infrastructure. Much of the government’s spending is a form of income or wealth redistribution, which is aimed at benefiting society as a whole. The actual expenditures may be greater than or less than the budget.

Deficit/Surplus

If the government spends more then it collects in revenue there is a deficit in that year. If the government has less expenditures than it collects in taxes, there is a surplus.

National Debt

If the government has a deficit (spending is greater than revenue), it will fund the difference by borrowing money and issuing national debt. The U.S. Treasury is responsible for issuing debt, and when there is a deficit, the Office of Debt Management (ODM) will make the decision to sell government securities to investors.

Let’s take a closer look at how taxes, expenditures, and the deficit work. Below is a diagram of how the three are connected, and how the government determines how much financing it needs in a given fiscal year.

Total government revenue or tax collection is represented by the blue bar. This is a source of cash for the government.

Expenditures are a use of cash, and to the extent that they are greater than revenue, there is a deficit.

The difference between revenue and expenditures is the deficit (or surplus) that is funded with national debt.

2017 U.S. Figures

Now that the concept has been illustrated, let’s look at a real public finance example with the U.S. government in 2017.

2017 example:

• Revenue was approximately $3.3 trillion
• Spending was $3.97 trillion
• Deficit was $665 billion

Source:  https://www.usgovernmentrevenue.com/2017

Below is a list of some of the most common revenues and expenditures in the world of public finance.

Revenue /  Taxes

• Income tax (personal, corporate)
• Property tax
• Value added tax (VAT)
• Import duties
• Health care
• Employment insurance
• Defense (military)
• Infrastructure

Thank you for reading CFI’s guide to what public finance is and how the numbers all fit together. When you look at it in simple terms, it’s quite easy to understand.

To keep advancing your career, the additional CFI resources below will be useful:

• Accounting for Income Taxes
• Top Accounting Scandals
• Finance Salary Guide
• See all economics resources

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Devolution may be sexier, but updating the local government finance system is vital

• David Phillips

Published on 3 September 2024

Any plans for devolution need to be accompanied by updates to English councils’ hideously outdated funding allocations.

• Government finances and spending
• Government spending
• Local government finance
• Property taxes

Ten days into her job, the Deputy Prime Minister Angela Rayner wrote to local government leaders  promising ‘the most ambitious programme of devolution this country [England] has ever seen’. The new government plans to devolve powers over, and funding for, transport, skills, housing, planning and employment support, that some of the mayors of combined authorities have, to more areas of England. It also plans for more areas to receive funding for such responsibilities via a ‘single pot’ that they are free to allocate as they see fit, rather than use a plethora of ring-fenced grants as is now usually the case. More generally, all councils will benefit from multi-year as opposed to single-year funding settlements.

These plans can be described as ambitious only in the context of England’s highly centralised governance arrangements: local governments in other large, developed economies often have more flexibility over spending and particularly revenue than their English counterparts. But they are a start. And a growing number of voices are calling for the devolution of additional revenue streams to accompany these changes on the spending side of the budget. These include voices within local government (such as the Northern Powerhouse and London Finance Commission ) and think tanks (such as the Centre for Cities and LGIU ).

The aims of devolution are both democratic and economic. Greater local autonomy can allow councils to better reflect the preferences and needs of local residents, if their greater proximity to local residents means they better understand those preferences and needs, and given they are accountable specifically to local voters. Some also argue that better decision-making, the ability to join up services locally, and the stronger financial incentives for growth that fiscal devolution can bring may improve services and boost economic performance. Both the government and others cite cross-country research by the OECD  which shows that greater decentralisation of tax and spending is associated with higher levels of national income and potentially lower inequality between places. However, as the Institute for Government has noted ,  the evidence is actually fairly mixed and suggests that impacts depend crucially on what is devolved, to what places, and the funding and redistribution arrangements that accompany devolution. 

Why funding reform matters too – and why it should come first

In the excitement about devolution, it is therefore important not to forget another big issue facing England: the lack of a proper system for allocating funding between councils, which means the amount of funding different councils receive is now essentially arbitrary. This follows ill-advised changes in the late 2000s, designed to obfuscate rather than illuminate the distributional choices being made by the government, and the ending of annual assessments of councils’ spending needs and revenue-raising capacities in 2013. As recent research at IFS has shown , this has resulted in big discrepancies between assessments of the funding different areas need and the amount they actually receive. Population has grown over 15% in 19 council areas while falling in 11 others since 2013 – something which has not been properly accounted for. Poor areas, in particular, lose out, with councils in the most deprived fifth of areas in England receiving a share of funding that is 10% below updated assessments of their share of needs, while the least deprived receive a share that is 13% higher, as shown in Figure 1. Current funding allocations are therefore helping entrench rather than tackle inequalities in health, well-being and life chances across England.

Figure 1. Gap between councils’ estimated share of funding and share of assessed spending needs if all councils set the average Band D tax rate, 2022–23

Source: Appendix figure B.25, Ogden, Phillips and Warner (2023) . 

This situation also means funding is less predictable for councils, with the allocation of funding between councils being decided on a year-by-year, ad-hoc basis by the government, rather than determined by a set of well-articulated principles and rules – although in some years the government has just chosen to roll over the previous year’s funding, this cannot be taken for granted. Uncertainty about future funding makes it more difficult to plan investment and service delivery, with potential adverse impacts on performance and value-for-money. 

Ploughing ahead with substantial devolution, particularly of major new sources of revenue, without addressing these problems risks entrenching them and undermining some of the purported benefits of devolution. It is likely to be even more politically difficult to redistribute newly-devolved revenue streams that councils come to see as their own – especially if such redistribution has not been foreshadowed at the outset – than to redistribute councils’ existing funding sources. 

In addition, reaping the full rewards of devolution will depend on the capacity of local councils to take on any additional powers and responsibilities. Research finds that the potential benefits of devolution are unlikely to be realised if the local government units to which powers are devolved are not funded sufficiently to deliver what is asked of them. Given that existing assessments of spending needs suggest deprived areas are currently relatively underfunded for their existing responsibilities, devolution without funding reform risks further increasing rather than reducing geographical inequalities.

An effective system of redistribution that is at least partially updated to account for changes in needs and revenue-raising capacities over time can also help reduce incentives for potentially damaging tax competition between areas as they compete for mobile tax bases (the choice of what revenue streams to devolve is also important here).  

Putting in place a system to update councils’ funding to account for differences in and changes in their needs and revenue-raising capacities is therefore an important accompaniment or precursor to substantial further devolution, especially of additional revenue streams.    

Could packaging with devolution finally unblock funding reform?

The lack of an effective system in England for allocating funding between councils has long been known, with a recent call for action by the House of Commons Housing, Communities and Local Government Committee echoing the findings of inquiries from 2020 and 2019 . At IFS, our recent reports follow on from earlier analysis of the issues and potential solutions in 2015 , 2016 , 2018 and 2019 . Indeed, under the Cameron and May Conservative governments, significant progress was made in updating spending needs assessments and designing a new system of redistribution, in consultation with the local government sector : the so-called ‘Fair Funding Review’. But no resulting changes have been implemented. With the problems known, potential solutions identified and a fair chunk of the technical work done, why has the current unsatisfactory situation been allowed to persist? 

In part, events. First, Brexit undoubtedly reduced the bandwidth of the May administration to push other policies forward. Second, the COVID-19 pandemic meant that delaying reforms at that stage due to take effect in April 2021 almost certainly did make sense: the government and councils had a lot of other challenges on their plates. But key too is the political difficulty of redistributing funding between areas, creating losers as well as winners. Put simply, the losers are likely to make more noise than the winners, especially if overall funding levels are tightly constrained, making the losses more painful, and even the winners feel like they are still struggling to meet spending pressures. Such reasoning may explain why following the pandemic, the last government kicked reform into the post-election long grass for the next government to deal with. 

The political challenges will not have gone away, especially given the tricky fiscal outlook. But a new government, with a large majority in Parliament, and a clearly stated intention to take ‘tough decisions’ on the public finances, may be the best placed to deliver much-needed change to the way councils are funded. Packaging reforms to funding allocations along with the devolution of additional powers and revenue sources to local government would also give councils more flexibility to respond to any changes in their funding. In other words, not only is updating the system for allocating funding an important precursor to substantial further devolution but, if properly coordinated, devolution may also make such an update easier to finally implement. 

A truly ambitious government could go further still, by throwing changes to England’s property taxes, which are also ripe for reform, into the mix. This could include a revalued and less-regressive council tax, a reformed system of business property tax which does not penalise investment, and reducing or ideally abolishing stamp duty land tax. The Welsh Labour government has just legislated for regular council tax revaluations in Wales , and the UK Labour party has long promised to replace the existing business rates system .

Alongside a new way of funding local government, such a package could empower local decision-makers, help tackle geographical inequalities, free up the housing market and encourage investment, and in turn boost growth. But funding (and tax) reform as well as devolution is key to this ‘grand bargain’. Indeed, putting in place a proper system for allocating funding between councils is an important first step for such a plan – not least because major changes to council tax and business rates will inevitably change councils’ revenue-raising capacities in different ways. Other funding will need to be redistributed to areas seeing lower tax bills and taxbases. Reform of the council funding system therefore should not be delayed until the full details of any tax reforms are decided – work should begin now. 

The next step is to agree the principles of reform

With the aforementioned work undertaken by the Cameron and May governments, the new government does not need to start from scratch when it comes to reforming the way councils’ funding is allocated – although some updates to work now six or more years old is probably sensible. But it does need to work out what it is trying to achieve with devolution and funding reform, including how it wishes to balance sometimes competing objectives.

IFS researchers will discuss the issues and options for both a new system to allocate funding between councils and devolution in depth in a forthcoming IFS report, to be published this autumn (2024) and funded by the Health Foundation. Our report will emphasise that there is not one single best way forward for either funding allocations or devolution: the best approach depends on how different legitimate objectives – such as local discretion and financial accountability, versus national standards and equity – are balanced. Our analysis will be guided by the importance of two factors though: flexibility and transparency. 

Flexibility in any future system is important as different governments may make different trade-offs between objectives, and it would be useful if these could be accommodated within the broad system adopted going forwards. Recalibration is preferable to wholesale reform every few years. A new system should also be able to accommodate revaluations and reforms to local taxes that may necessitate updates to how other funding is allocated. Transparency is important so that the trade-offs governments are making are clear and can be subjected to proper scrutiny. 

Both these factors suggest a role for grant-funding or clearly labelled transfers between councils (such as the tariffs and top-ups that operate in the business rates retention scheme) as the main way to redistribute between councils. In contrast, some other suggestions, such as undertaking redistribution through allowing councils in different parts of the country to retain different proportions of local tax revenues, are likely to be both less flexible and less transparent. The government should avoid these.     

Using the Spending Review process to drive progress

The government should coordinate its work on these issues with the Spending Review process. This cannot get into the detail of how funding is allocated between councils, but it will provide a funding envelope for local government as a whole. And it provides an opportunity for the government to set its direction of travel on local government funding reform, devolution and potentially the property tax system.

It is likely too late to agree the full set of changes to councils’ funding before 2025–26, so instead the government should aim to start rolling out funding reforms and potential devolution arrangements from 2026–27 onwards. This is the first year of a planned multi-year cross-government Spending Review and potentially the first year of multi-year funding settlements for councils too (the 2025–26 Spending Review is planned as a one-year stopgap). 

If the government wanted to consult on reforms next summer in advance of rolling them out from 2026–27, this gives it approximately nine months to develop more detailed plans, building on work done by previous administrations and inputs from the local government sector and other stakeholders. IFS researchers will update the IFS–CIPFA Local Government Finance Model to look at the potential long-term impacts of any proposals the government does bring forward.

Lots of work to do then. Civil servants (and IFS researchers) will need to crunch the numbers. Councils and other stakeholders will need to consider the proposals and provide their feedback. And Ministers will need to make the final calls on inevitably tricky questions. Time to get cracking.      

Associate Director

David is Head of Devolved and Local Government Finance. He also works on tax in developing countries as part of our TaxDev centre.

Comment details

Suggested citation.

Phillips, D. (2024). Devolution may be sexier, but updating the local government finance system is vital [Comment] Institute for Fiscal Studies. Available at: https://ifs.org.uk/articles/devolution-may-be-sexier-updating-local-government-finance-system-vital (accessed: 3 September 2024).

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• Decision-Making Process and Flaws in Management Words: 2412
• Financial Management During the Recession Words: 2646
• Financial Management Role in Healthcare Words: 543
• Decision-Making Process Combined With Crisis Risk Management Words: 1513
• Decision-Making in Organizational Management Words: 1103
• Public Budgeting Leadership and Financial Management Words: 603
• Financial Management. Some Important Generalizations Words: 551
• Decision Traps in Decision Making Words: 2831
• Strategic Financial Management: The Link Between Valuation and Financial Decisions Words: 3585
• Business Behavior. Rational Decision-Making Words: 1920
• Financial Management and Quality of Healthcare Words: 2503
• Management Information Systems in Decision-Making Words: 1897
• E-Government and Information Age Management Words: 2987
• Nokia Company’s Financial Analysis and Management Words: 4082
• IBM’s Management Accounting & Financial Practices Words: 2903

Government Budgeting and Financial Management

The public budgeting leaders have the responsibility of fulfilling various roles including planning, reforming, and budgeting. Public budgeting involves three areas that are mostly dominated by the fields of economics, planning, and data sciences. Planning is used to determine goals and setting up the necessary programs to achieve them. Programming also helps in the administering of efforts that efficiently assist in the achievement of the set goals.

Budgeting involves the handling of financial estimates and manipulation of resources that are needed by the agencies in executing of the laid out plans. For the community’s well-being, officials should have the capability of managing the budget, distributing resources and also predicting costs (Wildavsky, 2006)

The public budgeting leaders should have the skills of public budgeting, revenue planning, the ability to evaluate and solve problems when it comes to fiscal activities in the public sector, and the skills of budget presentation. After the budgeting exercise, leaders should complete the hypothesis testing and run a Confidence Interval Test to display confidence in their results. An interval test is a “parameter between two values and statisticians will usually choose one of the following three degrees of confidence: ninety, ninety-five and the ninety-nine percent to help get the C1 test started” (Wildavsky, 2006).

When serving as a public sector manager, an individual must understand the responsibilities of that come with this role, and that the duties of this position are comprehensive. The manager should be aware that the money that is spent belongs to the public, and that the federal law always constrains the scope of the projects whereby the public has the right of redressing them. In addition, a manager should constantly remember that he or she is responsible for tax money and the public trusts him/her to spend their revenue wisely.

In case of unexpected developments in the course of fund management, a public manager should be prepared to assume responsibility irrespective of the fact it is his/her fault. Statutory accountability and constraints of the manager and the other partners in the public sector should be laid out very clearly. Focusing on how legislation works and how it can be used flexibly is another way of streamlining public budget management (Bovaird, 2009). A strategy should be provided so as to ensure that the public is aware of what the organization is doing and make sure that they can contact him/her whenever anything is amiss.

A public manager should ensure that his/her role is clearly laid out and supported by internal and external structures. Therefore, a manager should introduce his/her strategy to each team member. Consequently, the manager should go through the documents and clearly illustrate the output that is required from all individuals and how the team will contribute towards the achievement of the set targets. The members should know they have a critical role to play in the success of the organization.

The members should be brought face to face with the people who benefit from the services that are to be offered. The roles of each member should be clearly laid out and the message should be heard to avoid any misunderstanding. Performance Appraisals should be used for the team members to know how they are fairing on. Rewards such as bonuses, awards either monetary or otherwise, and fully paid trips to different destinations should be motivating factors for all the members. The manager should be in the forefront practicing what he/she is preaching thus setting a good example to the members. Once the responsibilities are clear, the members are sent off to perform their duties whereby in case of any failure they should be answerable (O’Leary & Bingham, 2009).

The manager should always have a contingent plan in case things do not work out as expected, because the public expects everything that holds their investment to be a success. The manager should always get things into perspective and in the case of any failure, the source of the problem should be pointed out. Overall, the leader should be able to take another person’s blame in his/her capacity. Walking around with negative feelings is not a good way to fix a problem in public management affairs. In the case of challenges, the manager should also seek advice from other managers who have gone through similar issues.

The managers should also be very brave (O’Leary & Bingham, 2009). Ego can get in the way once in a while since taking and giving responsibilities are straightforward. Tasks involved may be very different and some of them may be boring while others may be fascinating like flying out to various destinations or meeting very famous people. Boundaries should be kept since some things can never be entirely clear. Issues should be sort out with delicacy and tact, and every task should be pointed out for every individual. By giving out clear responsibilities to individuals, one creates a more confident and honest culture that has a positive attitude about winning. Consequently, this approach can prevent situations in which events seem to control people instead of people managing them.

Rational Decision Making

Budgetary decision-making can be rational whereas rational decision-making is the opposite of intuitive decision-making. In rational decision-making, people use analysis, facts, and systematic processes to come to a conclusion. Rational decision-making is “the precise and analytical processes that business enterprises use to come up with a solid decision” (Doyle, 2009, p. 701). Budgetary decision making in any business or organization occurs every day.

Some organizations utilize intuitive decision making in seeking solutions to modern-day business problems. The administrators use their perceptions and intuitions as a guide in the decision-making process. In this case, no facts are involved in this type of decision-making process. This approach requires an executive to sort out circumstances devoid of the necessity for critically thinking about the steps to be taken. When the decision-making process has no facts and there is a difficult decision to be made, the intuitive decision-making comes in handy.

A good example of a rational decision maker is James, the manager of a restaurant who is confronted by dwindling profits. When the manager was under enormous pressure to increase the amounts of profits from his business, he took a rational decision making approach and realigned the business model. In rational decision-making, the process includes defining the problem, identifying the decision criteria, allocating of priorities to the criteria, developing the alternatives, evaluating the options, and finally selecting the best option.

Defining the problem that is facing the business is the first step. The defining stage is relatively easy as the board of management should be aware of the difficulty. No matter how long the problem has persisted, a criterion on how the decision-making process will commence should be made. The “evaluative stage determines the failures and the success of the alternatives” (Doyle, 2009). Examples of such scenarios include situations where site-sensitivity analysis and the site-suitability are being conducted. On the other hand, “going through the process thoroughly defines the problem, exploration of all the alternatives for the problem and gathering more information, evaluating the information, and identifying the best options in anticipation of the consequences” (Doyle, 2009, p. 702).

Out of all the solutions that have been created, the best ones should be chosen and the site of operation should be developed at this choosing stage in reference to all the other available strategies. The rational decision comprises of a final solution and an implementation that is secondary to the site. The four stages that form the core of the Rational Decision Making Model are the identification of the problem, assessment, finding the best criteria to be used, and finally choosing the best and final solution.

Through a rational decision, the best and preferred alternatives are implemented to the problem and the preliminary task involves monitoring of the selected solution (Eisenhardt & Zbaracki, 2002). Furthermore, when a rational decision is used, building and the renovation are the key things throughout the implementation of a project. On most decision-making scenarios, monitoring and evaluation of outcomes and results is necessary. A rational decision supports the final supervision of the issue where the results are observed and put into records. In order to evaluate whether the rational “decision made is effective, feedbacks are always welcomed and further actions may be taken to improve evaluation outcomes” (Eisenhardt & Zbaracki, 2002, p. 18).

Bovaird, T. (2009). Public management and governance . New York: Taylor & Francis.

Doyle, J. (2009). Rational decision making. MIT encyclopedia of the cognitive sciences ,  3 (5), 701-703.

Eisenhardt, K. M., & Zbaracki, M. J. (2002). Strategic decision making. Strategic  management journal , 13 (2), 17-37.

O’Leary, R., & Bingham, L. B. (2009). Surprising findings, paradoxes, and thoughts on the future of collaborative public management research. The Collaborative Public Manager, 2 (4), 255-269.

Wildavsky, A. (2006). The political economy of efficiency: cost-benefit analysis, systems analysis, and program budgeting. Public Administration Review. 23 (1), 292-310.

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Government Spending Essays – IELTS Writing

Posted by David S. Wills | Feb 21, 2022 | IELTS Tips , Writing | 0

In IELTS writing task 2, it is quite common to be asked about how governments should spend their money. In fact, I see this so frequently that it is almost a unique topic!

Today, I want to show you a few essays about government spending, looking at some sample answers and language points so that you can better understand how to approach this sort of essay.

Government Spending Essays for Task 2

First of all, let’s look at three IELTS task 2 questions that deal with government spending:

The prevention of health problems and illness is more important than treatment and medicine. Government funding should reflect this. To what extent do you agree?

The world today is a safer place than it was a hundred years ago, and governments should stop spending large amounts of money on their armed forces. To what extent do you agree or disagree with this statement?

The restoration of old buildings in major cities around the world causes enormous government expenditure. This money should be used for new housing and road development. To what extent do you agree or disagree?

The first question is about how governments should spend money on healthcare , the second is about whether or not they should spend money for military purposes , and the third is about maintaining old building s. As you can see, then, the issue of government funding could be applied to a range of areas.

Also, note the different words and phrases used to introduce the idea of government spending. In the first, it is “government funding,” in the second, “spending” is a verb,” and in the third, it says “government expenditure.”

Vocabulary about Government Spending

When it comes to the topic of government spending, you obviously need to be able to discuss money and specifically large amounts of money. You need to know words and phrases related to government expenditure. Here are some useful ones:

All of these words and phrases will be used in my sample answers below.

You can also see some money idioms here:

When it comes to money verbs, don’t forget that we need to collocate them with certain prepositions. Typically, we say “spend money on”, “invest money in,” or “allocate money for”. There are other common collocations as well. Here are a few examples:

• He spent his birthday money on a new pair of shoes.
• She spent most of her budget on building a social media following.
• We’re going to invest in Apple.
• They invested too much money in that doomed project.
• We saved money on our gas bill by switching providers.

Finally, be careful with the word “budget.” This is one word that I see misused very frequently in IELTS essays. Here is a visual lesson about it, which I posted on Facebook .

You can learn more money vocabulary and also look at some IELTS speaking questions about money in this lesson .

Sample Answers

Ok, now let’s look at my answers to the above questions. These contain the vocabulary I taught you. Take note of how those words and phrases are used.

Essay #1: Government Spending on Healthcare

The prevention of health problems and illness is more important than treatment and medicine. Government funding should reflect this.

To what extent do you agree?

In many countries, government spending on healthcare is a major economic burden. Problems like obesity and heart disease are crippling healthcare systems, and some people suggest that rather than raise taxes to pay for treatments, more money should be invested in preventing these illnesses in the first place. This essay will argue that prevention is better than treatment.

