The four phases of a budget cycle
include: preparation, legislative
approval, executive implementation and accounting and financial reporting.
The culmination of the
preparation phase is the executive budget, which represents the chief
executive’s proposed spending plan for the forthcoming year.
After reviewing and revising the
executive’s proposal, the legislature adopts the budget into law by passing an
appropriation, a legally binding act of the legislature that sets the spending
limits for each department and agency in government, including those in the
legislative and judicial branches for the forthcoming fiscal year.
Administrators responsible for
budget implementation, then enter into
contracts and issue purchase orders that create encumbrances to each
The accounting department is
responsible for recording encumbrances and approving the subsequent
disbursement of funds once the contracted service is completed. On completion of the fiscal year, the chief
accountant prepares a comprehensive annual financial report that compares the
appropriation as amended for each department with the actual amount of
expenditures. An independent auditor
reviews the financial report and reports to the council on its accuracy and on
the local government’s compliance with federal, state and local laws.
For most local governments, the
budget consists of two documents: the
operating budget which reports the spending plan for a government’s ongoing
service. It typically organizes
information by departments and provides details on such line items as
personnel, supplies, utilities and others.
Money from the operating budget comes from current revenues.
The capital budget represents a
spending plan for the acquisition of fixed assets. This budget is usually part of a more
comprehensive capital improvement plan that projects major construction and
acquisition needs for a five to eight year period. Funding for the capital budget usually comes
from the sale of bonds or other long-term obligations. Information contained in the capital budget
is usually organized by projects.
Discovering budget linkages
Budgeting involves converting
data and information on community needs and wishes into action plan with
resources. Economically, the budget
process converts the factors of production into goods and services. The process of preparing the budget is about discovering the linkages
between budget inputs and outcomes. For
example, will a mosquito spraying program enhance the health of our
The “probable linkages” in a particular
city, town or village is determined by the community’s unique mix of
economic, social, political, cultural and historical events. Through the budget process, community leaders
learn what works effectively in their community and what does not. Not only is the budget process about understanding the linkage between inputs and
outcomes, it is also about reducing
unintended effects. The true cause and effect links between spending and
outcomes are never known with certainty. Good leaders continuously search for
more data and information. For this
reason, budget innovations that are successful in one place are quickly
replicated by other governments.