The document provides an overview of operating budget concepts and processes for local governments. It discusses key relationships between operating budgets and other financial planning aspects such as capital investment plans, strategic planning, accounting, and more. The document also examines characteristics of effective operating budget systems and the roles and responsibilities of various actors such as citizens, governing bodies, department heads, and chief executive officers in the budget preparation and implementation process.

1. Operating Budget for Local
Governments
Strengthening The Financial Foundation of
Local Government
Training of Trainers Workshop
June 4- 15 2007 Nadi, Fiji
Based on Financial Management Training Series- UNHSP
Dr Ravikant Joshi

2. Relationship of OP with other aspects
Financial Policy Making
Financial Planning
Citizens Participation
Evaluating Financial Condition
Asset Management
Performance Measurement
Accounting
Financing CIP
Capital Investment Plan
Financing Op. Budget
Procurement
Helps to find out what and how much can be achieved through OB
Sets policy framework for operating budget
Sets long term plan, OB must be consistent with it
Citizens should participate in setting and monitoring spending priorities
Should identify conditions that affect OB
Focuses on preparing and forecasting revenues for OB
Is a long term plan and OB should contribute to it
OB surplus is one of the source of financing CIP
Helps to know how money got spent against OB
Procurement constitutes 35 to 65 % of OB
OB provide for maintenance of assets
Operating Budget Policy

3. Relationship between different concepts
“A capital investment plan is a multiyear
(usually 5-6 year) plan of capital investment
projects listed in priority order by year.”
“Capital Investment Plan”
Operating Budget Capital Budget Strategic Planning
plan for proposed
capital
improvements
projects and the
means of financing
them; a budget that
contains capital
projects included in
the first year of the
capital program.
Uses organisational and
environmental analysis
and typically creates
layers of goals, objectives,
and strategies that provide
a target path for the
operations of an
organization. These
should be integrated into
the operating budget
An operating budget is a
clear, logical plan for the
allocation of resources for
day-to-day operations of
essential public service
programs such as
transportation, street and
bridge maintenance and
construction, etc supporting
a safe, healthy, and
pleasant environment

4. Operating Budget
◼ Characteristics of Effective OB system
❑ Important policies and procedures are explicitly
stated, full documented and communicated to all
❑ The system is workable and understandable
❑ The budget structure is compatible with the
accounting system, so actual results can be
compared with budgeted
❑ The process is fully documented
❑ Outputs or performance measures are an integral
part of the budget

5. Learning
Application
Go to Page No 74, Vol 2

6. Good Governance and Operating Budgets
◼ Transparency – open processes and systematic reports on
results toward meeting goals and objectives,
◼ Accountability – actions, decisions and decision-making
processes open to scrutiny by citizens, public agencies, the
governing body and civil society,
◼ Responsiveness – the capacity and flexibility to respond to
changing regional, national and international circumstances,
◼ Future orientation – the ability to anticipate future priorities and
develop policies that take into account costs and anticipated
changes,
◼ Rule of law and integrity – equitable enforcement of
transparent laws, regulations and codes, so that they become a
part of the culture in the LG supporting ethical behaviour and
taking vigorous action to fight corruption.

7. Roles and Responsibilities
Define the key actors and their roles in the
implementation of the Budget
Citizens Governing Body
Members
Chief Executive
Officer
Define LG
budgetary
policies
Responsible for
maximum
possible
satisfaction of
public service
needs within
existing
resources.
Develop department
budgets for providing
services
Review sub-department
requests Prepare
budget objectives.
Prepare
recommendations for
governing body
Ensure that the
department does not
exceed budget
authorization.
Department
Heads
Obtain citizen
reactions to
budget
recommendations
Solicit
suggestions from
citizens/
organizations
most affected by
budget
Preparing draft budget to
be reviewed by governing
body;
Explaining current and
projected financial status
of the LG;
Implementing budget as
approved by the
governing body;
Monitoring and reporting
on the status of the
budget

