PART I: General Instruction
The final project is an individual assignment which requires the demonstration of the familiarity regarding class readings and critical thinking to analyze the selected case. Technically, this final project can be considered as the extension of our weekly assignments but with different features. First, this final project focuses on a specific LOCAL government (NOT a department or agency) which is more likely to have informal budgeting practices. Second, in order to cope with these informal practices, this final project encourage students to comprehensively review diverse fiscal documents. Third, this final project assumed that each student is a professionally-trained consultant who is hired to analyze the determinants and potential impacts of the observed institutional design and budget structure in order to provide concrete policy implications/recommendations.
Suggested steps for conducting the project are described as below:
- Local government. At the beginning of this report, students should briefly introduce the related social and economic features of the selected case, such as population size, population composition, political context, average income, etc. Some of these features may be used to analyze its financial practices further.
- Budget observation. Please study prior budget(s) and/or annual financial report(s) of the selected local government (at least 5 years, i.e., from 2019 to 2015) to specify its budget structure (including expenditures and revenues).
- Institution observation. Please review the related information from local government’s financial reports or websites or financial department to specify the overall budget process. For more information, please check Mikesell’s example (2018: p.254). Students are expected to imitate Mikesell’s example to depict a chart of local government’s budget cycle with detailed explanations. Please put this required chart in your appendix.
Note: With in our textbook, Mikesell (2018) identifies 10 features of state and local governments’ financial practices (p. 228 to p.235) which not only covers the potential budgeting structure but also entails the related institutional design. Students can attempt to confirm whether these 10 features can be observed in your selected case, which can be the guideline for your budget and institutional observation. Or you can also point out the features based on your observation.
- Comprehensive Analysis. After you identify the related features of their budget structure and Institutional design, students are required to select two to three features for further analysis. The comprehensive analysis primarily addresses the potential determinants and impacts of the selected features. The related examples are listed as follows:
- Example of budget structure: The steady but disproportional expenditures on human resources. For some local governments, the expenditures on pensions and other postemployment benefits may be the primary element of its budget structure. While you identify this feature from their financial document, you can first analyze why this feature exist. For example, you may review (a) the contracts of public workers or the related regulations of benefits of this local government, (b) the trend of the similar expenditures for a longer time frame (i.e., a decade), (c) the population of public workers in this selected case, (d) the average salary compared with other local governments in the area, (e) the percentage of public workers (public workers / population) compared with other similar local governments. Secondly, you may further the potential impacts of this expenditure structure. For example, according the speech of Bill Gates, this type of expenditure may influence state government’s expenditure on education. You may review the overall budget structure again to see whether there is any public service that is enforced to decrease its budget scale.
- Example of financial institution: The existence of informal budgeting processes. At local level, there might be more informal budgeting process. You can attempt to analyze the potential determinants of this institutional design. For example, you may argue that there are no enough professional employees, which is supported by the low college-degree rate or other factors. You may further argue the potential impacts of this institutional feature—for instance, the unstable expenditure structure or an increasing deficit. Certain argument may be also confirmed by the phone interview with the local budget officers (optional) or the literature of empirical studies (namely, you can conduct a literature review for those academic studies).
- Policy implications. Based on your observations and comprehensive analyses, please provide concrete policy implications or recommendations in order to increase the sustainability of the overall financial environment of the selected local government.
- Draft the report. Please use relevant literature and collected data to support your argument. Prepare a written report of your observation and analyses. While not including figures, tables, reference list, or appendix, the report can be between 10 and 12 (definitely no more than 12) double-spaced pages, in font 12. It may include (but not limited to) the following elements: a. Table of content;
- Executive summary;
- Budget observation;
- Institution observation
- Comprehensive analysis;
- Conclusions and recommendations;
- References (not included in page limit);
- Appendixes (not included in page limit):
- Transcript of interview for the budget officer (optional)
- Tables or figures that you made to depict the budget cycle (required) or the budget structure
- Necessary supporting documents from the real budget(s) and financial report(s) that you have examined
PART II: Suggested elements
In your report, you may consider examining some of the issues and questions listed below. It is NOT necessary to cover all of these questions. Instead, you can choose the topics based on your preference or data availability.
The paper should be written as if you were a management consulting team brought in to do a comprehensive, objective review of the budget situation and issues of a local government. The introduction should include a brief overview of the issues shaping the environment which affects the budget (e.g., population changes, economic trends, recent political issues, etc.).