The most obvious benefit of putting prevention before treatment is the reduction in human suffering that would inevitably result. Some of the biggest health problems in modern societies are utterly preventable, and therefore it is reasonable to suggest that money spent this way would cause less anguish. Government campaigns to reduce smoking would reduce cancer rates and this would increase people’s quality of life, and of course end the suffering of people who lose loved ones.

From a purely financial standpoint, it is beneficial to focus on preventing sickness rather than curing it. The cost of treating sick people with expensive medical procedures, equipment, and medicines is vastly higher than the cost of educating people not to smoke, eat unhealthily, or otherwise lead unhealthy lifestyles. Government campaigns have led to huge decreases in smoking in many Western countries, and it is likely that similar campaigns would yield similar results elsewhere. An additional benefit would be the lowering of taxes due to reduced expenditure on healthcare.

In conclusion, preventing a disease makes more sense than waiting to treat it. The benefits to average people and also to governments are significantly higher than simply investing in treatments.

Essay #2: Government Spending on Military

The world today is a safer place than it was a hundred years ago, and governments should stop spending large amounts of money on their armed forces.

To what extent do you agree or disagree with this statement?

In many developed countries, people discuss the ethics of government spending on military forces, with many people pointing out that it is wasteful. This essay will suggest that they are probably right, but that it is a more complicated situation than they think.

To begin with, it is clear that some countries spend vast sums of money on their militaries when there are many other problems that could be tackled using that money. Between the USA and China, for example, more than $1 trillion is spent per year on equipping their various armed forces and this money could potentially have been invested into protecting the environment, ending homelessness and hunger, or improving education systems. Given that these two nations are highly unlikely to be attacked by any other, it seems absurd that they invest so much money in this way.

However, all of that overlooks the fact that geopolitics is complicated and human nature has some dark elements. Although people live in an unprecedented era of peace, it is nonetheless true that this peace is not guaranteed and that it is predicated to some extent upon the fear of reprisals. The US may seem incredibly wasteful with its military spending, but if it did not maintain such a huge military, other aggressive nations would surely attack their neighbours. They are dissuaded of this by the threat of American intervention. Whilst this is highly problematic as no single country should function as a “world police,” it has certainly helped deter and even end major conflicts over the past half century.

In conclusion, it is not easy to say whether countries should stop spending so much money on their militaries. Indeed, whilst it appears this is a reasonable suggestion, the truth is more complicated.

Essay #3: Government Spending on Old Buildings

The restoration of old buildings in major cities around the world causes enormous government expenditure. This money should be used for new housing and road development.

To what extent do you agree or disagree?

Government spending is a highly controversial issue because people naturally have different priorities and beliefs. Some of them think that the money spent on the restoration of old buildings is wasteful, but this essay will argue against that notion, suggesting instead that these are essential pieces of a nation’s heritage.

To begin with, it is understandable that people might feel this way because there are numerous ways that a national budget might be spent, and old buildings are probably not high on most people’s lists. However, not everything that is important is obvious and often people do not realise the value of something until it is gone. Around Asia, for example, many countries underwent the same sort of industrial development in just two or three decades that Europe went through over a period of several centuries. As a result, these countries lost most of their ancient buildings, and these cannot be recovered. Many governments fund the construction of replicas, but these obviously lack the authenticity of truly ancient buildings.

Letting these buildings fall into ruin shows a staggering lack of civic pride. Cities and countries must unite to fund the maintenance of important shared spaces, including these historic sites. Without these places, cities begin to look unremarkable and it is hard to tell one place from another. Whilst it is important to devote spending to new projects, governments must not overlook the heritage aspect that defined their city or country over a long period of time, and which continues to mark it in the modern era.

In conclusion, old buildings may seem like a waste of money because they can be expensive to maintain, but they are important in various ways, and so governments should set aside funding to ensure their upkeep. 

About The Author

David S. Wills

David S. Wills is the author of Scientologist! William S. Burroughs and the 'Weird Cult' and the founder/editor of Beatdom literary journal. He lives and works in rural Cambodia and loves to travel. He has worked as an IELTS tutor since 2010, has completed both TEFL and CELTA courses, and has a certificate from Cambridge for Teaching Writing. David has worked in many different countries, and for several years designed a writing course for the University of Worcester. In 2018, he wrote the popular IELTS handbook, Grammar for IELTS Writing and he has since written two other books about IELTS. His other IELTS website is called IELTS Teaching.

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Guide to Local Government Finance in California, 2nd edition

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Guide to Local Government Finance in California, 2nd edition brings the financial picture for California governments up to date, while making the book even easier to use.

This new edition provides a solid foundation for those who are interested in better understanding and navigating the complexity of California local public finance. The first edition, published in 2012, introduced a unique look at local government finance covering not only the vital fundamentals - like budgeting, accounting, and investing - but also lesser known yet equally powerful forces that affect the ability of cities, counties and special districts to deliver essential services.

In a constantly changing environment, economic conditions evolve, new laws are enacted, different issues become especially topical to the public and the academy. This new second edition of Guide to Local Government in California addresses those changes with discussions of

• Court decisions related to rate structures and pensions
• Fiscal reforms that were emerging in 2012 that have been advanced (or dropped)
• Increased interest in the early diagnosis of possible fiscal difficulties
• How some of the benefits of redevelopment that were lost might be recaptured, including Enhanced Infrastructure Financing Districts
• Other incremental changes to the system

In addition, much of the statistical information contained in the numerous charts and graphs has been updated with more current data, and the graphics have been improved. The glossary has been significantly expanded to help clarify some of the technical terms used in the book.

The primary purpose of this book is to provide a solid foundation for those who are interested in better understanding and navigating the complexity of California local public finance. It is an essential resource for public agency managers and other staff, including planners and policy analysts, as well as appointed and elected public officials, teachers, students, and citizens at large who want to understand and improve California’s complex system of local government finance.

ABOUT THE AUTHORS

Michael Coleman is an experienced city fiscal officer and a leading expert on California local government revenues, spending and financing. He is the creator of CaliforniaCityFinance.com, the California Local Government Finance Almanac, an online resource of data, analyses and articles on California municipal finance and budgeting. He is the principal fiscal policy advisor both to the California Society of Municipal Finance Officers and, for over twenty years, to the League of California Cities. Coleman is a popular presenter at graduate schools and conferences, and is the author of numerous articles and references on the topic. Coleman received an MPA from the University of Southern California.

During Ken Hampian 's thirty-five year public sector career he served at the county, federal and city levels of government, including twenty years in San Luis Obispo where he retired as city manager in 2010. Honors have included the League of California Cities John S. Nail Award and selection to the prestigious Presidential Management Internship Program. In the summer of 2011, Hampian served without compensation as the interim city manager of beleaguered Bell, California, during a time of dire need. His service there has been recognized by a variety of professional associations. Today Hampian teaches, trains, writes, and consults.

Michael Multari was the community development director in Morro Bay and San Luis Obispo before co-founding Crawford, Multari & Clark, Associates, a consulting practice that provided planning and fiscal assistance to public agencies throughout California. Since leaving CMCA in 2000, he has served as the executive director of the non-profit Morro Bay National Estuary Program and has worked on various campus planning projects at Cal Poly San Luis Obispo. He received an MPA from Princeton University and has been a member of the adjunct faculty in the City and Regional Planning Department at Cal Poly for over twenty years.

Bill Statler served as the director of Finance & Information Technology for the City of San Luis Obispo for twenty-two years and for ten years as finance officer for the City of Simi Valley before that. Under his guidance, San Luis Obispo received ­national recognition for excellence in its financial planning, budgeting, reporting and management systems. He has played a large leadership role in the municipal finance profession, including serving on the Board of Directors of the League of California Cities as well as president of the California Society of Municipal Finance Officers (CSMFO) and the League's Fiscal Officers Department, In 2011, Statler was awarded the CSMFO's Distinguished Service Award for his outstanding contributions to the municipal finance profession; and in 2012, he received the Cal-ICMA's Ethical Hero Award for his services to the City of Bell in the aftermath of well-publicized scandals. Statler continues to be deeply involved in the field as a consultant, trainer and author.

TESTIMONIALS

"Over the course of my 27 years as a city manager, I would have loved to have had a resource like the Guide to Local Government Finance in California to provide to my council members and staff. It uniquely covers all of the ground that encompasses the complexities of local government finance in California –and in an easy-to-read way. It's a great resource for elected officials and staff."

Kevin Duggan Western Regional Director, International City and County Management Association

"The authors have written a book that should be read by every newly elected council member and anyone who will find themselves engaged in the topic. The book, given the subject matter, is surprisingly readable and is a must read if you want to understand local government finance in the Golden State."

Mike Kasperzak , Mayor of Mountain View President, League of California Cities, 2012

"For local elected officials, there has been no place to look for a detailed analysis, and careful evaluation, of local finances. There is now. Guide to Local Government Finance in California offers the best information on California local finances that I have read. It both answers specific finance questions and presents a larger perspective on the financial tensions and differences between local governments and the State."

Ronald O. Loveridge Mayor of Riverside and Political Science Professor at University of California, Riverside Past President, League of California Cities and National League of Cities

"This is the most comprehensive treatment of local government finance in any state that I have ever seen. The authors have brought their many decades of professional experience to this important undertaking, and the end product is nothing short of impressive. This guide will prove useful to elected and appointed local government officials, business leaders, reporters, students, faculty, and others who are struggling to understand the highly complex world of local government finance in California. It also underscores exactly why local government managers and fiscal officers play such a critical role in advancing and protecting the public interest in a state as diverse and challenging as California."

Chris McKenzie Former Executive Director, League of California Cities (1999-2016)

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ArtI.S8.C18.1 Overview of Necessary and Proper Clause

Article I, Section 8, Clause 18:

[The Congress shall have Power . . . ] To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

The Necessary and Proper Clause 1 Footnote Although Necessary and Proper Clause is the modern term for the constitutional provision, historically it was often called the Sweeping Clause. See, e.g. , The Federalist No. 33 (Alexander Hamilton) ( [T]he sweeping clause, as it has been affectedly called, authori[z]es the national legislature to pass all necessary and proper laws. ); see generally John Mikhail , The Necessary and Proper Clauses , 102 Geo. L.J. 1045 , 1059 & n.47 (2014) ( [The Framers] referred to the last clause of Article I, Section 8 as the ‘Sweeping Clause.’ ). The terms Elastic Clause, Basket Clause, and Coefficient Clause are also occasionally used to refer to this provision. See Devotion Garner & Cheryl Nyberg , Popular Names of Constitutional Provisions , Univ. of Wash. Sch. of Law , https://lib.law.uw.edu/ref/consticlauses.html#oth (listing these terms as popular name[s] for the provision). concludes Article I’s list of Congress’s enumerated powers with a general statement that Congress’s powers include not only those expressly listed, but also the authority to use all means necessary and proper for executing those express powers. Under the Necessary and Proper Clause, congressional power encompasses all implied and incidental powers that are conducive to the beneficial exercise of an enumerated power. 2 Footnote McCulloch v. Maryland , 17 U.S. (4 Wheat.) 316, 418 (1819) . The Clause does not require that legislation be absolutely necessary to the exercise of federal power. 3 Footnote See id. ( [T]his limited construction of the word ' necessary ’ [as meaning indispensably necessary ] must be abandoned. ). Rather, so long as Congress’s end is within the scope of federal power under the Constitution, the Necessary and Proper Clause authorizes Congress to employ any means that are appropriate and plainly adapted to the permitted end. 4 Footnote United States v. Darby , 312 U.S. 100, 124 (1941) .