8. Learning
Application
Go to Page No 81, Vol 2

9. History of US Budgets
Line Item Budgeting
Program Budgeting
Performance
Budgeting
Zero Based
Budgeting
Target Based
Budgeting
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000

10. Comparison of Budgeting Techniques
Budgeting
Techniques
Advantages Disadvantages
Line item
budgeting
Very familiar; governing body
members may not want to
change budget systems because
of a concern for getting less
information.
The more detailed the objects of
expenditure, the greater the
governing body’s control over
the department.
Provides information only on the
resources or inputs used in
providing public services—it
does not provide any information
on what is accomplished with the
use of the resources.
The more detailed the line items, the
less flexibility managers have.
The level of detail may be
overwhelming to citizens.
Usually based on an incremental
approach. Prior year’s expenditures
are the base, with amounts added to
reflect inflation, increased demand, or
improved level of services provided.
The incremental method does not deal
with issues such as: how to reduce
costs while keeping the same service
level or how the service provided
corresponds to current needs.

11. Comparison of Budgeting Techniques
Budgeting
Techniques
Advantages Disadvantages
Program
budgeting
(PPBS)
What is to be
accomplished?
How much it
will cost ?
Emphasizes the quality and
cost of services as
opposed to the cost of
things purchased (line
item).
Usually accompanied by
performance measures for
output.
Gives managers the
flexibility to achieve
“service level targets” in
any way that works (i.e.,
not limited by line items) as
long as they stay within the
overall budget allocation.
Increasingly complex.
Very analysis and paperwork
oriented.
May intensify conflict because it
reveals that if one service is
increased another must be
decreased. For example, for
police patrols to be so that 5% of
citizens feel safer, there may
have to be a 30% decrease
opportunity for kids to play
soccer.
Determination of the budget for
current services is somewhat
subjective.

12. Comparison of Budgeting Techniques
Budgeting
Techniques
Advantages Disadvantages
Performance
budgeting
◼Produce a work
plan that justifies
budget
◼Provide a basis
for comparing the
cost & quality
◼Provide a
running check
whether programs
are achieving
their goals
Improves program
efficiency.
Allows for better
evaluation of results of
program operations.
Provides governing
body members and the
public with better
information on the
quality of services.
Increasingly complex;
more information must be
provided.
Focuses attention on
efficiency and
effectiveness, but does not
address more fundamental
questions such as whether
a program is necessary at
all or how best to allocate
limited resources among
competing programs.

13. Comparison of Budgeting Techniques
Budgeting
Techniques
Advantages Disadvantages
Zero-based
budgeting
Putting zero
against
program then
working out
funding needs
afresh in the
context of
other
spending
possibilities
Allows governing body
members to determine
whether a program is
necessary at all, or to choose
between varying levels of
service.
Proposals are assigned
priorities.
Discretionary items are
funded based on governing
body’s goals and objectives.
Identifies unmet needs.
Increasingly complex;
much more information
must be provided.
May generate conflict
between competing
programs.
Department heads resist
disclosing estimates of the
cost of minimum service
levels because to do so
invites deep cuts in
services if spending must
be reduced.

14. Comparison of Budgeting Techniques
Budgeting
Techniques
Advantages Disadvantages
Target-based
budgeting
Complex but
retains features of
performance
budgeting
Less detailed
information has to be
provided. Less conflict
for policy makers.
Proposals are assigned
priorities.
Identifies unmet needs.
Discretionary items are
funded based on
governing body’s goals
and objectives.
May generate conflict
between competing
programs.
Department heads
resist providing
reduction packages.

