City University of New York (CUNY) CUNY Academic Works Publications and Research Baruch College 2011 Towards a Metatheory of Budgeting Dan Williams CUNY Bernard M Baruch College Thad D. Calabrese CUNY Bernard M Baruch College How does access to this work benefit ou?y Let us know! More information about this work at: https://academicworks.cuny.edu/bb_pubs/277 Discover additional works at: https://academicworks.cuny.edu This work is made publicly available by the City University of New York (CUNY). Contact: [email protected] 11. TOWARDS A METATHEORY OF BUDGETING Daniel W. Williams Associate Professor [email protected] Thad Calabrese Assistant Professor [email protected] Baruch College - City University ofNew York School of Public Affairs One Bernard Baruch Way, Box D-0901 New York, NY 10010 ABSTRACT In this paper. sugwe gest that maf!.v budget theories actuallyare abow appropriatingand not about budgeting. IVe trace this de velopment back to the classic budgeting question posed by VO. Keys in 19·10. To clarifY the issue, we examine early normative theories of budgeting, and apply many contemporary theories about budgeting to the budgeting process advocated fo r in this early work. By analyzing current theories. we show that budget theories are. in many cases, simply foc used on parts of the budget process or on the role of techniques in de­ cision making. Our analyses suggest that rather than theories competing with each other. a larger metathe01:v of budgeting emerges that can accommodate these different approaches. Further. we identify important gaps in the literature that still needs to be addressed fo r a complete treatment of public budgeting theory. 11.1. INTRODUCTION "Nearly every writer on American government has commented adversely on the fa ct that appropriations are made by congress each year without a budget." - Frederick A. Cleveland, Chairman - President's Commission on Economy and Efficiency. 1912 In developing a metatheory of budgeting, the first and most basic, question is: what is the point of a theory of budgeting? V. 0. Key started the discussion . by asking, . On \vhat basis shall we decide to allocate x dollars to activity A 1 instead of activity BT He goes on to say, "If it is assumed that an agency is operating at maximum efficiency, the question remains whether the function is worth carrying out at all. or whether it should be carried out on a reduced or enlarged scale. with resulting transfers of funds to or from other activities of 1 V. 0. Key. Jr., "The Lack of a Budgetary Theory." The American Political Science Review 3-+. no. 6 (1940): 1138. 178 Williams & Calabrese 2 greater or lesser social utility. ·· Thi:; issue has guided much discussion of budget theory over the past seventy years. Here it is argued that the question itself is quite ambiguous. But an even larger concern is that it may be the wrong question. For, what is a budget? How is a budget distinguished from "mere appropriating?" Here it is argued that Key· s question is not about budg­ eting. it is about appropriating, or, more specifically, that legislative action that predated budgeting and was intended to be replaced by the decision to budget. If Key has confused appropriating with budgeting. then much of the theory of budgeting itself is actually a theory of appropriating. Perhaps by framingbudget theories not in terms of appropriation but instead as budgeting, we can more clearly see the relationship bet\veen many of the theories that have been propounded over the years and identifY areas where there is no co­ herent theory at all. Table 11.1. Federal Receipts. Expenditures, and Surplus/Deficits, 1890-1916 ($in billions) Surplus/Deficil as % of Year Receiols Expenditures Survlus/Deficil Soendin" 1890 0.46 0.38 0.08 21.05% 1891 0.46 0.44 0.02 4.55% 1892 0.42 0.4 0.02 5.00"/o 1893 0.46 0.46 0 0.00"/o 1894 0.38 0.44 -0.06 -13.64% 1895 0.4 0.42 -0.02 -4.76% 1896 0.42 0.44 -0.02 -4.55% 1897 0.44 0.44 0 0.00% 1898 0.5 0.54 -0.04 -7.41% 1899 0.62 0.7 -0.08 -11.43% 1900 0.66 062 0.04 6.45% 1901 0.7 0.64 0.06 9.37% 1902 0.68 0.6 0.08 13.33% 1903 0.7 0.66 0.04 6.06% 1904 0.68 0.72 ·0.04 -5.56% 1905 0.7 0.72 -0.02 -2.78% 1906 0.76 0.74 0.02 2.70% 1907 0.84 0.76 0.08 10.53% 1908 0.8 0.86 ·0.06 -6.98% 1909 0.82 0.9 -0.08 -8.89% 1910 0.9 0.92 -0.02 -2.17% 191 I 0.94 0.92 0.02 2.17% 1912 0.9-t 0.94 0 0.00"/o 1913 0.98 0.98 0 0.