practical pressures affecting public sector budgeting designed L a w
Please respond to the following discussion post below.
Analyze the practical pressures affecting public sector budgeting designed to deliver public goods and services.
“Budgetary pressures are an unavoidable consequence of allocating scarce resources between limitless societal needs.” (Fölscher, 2017) Budgetary pressures come in the form of many deviations in the prepared and preplanned annual budget by municipalities and can completely derail an economy as we have seen Internationally with the COVID-19 pandemic. Budgetary pressures can come in the form of a health crisis to a turnback of federal government taxation that causes budget reductions at the state and local levels. (Rubin, 2008) “A recent analysis of data collected on the sources of shocks to government debt in 80 advanced and emerging economies between 1990 and 2014 found 230 events, ranging from financial and banking crises to pressures triggered by the realisation of public private partnership (PPPs) contractual contingent liabilities (Bova at el. 2016).” (Fölscher, 2017) Fölscher listed the top shocks to a public budget included: macroeconomic shocks, financial sector, natural disasters, state-owned enterprises, legal cases, public private partnerships, and private non-financial companies. Absorbing these shocks is problematic for a public sector who is not prepared for them. “Fiscal resilience requires fiscal space, a function of stronger government financial positions, favourable debt dynamics, higher revenue-raising capacity and expenditure flexibility (Gelbard et al. 2016). (Fölscher, 2017) When a public sector is considering revenue-raising opportunities the municipality needs to take into consideration any intergovernmental spillover and fiscal imbalance. (Mikesell, 2018) Spillover can be a good or bad impact on a municipality by the action of another municipality action. (Mikesell, 2018) Financial shocks to a public sector can be absorbed through intergovernmental diversity in funding. The coordination of tax revenues can help reduce problems that may be a negative externality of intergovernmental service provision. (Mikesell, 2018)
In the financing of a public good such as a school system, the state can determine who and how the school is funded. (Mikesell, 2018) When a financial shock, such as the COVID-19 pandemic, closed schools and forced parents to become teachers, public schools were scrambling to provide expensive technology and create wifi capabilities for students to access their classwork. This funding typically comes from property taxes collected by the local government and dispersed to each funded entity. (Mikesell, 2018) If schools did not have enough technology to distribute to each child in need, then there would have been a financial shock to the annual budget to purchase the needed amount.
Evaluate the consequences of two externalities and their impact on public sector budgeting.
“Government also may have a role when market transactions between buyer and seller affect third parties. The consequences may be negative or positive but either way that value is unlikely to be fully recognized in the market transaction.” (Mikesell, 2018) These consequences are referred to as externalities. (Mikesell, 2018) COVID-19 induced an international pandemic, which is common knowledge almost two years into the effects of the virus. The externalities of the pandemic were both negative and positive. Let’s look at one of the negatives first.
The concern for national public health forced federal and state governments to intervene on the public’s behalf and force a shut down in an attempt to curb the deadly virus from spreading. The negative externality of the mandated shut down was the ill effects on the micro-and macroeconomy. The federal government decided to infuse the economy with stimulus money in multiple forms, such as: Advance Child Tax Credit and Economic Impact Payments Stimulus Checks; COVID-19 Health Information, Vaccines, and Testing; COVID-19 Unemployment Benefits; Financial Assistance for Food, Housing, and Bills, and COVID-19 Small Business Loans and Assistance. (USAGov, 2021) The negative impact of the virus not only caused death tolls to rise, induced fear of catching the virus, and mental health concerns due to isolation and mandated shutdowns but families took a financial setback due to the shutdowns.
The second externality we will examine is the positive externality from COVID-19 that resulted from subpopulations (high-risk, immune compromised) who self-determined that isolation was their best defense from contracting the virus until herd immunity could be reached. (Leeson & Rouanet, 2021) Leeson & Rounanet determined that the sooner herd immunity (as the virus worked its way through the population from those who chose not to self-isolate) was achieved by the population the sooner this subpopulation could leave isolation without having to experience the virus, thus creating a positive externality for this group. (Leeson et al., 2021)
“However, in all the analyzed countries, there is a quick fiscal revenue deterioration, which will ultimately limit local governments’ capacity to innovate and take action to solve the imminent economic crisis.” (Ramírez de la Cruz, Grin, Sanabria?Pulido, Cravacuore, & Orellana, 2020). As we move forward looking into 2022, there are not a lot of studies about the totality of effects to the micro- or macroeconomy at this time; however, it can be concluded that if the economy is shut down then public sector budgets will take a revenue hit since sales taxes were not being collected, money stopped flowing in the economy, and unemployment claims spiked causing a demand on the mandated spending. It will be interesting to see what scholars produce in research to decide if the federal government handled the pandemic in an effective way and was able to spend their way out of a recession, or if we experienced government failure and they produced a market failure in their trillion dollars spending packages; time will tell.
Suggest the most practical way to study the fiscal impact of public sector budgeting
Paul explains that (2014)“…fiscal impacts, or the additional revenues and costs incurred by public entities, representing how the specific economic activity will affect the bottom line of local and state governments. For example, the economic impact might tell you how many jobs are created, but fiscal impacts consider how much those jobs will result in taxable spending, new residential property taxes, and also weighs out additional government costs such as the added expense of fire trucks having to dispatch more frequently to accommodate the larger population.”
Fiscal impact assessments may be the most practical way to study the fiscal impacts on public sector budgeting. “The purpose of fiscal impact assessment is to project the costs and revenues of governmental units that are likely to occur as a result of development, policy, or program. The governmental units of primary interest generally are those local jurisdictions that may experience substantial changes in population and/or service demands as a result of the project.” (Economic and fiscal assessment, 2021) When a public sector is preparing its budget that proposes a new project such as a capital project, a fiscal impact plays an important role in assessment. (Mikesell, 2018) There are numerous ways a public sector can estimate the costs associated with growth and development in their communities; however, “cost estimation methods can be categorized into average cost and marginal cost approaches. The average cost approaches include the per capita expenditure method, the service standards method, and the use of cost functions derived from statistical analysis. Marginal cost approaches include the case study approach, comparable city analysis, and economic-engineering methods.” Luke 14:28 28 For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it? The Bible encourages leaders to count the costs of each project to ensure there is sufficient revenue to finish.
Covid-19. USAGov. (n.d.). Retrieved December 9, 2021, from https://
ECONOMIC AND FISCAL ASSESSMENT. Economic and fiscal assessment. (n.d.). Retrieved December 10, 2021, from https://
Fölscher, A. (2017, March 8). Managing budgetary pressures – cabri-sbo.org. Retrieved December 9, 2021, from https://
Leeson, P. T., & Rouanet, L. (2021). Externality Andcovid?19. Southern Economic Journal, 87(4), 1107–1118. https://doi.org/10.1002/soej.12497
Mikesell, J. L. (2018). Fiscal administration: Analysis and applications for the Public Sector. 10th ed. Boston, MA: Cengage Learning.
Paul. (2014). Economic vs. fiscal impacts – what’s more important for economic developers? for best results, estimate both. Impact DataSource. Retrieved December 09, 2021, from https://impactdatasource.com/economic-vs-fiscal-impacts-whats-important-economic-developers/.
Rubin, I. (2008). Public budgeting: Policy, process, and politics. M.E. Sharpe.