The Necessary and Proper Clause was included in the Constitution in response to the shortcomings of the Articles of Confederation, which had limited federal power to only those powers expressly delegated to the United States. 5 Footnote Articles of Confederation of 1781, art. II ( Each state retains its sovereignty, freedom, and independence, and every power, jurisdiction, and right, which is not by this Confederation expressly delegated to the United States, in Congress assembled. ). While the Framers chose to follow the Articles in enumerating a list of specific federal powers—as opposed to some general statement of federal power 6 Footnote See ArtI.S8.C18.2 Historical Background on Necessary and Proper Clause notes 2 – 8 and accompanying text (discussing alternative formulations of federal power considered at the Constitutional Convention). —they included the Necessary and Proper Clause to make clear that Congress’s power encompassed the implied power to use all appropriate means required to execute those express powers. 7 Footnote See The Federalist No. 44 (James Madison) . The Necessary and Proper Clause was not a primary focus of debate at the Constitutional Convention itself, but its meaning quickly became a major issue in the debates over the ratification of the Constitution, 8 Footnote See ArtI.S8.C18.2 Historical Background on Necessary and Proper Clause notes 17 – 24 and accompanying text (reviewing the role of the Clause in the ratification debates). and in the early Republic. 9 Footnote See ArtI.S8.C18.2 Historical Background on Necessary and Proper Clause notes 25 – 28 and accompanying text (reviewing the debate over the constitutionality of the First Bank of the United States).

The Supreme Court has interpreted the Necessary and Proper Clause as an extension of the other powers vested in the Federal Government, most notably Congress’s enumerated Article I powers. 10 Footnote See generally United States v. Comstock , 560 U.S. 126, 133–34 (2010) . Thus, whenever the Supreme Court addresses the outer limits of Congress’s enumerated powers, it necessarily invokes the Necessary and Proper Clause as well, either explicitly or implicitly. 11 Footnote See, e.g. , Gonzales v. Raich , 545 U.S. 1, 5 (2005) (addressing whether the prohibition of intrastate use and cultivation of marijuana was necessary and proper to Congress’s power to regulate interstate commerce); United States v. Kahriger , 345 U.S. 22, 29–32 (1953) (addressing whether registration requirement for tax on illegal gambling activities was a necessary and proper exercise of Congress’s power to tax), overruled in part by Marchetti v. United States , 390 U.S. 39 (1968) ; United States v. Darby , 312 U.S. 100, 121–25 (1941) (addressing whether wage and hour regulations, as applied to intrastate activities, were necessary and proper to Congress’s power to regulate interstate commerce). However, the Necessary and Proper Clause is not, in itself, an independent grant of congressional power. 12 Footnote See Kinsella v. United States ex rel. Singleton , 361 U.S. 234, 247 (1960) ( The [ Necessary and Proper Clause] is not itself a grant of power, but a caveat that the Congress possesses all the means necessary to carry out the specifically granted ‘foregoing’ powers of [Article I, Section 8] ‘and all other Powers vested by this Constitution.’ ). Although the Necessary and Proper Clause is therefore implicated in many cases examining the extent of Congress’s power under, for example, the Commerce Clause, those decisions are primarily addressed elsewhere in the Constitution Annotated , under the particular enumerated federal power at issue. 13 Footnote See e.g. , ArtI.S8.C1.1.1 Overview of Taxing Clause ; ArtI.S8.C1.2.1 Overview of Spending Clause ; and ArtI.S8.C3.6.1 United States v. Lopez and Interstate Commerce Clause .

In a few cases, however, the Supreme Court has analyzed Congress’s power under the Necessary and Proper Clause separately from any specific enumerated power. Typically, these cases involve either multiple enumerated powers 14 Footnote See, e.g. , McCulloch v. Maryland , 17 U.S. (4 Wheat.) 316, 407 (1819) (considering whether Congress’s powers to lay and collect taxes; to borrow money; to regulate commerce; to declare and conduct a war; and to raise and support armies and navies implied the power to establish a national bank under the Necessary and Proper Clause); Juilliard v. Greenman , 110 U.S. 421, 439–40 (1884) (considering whether Congress’s powers to borrow money, coin money, lay and collect taxes, and regulate interstate and foreign commerce implied the power to make paper notes legal tender for public and private debts under the Necessary and Proper Clause). or congressional actions that are many steps removed from the exercise of the underlying enumerated federal power. 15 Footnote See, e.g. , United States v. Comstock , 560 U.S. 126, 148 (2010) (considering whether the same enumerated power that justifies the creation of a federal criminal statute further justifies indefinite civil commitment of federal prisoners after the expiration of their criminal sentences). Because the extent of the Necessary and Proper Clause defines the outer reaches of Congress’s Article I legislative powers, these cases, in effect, delineate the boundary between the authority of the Federal Government and those areas reserved to the states. 16 Footnote See U.S. Const. amend. X ( The powers not delegated to the United States by the Constitution . . . are reserved to the states respectively, or to the people. ).

This section first reviews the history of the Necessary and Proper Clause’s inclusion in the Constitution and its role in the ratification debates. Next, the section turns to the early judicial interpretation of the Clause, culminating in the Chief Justice John Marshall’s landmark 1819 opinion in McCulloch v. Maryland . After briefly reviewing the major nineteenth century Supreme Court decisions on the Necessary and Proper Clause following McCulloch , the section concludes with a review of the modern Supreme Court cases on the scope of Congress’s power under the Clause.

•   Jump to essay-1 Although Necessary and Proper Clause is the modern term for the constitutional provision, historically it was often called the Sweeping Clause. See, e.g. , The Federalist No. 33 (Alexander Hamilton) ( [T]he sweeping clause, as it has been affectedly called, authori[z]es the national legislature to pass all necessary and proper laws. ); see generally John Mikhail , The Necessary and Proper Clauses , 102 Geo. L.J. 1045 , 1059 & n.47 (2014) ( [The Framers] referred to the last clause of Article I, Section 8 as the ‘Sweeping Clause.’ ). The terms Elastic Clause, Basket Clause, and Coefficient Clause are also occasionally used to refer to this provision. See Devotion Garner & Cheryl Nyberg , Popular Names of Constitutional Provisions , Univ. of Wash. Sch. of Law , https://lib.law.uw.edu/ref/consticlauses.html#oth (listing these terms as popular name[s] for the provision).
•   Jump to essay-2 McCulloch v. Maryland , 17 U.S. (4 Wheat.) 316, 418 (1819) .
•   Jump to essay-3 See id. ( [T]his limited construction of the word ' necessary ’ [as meaning indispensably necessary ] must be abandoned. ).
•   Jump to essay-4 United States v. Darby , 312 U.S. 100, 124 (1941) .
•   Jump to essay-5 Articles of Confederation of 1781, art. II ( Each state retains its sovereignty, freedom, and independence, and every power, jurisdiction, and right, which is not by this Confederation expressly delegated to the United States, in Congress assembled. ).
•   Jump to essay-6 See ArtI.S8.C18.2 Historical Background on Necessary and Proper Clause notes 2 – 8 and accompanying text (discussing alternative formulations of federal power considered at the Constitutional Convention).
•   Jump to essay-7 See The Federalist No. 44 (James Madison) .
•   Jump to essay-8 See ArtI.S8.C18.2 Historical Background on Necessary and Proper Clause notes 17 – 24 and accompanying text (reviewing the role of the Clause in the ratification debates).
•   Jump to essay-9 See ArtI.S8.C18.2 Historical Background on Necessary and Proper Clause notes 25 – 28 and accompanying text (reviewing the debate over the constitutionality of the First Bank of the United States).
•   Jump to essay-10 See generally United States v. Comstock , 560 U.S. 126, 133–34 (2010) .
•   Jump to essay-11 See, e.g. , Gonzales v. Raich , 545 U.S. 1, 5 (2005) (addressing whether the prohibition of intrastate use and cultivation of marijuana was necessary and proper to Congress’s power to regulate interstate commerce); United States v. Kahriger , 345 U.S. 22, 29–32 (1953) (addressing whether registration requirement for tax on illegal gambling activities was a necessary and proper exercise of Congress’s power to tax), overruled in part by Marchetti v. United States , 390 U.S. 39 (1968) ; United States v. Darby , 312 U.S. 100, 121–25 (1941) (addressing whether wage and hour regulations, as applied to intrastate activities, were necessary and proper to Congress’s power to regulate interstate commerce).
•   Jump to essay-12 See Kinsella v. United States ex rel. Singleton , 361 U.S. 234, 247 (1960) ( The [ Necessary and Proper Clause] is not itself a grant of power, but a caveat that the Congress possesses all the means necessary to carry out the specifically granted ‘foregoing’ powers of [Article I, Section 8] ‘and all other Powers vested by this Constitution.’ ).
•   Jump to essay-13 See e.g. , ArtI.S8.C1.1.1 Overview of Taxing Clause ; ArtI.S8.C1.2.1 Overview of Spending Clause ; and ArtI.S8.C3.6.1 United States v. Lopez and Interstate Commerce Clause .
•   Jump to essay-14 See, e.g. , McCulloch v. Maryland , 17 U.S. (4 Wheat.) 316, 407 (1819) (considering whether Congress’s powers to lay and collect taxes; to borrow money; to regulate commerce; to declare and conduct a war; and to raise and support armies and navies implied the power to establish a national bank under the Necessary and Proper Clause); Juilliard v. Greenman , 110 U.S. 421, 439–40 (1884) (considering whether Congress’s powers to borrow money, coin money, lay and collect taxes, and regulate interstate and foreign commerce implied the power to make paper notes legal tender for public and private debts under the Necessary and Proper Clause).
•   Jump to essay-15 See, e.g. , United States v. Comstock , 560 U.S. 126, 148 (2010) (considering whether the same enumerated power that justifies the creation of a federal criminal statute further justifies indefinite civil commitment of federal prisoners after the expiration of their criminal sentences).
•   Jump to essay-16 See U.S. Const. amend. X ( The powers not delegated to the United States by the Constitution . . . are reserved to the states respectively, or to the people. ).

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• Vast government debts are riskier than they appear

A provocative new paper gets central bankers talking at Jackson Hole

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A t the annual gathering of central bankers in Jackson Hole, Wyoming, attendees enjoy R & R : research and recreation. The latter usually involves a pleasant hike by the lake, but last year a rainstorm soaked the assembled economists. When they returned on August 23rd a remarkably accurate weather forecast helped them dodge a shower and enjoy some sun. This was apt. A year ago inflation was still too high and investors were placing bets that interest rates would have to stay “higher for longer”, the economic equivalent of a drenching. This year inflation looks all but subdued and central bankers—whose optimistic prognostications have also come to pass—have started cutting interest rates.

And so they took something close to a victory lap. Jerome Powell , chair of the Federal Reserve, used his speech to say that America’s labour market was no longer overheated and that the Fed would probably soon join the rate-cutting club . “You’re not supposed to say that in public,” joked Andrew Bailey, governor of the Bank of England, when Kristin Forbes of the Massachusetts Institute of Technology suggested the decline of inflation had been a great success. One paper, presented by Carolin Pflueger of the University of Chicago, showed how, contrary to the claims of some commentators, the Fed’s rate rises had been crucial to keeping inflation expectations under control. Before inflation took off, even forecasters going against the grain and expecting prices to surge thought the Fed would fail to react—an expectation that could have caused the inflation problem to become entrenched.

Attendees liked the idea. It is, after all, evidence that central bankers helped the sun break through the clouds. Yet the paper that stirred the most debate at the get-together told a more circumspect story. Hanno Lustig of Stanford University presented evidence that during the covid-19 pandemic American Treasuries, which are supposed to be the world’s safest asset, had become risky. The public has been vexed by the 18% rise in consumer prices since 2020 and the interest-rate rises that were later required. But at least real wages have risen. Consider, by contrast, the plight of bondholders. Between January 2020 and October 2023 the mix of higher inflation and higher rates, which depress bond prices, caused the real value of outstanding Treasuries to fall by 26%.

This, Mr Lustig argued, was indicative of a “risky debt regime”. At the onset of the pandemic, the Treasury market was struck by extreme volatility. Analysis of the turmoil usually emphasises blocked plumbing in financial markets: the dealers who intermediate markets ran out of space on their balance-sheets. Mr Lustig, though, presented evidence that investors were in fact reacting to fiscal developments, selling more on days when news broke that the American government would be throwing cash at the crisis. Moreover, investors who sold Treasuries did better than those who did not—the opposite of what you might expect if plumbing problems were forcing them to offload securities at fire-sale prices.

Things look better in bond markets today. Thirty-year Treasuries yield only an annual 4.1%, with little sign of a risk premium. But even if America’s “risky debt regime” was temporary, it might be included alongside the panic that struck British gilt markets when the short-lived government of Liz Truss announced unfunded tax cuts in late 2022, and the sell-off in French markets when investors feared that the hard right would gain power.

Such events should be disquieting to central banks for several reasons. One is that they cast quantitative easing ( QE ), the buying of bonds using freshly created money, in a new light. It is textbook central banking to stop a panic by buying bonds, so as to unblock the plumbing. Buying government debt because investors fear fiscal profligacy is much dicier territory. And QE has a fiscal consequence: some of the losses that bondholders might have borne were shifted to central banks, and hence back to the taxpayer. Mr Bailey seemed burned by the experience: “I’m not saying we’d never do it, but I think it’s tarnished,” he said of using QE in future, while also complaining that no journalist had written about the fiscal consequences of QE when it was profitable. (His copies of The Economist must have been lost in the post.)

A more profound reason that central bankers might worry about a risky debt regime is that—although they do not like to talk about tax and spending—they are able to control inflation only if politicians keep debts under control. It is possible that amid a fiscal blowout there is no interest rate which central bankers can set to prevent inflation. High interest rates can induce still-bigger deficits as governments borrow more to pay the debt-interest bills. Brazil is familiar with this problem, and the country’s central-bank governor warned on stage that other rate-setters might be forced to pay greater attention to fiscal policy. If America continues on its current trajectory, running a deficit of 7% of GDP even while not in recession, that seems certain.

Rain forecast

Therefore today’s bond-market optimism, as indicated by pricing, is a little curious. As Mr Lustig notes, the experience of recent years was not unique. Bondholders often take soakings after wars and crises, which usually create a surge in inflation. Deflation of a comparable magnitude is rarer—even the slump after the global financial crisis of 2007-09 did not produce it. Covid will not be the last virus to cause a pandemic; fraught geopolitics could bring about more wars, or worsen existing ones. Governments these days seem more likely to respond with big stimulus to reflate the economy than they were a generation ago.

Central bankers cannot do much about these risks, and deserve a moment of celebration. Bondholders who live for the long run, though, should consider the chance that history will repeat itself, and that they will once again be caught in a storm. ■

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This article appeared in the Finance & economics section of the print edition under the headline “Storm-proofing”

Finance & economics August 31st 2024

Inflation is down and a recession is unlikely. what went right, are american rents rigged by algorithms, the plasma trade is becoming ever-more hypocritical, how vladimir putin hopes to transform russian trade, can japan’s zombie bond market be brought back to life.

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Understanding General Long-Term Liabilities in Government Finance

Financial reporting provides insights to stakeholders that can help them determine an entity’s financial health and performance. Of course, there are still differences between proprietary funds and for-profit organizations in taking on costs. However, this kind of financial reporting is very different. Gee et al. (2022) note that compared with more conventional profit-seeking ventures, operative funds, which have long been a tool of governmental investments, exhibit a different pattern in presenting their financial statements.

Differences in Statement of Net Position

There is one crucial difference, however- a statement of net position accounts for what a non-profit organization receives and pays out. The sequence of liquidation in proprietary funds meets a unique set of circumstances. This differs from notorious for-profit groups that often lay out assets and liabilities by putting the most liquid items on top. For instance, the accounts for governmental securities proprietary funds would separate long-term capital assets from short-term investments into more highly defined parts, providing a much finer image of its overall state.

For example, in understanding social recommendations in a profit-making enterprise, the bottom line and general financial impact are critical (Rosko et al., 2020). Short-Term Liquidity Assets and liabilities are classified in such a way as to shine the spotlight on short-term liquidity so that stakeholders can test whether entities possess immediate capabilities. This is because proprietary funds are long-term assets for the employees themselves, and paying attention to management transparency helps steer clear of governmental entities’ unique financial obligations (Jones, 2019).

Differences in Statement of Revenues, Expenses, and Changes in Fund Net Position

Another difference between proprietary and for-profit organizations is the Statement of Revenues, Expenses, and Changes in Fund Net Position. Neither makes money or loses it–they report revenue and expenditure. The two organizations differ only in the emphasis they place on various sources. Gee et al. (2022) discuss how the states ‘proprietary funds, linked to government activity, take some of their income from taxes and fees. However, this does not necessarily mean that civil society organizations will have many opportunities for such sources since for-profit groups are sustained mainly by sales and business income (Gee et al., 2022).

In addition, many funds of proprietary organizations account for expenditures more by program and function than by nature. In other words, expenditures are broken down according to the function or activity they are intended for in showing an overall perspective of resource utilization and a collective understanding of how muster is provided to meet the mission. On the other hand, for-profit organizations mainly getely of nature in reporting expenses–cost of goods sold, selling from a profit and loss standpoint rather than merely to satisfy interests. This is a helpful tool for gauging the effectiveness of resource allocation in attaining organizational objectives (Press Smith, 2018).

Differences in Statement of Cash Flows

The cash flow statement shows the difference between resources and the for-profit organization. Funds can disclose business income in advance, including business-related activities with significant responsibilities (Gee et al., 2022). In contrast, for-profit organizations often list operating, investment, and financing income separately.

For example, self-employment budgets may include income from taxes and fees as part of business activities about the organization’s ability to generate revenue from income from its primary activities. In a revenue-oriented organization, operations focus on sales revenue and other profitable operations and provide excellent and valuable information about the company’s performance. This difference in importance reflects the different financial structures and importance of government institutions compared to commercial banks.

Part B: The Mountain County Sheriff’s Office fund

County Sheriff’s Office Funds received from inmates to provide services to inmates should be treated as government funds, mainly revenue. This classification is appropriate considering the nature of the budget and its intended use in the public sector.

Special purpose trusts are often used for resources held in trust to benefit a specific person or entity outside the Government (Morris, 2020). In contrast, private income is created to cover income from private sources restricted by law or used for a specific purpose, such as the income of prisoners in cells, in this case.

The main difference is the beneficiaries and legal restrictions on using funds (Morris, 2020). In a trust plan, the beneficiary will be a person or entity outside the Government, and the Government will act as trustee. However, in the described case, the money was recorded for the benefit of prisoners in federal custody, which positively impacted the characteristics of private income.

In this case, money contributes to the public purpose by improving life. Inmates have conditions and facilities that contribute to their medical and health needs. Restricting spending on prison inmates’ health care creates legal commitments that make them eligible for private income-based health care.

Additionally, resources are temporarily transferred from this budget to the General Fund and then allocated and used according to the procedures in the federal budget. The government budget is designed to facilitate budgeting and spending by government agencies and ensure transparency and accountability in allocating public resources.

In summary, the money the County Sheriff’s Office receives from phone companies for inmates, mainly private revenue, must be included in federal funds. This classification clearly outlines the public purpose of the budget, legal restrictions, and government services provided to inmates in the county’s prisons.

Gee, I. H., Nahm, P. I., Yu, T., & Cannella, A. A. (2022). Not-for-Profit Organizations: A Multi-Disciplinary Review and Assessment From a Strategic Management Perspective.  Journal of Management ,  49 (1), 014920632211165. https://doi.org/10.1177/01492063221116581

Morris, A. J. (2020, October 26).  Private Purpose Trusts and the Re Denley Trust 50 Years On . Papers.ssrn.com. https://ssrn.com/abstract=3813935

Rosko, M., Al-Amin, M., & Tavakoli, M. (2020). Efficiency and profitability in US not-for-profit hospitals.  International Journal of Health Economics and Management ,  20 . https://doi.org/10.1007/s10754-020-09284-0

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Republican Donors, Do You Know Where Your Money Goes?

By Juleanna Glover

Juleanna Glover is the chief executive of Ridgely Walsh, a corporate consultancy, and a former adviser to many Republican officials.

We long ago blew past any meaningful controls on political giving in American elections. Now we should focus on the rules governing political spending, which are in equally terrible shape. For that we can blame the Trump campaign and the federal government’s feeble enforcement efforts.

Anyone who has spent time reviewing Donald Trump’s campaign spending reports would quickly conclude they’re a governance nightmare. There is so little disclosure about what happened to the billions raised in 2020 and 2024 that donors (and maybe even the former president himself) can’t possibly know how it was spent.

Federal Election Commission campaign disclosure reports from 2020 show that much of the money donated to the Trump campaign went into a legal and financial black hole reportedly controlled by Trump family members and close associates. This year’s campaign disclosures are shaping up to be the same. Donors big and small give their hard-earned dollars to candidates with the expectation they will be spent on direct efforts to win votes. They deserve better.

During the 2020 election, almost $516 million of the over $780 million spent by the Trump campaign was directed to American Made Media Consultants, a Delaware-based private company created in 2018 that masked the identities of who ultimately received donor dollars, according to a complaint filed with the F.E.C. by the nonpartisan Campaign Legal Center . How A.M.M.C. spent the money was a mystery even to Mr. Trump’s campaign team , according to news reports shortly after the election.

All but 18 of the 150 largest expenditures on a Trump campaign’s 2020 F.E.C. report went to A.M.M.C. None of the expenses were itemized or otherwise explained aside from anodyne descriptions including “placed media,” “SMS advertising” and “online advertising.” F.E.C. rules require candidates to fully and accurately disclose the final recipients of their campaign disbursements, which is usually understood to include when payments are made through a vendor such as A.M.M.C. This disclosure is intended to assure donors their contributions are used for campaign expenses. Currently, neither voters nor law enforcement can know whether any laws were broken.

A.M.M.C.’s first president was reported to be Lara Trump , the wife of Mr. Trump’s son Eric. The New York Times reported that A.M.M.C. had a treasurer who was also the chief financial officer of Mr. Trump’s 2020 presidential campaign. Mr. Trump’s son-in-law Jared Kushner signed off on the plan to set up A.M.M.C., and one of Eric Trump’s deputies from the Trump Organization was involved in running it.

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155 Financial Crisis Essays & Examples

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A financial crisis means massive depreciation of financial assets. It usually happens in the forms of banking, currency, and debt crises. Though the issue is studied well, financial crises still occur in various parts of the world.

In your finance crisis essay, you might want to focus on financial management in turbulent periods. Another idea is to discuss what it takes to survive a global financial crisis. One more option is to compare various types of financial crises. Whether you are assigned an argumentative essay, analytical paper, or research proposal, this article will be helpful. Here we’ve collected financial crisis research paper topics, current essay titles, writing tips, and financial crisis essay samples.

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Essay on Budget: Top 4 Essays | Government | Public Administration

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Here is an essay on ‘Budget’ for class 9, 10, 11 and 12. Find paragraphs, long and short essays on ‘Budget’ especially written for school and college students.

Essay on Budget

Essay Contents:

• Essay on the Principles of Budget-Making

Essay # 1. Meaning of Budget:

The word ‘budget’ is derived from a French word, Bougette, meaning a leather bag or wallet. The term was used for the first time in 1733 in a satire entitled ‘Opened the Budget’ pointed against Walpole’s financial plan for that year. The Chancellor of the Exchequer used to carry a leather bag containing papers on the financial plans for the country to the House of Commons.

So when he set off to place his financial plans before the House, he used to open his ‘budget’, that is, the bag, and it is because of this association of the financial plan with the ‘bougette’ that the financial statement of a country has come to be known as budget.

The term budget in modern times, therefore, denotes that document which contains estimates of revenue and expenditure of a country, usually for the fixed period of one year.

Some of the definitions of the word ‘budget’ are the following:

(i) “A budget is a financial plan summarizing the financial experience of the past stating a current plan and projecting it over a specified period of time in future.” —Dimock

(ii) “A budget is a financial statement, prepared in advance of the opening of a fiscal year of the estimated revenues and proposed expenditures of the given organisation for the ensuring fiscal year.” —Harlod R. Bruce

(iii) “Budget is a plan of financing for the incoming fiscal year. This involves an itemized estimate of all revenues on the one hand and all expenditures on the other.” —Munro

(iv) “Budget is a detail of estimated revenues and expenditures-a comparative chart of revenues and expenditures-and over and above this it is an authority and direction of the com­petent authority given for the collection of revenues and expenditure of public money.” —Wilne

(v) “Budget is a document containing a preliminary approved Plan of Public Revenue and Expenditure.” -Storum

(vi) “The budget in a modern state is a forecast and an estimate of all public receipts and expenses and for certain expenses and receipts an authorization to incur them and collect them.” —Rene Gaze

(vii) “Budget is a financial plan of government for a definite period.” —Taylor

From the above definitions of budget we conclude that the following are the elements of budget:

(i) It is a statement of expected revenue and proposed expenditure;

(ii) It requires some authority to sanction it;

(iii) It is for a limited period, generally it is annual;

(iv) It also sets forth the procedure and manner in which the collection of revenue and the administration of expenditures is to be executed.

The budget is the nucleus round which the financial activities of the state oscillate. It is both the scale and the limit of all the financial operations. However, it may be noted that the meaning of budget is no longer confined to a mere statement of the estimated revenue and expenditure. It is now given a wider meaning.

With the gradual development of financial management, it has come to include not only a plan of public revenue and expenditure but also “the entire condition of material finances as disclosed in the ministerial statement placed before the legislature and the orderly administration of the financial affairs of the Government.”

It “not only gives an account of the year’s ‘house­keeping’ and of the year to come so far as the State is concerned, but it is the basis of control of the financial affairs of the State regarded as a household. It sets in motion a continuous chain of events of great importance in the everyday work of the Government.”

According to Prof Willoughby, “It is, or should be, at once a report, an estimate and a proposal. It is, or should be, a document through which the Chief Executive…comes before the fund-raising and fund-granting authority and makes full report, regarding the manner in which he or his subordinates have administered affairs during the last completed year, in which he exhibits the present condition of the public treasury, and on the basis of such information, sets forth his programme of work for the year to come and the manner in which he proposes that such work shall be financed.” Thus, budget “is a proposed work programme, with estimates of the funds necessary to execute it.” It is a plan of action.

Essay # 2. Types of Budget:

The budgets can be classified on the basis of the following principles:

(i) The period covered.

(ii) Number of budgets introduced in the legislature.

(iii) The overall financial position depicted in the budget.

(iv) The principle adopted in taking the items of income and expenditure in the budget.

(v) The classification of the receipts and expenditure in the budget.

On the basis of these principles the budgets can be either:

(i) Annual budgets or long-term budgets.

(ii) Single or plural budgets.

(iii) Surplus, deficit or balanced budgets.

(iv) Cash budget or revenue budget.

(v) Departmental budget or performance budget.

A brief description of these various types follows:

1. Annual or long-term budgets:

Generally, the Government budgets are annual, i.e., they are prepared for one year. In India, England and most of the other commonwealth countries the financial year begins on 1st of April and ends on the 31st of March, but in the U.S.A., Australia, Sweden and Italy the dates are 1st July and 30th June. In France these dates are 1st of January and 31st of December.

Some countries have adopted the policy of planned economy and to meet the needs of long-term planning, they have resorted to long-term budgeting, i.e., preparing the budget for three or more years. Such budgets are in fact long-term planning rather than long-term budgets because what is provided for is financial planning over a period of years to finance the plan.

These countries spread the estimated plan expenditure over a number of years. The legislature approves the plan along with its estimated expenditure, but that does not amount to actual voting of appropriations for the entire period. Every year the national budget will include the expenditure on the plan for that year which will be approved by the legislature.

2. Single or plural budget:

When the estimates of all the Government undertakings find place in one budget, it is known as single budget. The advantage of single budget is that it reveals the overall financial position of the Government, as a whole.

But if there are separate department-wise budgets which are passed separately by the legislature, it is called plural bud­geting. In India we have two budgets—one for the railways and the other for all the other remaining departments. The practice of having a separate railway budget started in 1921. In England there is single budget.

3. Surplus, deficit or balanced budget:

A budget is surplus if the estimated revenues are in excess of the estimated expenditure. But if the anticipated revenues fall short of the anticipated expenditure, it is a deficit budget. According to the economists, a deficit budget is a sign of the country’s making progress. A balanced budget is one wherein the anticipated rev­enues equal the/anticipated expenditure. The budgets are generally deficit budgets.

4. Cash or revenue budget:

A cash budget is one wherein the estimates of the various items of income and expenditure include the amounts actually to be received or spent in one year.

In revenue budget the revenue and expenditure, accruing in one financial year, are budget­ed in that financial year irrespective of the fact whether the revenues are realized or the expen­diture is incurred in that financial year. In India, Britain and U.S.A., there is cash budgeting, in France and other continental countries there is revenue budgeting.

5. Departmental or performance budget:

The present practice is to have departmental budgets, i.e., the revenues and expenditure of one department are grouped under it. It does not give any information as to the activity or performance for which money is budgeted. The performance budget is one where the total expenditure of a particular project is grouped under the head of the particular programme.

It is prepared in terms of functions, programmes, activities and projects, for example, in the case of Education (a function), it will be divided into programmes like those of Primary, Secondary and Higher Education. Each programme will be divided into activities, for example, training of teachers is an activity. Project is the last unit of functional classification.

It signifies such an activity as is of a capital nature, such as, construction of a school building. The A.R.C. has recommended the adoption of performance budgeting in all the departments and organizations of the Central and State Governments which were in direct charge of development programmes.

Essay # 3. Budget as a Tool of Administration:

Budget today has become one of the primary tools of financial administration. It is “the master financial plan of the Government. It brings together estimates of anticipated revenues and proposed expenditures implying the schedule of activities to be undertaken and the means of financing these activities.”

Budget is the very core of democratic government and in the words of Harold Smith, “The objectives of the Budget should be to implement democracy and provide a tool which will be helpful in the efficient execution of the functions and services of government… The budget is a device for consolidating the various interests, objectives, desires, and needs of our citizens into a programme whereby they may jointly provide for their safety, convenience and comfort. It is the most important single current document relating to the social and economic affairs of the people.”

It lays emphasis on the need for state programmes to be executed as efficiently as possible so that maximum results are obtained for the money spent on them. “In one sense the entire budgetary process can be said to have as a single objective the attainment of economy and efficiency; the determination of how the country’s scarce resources can best be served by the diversion of scarce resources, through taxation and other methods, from private to public use and by the allocation of those resources among various Government uses. Such a determination covers both the questions what programmes should be undertaken and how they should be executed.”

Budget as an instrument of social and economic policy:

Apart from budget being a “tool of administration” and the basis of an orderly finance, it has now become a very powerful instrument of social and economic policy. A Gladstone ob­served, “Budgets are not merely matters of arithmetic but in a thousand ways go to the root of prosperity of individuals and strength of kingdoms”.

The modern states are welfare states and as such budget is used as means for the promotion of welfare objectives. This aspect of the budget has assumed all the more importance with the adoption of socialistic pattern of society by our Government.

Besides realizing the plans for higher production in various sectors, the Govern­ment aims at correcting the inequalities in the distribution of wealth by higher taxation for the rich and proportionately lower taxation and sometimes even exemption for the poorer section of community through the instrumentality of budget.

In the days of laissez-faire, budget was a simple statement of estimated income and expenditure, but now in the modern social welfare states it has become an instrument of promoting the social and economic welfare of the people.

The budget is awaited anxiously by the people. It has wide ramifications. It plays a vital role in the economy of a state. Every citizen is interested in it. From the budget the citizens can know what benefits they are going to derive and how much tax they will have to pay.

The taxation policy of the Government in the Budget may lead to narrowing down of the class distinctions and inequalities. The production policy as reflected in the Budget may help in removing pov­erty, eradicating unemployment and avoiding misdistribution of wealth.

It can check inflation and enable the citizens to lead their life in safety and with comfort and happiness. To cut short, budget has tremendous social and economic implications in modern states. It is much more than a mere national balance-sheet.

Lloyd-George in his People’s Budget of 1909 utilized for the first time the potentialities of the fiscal instrument for social welfare. In his Budget speech, he said “Four spectres haunt the poor old age, accident, sickness and unemployment. We are going to exercise them. We are going to drive hunger from the hearth. We mean to banish the workhouse from the horizon of every man in the land.”

By taxing the rich on a progressive scale and utilizing the proceeds in providing social amenities, such as better housing, educational and medical facilities, etc., for the poorer classes has come to be accepted as one of the most important objectives of budget. Our Government is alive to this aspect of budget as a means for the establishment of a social­istic pattern of society.

Budgeting and planning:

Mr. Sachin Chaudhuri, while presenting the Budget proposals for 1966-67 to the Indian Lok Sabha on February 28, 1966, said: “The Budget of the Government of India is a major instilment for implementing our Plans and policies. It has to be framed, therefore, in response to current economic trends as well as the long-term requirements of the economy.”

Budgeting is, therefore, an instrument for short-term as well as long-term planning. “In restricted sense, bud­geting is planning, the primary concern of both the agencies is to facilitate the formulation and selection of policies and programmes which are most likely to achieve the goals of government. But they differ from one another in some important respects. For instance, planning in terms of whole range of government policy requires a perspective of time and a broad perception of the inter-relationship between policies. On the other hand, budgeting is simply a matter of providing most economically for already agreed upon programmes. In this regard, budgeting may be said to take over where planning leaves off.”

The relation between planning and budgeting is very close. In the words of Thavaraj, “The marriage of ‘planning’ and ‘budgeting’ must begin at the ‘grass roots’ level in the respective departments and agencies.” The programming, planning and budgeting staff in the various gov­ernment agencies must work as a team to exercise continuing surveillance of the respective programmes.