2. Budget observation: Expenditure and Revenue Trends
You may analyze major sources of revenue and expenditures, as well as trends over time. For trends, use the most current budget year available as well as at least one prior year (most budgets will include data for at least one or two prior years).
Use tables and/or graphs to help display key information. Some governments have a large number of agencies and revenue sources; in those cases it may be helpful to aggregate some data (for example, list the largest agencies individually in an expenditure table, then combine other agencies into categories, such as “health or safety,” or into one “other” category). Think carefully about the categories you use on both expenditure and revenue sections; do not use a format without carefully considering whether or not this is the best way to present the data. For example, they might present the data by funds, and not in the aggregate. Which is the best for your purposes?
The following are the major questions you should answer regarding expenditures:
- What is the total expenditure?
- It is often helpful to relate this to something else to give the reader some perspective – e.g., how much is this per capita?
- How has it changed recently and how does it compare to the average state or local government in the state?
- Where does the money go?
- Which are the largest agencies or functions of government?
- Which are the largest funds? (This will require breaking down the total budget by fund.) – What are the recent important changes in spending?
- What is the real versus nominal growth in expenditures over the period you are looking at? Has the government’s spending grown faster than inflation?
- Use a price index to calculate real expenditures
- You may want to put figures into real per capita terms also
- What are the major sources of growth or decline over this period?
- Explain how expenditures have changed in the aggregate, and also by sub-category. Which categories are growing particularly faster or slower than others, and why? (The executive’s message in the budget may help explain the reasons for the change).
- Have these changes been the result of explicit policy decisions or by “automatic” changes built into the budget?
- What are the strengths and weaknesses about this part of the budget?
It is recommended to examine both the revenues and expenditures. These are the general questions you may want to consider regarding the revenue structure and trends:
- Where does the money come from? – What are the major sources of revenue?
- How much have total revenues and the components changed over this period?
- Which revenue sources have experienced the most change over this period?
- attempt to explain why the changes have occurred (e.g., sales tax revenues increased due to a change in the sales tax rate, or due to an increase in taxable sales?)
- Are there any other major reforms being considered?
- How well does the revenue structure meet the revenue criteria we have discussed in class?
- Trends in debt and other non-tax sources.
3. Institution observation: Budget Processes
When examining the budgeting processes, you may want to bear the following questions in mind:
- Is the budget annual or biannual?
- What is the fiscal year?
- Brief description of the processes (formulation, review and approval, execution, audit and evaluation)
- Which issues have been highlighted in the budget?
- Power of executive versus the legislative body
- What forms of public participation occur? What does the government do or plan to stimulate participation?
3. Institution observation: Budget Format and Information Management
You may describe the existing budget format and discuss what effects this format seems to have on the budget process and outcomes. Then consider what could be done to improve the format. Does the government effectively manage information to inform management decisions?
- Has the government recently used a different format from what they currently use? Have they considered any alternatives?
- What would have to be changed to move to a different format, and what effects do you think this change could reasonably have?
- Does the government have the capacity to change format?
- What are the major funds that constitute the budget?
- Does the government have an effective strategic direction?
- How tightly controlled are appropriations? For example, do they specify line-item details, or do they give substantial discretion to each unit manager?
- Who is responsible for revenue forecasting and how is that information being used?
- Does the budget include forecasts for future years? How effectively is this information used?
- To what extent do you find the budget document to be a useful communication tool?
- Does the budget currently include performance information? If so, does it appear to be primarily related to workload/activities, or results/outcomes?
- Does the government effectively evaluate programs?
4. Comprehensive Analysis.
Please conceive your report based on the instructions or examples in Part I.
5. Conclusions and recommendations
Make sure that you sum up your analyses with clear conclusions regarding the current budgeting condition and expenditure and revenue trend of this government or organization. What are the strengths, weaknesses, opportunities, and threats facing the local government or organization? This section should follow naturally from the previous sections. Problems noted earlier need to be addressed here. Make sure that the different sections are consistent with each other. Then use these conclusions to make some appropriate recommendations that could improve the budgeting processes and outcomes.
Notes: Please DO NOT copy from the original budget documents or any other publications without clearly citing the sources. Plagiarism is a serious issue!
Other useful Websites:
- National League of Cities:
- National Association of Counties:
- State budget processes: