CHAPTER IV THE BUDGET AND APPROPRIATION PROCEDURE The Old System Contrasted with the Budget System: Long before the budget plan was introduced in this country or thought of in Kentucky, it seems to have been the general idea that the way to finance the several activities of the government was to set apart special revenues for the support of each, and this was usually done at the time when the activities were inaugurated or received their greatest impetus, provisions to this effect being sometimes included in constitutions and charters. Under this policy the various items of expenditure included in the cost of government were financed in one of three ways, viz: 1. Certain large and worthy purposes, especially those deemed somewhat "sacred", were provided for by the setting apart of certain classes of taxes or portions of general taxes, as for instance the so-called "mill" tax. 2. Departments or activities of a regulatory or public service character were authorized to exact fees or other charges and to use the revenues so derived for their own support. 3. The general or administrative cost of government as well as smaller expenditures of a miscellaneous character were provided for currently by appropriations from "any funds in the treasury not otherwise appropriated." These available funds consisted usually of a portion of the general property tax, other taxes not devoted to special purposes, and miscellaneous revenues from other sources. The effect, if not the purpose, of this method of financing was to reduce the labor and responsibilities of current financial administration to the minimum. No annual or biennial summing up of resources and adjustment of expenditures taking place, the finances of government proceeded in accordance with the formulas of established laws, producing surpluses or deficits, over-providing for some departments and neglecting For some special classes of expenditures, notably salaries and wages and travel expense, special forms of vouchers are essential. This fact is recognized by the system in Kentucky so far as travel expense is concerned. The vouchers for salary and wage payments, however, are incomplete in that they do not definitely indicate that the employe was on duty for the period in question. Classification of Expenditures by Function: In large departments there are various activities which are more or less distinct for which it would be desirable to have separate expenditure figures. In an institution, for example, there are likely to be the following: Administration, Heat, light, power, and refrigeration, Automobile and truck expense, Farm operation, Feeding, Housekeeping, Medical care, Education, Industrial shop expense, Entertainment, Special activities, (guarding prisoners, clothing, inmates, etc.) In an educational institution there are likely to be more than one group of educational activities for which separate costs may be desired as, for example, the practice school and normal school proper of a teacher's college. Various types of institutions have varying requirements, but all of them need to know the costs of each of the activities listed in the preceding tabulation. For State agencies which do not operate an institution or do more than that, other classifications of expense by functions are necessary. The development of a classification to suit the needs is a very difficult matter in most cases. Unless a classification has been tried and found to work well it is hard to judge in advance whether it will be practical. On the other hand not be regarded as replacing the machinery for getting facts underlying the estimates straight to the Legislature. The old idea remains to be dealt with in the present fiscal administration of the States. Such branches of the State government as the Motor Vehicle Department and Game and Fish Commission illustrate in more extreme form the conditions which can exist where the laissez faire principles of the old idea prevail. In general the Legislature and its designated controlling agencies (such as the Auditor of Public Accounts' office) have not yet begun to assume the responsibilities for economical administration which the people of the State may expect. The fundamental traditions of the present order are opposed to real central control and the machinery for such control is lacking. Criticism of the Present So-Called Budget Procedure: The State of Kentucky has expressed its approval of the budget idea and nominally adopted it in 1918. In actual fact it apparently has failed to grasp the principle and purpose of the budget, for in the first place it has left the present day resources tied up almost as effectively as they were in the old days of statutory appropriations, and, in the second place, even within the limited field allowed to current appropriation it has failed to develop the budget to its proper character and efficiency, as a means for bringing in information and controlling expenditures. The first of these faults is chiefly a matter of law and the second would be entirely a matter of administration if it were not for certain handicaps imposed upon the Budget Commission by the law which created it. In the following sections each of the two faults will be dealt with in turn. The Limited Field of the Present Budget: For the year ending June 30, 1923, the total gross receipts of the State Treasury were something over $21,311,000. In this figure was included an indeterminable amount representing refunds, reimbursements, transfers, and corrections of previous entries. Assuming that this duplication amounted to about $311,000 Extraordinary repairs, including alterations, renewals, and replacements, Rent of real estate, Furniture and equipment, Structures and structural improvements, Land and interest in land, Judgments, awards, gifts, contributions, losses, Interest, Contingencies and special items to be indicated specifically. Obviously some departments would not have occasion to use more than a very few of these items and in others some of the heads should be subdivided to give an adequate idea of the value of the expenditures in question. For each department as much detail as is needed should be given. The budget classification should be uniform for the whole State government so far as the main heads (as listed) are concerned, but the budget officer should be the first to recognize and require individual departments to subdivide items to the extent necessary. Where there is a detailed classification of expenditures by function it may appear that an added classification by nature for each functional head will mean a too great amount of detail. This is not found to be true, however, because each functional head ordinarily represents only two or three budget classes. If the classification is felt to be too elaborate the number of functional heads should be reduced or the number of natural heads should be reduced, but the failure to give any analysis by budget class of a functional head should never be permitted. Special Fund Problems: Much of the difficulty which departments now have in keeping their accounts is due to the special funds which they attempt to keep track of. Recommendations made in earlier chapters looking toward the elimination of special funds and centralized treasury would do away with these difficulties except in the case of institutions like the University and normal schools which operate student activities like boarding which are supposed to be private and distinct from the school proper. Each such private fund should have a expenditures from these two classes of indefinite appropriations amounted to approximately $2,500.000. On the basis of the preceding figures, it would appear that only $5,500,000 out of the total of $21,000,000 is covered by the budget and appropriation act. As a matter of fact, less than $4,000,000 is so covered. The difference between three million and some hundred thousand dollars and five and a half million is accounted for by inaccuracies in the estimates of general fund revenue which resulted in about two million of revenues being unassigned to any purpose. Even this is not all. The $21,000,000 gross revenues mentioned above comprise only such revenues as are covered into the State Treasury. There are other revenues of State departments and institutions which are not reported to the Auditor and are not deposited in the Treasury. These amount in total to about a million dollars. If the State wishes to have a thorough budget system it must make its wish effective by at least radically curtailing the old special fund system which now dominates its finances. Moneys must not be made available for expenditure under special funds without the needs being reviewed just as carefully as they are when money is made available from general funds. Also if the funds are not wholly abolished the Legislature must stand ready at each session to reconsider the apportionment or revenue to each fund on the basis of the present demonstrated needs. In final analysis the special fund and budget systems are incompatible and irreconcilable, eventually special funds should be done away with. Even prior to the introduction of the budget there was the annual appropriation act providing for the general and miscellaneous expenses of government out of revenues not otherwise appropriated. In all essential respects the present day budget of the State is fulfilling just this function of the old annual appropriation act and no more. The adoption of the language and some fragments of the form and procedure of the budget has availed and will avail nothing. |