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| CE TER EC ER CS TET [RET ET CER RCI VEER CY) SE NM Rr Learning Objectives: m Understand some elements of establishing a baseline budget m Estimate other elements of the agency’ core budget from the perspective of the agency Most of the spending in the operating budget supports current services, and it would be an unusual state or local government executive budget proposal that included new spending initia- tives or cuts representing 10% or more of the budget. So work on the spending base, while mun- dane, is important and sometimes technically demanding. Every major participant in the budget process is interested in the baseline budget and may use the tools discussed in this module at different stages of the budget process, with different levels of detail, and for different purposes. Defining the Baseline Budget EYE YX YX) = {mT I ETB -] RTE JET Rr 114 ADMG26T X | BB ADM6267 X @ chenzeb x [Bl GrandCan x | [I StudentPo x | © Word|Mic x 136 of 384 The central budget authority determines the base budget and typically adjusts the base because of inflation or other factors, thus creating a baseline budget. Later, the central budget authority reviews the agency's submission of base budget data and sends the agency base or baseline bud- get instructions (possibly after some negotiation). Then the agency determines in detail exactly how that budget will be distributed over its own activities and compiles it back as the main part of the (or possibly the entire) budget submission to the central budget authority.! The legisla- ture then reviews and reconsiders the base or baseline budget. It may reduce agency spending if it determines that the base is too generous, or it may increase agency spending if it determines that the base is too stingy. In simple terms, the base budget is the amount of money that is funded for the current year. For many reasons, however, this amount may not be the correct amount for future years. For example, a certain amount may have been included in the base budget for a particular purchase 1. Budget preparation differs by jurisdiction. In some jurisdictions, what is described here as agency prepa- ration may be absorbed by the central budget authority. [ N ETI ENR @ chenzen x [Bl Grandcan x | [I StudentPc x | © Word | Mi rv 137 of 384 $s this year, or positions may have been held empty for part of this year to save money. Typically, the base budget is converted to a baseline budget by adjusting for special conditions. This pri- ii marily consists of removing funds for one-time expenditures and expired programs; annualizing partial-year funding; updating salary and benefits; and, in some jurisdictions, adjusting for infla- 4 tion. It may also be necessary to estimate nondiscretionary increases or decreases in service levels on the basis of factors such as increases in population to be served or changes in federal 4 or state mandates. For example, the school-age population may be growing, thus requiring more classrooms and teachers, or new state laws may increase or decrease penalties for felons, lead- ing to changes in prison populations. In many jurisdictions, both the central budget authority and the specific agencies will review and update the base budget. The central budget authority does so to establish a baseline budget. The specific agencies do so to allocate money to particular subordinate units; specify amounts for particular line items; identify any discretionary amounts that may be repurposed or, where there are cutbacks, used as the first source of meeting cutback targets; and plan for budget implementation. In this respect, the central authority may be interested in more aggregate amounts, while the specific agencies may be interested in more detail. The base budget can be divided into personnel and nonpersonnel categories. We will outline procedures for updating current-services budgets, beginning with the simpler problem of esti- mating the nonpersonnel budget and then moving on to the personnel budget. Nonpersonnel Services Nonpersonnel services (NPS)—labeled other than personnel services (OTPS) in some j dleinnsminclides supplies, equipment that's too small or has too short a ser vice life to be EE EE TET | ETRE EE SITS UTE WEE A FORT ETERS EE WIR CARR 137 of 384 Nonpersonnel services (NPS)—labeled other than personnel services (OTPS) in some iy LD) jurisdictions—includes supplies, equipment that’s too small or has too short a service life to be included in the capital budget, payments to consultants, rent, utilities and heating costs, and » spending on the myriad activities of government except support of employees on the payroll. You 4 can look at Table 2.2 in Module 2 for a sample categorization. Higher-level categories include supplies and materials, utilities, insurance, professional and technical services (i.e., consul tants), rent or lease payments, operations and maintenance, and miscellaneous payments. Technical Adjustments The first step of developing the NPS budget is to make technical adjustments to the base. These consist of removing funds for terminated program elements, reducing start-up funds to recurrent levels, and annualizing program elements that are funded for a part of the year in the first year. These can be identified only through specific program knowledge (to identify termi- nated programs) and through an understanding of the intention underlying funding in the prior year (to identify start-up and other intentional 1-year funding categories and to identify partial-year funding). The most important element of reducing budgets for terminated pro- gram elements is clearly identifying the amount to be reduced and clearly articulating this information in the budget call message. Agencies should not mistakenly repurpose funding that has, in fact, been terminated. The budget call should identify each terminated program and its associated amount. Annualizing the Base Annualizing partial-year program funds consists primarily of identifying how much of the year Err erxs YEE | ETE JE EE TTR LIVIA WE AE FR ET CSR CEI ERR CE SE NM C & viewer.gou.edu/HGAKet Annualizing the Base Annualizing partial-year program funds consists primarily of identifying how much of the year is represented by the funding level. For most programs, this consists of identifying when the program begins taking clients and how much funding is associated with that date. In an example BupGeT TooLs in Module 22: Operating Plan and Variance Analysis, a day care program is funded below its annual level and begins operation at the beginning of the fourth month. To annualize the budget, the pay for teaching staff can be annualized as roughly 12/9 of the first year’s cost. A more thor- ough analysis, looking through the work papers, would show the correct fraction is 12/9.72. Contract Values én {= TE I FCN RA]