The programmes must be reviewed and evaluated at the departmental level in relation to the objectives of the department, not only in terms of the needs of today or next fiscal year, but also in terms of the overall departmental goals at least for several years ahead. Programmes established many years ago must be re-evaluated in the light of conditions of today and the years ahead.

Evaluation must be made between “desirable” programmes and “essential” programmes. Non-essential programmes must be eliminated.

Essay # 4. Principles of Budget-Making:

Budget is an effective instrument of economic and social changes. It is the basis without which there can be no lasting social progress. It is desirable that it should conform to certain budgetary principles.

The more important principles of budget-making are the following:

1. Budget should be a balanced one:

Budget should be a balanced one, i.e., the estimated expenditure should not exceed the revenue or income. When the amounts of the expenditure and revenue in a budget are equal or nearly so, it is called a ‘Balanced Budget’. If the expenditure is less than the anticipated revenue it is a ‘Surplus Budget’ and if the expenditure is more than the anticipated revenue, it is called a ‘Deficit Budget’.

“The balancing of the Budget,” says, Mr. P.K. Wattal, “is the first requisite of financial stability, and occupies the same place in the financial administration as the mainte­nance of law and order in the Executive administration. On the other hand, un-balanced budgets are bound sooner or later to weaken the faith of investors and lead to monetary inflation, which if uncontrolled will terminate in national disaster.”

An occasional deficit budget, however, need not cause worry. The newer trends of economic thought consider deficit budget in certain circum­stances not only excusable, but also necessary.

According to them, a deficit budget can cure the ills from which the modern capitalist economy suffers. Deficit budget has now become a common phenomenon of the developing countries. It is resorted to, to meet the huge costs of development plans. However, it is not safe to indulge in deficit budget beyond a certain point.

2. Budget formulation is the responsibility of the executive:

As the Chief Executive is responsible for running the administration, he is in the best position to say what funds are required for it. It should, therefore, be the duty of the Chief Executive to formulate the Budget. But the Budget framing is a stupendous task and he must, therefore, be aided and advised by a body of specialists.

In India, the Ministry of Finance, in England the Treasury and in U.S.A. the Bureau of the Budget, help their respective Chief Ex­ecutives in the Budget-planning. In Parliamentary government, there exists the well accepted principle ‘that no demands for grants can be made except on the recommendation of the Execu­tive’.

The principle also makes it clear that it is the function of the Executive alone to prepare the budget. The Parliament can decrease or refuse the demands presented to it by the Executive but it cannot increase them.

This principle is of great merit because the Chief Executive being the actual expending authority is the better judge of how much money is required for a particu­lar purpose and if more is given to the Executive than what it needs, it cannot be made respon­sible for money it did not need.

That would obviously lead to wastage and extravagance. This last principle is not strictly followed in the U.S.A. as there is a separation of powers and all legislative functions including those of money bills are those of the Congress which is accord­ingly competent to decrease as well as increase expenditure and taxation.

3. Estimates should be on a cash basis:

The principle of the cash basis of the Budget means that it should be prepared on the basis of actual receipts and expenditure expected during the year and not on the basis of receipts which are to be realized in some other years or the expenditure which is ordered in that year but is likely to be incurred in the next financial year, e.g., if certain sums on account of arrears of tax relating to the year 1971-72 are realized in the year 1972-73 they should be shown in the receipts estimates of the latter year and not of the former.

Similarly, if the liability for any payments was incurred in the former year but was actually met in the latter year, it should be shown in the expenditure of the latter year only.

In the words of P.K. Wattal; “One advantage of having cash estimates is that the public accounts can be closed very much earlier than when they are prepared on a demand and liability basis. In some European countries, where the latter practice is followed, the determination of the final surplus or deficit requires years and even decades. Delayed accounts lose much of their value for purposes of financial control. The French Budget for 1920 was finally closed in the beginning of 1937.”

4. Budgeting should be done on the basis of gross and not net income:

Budget should present a clear-cut picture of the gross and not the net income of the coun­try. Both the receipts and expenditure should be fully shown in the Budget and not merely the resultant net position. For example, if there is a department with an estimated expenditure of Rs. 45 lakhs and receipts of Rs. 35 lakhs it should show in the Budget both the expenditure and receipts and not merely Rs. 10 lakhs only.

If the department prepares the estimates on the net basis, it would mean that it would approach legislature for grant of Rs. 10 lakhs only and hence deprive the legislature of its control over the expenditure of Rs. 45 lakhs, which it met out of its receipts. Gross budgeting is, therefore, essential to ensure complete financial control of the Legislature.

There are exceptions to this general rule of gross-budgeting in India some of which are only apparent but some are real. The main exception to this rule is the estimating (and account­ing) of land revenue collections.

The lambardar, from time immemorial, is paid, in lieu of his services for the collection of land revenue, five percent on the revenue he collects. This is known as ‘pachotra’ which he deducts from the gross collections made by him and credits only the net collections in the government treasury. The other exceptions which are apparent but not real are in regard to ‘refund of revenue’, ‘receipt on capital account’, etc.

5. Estimating should be, as far as possible, exact:

Estimates provided in the Budget should be, as far as possible, exact. There should be neither too much of over-estimating nor under-estimating. While money should be provided for all necessary expenditure, the amount provided for should be the absolute minimum.

If there is over-estimating of expenditure people are unnecessarily heavily taxed and if there is under­estimating, the whole budget may be thrown out of gear when it comes to execution.

It is a tendency on the part of the departments in India to under-estimate their income and over-esti­mate their expenditure although there are clear instructions to the Heads of all the Ministries, that they should try to achieve economy and avoid waste as far as possible.

According to Sri Ashok Chanda, this tendency to over-estimate spending capacity arises from two causes firstly, it is assumed that the Finance Ministry will in any case reduce the allotment requested and, therefore, it is better to ask for more and secondly, the inclusion of schemes and large provi­sions creates both politically and administratively an impression of efficiency and energy in the sponsoring ministries.

Close and exact estimating can be achieved by taking past three average figures of the receipts and expenditure under various heads as the starting basis and making appropriate variations due to special circumstances which can be foreseen.

Secondly, estimates should be itemized, that is the detailed estimates should be divided into major-heads, minor- heads and sub-heads and detailed heads of revenue and expenditure.

Close budgeting also means that the services for which provision has been made and the particular items included in any vote should be specified and that no demand of ‘lump sum’ amount under any head should be granted.

Of course, in some departments, such as Public Works Department, block grants cannot be avoided because we cannot have definite assessment of the amount likely to be spent on repairs and maintenance of government buildings, canals or roads, etc.

But, subject to these exceptions, the general rule should be that no demands for lump sums for unspecified purposes should be sanctioned. Such demands escape Parliamentary con­trol of Public expenditure and should be granted only in very exceptional cases.

6. Annuality of the budget:

The principle of annuality is one of the most important principles of budgetism. It means that the budget should be prepared on the annual basis. In other words, it means that the legis­lature should grant money to the Executive for one year.

A year is a reasonable period of time, for which the legislature can afford to give financial authority to the Executive. It is also the minimum period which is necessary to execute the financial programme. But annuality of the Budget does not mean that there should be no long-term planning.

All those countries which have adopted the policy of planned development do have long-term budgeting, but these long- term plans do not involve actual using of appropriations for the entire period of the plan by the legislature though it may be called to approve the plan in principles and broad outlines as is done in the case of our Five Year Plans.

7. Rule of lapse:

The annuality principle of budgeting also implies that money left unspent during the year for which it was sanctioned must lapse to the Public Treasury and the Government cannot spend it unless re-sanctioned in the next year’s budget.

This rule of lapse is essential for effective financial control. If the unspent balance of one year could be carried out for expenditure in future years, it would make the departments independent of the control of the legislature till the time their accumulated balances are spent. But this rule is defective from the point of view of economical planning of expenditure.

The departments, knowing that if they do not utilize grants, they shall lapse, have no incentive for economy and therefore, towards the end of the financial year, they spend it lavishly with scant regard to its urgency or utility.

In our country, the Central and State Governments can constitute reserves or reserve funds, either by allotment of sums from the revenues of a year or series of years or from grants of contributions made by other governments and outside agencies, “with the object of expend­ing the moneys accumulated in the funds on the specific and particular purposes for which they have been constituted.”

While the general principle of ‘rule of lapse’ is accepted as a matter of policy, the Finance Ministry has assured, time and again, the Administrative Ministries that wherever grants have not been used to the full extent for valid reasons, the Finance Ministry would be prepared to consider proposals to allot provision for the unexpended amounts either in the original budget of the coming year or by means of supplementary grants in that year pro­vided the purposes for which these amounts were originally included in the sanctioned grants continue to be operative.

It is hoped that with this assurance the Ministries concerned would take positive steps to prevent the rush of expenditure in the closing months of the year, and also to refrain from making purchases in a hurry merely to avoid lapse of grants.

8. Treasury control:

The legislature authorizes the government to spend money but it does not direct them how to spend it. That is the job of the government itself.

The best system of direction and internal control can be seen in the working of the British Treasury in England where it concerns itself not only in regard to the preparation of budget but also exercises day-to-day supervision over the flow of finances to the operating agencies. Through its power of sanctioning money and employment of personnel, it has come to exercise managerial control over the operating departments.

9. Executive discretion:

The Executive must be given sufficient discretion in the matter of allotment of appropria­tion if it is to exercise supervision over the activities of the spending departments.

M. Rene Stourum has rightly said:

“The pilot in-charge of steering a vessel is the only competent judge of the position and of the speed be has need to give his sails because he alone is posted in such a way as to know the force and the direction of the winds and the currents, which may hinder or delay his movement.”

The legislature should provide for broadly defined functions of the spending agencies and the executive should be left alone in the matter of determining the precise means of operation to achieve the purpose set forth by law. It should possess the power to make re-appropriations from one minor head to another.

It should also have the power and means to meet financial emergencies. The provision of a Contingency Fund in India in the name of the President to meet financial exigencies is a fine example of executive discretion.

10. The form of estimate should correspond to the form of account:

This principle means that the budgetary heads should be the same as those of accounts. This facilitates budget preparation, budgetary control and the keeping of accounts.

11. Revenue and capital parts of the budget should be kept distinct:

This principle means that overall surplus or deficit may be found out by taking both into account.

12. Single budget:

Lastly, it is also an important principle of Budget making that the government should have a single budget incorporating all revenues as well as expenditures of the government. A single budget presents to the people a clear-cut picture of the financial transactions of the government as a whole.

But if there are a number of department-wise budgets, some of them may show a surplus and others a deficit. It will not thus be possible to know the net financial position of the government as a whole except by complicated calculations and adjustments.

On the basis of this principle, it is also wrong to prepare ‘Extraordinary Budgets’ for special pur­poses. An exception to this principle of unity of Budget is, however, sometimes made in some countries including India when separate budget is prepared for commercial enterprises such as Railways.

India has had a separate budget for Railways since 1924. The Railways are free to keep their profits for their own development after they had made their own contributions to the general revenue.

According to Dimock, the important Budget principles are publicity, clarity, comprehen­siveness, unity, periodicity, accuracy and integrity. By publicity is meant that the budget should be made public and that there should be no secret session to consider the budget.

The principle of clarity means that the budget should be clearly understandable. Comprehensiveness means that it should give a complete picture of government revenues and expenditures.

One should be able to know the entire financial position of the government. By unity is meant that all govern­ment receipts should be consolidated into one general fund for financing all expenditures.

Periodicity means that the appropriations should be authorized for a fixed period and if money is not utilized within that period, it should either lapse, or should be re-appropriated. Accuracy means that the budget estimates should be based on accurate data.

The principle of integrity means that the budget should be implemented as enacted. There should be no departure from it. The above are the principles which are generally followed in every country with some minor differences of details.

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Essay on Finance

Students are often asked to write an essay on Finance in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on Finance

Understanding finance.

Finance is a field that deals with the study of investments. It involves the dynamics of assets and liabilities over time under conditions of different degrees of uncertainty and risk.

Types of Finance

Finance can be divided into three types: personal, corporate, and public/government. Personal finance involves managing individual or family funds. Corporate finance relates to how companies raise and invest capital. Public finance focuses on government revenue and expenditures.

Importance of Finance

Finance is important as it helps individuals and businesses to make use of resources in the best possible way. It assists in achieving financial goals and increases overall economic efficiency.

250 Words Essay on Finance

Introduction to finance.

Finance is a critical field that deals with the allocation of assets and liabilities over time under varying degrees of risk and uncertainty. It is the lifeblood of the global economy, driving decisions in every sector, from households to multinational corporations.

The Importance of Finance

Fields of finance.

Finance is a broad discipline that encompasses several fields. Corporate finance focuses on the financial activities of businesses, while personal finance pertains to individuals’ financial management. Public finance, on the other hand, deals with governmental financial affairs.

Finance and Technology

The advent of technology has revolutionized the finance industry. Fintech, a blend of finance and technology, has made financial services more accessible and efficient. It has transformed traditional banking systems, enabling transactions and investments to be executed with just a few clicks.

In conclusion, finance is an essential discipline that underpins economic growth and stability. Its significance extends beyond mere money management, influencing decision-making processes at both individual and corporate levels. The integration of technology in finance has further enhanced its scope, paving the way for a more inclusive and efficient financial system.

500 Words Essay on Finance

Finance, a cornerstone of the business world, is a broad term that encapsulates numerous activities related to money management. It involves the allocation of resources, investment, and risk management, all of which are critical in both personal and corporate contexts. Understanding finance is essential for making informed decisions that affect both short-term and long-term economic stability.

The Fundamental Principles of Finance

Finance operates on several key principles. The first, risk and return, states that higher potential returns often come with increased risk. Investors must balance their desire for profit with their tolerance for risk. The second principle, time value of money, suggests that money’s value decreases over time due to factors such as inflation. Therefore, money invested today is worth more than the same amount in the future.

Functions of Finance

Finance serves several functions. In corporate finance, it helps in capital budgeting, where companies decide on investments that yield the highest returns. It also aids in determining a company’s optimal capital structure, balancing debt and equity to minimize financial risk.

In personal finance, it guides individuals in managing their income, savings, and expenditures. It also helps in planning for future needs, such as retirement and education expenses. Moreover, financial knowledge is crucial for investment decisions, enabling individuals to grow their wealth over time.

The Role of Finance in Economic Growth

Challenges in finance.

Despite its importance, finance also poses challenges. Economic fluctuations and market volatility can lead to financial instability. Moreover, the complex nature of financial products and services can lead to information asymmetry, where one party in a transaction has more information than the other, leading to potential exploitation. Additionally, the global nature of finance can amplify economic crises, as seen in the 2008 financial meltdown.

In conclusion, finance is a multifaceted discipline that serves as the lifeblood of the economy. It is both an art and a science, requiring a blend of analytical skills, strategic thinking, and risk management. As we navigate an increasingly complex financial landscape, the importance of finance only continues to grow. Therefore, a solid understanding of financial principles is invaluable for both individuals and businesses alike.

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Government Finance Essay Example

Government Finance Review

The government’s role in the society has always been controversial. Some individuals are contented with the role that the government plays. Others believe it does not do enough. However, the public provides significant financial support to the government through taxes. These taxes finance most government expenditures. This paper focuses on Detroit’s budgetary issues, including the sources of revenues, expenditures, and fiscal deficits (Hayman, 2016).

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Detroit is a densely populated and the largest city in Michigan, USA. According to the census that was conducted in the year 2010, the city has 713,777 residents, which makes Detroit the 18th most densely-populated city in the USA. However, the population has consistently declined since 1950. The city encompasses 269,445 households and 162,924 families. Age distribution in Detroit city is significantly wide, with 31.1% being children, 9.7% of the age of 18 to 24, 29.5 % the age of 25 to 44, 19.3% ranged between the age of 45 and 64 and 10.4% above the age of 65. The median household income was recorded at $25,787 while the per capita income has been recorded at $ 14,118.

The city depends on various sources to acquire its revenue. Evaluation of the previous three-year trend identifies the following sources of income for Detroit city. Taxes, assessments, and interests are the primary sources of income for the city. In the year 2013, up to $782 Million was obtained from these sources. Secondly, the city depends on licenses, inspection charges, and permits to gather up to 24% of its revenue. Thirdly, the city collects its revenues from the utilization of its assets as well as the sales and charge services. Lastly, the city depends on fines, penalties, and forfeits to generate income, (2016).

In the formulations that are key areas that have the municipality budgets, which include the sales budget, the scheduled cash collected, operating expenses budget, purchases budget and the cash disbursement schedule. Budgeting enables the municipal government to predict for risks and the city’s revenues over time to allow it reduce its operating costs and maximize the revenue sources and returns earned. The budgets handle a variety of clients from different fields and cost projections hence can pose some difficulty in budgeting after a long period. They, therefore, engage in short-term budgeting periods and prevalence in handling intrusive projecting of their financial positions (Hyman, 2008).

In some situations, the city has faced budget deficits due to increasing expenditures as compared to revenues. The city spends most of its income on paying salaries, wages and charges, operating supplies and services, compensation of employees’ benefits and lastly paying capital equipment and outlays.

Budget deficits in Detroit can be attributed to the unstable economy caused by market inefficiencies, for instance, reduction in national credit, recession, sequestration and government shutdowns. Secondly, the city spends a lot of revenue on settling wages and layoffs, which consumes up to $66,000 of the city’s revenue. An analysis of the cities’ expenses places salaries and wages at the highest expense, which was 27.5 % of the total spending in 2010. On the other hand, employees’ benefits were recorded at $361.7, which was 22.6% of the total expenditures, (Hayman, 2014).

The municipality can opt to revenue alternatives to prevent budget deficits. First, the city can acquire more funds from the national government. Secondly, the state government can opt for local investment and tradeoff to enhance its revenue sources. Lastly, the city can obtain more funds from external donors and creditors with guidelines that regulate its dependence on external sources, (Hyman, 2014).

(2016). EBS fund summary. Retrieved 9 September 2016, from http://www.detroitmi.gov/portals/0/docs/budgetdept/2010-11_budget/executive%20budget%20summary%2011/ebs_2010-11_section%20b_summary%20all%20funds_stamped.pdf

David N. Hyman. (2016). Public finance: A contemporary application of the theory of policy. Retrieved 9 September 2016, from http://nurjatiwidodo.lecture.ub.ac.id/files/2012/09/Public_Finance-David-N-Hyman.pdf

Hyman, D. (2008) Health Insurance: Market Failure or Government Failure?. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.1087830

Hyman, D. N. (2014). Public finance: A contemporary application of theory to policy. (11th ed.). Stamford, CT: Cengage Learning

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Single headline Ofsted grades scrapped in landmark school reform

Government pushes ahead with reform agenda by scrapping single headline Ofsted judgements for schools with immediate effect

Single headline grades for schools will be scrapped with immediate effect to boost school standards and increase transparency for parents, the government has announced today.

Reductive single headline grades fail to provide a fair and accurate assessment of overall school performance across a range of areas and are supported by a minority of parents and teachers. 

The change delivers on the government’s mission to break down barriers to opportunity and demonstrates the Prime Minister’s commitment to improve the life chances of young people across the country.

For inspections this academic year, parents will see four grades across the existing sub-categories: quality of education, behaviour and attitudes, personal development and leadership & management.

This reform paves the way for the introduction of School Report Cards from September 2025, which will provide parents with a full and comprehensive assessment of how schools are performing and ensure that inspections are more effective in driving improvement. Recent data shows that reports cards are supported by 77% of parents.

The government will continue to intervene in poorly performing schools to ensure high school standards for children.

Bridget Phillipson, Education Secretary, said:

The need for Ofsted reform to drive high and rising standards for all our children in every school is overwhelmingly clear. The removal of headline grades is a generational reform and a landmark moment for children, parents, and teachers. Single headline grades are low information for parents and high stakes for schools. Parents deserve a much clearer, much broader picture of how schools are performing – that’s what our report cards will provide. This government will make inspection a more powerful, more transparent tool for driving school improvement. We promised change, and now we are delivering.

As part of today’s announcement, where schools are identified as struggling, government will prioritise rapidly getting plans in place to improve the education and experience of children, rather than relying purely on changing schools’ management.

From early 2025, the government will also introduce Regional Improvement Teams that will work with struggling schools to quickly and directly address areas of weakness, meeting a manifesto commitment.

The Education Secretary has already begun to reset relations with education workforces, supporting the Government’s pledge to recruit 6,500 new teachers, and reform to Ofsted marks another key milestone.

Today’s announcement follows engagement with the sector and family of headteacher Ruth Perry, after a coroner’s inquest found the Ofsted inspection process had contributed to her death.

The government will work closely with Ofsted and relevant sectors and stakeholders to ensure that the removal of headline grades is implemented smoothly.

Jason Elsom, Chief Executive of Parentkind, said:

We welcome the decision by the Secretary of State to prioritise Ofsted reform. The move to end single-word judgements as soon as practical, whilst giving due care and attention to constructing a new and sustainable accountability framework during the year ahead, is the right balance for both schools and parents.  Most parents understand the need for school inspection, but they want that inspection to help schools to improve as well as giving a verdict on the quality of education their children are receiving. When we spoke to parents about what was important to them, their children being happy at school was a big talking point and should not be overlooked. Parents have been very clear that they want to see changes to the way Ofsted reports back after visiting a school, and it is welcome to see a clear timetable being set out today for moving towards a report card that will give parents greater clarity of the performance of their children’s school. We need to make sure that we get this right for parents, as well as schools. There is much more we can do to include the voice of parents in Ofsted inspections and reform of our school system, and today’s announcement is a big step in the right direction.

Paul Whiteman, General Secretary of National Association of Headteachers, said:

The scrapping of overarching grades is a welcome interim measure. We have been clear that simplistic one-word judgements are harmful, and we are pleased the government has taken swift action to remove them. School leaders recognise the need for accountability but it must be proportionate and fair and so we are pleased to see a stronger focus on support for schools instead of heavy-handed intervention. There is much work to do now in order to design a fundamentally different long-term approach to inspection and we look forward to working with government to achieve that.

Where necessary, in cases of the most serious concern, government will continue to intervene, including by issuing an academy order, which may in some cases mean transferring to new management. Ofsted will continue to identify these schools – which would have been graded as inadequate.

The government also currently intervenes where a school receives two or more consecutive judgements of ‘requires improvement’ under the ‘2RI’ policy. With the exception of schools already due to convert to academies this term, this policy will change. The government will now put in place support for these schools from a high performing school, helping to drive up standards quickly.

Today’s changes build on the recently announced Children’s Wellbeing Bill, which will put children at the centre of education and make changes to ensure every child is supported to achieve and thrive.

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