15. Participatory Budgeting- Brazil
◼ See Page 89

16. Accounting and Operating Budget
◼ Accounting System
❑ Accounting is the fundamental building block in the
budgeting system
❑ Accounting system must parallel budget programs
◼ Classification of Accounts
❑ Mechanism relating accounting to budget through
classification/ chart of accounts
❑ Tailor to needs of user LG

17. Performance Measures and Operating
Budget
◼ Water
◼ Operating costs for the treatment and distribution of drinking quality water per megalitre.
◼ Number of breaks in water mains per 100 kilometres of water main pipe a year.
◼ Weighted number of days when a boil water advisory issued by the Medical Officer of Health,
applicable to a municipal water supply.
◼ Solid Waste Management (Garbage)
◼ Operating costs for solid waste collection, transfer and disposal per tonne or per household.
◼ Operating costs for solid waste diversion per tonne or per household.
◼ Average operating costs for solid waste management per tonne or per household.
◼ Number of days per year when a Ministry of Environment compliance order for remediation
◼ Number of complaints received in a year per 1,000 households
◼ Percentage of residential solid waste diverted.
◼ Land-Use Planning
◼ Percentage of new development with final approval
◼ Percentage of land designated for agricultural purposes which was preserved and number of
hectares of land originally designated for agricultural purposes which was redesignated for
other uses.

18. Performance Audits and the operating
budget
◼ Have the goals of the previous year achieved?
◼ Have standards for measuring the degree of
goal accomplishment sharpened?
◼ Has management abandoned obsolete goals?
◼ Were alternative means considered, tested
and evaluated?
◼ Are necessary management analytical
techniques in use?

19. Learning
Application
Go to Page No 93, Vol 2

20. Policies – sample operating budget policy

21. Benefits
◼ Legal Documentation
◼ Preparation of OP budget thru established process ensures compliance
with applicable laws or statutes
◼ Policy Compliance
◼ Ensures implementation of goals, policies;
◼ Establishes priorities
◼ Political Impact
◼ Defines impact of political changes on the activities of the LG
◼ Financial Plan
◼ Regulates annual financial operations
◼ Management Plan
◼ Manages services and expenditure by allocating money to specific
programs
◼ Communications Tool
◼ Provides feedback for citizen feedback
◼ Publicizes what LG will be doing during fiscal year

22. Learning
Application
Go to Page No 101, Vol 2

23. Obstacles and Risks
◼ Management resistance
❑ Concern that elected officials, citizens and media will use
additional information to assign blame and to withdraw
resources – ‘passing fads’ or ‘make work’ exercise and see
no benefit in it
◼ Political resistance
❑ Elected officials are not taken in confidence about benefits
of proposed changes
◼ Lack of resources
❑ Lack of analytical staff, time, information technology and
finally funds to implement changes

24. Learning
Application
Go to Page No 103, Vol 2

25. Developing and Operating Budget
Involve
Citizens
Integrate
other Plans
Organize
Process
Revenue
Estimates
Budget
Review by
CEO
Draft Budget
Departmental
Requests
Governing Body
Review
Public Hearings Final Review Amendments Budget Admn

26. Learning
Application
Go to Page No 131, Vol 2

27. Advanced Budgeting Concepts
◼ Cost Containment – cost control and productivity improvement
❑ Expenditure Management and Control
❑ Cost Analysis
❑ Alternate Service Delivery – Contracting out, Privatizing infrastructure,
Public-public partnership, Franchise Agreement, Voucher Arrangements,
Subsidy Arrangements,
◼ Cost Finding
◼ Management Analysis
❑ Re-Engineering
❑ Management Audits
❑ Value Analysis
❑ Benchmarking
❑ Total Quality management
❑ Technology/ Capital Substitution
◼ Grant awarding

28. Learning
Application
Go to Page No 153, Vol 2

29. Learning
Application
Go to Page No 155, Vol 2

30. Developing a Grant Award Program
◼ Step1- Identify service/ funds required
◼ Step 2- Get Organized
◼ Step 3-Determine LG’s level of involvement
◼ Step 4- Decide process (competitive/ non competitive)
◼ Step 5- Prepare Request for Application Material
◼ Step 6- Market Grant Program
◼ Step 7- Review/ select grantee
◼ Step 8- Negotiate Grant Terms
◼ Step 9- Administer Grant

31. Learning
Application
Go to Page No 165, Vol 2

32. Thank You