()0% 1914 1.02 1.02 0 0.00% 1915 0.98 1.04 -0.06 -5.77% 1916 1.08 1.04 0.04 3.85% Total, 1890-1916 18.74 18.74 0 0.00"/o Source: From Morns A. Copeland, "A Further Jllstoncal Rc\1ew," 111 Trends in Governmenl Financing, ed. Morris A. Copeland (Ann Arbor, Ml: Univ. of Michigan Press, 1961 ). : Ibid. 1139. To wards a metathem)' of budgeting 179 11.2. WHAT IS BUDGETING AND WHAT IS ITS PURPOSE? th th In the late I 9 and early 20 Centuries, the fe deral go vernment had no pu b­ lic bud geting systems in place. Between 1890 and 1916 (the year in which the US entered World War I and significant ly increased fe deral expenditures on this effort). the fe deral go vernment es sentially broke even fm ancially. Within th is breakeven period, however, annual surpluses or deficits were relative ly pr onounced and varied. For exam ple wh ile the go ve rnment reported nearly a fo urteen pe rcent deficit in 1894, it sho wed a thirteen pe rcent surplus in 1902. On the other hand. state and local go vernments ran increasingly la rger defi­ cits. Through 1916, state and local go ve rnm ents ran operating deficits that av­ eraged between three and eleven pe rc ent of annual spending.3 Further. while the fe deral go ve rnment's share of spending relative to gross domestic product (G OP) was declining during this pe riod of time , state and local go ve rnment spending relative to GDP was actually increasing. The la ck of plannin g by go vernments became a concern fo r reformers dur­ ing this time. Cities and states spent mi llions of dollars annually ·'with little or no thought as to where it was comin g fi·o m or what they were ge tting fo r it " while the fe deral government was in its '·heyday of ·pork barrel' era. ''4 As not­ ed by Cleveland. the ·'uncontrolled and uncontrollable increase in the cost of go vernment" demanded that go vernments ado pt budget processes to ensure democratic transparency. 5 In other words. there was a growing sense that the lack of financial planning in go vernment was lead ing to corruption that. in turn, was contributing significantly to these annual de ficits. The process of bud geting - of systematically planning the finances of governments - was viewed as helping to eliminate these deficits and seemingly unethical behav­ iors of le gislatures ; in other words, implementing budgeting processes \vas expected to create better outcomes fo r go ve rnm ents. This notion of desired outcomes is at the core ofthe pu blic budgetin g tradition, or it should be. In this same tradition. Goodnow argues that budgeting is not ju st a plan fo r how money is spent or appro priated. Rather. the first ste p in the budgetin g 6 pr ocess is a principal expressing a desired outcome to an agent. He suggests that the pr incipal in this case is the le gislature. duly elected by the po pu lation. 3 Morris A. Copeland. "A Further Historical Review." in Trends in Governmelll Financing, ed. Morris A. Copeland (Ann Arbor, MI: University of Michigan Press. 1961 ). � Arthur Eugene Buck, "The Development of the Budget Idea in the United States." The Annals of the American Academy of Political and Social Sc ience 113. no. May ( 1924 ): 81. 5 Frederick Albert Cleveland. "Evolution of the Budget Idea in the United States," Th e Annals of the American Academy of Political and Social Science 62. no. November ( 1915). 6 Frank J. Goodnow, "The Limit of Budgetary Control," Proceedings of the American Political Science Association 9( 1912). 180 Williams & Calabrese The budget process's starting point, then, is fundamentally an expression of public goals to agency heads. But just as important is that the agent (public agency officials) must report back to the principal (the legislature) what was accomplished towards these public goals. Therefore, budgeting is not just about planning which activities of government are funded and by how much (how much is allocated to activity A instead of activity B). but also requires an accounting ofvvhether public goals were met or not. Stated in more contempo­ rary terms. budgeting requires some measure of performance by which public managers are evaluated. When agents fa il to meet the established and agreed upon goals. the principals reduce the discretion of these agents. This might include reducing the funding of the agency, or it might mean shifting budget­ ing from goals (that is, performance) to line-item restrictions.