State and Local Public Finance

Hi welcome to video from the bill this is state and local government and i’m dr charles greenwald today we’re going to take a quick look at public finance we are going to take a much greater look at public finance as we get to the issue areas within state government but as a quick introduction to public finance we’re just going to cover the basics right now

Why do we budget well we budget because of that basic premise that underlines all of politics and all of economics and that is that we have unlimited desires and we have limited resources so we have to budget we have limited financial resources and multiple demands on these resources and those demands will always exceed our cash balances our current assets

Our expected cash and all the financial assets that are generally available to the state so that’s why we budget what is the definition of budgeting if you’re looking at your power points as i hope you are as we go through this presentation a definition of budgeting it’s the process by which elected and appointed officials acting in the interest of the governed

Determined methods of collecting government resources and securing assets through forms of taxation or appropriation and then allocating those financial resources based on priorities determined by the democratic political process end of quote let me repeat that again the definition of budgeting and you find it in your powerpoints not asking you to memorize it but

I do want you to consider uh the parts of it as we go through it a process by which elected and appointed officials acting in the interest of the governed not in our own interests determined methods of collecting government resources securing assets through different forms of taxation or appropriation then allocate those financial resources based on priorities

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Determined by the democratic political process well budgeting what is budgeting budgeting is nothing more than choosing among priorities and it occurs annually or biannually we find that in pennsylvania we use an annual budget we have one budget per year and it must be approved by july 1. if it’s not approved by july 1 the state legislature goes into suspension

Until the budget is approved what happens in in the state house and in the state senate uh the sergeants of arms go over to the uh clocks which are um pendulum clocks and they stop the pendulum they stop time and time will stand still until the budgets are passed and then the clocks may be restarted there are some states that only do a budget once every two years

This was something that governor corbett former governor tom corbett wanted to move pennsylvania from a an annual budget to a bi-annual budget once every two years so that there’s less acrimony there’s less argument there’s less hubbub you just put one budget in place that lasted two years the problem with the two-year budget is then you are stuck for those two

Years you’re not able to be nimble you’re not able to change in response and reaction to changing conditions as a yearly budget allows you to do thomas jefferson may have had the best quotation on budgeting he simply tells us and reminds us the power of a government attacks the power to tax is the power to destroy the power to tax is the power to destroy in other

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Words the government is taking money away from us uh so that we don’t have the ability to uh pursue our dreams we don’t have the ability to buy clothes buy food build a build a house the government therefore has stripped the money from us the power to tax is the power to destroy according to thomas jefferson well what is the generic budgeting process i gave you

That very lengthy definition but let’s go through the six steps of a generic budgeting process and then follow along again on your power points number one revenues and expenditures are estimated revenues and expenditures number two an executive budget the governor’s budget is compil is compiled and submitted then to the legislature the legislature deliberates and

Issues budgetary approval number four the executive the governor signs the legislation containing the budget into law number six budget execution occurs when uh the resources then are allocated to public agencies and number six we have the systematic post authorization audits we find that the government and state government will go in and audit the agencies that

Receive funding so that they can monitor budgetary compliance did they spend the money in the way that the state legislature wanted and did they follow all state rules and regulations what are the major sources of revenue for states well about 75 73 about 73 percent of all state generated revenue comes from taxation you find about 14 from direct services and 13

Is earned on investments the average state mix of tax revenues about 35 percent of all state tax revenues come from individual income taxes seven percent from corporate income taxes fifteen percent come from selective sales tax such as gasoline cigarettes and alcohol and about six percent from license fees the states do vary fantastically they vary tremendously

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From state to state in the mix of revenues that they use to find the funds to provide their public services we find new hampshire for example doesn’t have a general sales tax doesn’t have a general income tax yet it manages to balance its budget every year with a great deal of frugality and by making local governments fund many of its their own services major

Expenditures for all governments well we find that generally education will lead the pack education will be the number one expense for almost all states and it has been in pennsylvania until just recently when welfare caught it and exceeded it but generally the most expensive the major expenditure for all states has generally been education secondly been welfare

Programs third would be miscellaneous programs which means debt interests utilities state parks the fourth major total of major expenditures would be transportation highway construction fifth would be police and corrections and number six would be administration these are the major expenditures the things that state spends money on so this is a quick overview

Of state and budgets and state finance and we want you to read the chapter very very carefully and then we’ll go and take a more detailed look at this uh area in just a little bit okay all right well we’re going to stop here and go on to the next topic in state and local

Transcribed from video
State and Local Public Finance By Charles Greenawalt